<PAGE>
As Filed with the Securities and Exchange Commission on April 5, 2000
Registration No. 333-30700
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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PartMiner, Inc.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
New York 3651 13-3732238
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification Number)
organization)
</TABLE>
432 Park Avenue South
New York, New York 10016
(212) 725-8884
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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Michael R. Manley, Esq.
General Counsel
PartMiner, Inc.
432 Park Avenue South
New York, New York 10016
(212) 725-8884
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
Stephen R. Connoni, Esq. Julie M. Allen, Esq.
Kirkpatrick & Lockhart LLP Proskauer Rose LLP
1251 Avenue of the Americas 1585 Broadway
New York, New York 10020 New York, New York 10036
(212) 536-4040 (212) 969-3000
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
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, as amended, 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
under the Securities Act, please check the following box. [_]
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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, as amended, or until the
Registration Statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
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<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 it is not a solicitation of an offer to +
+buy these securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
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SUBJECT TO COMPLETION, DATED APRIL 5, 2000
5,000,000 Shares
[PartMiner Logo]
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
$8.00 and $10.00 per share. We have applied to list our common stock on The
Nasdaq Stock Market's National Market under the symbol "PTMR."
The underwriters have an option to purchase a maximum of 750,000 additional
shares to cover over-allotments of shares.
Investing in our common stock involves risks. See "Risk Factors" beginning on
page 5.
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Underwriting
Price to Discounts and Proceeds to
Public Commissions PartMiner
-------- ------------- -----------
<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 of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
Credit Suisse First Boston Bear, Stearns & Co. Inc.
Robertson Stephens
The date of this prospectus is , 2000.
<PAGE>
[Inside Front Cover]
[Textual summary providing data related to our online penetration, market
presence and proprietary content.]
[First Page Fold-Out]
[Graphic depiction of our hub and spoke architecture related to our
business model with "Buyers and Engineers" at the hub, linking directly to
three color-coded services provided by us, "Content," "Internet Procurement"
and "Marketplace". Each of these services is linked to additional products and
services provided by us. The graphic contains the heading "freetradezone" and
the subheading "A service of PartMiner, Inc."]
[Back Inside Cover]
[Graphic depiction of a cylindrical architecture demonstrating the
functionality of the Free Trade Zone with "Buyers and Engineers" at the
center, surrounded by five color-coded services provided by us. Three of the
five services are surrounded by additional products and services provided by
us. Two of the five services represent future functionality. The graphic
contains a heading across the bottom of the page, "freetradezone" and a sub-
heading, "A service of PartMiner, Inc." together with a one-sentence
description of our services and products.]
<PAGE>
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TABLE OF CONTENTS
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Page
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Prospectus Summary.................... 1
Risk Factors.......................... 5
Special Note Regarding 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.............................. 28
</TABLE>
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Page
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Management......................... 40
Related Party Transactions......... 48
Principal Shareholders............. 50
Description of Capital Stock....... 52
Shares Eligible for Future Sale.... 56
Underwriting....................... 58
Notice to Canadian Residents ...... 61
Legal Matters...................... 62
Experts............................ 62
Change in Independent Accountants.. 62
Additional Information............. 62
Index to Financial Statements...... F-1
</TABLE>
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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 in this document may only be accurate
on the date of this document.
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 dealer's obligation to deliver a prospectus when acting
as an underwriter and with respect to its unsold allotments or subscriptions.
<PAGE>
PROSPECTUS SUMMARY
You should read this prospectus summary together with the more detailed
information contained in the remainder of this prospectus carefully, including
the risk factors and the consolidated financial statements and notes, before
you decide to buy shares of our common stock.
PartMiner, Inc.
We are a leading provider of business-to-business services for the
procurement of electronic components worldwide. We provide proprietary
Internet-based applications to buyers of electronic components to facilitate
their product selection and purchasing processes. We act as a market maker,
meaning we source electronic components and resell them to our customers, in
the electronic components spot market. The spot market is the market in which
buyers purchase electronic components on an unscheduled, as needed basis.
Buyers often use our market maker services when their usual sources of supply
fail, which occurs on a regular basis due to market inefficiencies. The price
that buyers are willing to pay in this spot market is not dictated by the
intrinsic value of the needed component, but instead reflects opportunity costs
that may include costs associated with a potential interruption of the
manufacturing process. We address market inefficiencies and generate revenues
in the spot market by purchasing components against a customer's buy order and
reselling these components to the customer. We have developed an extensive
electronic supplier network that tracks pricing and availability of electronic
components at over 4,000 suppliers worldwide. We have been a market maker in
the electronic components spot market since 1993, and in 1999 we had a customer
base of over 5,000 customers in 52 countries.
In mid-1998, we began an initiative to move our business to the Internet
with the release of our Internet procurement agent, a software application that
can be downloaded from the Internet. Our procurement agent allows users to
source electronic components from multiple suppliers online and facilitates the
online purchase of these components. As of March 31, 2000, there were over
100,000 registered users of our procurement agent. We believe the success of
our procurement agent has created significant awareness of our brand and
services, and the number of our customers in 1999 more than doubled over 1998,
excluding new customers attributable to our acquisitions in 1999.
To further automate transaction activity between buyers and sellers of
electronic components, we are developing the Free Trade Zone, a suite of
Internet-based software applications, including an Internet marketplace, which
we expect to commercially launch in the second half of 2000. In addition to the
current functionality provided by our Internet products, our Free Trade Zone
will enable component buyers to use the Internet to transact business with
their preferred suppliers by transmitting requests for quotation, receiving
quotes, negotiating terms, and placing orders online. The Free Trade Zone will
automatically detect when these preferred suppliers are unable to provide a
requested component, and, in such event, we will source the component and quote
a price to the buyer. We intend to offer our Free Trade Zone to users at no
charge, and expect that our revenues will continue to be generated primarily
from acting as a market maker in the spot market. We believe that the supply
and demand information we will obtain from activity on our Free Trade Zone will
significantly enhance our ability to source components for our customers. Over
time, we expect to fully automate our market making function as part of the
Free Trade Zone.
We also provide other services designed to further reduce inefficiencies in
the electronic components supply chain, including access to our online
CAPSXpert databases, which contain over 12,000,000 component part numbers; our
component and supplier management software and services; and our excess
inventory management services. We believe providing this broad range of
services affords us with a significant competitive advantage over those
companies that do not provide as broad a range of services. We expect in the
future to integrate these services into our Free Trade Zone to provide
additional value to our users and further increase adoption of our Free Trade
Zone.
1
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Our objective is to be the leading online provider of business-to-business
services for the procurement of electronic components. Our strategy to achieve
this objective includes the following key elements:
. establishing our Free Trade Zone as the leading network for the
procurement of electronic components;
. expanding our brand awareness;
. leveraging our existing expertise and infrastructure; and
. pursuing strategic relationships and strategic acquisitions.
We were incorporated in New York on September 9, 1993. Our principal
executive offices are located at 432 Park Avenue South, New York, New York
10016 and our telephone number is (212) 725-8884. Our Web site is located at
www.partminer.com. Information contained on, or linked to, our Web site is not
part of this prospectus.
2
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The Offering
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Common stock offered................................ 5,000,000 shares
Common stock to be outstanding after this offering.. 72,468,805 shares
Use of proceeds..................................... For working capital and other
general corporate purposes,
including sales and marketing
activities, capital expenditures and
research and development.
Proposed Nasdaq National Market symbol.............. PTMR
</TABLE>
The number of shares to be outstanding after this offering is based on the
number of shares of common stock outstanding as of April 4, 2000 and excludes:
. 3,679,075 shares of common stock issuable upon the exercise of
outstanding options at a weighted average exercise price of $3.78 per
share; and
. 30,555 shares (at an assumed initial public offering price of $9.00 per
share) subject to outstanding options with an exercise price equal to
the initial public offering price.
Except as otherwise noted in this prospectus, all information contained in
this prospectus:
. assumes that the underwriters' over-allotment option is not exercised;
and
. reflects the automatic conversion of all outstanding shares of our
mandatorily redeemable convertible preferred stock into 20,915,105
shares of common stock upon the closing of this offering.
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PartMiner(R), Free Trade Zone(TM), PartMiner Free Trade Zone(TM), Electronic
Commerce Free Trade Zone(TM), Fast. Simple. Complete. Which part don't you
get?(TM), Market-Trak(TM), Accu-Trak(TM), Req-Trak(TM), CAPS(R), ItemQuest(R),
CAPSXpert(TM) and IQXpert (and design)(TM) are our trademarks and service
marks. This prospectus also includes the tradenames, service marks and
trademarks of other companies whose mention in this prospectus is with due
recognition of the rights of these companies and without any intent to
misappropriate such names or marks.
3
<PAGE>
Summary Consolidated Financial Data
(in thousands, except per share data)
The following tables set forth summary consolidated historical financial
data and certain pro forma financial data for our business during the years and
as of the date indicated. The 1999 pro forma consolidated statement of
operations data gives effect to the acquisitions of Accurate Components Inc.
and its affiliate and of IQXpert Holdings Inc. as if these acquisitions had
been completed on January 1, 1999. Each acquisition was accounted for under the
purchase method of accounting.
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Year Ended December 31,
----------------------------------------------------------
Pro forma
1995 1996 1997 1998 1999 1999
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Consolidated Statement
of Operations Data:
Total revenues.......... $ 5,990 $ 8,389 $18,255 $ 20,655 $ 41,503 $ 76,439
Cost of revenues........ 4,079 5,821 12,737 14,711 29,669 50,074
------- ------- ------- -------- -------- --------
Gross profit............ 1,911 2,568 5,518 5,944 11,834 26,365
Total operating
expenses............... 1,545 2,853 5,094 6,074 28,251 74,606
------- ------- ------- -------- -------- --------
Income (loss) from
operations............. 366 (285) 424 (130) (16,417) (48,241)
Net income (loss)....... 315 (343) (117) (1,850) (17,931) (49,683)
Accretion of mandatorily
redeemable convertible
preferred stock........ -- -- -- -- (12,075) (12,075)
------- ------- ------- -------- -------- --------
Net income (loss)
applicable to common
shareholders........... $ 315 $ (343) $ (117) $ (1,850) $(30,006) $(61,758)
======= ======= ======= ======== ======== ========
Basic and diluted net
income (loss) per
common share........... $ 0.02 $ (0.02) $ -- $ (0.06) $ (0.82) $ (1.30)
======= ======= ======= ======== ======== ========
Weighted average shares
used in computing basic
and diluted net income
(loss) per common
share.................. 20,000 20,000 24,219 30,000 36,676 47,400
======= ======= ======= ======== ======== ========
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December 31, 1999
--------------------------------
Pro forma
Actual Pro forma as adjusted
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Consolidated Balance Sheet Data:
Cash and cash equivalents....................... $ 5,063 $ 52,063 $ 90,063
Working capital................................. 7,718 54,718 92,718
Total assets.................................... 146,901 193,901 231,901
Long-term debt, net of current portion.......... 4,331 1,331 1,331
Mandatorily redeemable securities............... 68,038 -- --
Total shareholders' equity...................... 54,602 172,640 210,640
</TABLE>
The pro forma consolidated balance sheet data give effect to the following:
. the issuance of 10,302,905 shares of Series B mandatorily redeemable
convertible preferred stock for $50.0 million consummated on February
16, 2000;
. the repayment of $3.0 million of indebtedness outstanding at December
31, 1999 with a portion of the proceeds of that issuance;
. the automatic termination of the mandatorily redeemable feature of our
mandatorily redeemable common stock upon the closing of this offering;
and
. the automatic conversion of all outstanding shares of our Series A and B
mandatorily redeemable convertible preferred stock into 20,915,105
shares of common stock upon the closing of this offering.
The pro forma as adjusted data reflect our receipt of the estimated net
proceeds from our sale of 5,000,000 shares of our common stock in this offering
at an assumed initial public offering price of $9.00 per share after deducting
underwriting discounts and commissions and estimated offering expenses payable
by us.
4
<PAGE>
RISK FACTORS
An investment in our common stock involves a high degree of risk. You should
carefully consider the risks described below and the other information
contained in this prospectus before deciding to invest in our common stock.
Risks Related to Our Business
Our limited operating history in e-commerce makes evaluating our future
prospects difficult.
Although we were founded in 1993, we began our e-commerce initiative only in
the second half of 1998. Our limited operating history as an e-commerce company
makes an evaluation of our future prospects very difficult. We currently derive
no direct revenues from any Internet or e-commerce activity. We have recently
changed our business strategy to focus on the Internet and expect to encounter
the types of risks, uncertainties and difficulties frequently encountered by
early-stage Internet companies. If we do not successfully address these risks,
our future business prospects will be significantly limited and, as a result,
the trading price of our common stock would be adversely affected. In addition,
although we are investing substantial resources to develop our e-commerce
business, we do not now derive any, and may not in the near future derive
significant, direct revenues from e-commerce activities. Our success will
depend on expanding our ability to derive revenues from our market maker sales
of electronic components as a result of our e-commerce initiative. Our ability
to do so is unproven.
We have experienced losses, expect to incur losses in the future and may never
achieve profitability.
We have experienced losses in the past, and as of December 31, 1999, we had
an accumulated deficit of approximately $42.9 million. We expect to incur
significant net losses in the future and may never achieve profitability as we
expand our operations and seek to complete the development and introduction of
our Free Trade Zone. We may not derive any revenues from such expansion
efforts. In addition, we intend to provide our CAPSXpert databases free of
charge to facilitate adoption of the Free Trade Zone by potential users.
Accordingly, we believe revenues from subscriptions to the CAPSXpert databases
will be significantly reduced or eliminated without any guarantee that these
users will adopt the Free Trade Zone and generate transactions that will
provide us with an offsetting source of revenues. We have had, and will
continue to have, substantial non-cash charges to our earnings, the net effect
of which will significantly reduce or eliminate future earnings or increase
future losses. These non-cash charges will include amortization of goodwill and
other intangible assets of approximately $36.6 million per year over each of
the next three years in connection with prior acquisitions made by us,
significant charges during the periods preceding the offering in connection
with the accretion and beneficial conversion of our mandatorily redeemable
convertible preferred stock and stock-based compensation charges in connection
with the issuance of stock options granted to employees.
Our quarterly operating results are volatile and difficult to predict. If we
fail to meet the expectations of securities analysts or investors, the market
price of our common stock may decrease significantly.
Our quarterly operating results have varied significantly in the past and
will likely vary significantly in the future. We believe that period-to-period
comparisons of our results of operations are not meaningful and should not be
relied upon as indicators of future performance. Our operating results may fall
below the expectations of securities analysts or investors in one or more
future quarters. Our failure to meet these expectations would adversely affect
the market price of our common stock.
Our quarterly operating results may vary depending on a number of factors,
including:
. the extent of use of our services, including our Free Trade Zone;
. our ability to develop, introduce and market enhancements to our
Internet offerings to support, attract and service large numbers of
participants and transactions;
5
<PAGE>
. our ability to expand our sales and marketing operations and
infrastructure, including hiring additional personnel;
. the amount and volume of our electronic components sales;
. market conditions in the electronic components industry;
. our ability to control costs; and
. technological changes in our markets.
We plan to significantly increase our operating expenses to expand our sales
and marketing operations, fund greater levels of research and development,
develop strategic partnerships, increase our services and support capabilities
and improve our operational and financial systems. If our revenues do not
increase at least at the rate of these expenses, our business, financial
condition, prospects and operating results could be seriously harmed and net
losses in a given quarter would be larger than expected. In addition, because
our expense levels are relatively fixed in the near term and are based in part
on expectations of our future revenues, any decline in our revenues to a level
that is below our expectations will have a disproportionately adverse impact on
our operating results.
Our e-commerce business model is not proven and may not be successful.
Our e-commerce business model is based on the development, successful
implementation and widespread adoption of our Free Trade Zone for purchases and
sales of electronic components. This business model is new and unproven and its
success, and our ability to generate revenues, depends upon, among other
things:
. attracting a large number of buyers and suppliers to conduct
transactions on our Free Trade Zone; and
. generating sufficient transaction volume as the default market maker in
the Free Trade Zone.
We may not successfully develop or implement our Free Trade Zone and, even
if developed and implemented, our Free Trade Zone may not gain commercial
acceptance. We do not intend to charge users of our Free Trade Zone any fees
and our primary source of revenues from the Free Trade Zone will result from
our role as its default market maker. As the Free Trade Zone's default market
maker, we will quote a price for electronic components to buyers when their
preferred suppliers contacted over our Free Trade Zone cannot meet the buyers'
requirements. We will derive our revenues from sales made to these buyers. Even
if our Free Trade Zone attracts buyers and sellers, we may not derive any
significant revenues from it if buyers do not purchase electronic components
from us in our role as the Free Trade Zone's default market maker. We have
already spent a substantial amount of money in developing the Free Trade Zone
and expect to spend significant additional funds to finalize development,
commercially launch and provide enhancements to the Free Trade Zone. We may not
be able to realize a profit on, or to recover, such investment.
Our business and prospects will be seriously harmed if we fail to introduce our
Free Trade Zone in a timely manner or if we introduce it with inadequate
functionality.
We are still in the process of developing our Free Trade Zone. We may fail,
for a variety of technical and other reasons, to implement our Free Trade Zone
on a timely basis, if at all. Even if we do implement our Free Trade Zone in a
timely manner, our Free Trade Zone as implemented may not have the
functionality needed to make it successful. We cannot be certain that the
features and functionality that we expect to offer in our Free Trade Zone, or
those that we may offer in future enhancements, will satisfy the requirements
or preferences of potential participants. If we fail to timely introduce our
Free Trade Zone, or if we introduce our Free Trade Zone with inadequate
functionality or without certain features, others may introduce an e-commerce
solution that achieves market acceptance and that could make the successful
introduction and broad adoption of our Free Trade Zone less likely. In such
event, our business, financial condition, prospects, and operating results
would be seriously harmed.
Our Free Trade Zone may not be successful if it is not adopted by a significant
number of buyers and suppliers and our growth may be limited.
Unless a significant number of buyers and suppliers use our Free Trade Zone,
our services may not achieve widespread market acceptance and our business
prospects will be seriously limited. The Internet-based market for
6
<PAGE>
electronic components is at a relatively early stage of development. Our
success depends on a significant number of buyers linking with their suppliers
to source and purchase electronic components over our Free Trade Zone. Our
ability to attract participants to our Free Trade Zone will depend in large
part upon our success in developing and deploying a simple to use and secure
application that contains the features and functionality that participants
require or prefer in an e-commerce solution and that provides substantial value
to its users over traditional procurement methods. Even if we do complete and
commercially launch the Free Trade Zone, suppliers may not participate in our
Free Trade Zone if they perceive that we may threaten their direct
relationships with buyers. In addition, buyers may continue purchasing products
through their existing methods and may not adopt an Internet-based purchasing
solution or they may choose an alternative solution. Furthermore, buyers may
not participate in our Free Trade Zone if they do not perceive it as a neutral
marketplace that does not favor one participant over another participant. The
Free Trade Zone will collect and store data connected with communications and
transactions made over the Free Trade Zone. In the event buyers do not want us
to have their information due to privacy or other data-related concerns, they
may not use our Free Trade Zone which would limit growth of our revenues.
Even if enterprises adopt our Free Trade Zone, we may not increase our revenues
if buyers do not use our market making services.
Even if we attract participants to our Free Trade Zone, we may not realize
any revenues through the Free Trade Zone if buyers do not purchase components
from us when their preferred suppliers cannot supply the components requested
over the Free Trade Zone. Participants may use our Free Trade Zone, including
our CAPSXpert databases, only as a research and pricing tool and not attempt to
make any purchases over the Free Trade Zone. This use of our Free Trade Zone
would limit our ability to generate revenues. In addition, even if buyers use
our Free Trade Zone, they may purchase components from other market makers or
suppliers if they cannot purchase components from their preferred suppliers
over our Free Trade Zone. Alternatively, our efforts to attract buyers and
suppliers to the Free Trade Zone may be so successful and the Free Trade Zone
itself may be so efficient that the spot market for electronic components,
which will remain our sole source of revenues, may be significantly reduced
which would limit our ability to generate revenues under our business model.
We are dependent on a third party to host our Free Trade Zone and problems
experienced by that party could negatively affect our business.
Our Free Trade Zone will be hosted on the computer systems of Intira
Corporation. Intira's operations and systems maintenance will not be under our
control. Our Free Trade Zone may experience service outages as a result of the
failure of Intira's computer systems. Significant service delays or outages
could result in the inability of participants to consummate transactions over
our Free Trade Zone and the loss of participant confidence in our Free Trade
Zone, which could lead participants to choose alternative methods to purchase
their electronic components and seriously harm our business. Additionally, the
hosting of the CAPSXpert databases will be transferred to Intira Corporation on
computer equipment manufactured by Digital Equipment Corporation, which is not
supported by Intira. We will have the responsibility of maintaining this
computer equipment and finding the appropriate experts if repairs are needed,
which may increase the possibility that our CAPSXpert databases may be
inaccessible to our users.
Users of our Free Trade Zone may experience delays and problems that could
delay or limit acceptance and use of our Free Trade Zone.
Our Free Trade Zone is complex and we may encounter various delays and
problems in its use. In particular:
. we may not be able to expand our Free Trade Zone to accommodate
additional users and increased transaction volume;
. the Free Trade Zone may contain undetected errors or defects when
introduced or subsequently used; and
. users of the Free Trade Zone may encounter various performance failures
and delays, particularly if there is a large volume of traffic.
7
<PAGE>
If any of these problems or delays occur and are not corrected by us in a
timely manner, participants on our Free Trade Zone may use other methods to
procure their electronic components on a temporary or permanent basis.
If we are unable to add to our infrastructure, or improve and implement new
systems, procedures and controls, our growth will be limited.
We are experiencing a period of significant expansion of our operations that
has placed a significant strain and additional demands upon our management
systems, infrastructure and resources. Our ability to compete effectively and
to manage future expansion of our operations, if any, will require us to
continue to add to our infrastructure, improve our financial and management
controls, reporting systems and procedures, and expand, train and manage our
workforce. If we are unable to manage our expansion, our level of service will
decline, we may lose customers and revenues, and our growth will be limited.
Our prior and any future acquisitions involve numerous risks.
We may not be able to make acquisitions successfully. We have recently made
acquisitions and, in order to remain competitive, we may find it necessary to
make additional acquisitions. If we identify appropriate acquisition
candidates, we may not be able to negotiate the terms of the acquisition
successfully, finance the acquisition or integrate the acquired business into
our existing business. Further, completing a potential acquisition and
integrating an acquired business, including integrating our recently acquired
businesses, may cause significant diversion of management time and resources.
We may have assumed, or may in the future assume, unexpected
liabilities. Any acquisition involves the risk that the assets acquired may be
less valuable than expected and/or that we may assume unknown and unexpected
liabilities, costs and problems. This risk exists in connection with our recent
acquisitions of Accurate Components Inc., and its affiliate Market Trading
Concepts Inc., and IQXpert Holdings Inc.
You may experience dilution of your investment if we issue equity securities
in an acquisition. If we consummate one or more significant acquisitions in
which the consideration consists of stock or other equity securities, your
equity interest in our company could be significantly diluted. In addition, we
will be required to amortize goodwill and other intangible assets in connection
with our prior acquisitions and may also be required to amortize additional
goodwill and other intangible assets in connection with future acquisitions.
This amortization will impact our future earnings and could harm the trading
price of our common stock.
We may need to use a significant amount of our funds, including net proceeds
of this offering, to make an acquisition. If we were to proceed with one or
more significant acquisitions in which the consideration includes cash, we
could be required to use a substantial portion of our available cash, including
net proceeds of this offering, to consummate any such acquisitions. This would
leave us with less funds to enhance our Free Trade Zone and could harm our
business, financial condition, prospects and operating results if we are unable
to generate sufficient revenues as a result of any acquisitions.
Future electronics industry downturns could adversely affect our ability to
generate revenues.
The electronics industry has historically been affected by general economic
downturns, which have had an adverse economic effect upon component
manufacturers, product manufacturers, distributors, as well as market makers
such as ourselves. In addition, the life-cycle of existing electronic products
and the timing of new product development and introduction can affect demand
for electronic components. Any slowdown in the electronics industry or related
industries could reduce the amount of electronic components purchased
generally, or in the spot market in particular, which, in turn, could harm our
business, financial condition, prospects and operating results.
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<PAGE>
We face significant competition, and we may not be able to compete
successfully.
The market for e-commerce products and services for the electronic
components industry, although at an early stage of development, is intensely
competitive, evolving and subject to rapid technological and other change. We
expect the intensity of competition to increase in the future as the amount of
e-commerce transacted over the Internet grows. Increased competition may result
in reduced margins and loss of market share, either of which could seriously
harm our business.
Our competitors vary in size and in the scope and breadth of the services
and features offered. Our competitors include:
. component manufacturers;
. distributors;
. other market makers;
. electronic components brokers;
. online catalog aggregators;
. online excess surplus auction companies;
. enterprise software companies;
. e-procurement providers; and
. content providers.
Many of our current and potential competitors have longer operating
histories, significantly greater financial, technical, marketing and other
resources, significantly greater name and brand recognition and a larger base
of customers than we have. In addition, many of our competitors have well
established relationships with our potential customers and extensive knowledge
of our industry. We may not be able to compete successfully against our current
and future competitors. If we are unable to compete successfully against any of
our competitors, our growth and results of operations will be seriously harmed.
In addition, we currently conduct business, both buying from and selling to,
some of our potential competitors. If any of these potential competitors do not
continue to conduct business with us, our business may be adversely affected.
We may not be able to respond to technological changes in a manner that allows
us to be profitable.
We have made a significant investment in our technology and, in order to
stay competitive, we will need to efficiently respond to technological changes
affecting our Free Trade Zone. We may:
. fail to respond to technological changes or evolving industry standards
in a timely or cost-effective manner; and
. encounter capabilities or technologies developed by others that render
our Free Trade Zone obsolete or uncompetitive.
We may need to expend significant funds to adapt our technology to
technological changes or evolving industry standards, which may limit our
profitability. In addition, our inability to timely respond to technological
changes could cause participants of our Free Trade Zone to stop using the Free
Trade Zone, which would seriously harm our business.
If our brand does not rapidly achieve broad recognition, we may fail to attract
customers and become profitable.
We believe that we must achieve increased brand recognition to become
profitable. We have spent, and intend to continue to spend, significant amounts
on brand promotion. These efforts may not be successful or
9
<PAGE>
may not sufficiently increase our revenues to cover our advertising and
promotional expenses. In addition, even if our brand recognition increases, the
number of new participants using our Free Trade Zone may not increase or we may
not derive any revenues from these participants.
We could be subject to potential third party liability claims related to
products purchased directly from us or through any of our services, which could
result in the expenditure of significant funds and cause us to take actions
that could limit the use of our services.
The laws relating to the liability of providers of data or products and
services sold over the Internet for errors, defects or other performance
problems with respect to these products and services is currently unsettled. We
could be liable for any errors, defects or other performance problems relating
to products and services that we provide to our customers or are sold by other
suppliers to our users. We may not successfully avoid civil or criminal
liability for problems relating to the products sold by us or as a result of
our services. Any claims or litigation would require expenditures in terms of
management time and other resources to defend ourselves and could result in us
being required to pay damages to harmed persons. Liability of this sort could
require us to expend substantial resources, discontinue certain of our services
or take precautions to ensure that certain products are not available through
us, which could limit the attractiveness and use of our services including the
Free Trade Zone.
Our success depends on retaining our current key personnel and attracting
additional personnel.
Our future performance depends on the continued service of members of our
senior management team. In particular, the loss of Daniel Nissanoff, our
President and Chief Executive Officer, would cause a disruption in our business
since we do not currently have a management succession plan in place and we
would have to search for a suitable replacement. The loss of Mark A.
Schenecker, our Chief Technology Officer, would likely delay the final
development and commercial launch of our Free Trade Zone. The loss of the
services of either of these individuals could seriously harm our business. In
addition, we expect to experience significant growth in our business, which
will require us to attract, hire, train and retain a substantial number of
highly skilled managerial, technical, sales, marketing and customer support
personnel. We are also dependent on hiring additional personnel to promote the
awareness and use of our Free Trade Zone. Competition for qualified personnel
is intense, and we may fail to retain our key employees or to attract or retain
other highly qualified personnel, which could limit our anticipated growth and
our ability to generate revenues. In addition, in the event we are successful
in hiring new employees, they may require extensive training before they
achieve desired levels of productivity.
If the protection of our intellectual property is inadequate, our competitors
may gain access to our technology and our business could be harmed.
We depend on our ability to maintain the proprietary aspects of our
technology and trade secrets. None of our proprietary rights with respect to
our procurement agent or other components of our Free Trade Zone may be of
value in the future. The validity, enforceability and type of protection of
proprietary rights in Internet-related industries are uncertain and still
evolving. We currently have no patents and, although we have two pending patent
applications, we may not be successful in obtaining any patents. Also, our
future patents, if any, may be successfully challenged and/or limited or may
not provide us with any competitive advantage.
Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy aspects of our Free Trade Zone or to obtain and use
information that we regard as proprietary. Policing unauthorized use of
proprietary information and enforcing our proprietary rights are difficult and
costly. In addition, the laws of some foreign countries do not protect our
proprietary rights to as great an extent as do the laws of the United States.
Our means of protecting our proprietary rights may not be adequate and our
competitors may independently develop similar technology, duplicate our Free
Trade Zone or our other intellectual property, or design around any patents
issued to us.
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<PAGE>
There has been a substantial amount of litigation in the Internet industry
regarding intellectual property rights. It is possible that in the future,
third parties may claim that we or our services infringe their intellectual
property. We expect that providers of electronic commerce solutions will
increasingly be subject to infringement claims as the number of products and
services and competitors in our industry segment grows and the functionality of
products in different industry segments overlap. Any claims, with or without
merit, could be time-consuming, result in costly litigation or require us to
enter into royalty or licensing agreements. Royalty or licensing agreements, if
required, may not be available on terms acceptable to us or at all, which could
force us to modify our services.
We rely on the intellectual property of third parties who may not adequately
support or be willing to grant us permission to use their intellectual
property.
We currently license or otherwise obtain needed access to intellectual
property of third parties and may continue to do so in the future. We currently
license from Cahners Business Information, a division of Reed Elsevier, Inc.,
some of the content available on their e-inSITE network, and license from
International Business Machines, Inc., or IBM, a portion of our Free Trade
Zone's underlying code. We may not be able to obtain any required third-party
intellectual property on favorable terms in the future, if at all.
We entered into a master agreement with IBM on May 20, 1999 covering
hardware, software, and services. IBM has granted us an irrevocable, non-
exclusive, perpetual license to use the code created by them that is
incorporated into the Free Trade Zone. Certain custom deliverables that have
been created during the Free Trade Zone development project with IBM are owned
by us, subject to a license granted to IBM to use and sublicense these custom
deliverables.
If IBM were to provide to third parties the code it licensed to us along
with those custom deliverables licensed by us to IBM, such third parties may
introduce similar or competing e-commerce products and services that achieve
market acceptance, which could make the success of our Free Trade Zone less
likely. Many of these third parties may be larger and more well established,
and may have greater access to financial and other resources than us. In this
event, our business, financial condition, prospects and operating results would
be seriously harmed. We may face a similar risk of competition with respect to
other third-party developers from whom we may license intellectual property.
Our business is susceptible to numerous risks associated with international
operations.
A substantial portion of our current revenues are derived from international
sales, which represented approximately $22 million for the year ended December
31, 1999. We believe that our international sales will increase in the future.
In addition, we purchase a substantial amount of components from entities based
in foreign countries. We are subject to a number of risks and uncertainties
associated with these international business activities. For example:
. We could experience a decline in profitability if currency exchange rate
fluctuations are unfavorable to the United States dollar, making it more
expensive to do business in foreign jurisdictions. In addition, our
gross profit margin may fluctuate in the event we sell and buy products
in currencies other than the United States dollar.
. We could experience a decline in sales if foreign jurisdictions impose
additional tariffs, import and export controls and regulations, and
other trade barriers that prohibit or restrict our ability to sell or
buy products in these foreign jurisdictions. In addition, potential
transportation delays across foreign borders could result in lost sales.
. We could experience difficulties in receiving cash from foreign
customers due to longer payment cycles and difficulty in collecting
accounts receivable from customers in countries where we may not have a
presence. Tax regulations, including restrictions on repatriation of
earnings to the United States, could limit our ability to receive cash
from foreign subsidiaries when needed.
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. We could experience adverse legal consequences should our international
salespeople not comply with applicable United States and foreign laws,
especially import/export regulations.
. We could experience excessive costs to comply with a wide variety of
foreign laws and differing trade customs and practices and unexpected
changes in regulatory requirements.
Some of our prior sales were not in compliance with United States export
regulations and we may be liable for severe penalties.
In June 1999, we discovered that we were not in compliance with United
States export regulations relating to sales of approximately $100,000 worth of
electronic components to parties in a foreign country. On February 11, 2000, we
voluntarily disclosed this non-compliance to the United States Department of
Commerce. The Department of Commerce is currently conducting a review of this
matter and has requested that we provide additional information to the
Department. We do not know when this matter will be resolved. Violations of
export regulations, in general, may result in denial of export privileges,
severe fines or imprisonment. Because a substantial amount of our revenues is
generated from international operations, a denial of our export privileges
would severely limit our ability to generate revenues. Furthermore, we may be
required to pay significant fines, and may need to use a portion of the net
proceeds of this offering to pay any such fines. Moreover, despite our efforts
to monitor compliance, further violations of such regulations may occur.
Risks Related to the Internet
If use of the Internet does not grow as anticipated, we may not be able to
attract a sufficient number of customers to make us profitable.
The success of our online services, including our Free Trade Zone, depends
on the increased acceptance and use of the Internet as a medium of
communication and commerce. Rapid growth in the use of the Internet is a recent
phenomenon. As a result, acceptance and use of the Internet may not continue to
develop at historical rates and a sufficiently broad base of buyers may not
adopt or continue to use the Internet as a medium of commerce. Demand and
market acceptance for recently introduced services and products over the
Internet are subject to a high level of risk and uncertainty.
Our business could be seriously harmed if:
. use of the Internet does not continue to increase or increases at a
slower rate than expected;
. the technology underlying the Internet does not effectively support any
expansion that may occur; or
. the Internet infrastructure is unable to support the demands placed on
it by continued growth.
In addition, our Free Trade Zone will depend on the efficient operation of
Internet connections from customers to our system. These connections, in turn,
depend on the efficient operation of Internet service providers and Internet
backbone service providers, all of which have had periodic operational problems
or experienced outages. We cannot assure you that these businesses will provide
the necessary services to sustain effective use of the Internet for commercial
purposes. Additionally, there may be delays in the development or adoption of
new standards and protocols required to handle increased levels of Internet
activity.
Security risks and concerns may deter the use of the Internet for conducting
electronic commerce, which may limit the number of participants that we are
able to attract to our Free Trade Zone.
A significant barrier to the acceptance of the Internet as a medium to
conduct electronic commerce is the security of transmissions of confidential
information over public networks. If frequent and/or any well
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<PAGE>
publicized compromises of Internet security were to occur, it could have the
effect of substantially reducing the use of the Internet for commerce. In
particular, if anyone is able to breach our security systems, cause
interruptions in our services or obtain information about their competitor's
communications, transactions or planned purchases, it would seriously harm our
business. Our security measures may be inadequate to prevent security breaches,
and our business would be harmed if we do not prevent them. Computer viruses
could be introduced into our systems or those of our participants, which could
disrupt our Free Trade Zone or make it inaccessible to buyers or suppliers. We
may be required to expend significant capital and other resources to protect
against the threat of security breaches or to alleviate problems caused by
breaches. To the extent that our activities may involve the storage and
transmission of proprietary information, such as credit card information or
bills of material, security breaches could expose us to a risk of loss or
litigation and possible substantial liability.
The imposition of sales or other taxes on Internet sales could impair the
growth of electronic commerce over the Internet, which may limit the number of
participants that we are able to attract to our Free Trade Zone.
We do not expect, based on current United States Federal law, to collect
sales or other taxes on goods purchased through our Free Trade Zone, whether or
not sales are made directly by us, except for sales to customers in those
jurisdictions in which we have a physical presence and are required to do so.
However, one or more states or foreign jurisdictions may seek to impose sales
tax collection obligations on out-of-state companies like us that engage in or
facilitate electronic commerce. A number of proposals have been made at the
state and local level that would impose taxes on the sale of goods and services
over the Internet. These proposals, if adopted, could substantially impair the
growth of electronic commerce. Moreover, a successful assertion by one or more
states or any foreign country that we should collect sales or other taxes on
the exchange of goods and services through our Free Trade Zone could seriously
harm our business and our prospects. The taxes could generally inhibit the
appeal of electronic commerce or, in the alternative, make the Free Trade Zone
comparably more expensive as a market in which to purchase goods.
Current Federal law imposes a moratorium on the ability of the states to
impose taxes on Internet access or discriminatory taxes on Internet-based
transactions. The moratorium is scheduled to end in 2001. Failure to enact or
renew or an invalidation of this legislation could allow various states to
impose taxes on electronic commerce.
Increasing government regulation could limit the market for products purchased
through our Free Trade Zone.
As Internet commerce evolves, we expect that Federal, state or foreign
agencies will continue to adopt laws and other requirements covering issues
such as sales, user privacy, pricing, content, taxation, copyright protection
and characteristics and quality of products and services. It is possible that
legislation could expose companies involved in electronic commerce to
liability, fines or penalties, which could limit the growth of electronic
commerce generally. Alternatively, legislation could empower customers or
others to be able to assert private rights of action in connection with
Internet commerce. In any such case, legislation could dampen the growth in
Internet usage and decrease its acceptance as a communications and commercial
medium. If enacted, these laws, rules or regulations could limit the market for
our Free Trade Zone and could have a material adverse effect on our business,
financial condition, prospects and operating results.
Risks Related to this Offering
We have broad discretion in how we use the proceeds from this offering and may
not use these proceeds in a manner that investors expect or desire.
We intend to use the net proceeds from this offering for working capital and
other general corporate purposes. We are not required to use the net proceeds
for any particular purposes or in any particular amounts. Accordingly, our
management will have significant flexibility in applying the net proceeds of
this offering. The
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<PAGE>
failure of our management to use these funds effectively could have a material
adverse effect on our business, financial condition, prospects and operating
results.
Our ability to raise additional financing, if required, is uncertain.
We believe that the net proceeds of this offering, together with our current
cash and cash equivalents, will be sufficient to fund our operations for at
least the next 12 months. However, we may need to raise additional funds to
respond to business contingencies which may include the need to:
. further develop or enhance our services, including our Free Trade Zone;
. fund additional marketing expenditures;
. fund more rapid expansion;
. enhance our operating infrastructure;
. hire more employees;
. respond to competitive pressures; or
. acquire businesses, assets or technologies.
If additional funds are raised through the issuance of equity or convertible
debt securities, the percentage ownership of our shareholders will be reduced,
and these newly issued securities may have rights, preferences or privileges
senior to those of existing shareholders, including those acquiring shares in
this offering, and may be at prices lower than the offering price of shares of
common stock in this offering. Moreover, additional financing may not be
available on terms favorable to us, or at all. If adequate funds are not
available or are not available on acceptable terms, our ability to fund or
expand our operations, take advantage of opportunities, develop products or
services or otherwise respond to competitive pressures could be significantly
limited or delayed.
Market prices of emerging Internet companies have been highly volatile, and the
market for our stock may exhibit volatility as well.
The stock market has experienced significant price and trading volume
fluctuations, and the market prices of technology companies, particularly
Internet-related companies, have been extremely volatile. Recent initial public
offerings by Internet companies have been accompanied by exceptional share
price and trading volume volatility in the first days and weeks after the
securities were released for public trading. This volatility often has been
unrelated to, or disproportionate to, the operating performance of these
companies. This volatility may continue and could adversely affect the price of
our common stock, without regard to our operating performance. In addition, any
negative change in the public's perception of the prospects for Internet
companies generally could adversely affect our stock price, regardless of our
results of operation. As a result of these factors, investors may not be able
to resell their shares at or above the initial public offering price.
In the past, following periods of volatility in the market price of a public
company's securities, securities class action litigation has often been
instituted against that company. Similar litigation could result in substantial
costs and/or liability to us and diversion of management's attention and
resources.
The liquidity of our common stock is uncertain since it has not been publicly
traded, and investors may be limited in their ability to resell our common
stock.
Prior to this offering, there has not been a public market for our common
stock. We cannot predict the extent to which an active, liquid trading market
for our common stock will develop or be sustained. The initial public offering
price for the shares will be determined by negotiations between us and the
representatives of the underwriters based on several factors and may not be
indicative of prices that will prevail in the trading market. You may be unable
to sell your shares of common stock at or above the offering price.
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<PAGE>
An aggregate of approximately 67 million shares of our common stock will become
eligible for resale in the public market at various times after this offering
and future sales of our common stock, or the perception that such sales could
occur, could cause our stock price to decline.
The market price for our common stock could decline as a result of resales
of a large number of shares of common stock in the public market after this
offering or the perception that such sales could occur. These factors also
could make it more difficult for us to raise funds through future offerings of
our equity securities. Future sales of our common stock, or even the
availability of such shares for future sale, could cause our stock price to
decline.
Investors in this offering will suffer immediate and substantial dilution.
Our existing shareholders paid substantially less for their shares of our
common stock than the anticipated initial public offering price. As a result,
you will suffer immediate and substantial dilution in pro forma net tangible
book value per share. To the extent outstanding options to purchase shares of
our common stock are exercised, you will experience further dilution.
Provisions of our certificate of incorporation, by-laws and New York law could
make it more difficult for a third party to acquire us, even if doing so may be
beneficial to our shareholders.
Provisions of our restated certificate of incorporation, and proposed
amendments to our by-laws, including the classification of our board of
directors, as well as provisions of New York corporate law, could make it more
difficult for a third party to acquire us, even if doing so might be beneficial
to our shareholders.
Many of our corporate actions will be substantially controlled by our officers,
directors and principal shareholders regardless of the opposition of other
investors.
Our directors, executive officers and principal shareholders will
beneficially own, in the aggregate, approximately 80.0% of our outstanding
common stock after completion of this offering, and two of our shareholders,
Information Handling Services Inc. and Vulcan Securities Limited, who are
affiliated with each other, will own in the aggregate approximately 27.5% of
our outstanding common stock after completion of this offering. Our principal
shareholders, if they were to act together, would be able to exercise control
over all matters requiring approval by our shareholders. These matters include
the election of directors and the approval of mergers or other business
combination transactions. These actions may be taken even if they are opposed
by other shareholders, including those who purchase shares in this offering.
This concentration of ownership may also discourage, delay or prevent a third
party from acquiring us, which could have an adverse effect on our stock price.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus, including the sections entitled "Prospectus Summary," "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," and "Business," contains forward-looking statements,
including statements regarding our Free Trade Zone and our strategy. These
statements relate to future events or our future financial performance, and
involve known and unknown risks, uncertainties, and other factors that may
cause our 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
risks and other factors include those listed under "Risk Factors" and elsewhere
in this prospectus. In some cases, you can identify forward-looking statements
by terminology such as "may," "will," "should," "expects," "intends," "plans,"
"anticipates," "believes," "estimates," "predicts," "over time," "potential,"
"continue," or the negative of these terms or other comparable terminology.
These statements are only predictions. Actual events or results may differ
materially. In evaluating these statements, you should specifically consider
the risks outlined under "Risk Factors." These factors may cause our actual
results to differ materially from any forward-looking statement.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. We are under no duty to update any of
the forward-looking statements after the date of this prospectus to conform
these statements to actual results.
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USE OF PROCEEDS
The net proceeds from the sale of the 5,000,000 shares of common stock to be
sold by us in this offering are estimated to be approximately $38.0 million,
assuming an initial public offering price of $9.00 per share and after
deducting underwriting discounts and commissions and estimated offering
expenses payable by us. If the underwriters' over-allotment option is exercised
in full, the net proceeds are estimated to be approximately $44.3 million,
calculated on the same basis. The primary purposes of this offering are to
obtain additional equity capital, create a public market for our common stock
and facilitate future access to public markets.
We have no current specific allocations for the net proceeds from this
offering. We generally intend to use the net proceeds of this offering for
working capital and other general corporate purposes, including the following:
. expanding our sales and marketing activities;
. funding capital expenditures; and
. funding research and development activities.
In addition, we may use a portion of the net proceeds of this offering to
acquire or invest in other businesses, products, services or technologies,
through mergers, acquisitions, joint ventures or otherwise. However, we have no
specific agreements or commitments and are not currently engaged in any
negotiations with respect to any such transactions.
We have not yet determined our actual expected expenditures, and thus we
cannot estimate the amounts to be used for each purpose discussed above. The
amounts and timing of these expenditures will vary significantly depending on a
number of factors, including such factors as the amount, if any, of cash
generated by our operations and the timing of and the market response to the
introduction of our Free Trade Zone. Pending these uses, the net proceeds will
be primarily invested in short-term, investment-grade instruments, certificates
of deposit or direct or guaranteed obligations of the United States.
DIVIDEND POLICY
We expect to retain any future earnings to support operations and to finance
the growth and development of our business and do not expect to pay any cash
dividends in the foreseeable future.
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CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999:
. on an actual basis;
. on a pro forma basis to reflect the issuance of 10,302,905 shares of Series
B mandatorily redeemable convertible preferred stock for $50.0 million
consummated on February 16, 2000, the repayment of $3.0 million of
indebtedness outstanding at December 31, 1999 with a portion of the proceeds
of that issuance, the automatic termination of the mandatorily redeemable
feature of our mandatorily redeemable common stock upon the closing of this
offering and the automatic conversion of all of our outstanding shares of
mandatorily redeemable convertible preferred stock into 20,915,105 shares of
common stock upon the closing of this offering; and
. on a pro forma as adjusted basis to reflect our receipt of the net proceeds
from the sale by us of the 5,000,000 shares of common stock being offered,
at an assumed initial public offering price of $9.00 per share, after
deducting underwriting discounts and commissions and estimated offering
expenses payable by us.
<TABLE>
<CAPTION>
December 31, 1999
--------------------------------
Pro forma
Actual Pro forma as adjusted
-------- --------- -----------
(In thousands, except share
and per share data)
<S> <C> <C> <C>
Cash and cash equivalents...................... $ 5,063 $ 52,063 $ 90,063
======== ======== ========
Long-term debt, net of current portion......... $ 4,331 $ 1,331 $ 1,331
-------- -------- --------
Mandatorily redeemable securities:
Series A mandatorily redeemable convertible
preferred stock, $.01 par value; actual -
106,122 shares authorized, issued and
outstanding; pro forma and pro forma as
adjusted - no shares authorized, issued and
outstanding.................................. 24,434 -- --
Series B mandatorily redeemable convertible
preferred stock, $.01 par value; actual - no
shares authorized, issued and outstanding;
pro forma and pro forma as adjusted - no
shares authorized, issued and outstanding.... -- -- --
Mandatorily redeemable common stock, $.0001
par value; actual - 22,150,000 shares issued
and outstanding; pro forma and pro forma as
adjusted - no shares issued and outstanding.. 43,604 -- --
-------- -------- --------
Total mandatorily redeemable securities.... 68,038 -- --
Shareholders' equity:
Common stock, $.0001 par value; actual -
150,000,000 shares authorized and 24,403,700
shares issued and outstanding; pro forma -
150,000,000 shares authorized and 67,468,805
shares issued and outstanding; pro forma as
adjusted - 150,000,000 shares authorized and
72,468,805 shares issued and outstanding..... 2 7 7
Additional paid-in capital..................... 98,509 216,542 254,542
Deferred compensation.......................... (1,026) (1,026) (1,026)
Accumulated other comprehensive loss........... (2) (2) (2)
Accumulated deficit............................ (42,881) (42,881) (42,881)
-------- -------- --------
Total shareholders' equity................. 54,602 172,640 210,640
-------- -------- --------
Total capitalization..................... $126,971 $173,971 $211,971
======== ======== ========
</TABLE>
The share information set forth above excludes:
. 30,555 shares (at an assumed initial public offering price of $9.00 per
share) subject to outstanding options with an exercise price equal to the
initial public offering price;
. 2,498,200 shares of common stock reserved for issuance under our 1999 Stock
Plan, of which options to purchase 2,485,900 shares at a weighted average
exercise price of $3.12 are outstanding; and
. 2,155,000 shares of common stock reserved for issuance under our 1999
Employee Incentive Stock Plan, of which options to purchase 1,193,175 shares
at a weighted average exercise price of $5.15 are outstanding.
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DILUTION
If you invest in our common stock, your ownership interest will be diluted
to the extent of the difference between the public offering price per share of
our common stock and the pro forma net tangible book value per share of common
stock after this offering. Our pro forma net tangible book value as of December
31, 1999 was $62.4 million, or $0.92 per share of common stock. Pro forma net
tangible book value per share is equal to our total tangible assets less our
total liabilities, divided by the number of shares of common stock outstanding
as of December 31, 1999, after giving pro forma effect to the issuance of
10,302,905 shares of Series B mandatorily redeemable convertible preferred
stock for $50.0 million consummated on February 16, 2000, the repayment of $3.0
million of indebtedness with a portion of the proceeds of that issuance and the
automatic conversion of all of our outstanding shares of mandatorily redeemable
convertible preferred stock into 20,915,105 shares of common stock. Dilution in
pro forma net tangible book value per share represents the difference between
the amount per share paid by purchasers of shares of common stock in this
offering and the pro forma net tangible book value per share of common stock
immediately after completion of this offering. After giving effect to the sale
by us of 5,000,000 shares of common stock in this offering at an assumed
initial public offering price of $9.00 per share, and after deducting the
underwriting discounts and commissions and estimated offering expenses payable
by us, our pro forma net tangible book value as of December 31, 1999 would have
been approximately $100.4 million, or $1.38 per share. This represents an
immediate increase in pro forma net tangible book value of $0.46 per share to
existing shareholders and an immediate dilution of $7.62 per share to new
investors. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................... $9.00
Pro forma net tangible book value per share as of December 31,
1999............................................................ $0.92
Increase per share attributable to new investors................. 0.46
-----
Pro forma net tangible book value per share after this offering.... 1.38
-----
Dilution per share to new investors................................ $7.62
=====
</TABLE>
The following table sets forth, on a pro forma basis, as of December 31,
1999, the number of shares of common stock purchased from us, the total cash
consideration paid, and the average price per share paid by our existing
shareholders and by new investors assuming an initial public offering price of
$9.00 per share, before deducting underwriting discounts and commissions and
estimated offering expenses payable by us:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------- --------------------- Average Price
Number Percent Amount Percent Per Share
---------- -------- ------------ -------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders.. 67,468,805 93.1% $ 83,201,475 64.9% $1.23
New investors.......... 5,000,000 6.9 45,000,000 35.1 9.00
---------- ----- ------------ -----
Total................ 72,468,805 100.0% $128,201,475 100.0%
========== ===== ============ =====
</TABLE>
The foregoing table and calculations assume no exercise of any options and
excludes:
. 30,555 shares (at an assumed initial public offering price of $9.00 per
share) subject to outstanding options with an exercise price equal to
the initial public offering price;
. 2,498,200 shares of common stock reserved for issuance under our 1999
Stock Plan, of which options to purchase 2,485,900 shares at a weighted
average exercise price of $3.12 are outstanding; and
. 2,155,000 shares of common stock reserved for issuance under our 1999
Employee Incentive Stock Plan, of which options to purchase 1,193,175
shares at a weighted average exercise price of $5.15 are outstanding.
To the extent outstanding options are exercised in the future, there will be
further dilution to new investors.
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)
The following selected consolidated financial data and selected pro forma
data should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and our consolidated
financial statements and related notes included elsewhere in this prospectus.
The 1999 pro forma consolidated statement of operations data gives effect to
the acquisitions of Accurate Components Inc. and its affiliate and of IQXpert
Holdings Inc. as if these acquisitions had been completed on January 1, 1999.
Each acquisition was accounted for under the purchase method of accounting. The
consolidated statements of operations data for the years ended December 31,
1997, 1998 and 1999 and the consolidated balance sheet data as of December 31,
1998 and 1999 have been derived from our audited consolidated financial
statements included elsewhere in this prospectus. The consolidated balance
sheet data at December 31, 1997 was derived from our audited consolidated
financial statements, which are not included in this prospectus. The
consolidated statements of operations data for the years ended December 31,
1995 and 1996 and the consolidated balance sheet data as of December 31, 1995
and 1996, have been derived from our unaudited financial statements. In the
opinion of management, such statements were prepared in accordance with
generally accepted accounting principles on a basis consistent with our audited
financial statements and provide a fair presentation of our financial position
and results of operations at and for such years. Historical results are not
necessarily indicative of the results of operations to be expected for future
periods.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------
Pro forma
1995 1996 1997 1998 1999 1999
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data:
Revenues:
Product............... $ 5,990 $ 8,389 $ 18,255 $ 20,655 $ 40,328 $ 59,563
Other................. -- -- -- -- 1,175 16,876
--------- --------- --------- --------- --------- --------
Total revenues...... 5,990 8,389 18,255 20,655 41,503 76,439
Cost of revenues........ 4,079 5,821 12,737 14,711 29,669 50,074
--------- --------- --------- --------- --------- --------
Gross profit............ 1,911 2,568 5,518 5,944 11,834 26,365
--------- --------- --------- --------- --------- --------
Operating expenses:
Selling and
marketing............ 906 1,566 2,950 3,500 11,081 18,449
General and
administrative....... 639 1,287 2,144 2,395 6,967 11,162
Technology and
development.......... -- -- -- 173 1,812 3,774
Stock-based
compensation......... -- -- -- -- 4,565 4,565
Amortization of
intangibles.......... -- -- -- 6 3,826 36,656
--------- --------- --------- --------- --------- --------
Total operating
expenses........... 1,545 2,853 5,094 6,074 28,251 74,606
--------- --------- --------- --------- --------- --------
Income (loss) from
operations............. 366 (285) 424 (130) (16,417) (48,241)
Other expense, net...... 22 50 470 1,758 451 379
Provision (benefit) for
income taxes........... 29 8 71 (38) 33 33
--------- --------- --------- --------- --------- --------
Income (loss) before
extraordinary item..... 315 (343) (117) (1,850) (16,901) (48,653)
Extraordinary item,
net.................... -- -- -- -- (1,030) (1,030)
--------- --------- --------- --------- --------- --------
Net income (loss)....... 315 (343) (117) (1,850) (17,931) (49,683)
Accretion of mandatorily
redeemable convertible
preferred stock........ -- -- -- -- (12,075) (12,075)
--------- --------- --------- --------- --------- --------
Net income (loss)
applicable to common
shareholders........... $ 315 $ (343) $ (117) $ (1,850) $ (30,006) $(61,758)
========= ========= ========= ========= ========= ========
Basic and diluted income
(loss) per common
share:
Income (loss) before
extraordinary item..... $ 0.02 $ (0.02) $ -- $ (0.06) $ (0.79) $ (1.28)
Extraordinary item...... -- -- -- -- (0.03) (0.02)
--------- --------- --------- --------- --------- --------
Basic and diluted net
income (loss) per
common share........... $ 0.02 $ (0.02) $ -- $ (0.06) $ (0.82) $ (1.30)
========= ========= ========= ========= ========= ========
Weighted average shares
used in computing basic
and diluted net income
(loss) per common
share.................. 20,000 20,000 24,219 30,000 36,676 47,400
========= ========= ========= ========= ========= ========
<CAPTION>
December 31,
----------------------------------------------------
1995 1996 1997 1998 1999
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Consolidated Balance
Sheet Data:
Cash and cash
equivalents............ $ 17 $ 110 $ 218 $ 127 $ 5,063
Working capital
(deficit).............. 225 (332) 2,078 1,517 7,718
Total assets............ 931 1,911 4,864 5,203 146,901
Long-term debt, net of
current portion........ 69 45 3,288 4,638 4,331
Mandatorily redeemable
securities............. -- -- -- -- 68,038
Total shareholders'
equity (deficit)....... 326 (129) (314) (2,244) 54,602
</TABLE>
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with our
consolidated financial statements and related notes included elsewhere in this
prospectus.
Overview
We are a leading provider of business-to-business services for the
procurement of electronic components worldwide. We were incorporated in New
York in September 1993.
We act as a market maker in the electronic components spot market by
maintaining an electronic network of suppliers from whom we purchase components
on behalf of our customers, largely when their usual sources of supply fail. In
mid-1998, we began moving our business to the Internet with the release of our
Internet procurement agent, a software application that can be downloaded from
the Internet. Our procurement agent allows users to source electronic
components on the Internet and facilitates the online purchase of electronic
components from multiple suppliers. We believe our procurement agent has
significantly increased awareness of our brand, and the number of our customers
in 1999 more than doubled over 1998, excluding new customers attributable to
our acquisitions in 1999. We are developing our Free Trade Zone in order to
further automate transaction activity between buyers and sellers of electronic
components and expand our online business. We expect to commercially launch the
Free Trade Zone in the second half of 2000.
To date, we have derived substantially all of our revenues from sales of
electronic components as a market maker in the spot market. We purchase
components from our suppliers, take possession of the components, perform
quality checks on the components, and resell the components to our customers.
We recognize revenues on sales of electronic components, net of any discounts,
when the products are shipped and the customer takes ownership and assumes risk
of loss. We generally purchase components at the time of and in response to a
customer order for those components, although we also purchase some components
without matching orders.
We have also recognized limited revenues from other sources. As a result of
our recent acquisition of IQXpert, we began to derive revenues from the sale of
subscriptions to the CAPSXpert databases. Revenues from the sale of
subscriptions are recognized ratably over the term of the subscription period,
which is generally 12 months. We intend to integrate the CAPSXpert databases'
content and search functionality into the Free Trade Zone and make it available
to our users at no cost. Consequently, we do not expect to derive meaningful
subscription revenues in future periods.
In addition, as part of our acquisition of IQXpert, we began to derive
revenues from the licensing of software and related services, including
maintenance and consulting services. Revenues from software license agreements
are generally recognized over the software implementation period, using the
percentage of completion method, if collection is probable, the fee is fixed or
determinable, and vendor-specific objective evidence exists to allocate the
total fee to all elements of the arrangement. Revenues from maintenance
services are recognized ratably over the term of the contract, typically one
year. Consulting revenues are primarily related to implementation services
performed on a time-and-materials basis under separate services arrangements.
Revenues from consulting services are recognized as services are performed.
In future periods, we expect our revenues to continue to be derived
primarily from our sales of electronic components in our role as a market
maker, although we expect that, with the commercial launch of our Free Trade
Zone, our market maker activities will over time be increasingly conducted
online. We currently provide our procurement agent, and intend to provide the
Free Trade Zone, including the CAPSXpert databases and search capabilities, at
no cost to our users. In addition, we do not currently, and do not presently
intend in the future to, collect fees based on transactions facilitated by our
online services.
21
<PAGE>
Gross profit from our market maker activities consists of revenues less cost
of revenues, which consists primarily of the cost of electronic components,
freight charges and obsolete inventory charges deemed necessary. Our gross
profit as a percentage of revenues for our market maker activities was 30% in
1997, 29% in 1998 and 29% in 1999. As we grow our business, we may not be able
to continue to realize gross profit margins at the levels we have experienced
historically.
During the quarter ended March 31, 2000, we will record deferred
compensation of $3.9 million as a reduction in shareholders' equity to reflect
the grant of stock options to employees at prices below the fair market value
of our common stock on the date of grant. This deferred compensation will be
amortized as stock-based compensation expense over the vesting period of the
related options. Upon completion of this initial public offering, at an assumed
initial offering price of $9.00 per share, we will record additional deferred
compensation of $3.7 million and an immediate compensation charge of $1.7
million relating to options granted to employees that will begin to vest on
such date.
Recent Events
Acquisition of Accurate Components Inc.
On November 12, 1999, we acquired all of the capital stock of Accurate
Components Inc. and its affiliate, or Accurate, for cash of approximately $6.5
million. Accurate is a market maker for electronic components and has an ISO
9002 certified distribution and fulfillment center located in Bohemia, NY. The
ISO 9002 certification is granted by the International Standardization
Organization pursuant to a set of standards used to document, implement and
demonstrate quality management and assurance systems. We believe that Accurate
will, in addition to adding customers and increasing our revenues, enhance our
infrastructure to support the logistics demands of our rapidly growing
business. The purchase agreement requires the payment of additional
consideration contingent on future operating results of Accurate through
December 31, 2000. The maximum total contingent consideration is $1.7 million.
Contingent consideration of $510,000 was recorded as additional goodwill and
accrued expenses on December 31, 1999 in connection with a payment due under
the contingent payment arrangement. Payments under the contingent payment
arrangement during the year ended December 31, 2000, if any, will similarly
increase goodwill. The maximum contingent consideration payable for the year
ending December 31, 2000 is approximately $1.2 million. The acquisition was
accounted for using the purchase method of accounting and, accordingly, the
results of the acquired business have been included in our financial statements
from the date of acquisition. Material assets acquired in this transaction were
cash of $1.4 million and trade receivables of $3.3 million. The only known
material liability assumed was an income tax liability of $1.2 million. We have
recorded goodwill on this acquisition in the amount of $5.1 million which will
be amortized over a period of 10 years, or an amount of approximately $500,000
per year.
Acquisition of IQXpert Holdings Inc.
Pursuant to an agreement dated November 30, 1999, we acquired all of the
capital stock of IQXpert Holdings Inc. from Information Handling Services,
Inc., or IHS, and other minority shareholders in exchange for approximately
11.7 million shares of our common stock. IQXpert is engaged in the design and
development of software and database systems relating to enterprise
client/server software products and electronic components information,
including the CAPSXpert databases and the ItemQuest software. The acquisition
was accounted for using the purchase method of accounting, and accordingly, the
results of the acquired businesses have been included in our financial
statements from the date of acquisition. Material assets acquired in this
transaction were trade receivables of $3.9 million, the CAPSXpert databases
valued at $20.0 million and software valued at $18.0 million. The only known
material liability assumed was deferred revenue of $5.6 million. We have
recorded intangible assets as a result of this acquisition in the amount of
approximately $108.2 million, and this amount will be amortized over a period
of three years, or an amount of approximately $36.1 million per year.
Series B Financing
On February 16, 2000, we issued 10,302,905 shares of our Series B
mandatorily redeemable convertible preferred stock for an aggregate purchase
price of $50.0 million. The Series B mandatorily redeemable convertible
preferred stock will automatically convert on a one-to-one basis into shares of
our common stock upon the closing of this offering. The investors who purchased
shares in this transaction were Agile Software Corporation, Boston Ventures
Limited Partnership V, Broadview SLP, Cahners Information Holdings, Inc.,
Generation Capital Partners L.P., Generation Parallel Management Partners L.P.,
The Goldman Sachs Group, Inc., Impact Venture Partners, L.P., Integral Capital
Partners IV,
22
<PAGE>
L.P., Integral Capital Partners IV MS Side Fund, L.P., OMI Partnership Holdings
Ltd., Seacoast Capital Partners Limited Partnership, Seacoast Investors LLC,
State Board Administration of Florida, and Vulcan Securities Limited. We will
record an embedded dividend representing the beneficial conversion feature
associated with the Series B mandatorily redeemable convertible preferred
stock, which will be added to our net loss in the calculation of net loss
applicable to common shareholders in the first quarter of 2000. At an assumed
initial public offering price of $9.00 per share, this beneficial conversion
feature will be $42.7 million.
Results of Operations
Year ended December 31, 1999 compared with year ended December 31, 1998
Revenues
Revenues increased to $41.5 million in 1999 from $20.7 million in 1998.
Revenues in 1999 benefited from the acquisitions of Accurate and IQXpert, which
occurred in the fourth quarter of 1999. Excluding revenues of approximately
$4.3 million attributable to Accurate and $1.2 million attributable to IQXpert,
our revenues in 1999 increased approximately 74%, or $15.4 million, over the
prior year period. We believe this increase in our revenues was primarily
attributable to an increase in the volume of our sales due to the successful
deployment of our procurement agent, which increased our visibility among
electronic components buyers and generated a significant number of new
customers for us. We also benefited in 1999 from favorable industry conditions,
as suppliers experienced shortages of some components, which increased our
volume of sales.
Cost of revenues
Cost of revenues consists primarily of the cost of electronic components,
freight charges and obsolete inventory charges deemed necessary. Cost of
revenues increased to $29.7 million, or 71.5% of our revenues, in 1999 from
$14.7 million, or 71.2% of our revenues, in 1998. This increase in cost of
revenues was primarily due to the increase in revenues in 1999.
Selling and marketing expenses
Selling and marketing expenses consist primarily of employee costs relating
to sales, purchasing and marketing, travel and related costs, advertising and
promotional expenses, bad debt expenses, and an allocation for certain overhead
costs. Selling and marketing expenses increased to $11.1 million, or 26.7% of
our revenues, in 1999 from $3.5 million, or 16.9% of our revenues, in 1998.
This increase was due in part to increased advertising expenses of $2.1 million
and increased employee costs of $2.3 million attributable to the hiring of 39
additional sales and marketing employees during 1999. These increases in
advertising and personnel expenditures were incurred in 1999 to promote
awareness of our brand and services and to support our growth in new customers
and transactions. We expect to continue to increase our selling and marketing
expenses to promote awareness of our brand and services.
General and administrative expenses
General and administrative expenses consist primarily of employee costs,
facilities expenses, distribution costs and professional service fees. General
and administrative expenses increased to $7.0 million, or 16.8% of our
revenues, in 1999 from $2.4 million, or 11.6% of our revenues, in 1998. This
increase was primarily due to increased personnel and other professional
services and additional facility leasing costs needed to support our growth. We
expect that our general and administrative expenses will increase as we expand
our operations.
Technology and development expenses
Technology and development expenses consist primarily of payroll and
operating expenses relating to the information technology group, database
content development costs, and all costs associated with our Web site,
including design, development and third-party hosting. Technology and
development expenses increased to $1.8 million, or 4.4% of our revenues, in
1999 from $173,000, or 0.8% of our revenues, in 1998. This increase
23
<PAGE>
was primarily due to increased Web site development expenses of approximately
$628,000, and the remaining increase was attributable to additional headcount
and supplies. We expect our technology and development expenses to increase
significantly as we continue to expand our information technology group and
enhance our Web site. In addition, we currently capitalize our expenditures
associated with the development of the Free Trade Zone. Once the Free Trade
Zone is ready for its intended use, we will begin amortizing these capitalized
expenditures over a three-year period, which will further increase our
technology and development expenses.
Stock-based compensation
Stock-based compensation primarily consists of non-cash expenses relating to
stock options granted to employees at prices below the fair market value of our
common stock on the date of grant and a transaction between certain principal
shareholders. Stock-based compensation increased to $4.6 million, or 11.0% of
our revenues, in 1999. There was no stock-based compensation expense in 1998.
This increase was primarily due to a charge of $565,000 for the grant of
1,286,700 options to key executives hired in 1999 and a $4.0 million charge
related to the cancellation of an option agreement between certain of our
shareholders.
Amortization of intangibles
Amortization of intangibles consists primarily of amortization of goodwill
and other intangibles associated with our recently completed acquisitions. The
amortization of intangibles expense increased to $3.8 million, or 9.2% of our
revenues, in 1999 from approximately $6,000 in 1998. This increase was
primarily due to the amortization of the intangibles associated with the
acquisitions of IQXpert and Accurate of $3.0 million and $43,000, respectively,
as well as $709,000 related to the amortization of a license agreement with
Information Handling Services, Inc. from March 1999 through November 1999.
Net loss
The net loss applicable to common shareholders increased to $30.0 million in
1999 from $1.9 million in 1998. This increase was primarily due to the
increased loss from operations of $16.3 million, an extraordinary charge
relating to early extinguishment of debt of $1.0 million and accretion of
mandatorily redeemable convertible preferred stock of $12.1 million offset by a
decrease in other expenses, primarily interest expense, of $1.3 million.
Year ended December 31, 1998 compared with year ended December 31, 1997
Revenues
Revenues increased to $20.7 million in 1998 from $18.3 million in 1997. This
increase in revenues was primarily attributable to additional sales staff hired
during 1997 and 1998.
Cost of revenues
Cost of revenues increased to $14.7 million, or 71.2% of our revenues, in
1998 from $12.7 million, or 69.8% of our revenues, in 1997. This increase was
primarily due to the increase in revenues.
Selling and marketing expenses
Selling and marketing expenses increased to $3.5 million, or 16.9% of our
revenues, in 1998 from $2.9 million, or 16.2% of our revenues, in 1997. This
increase was primarily due to increased payroll and related expenses, trade
shows, promotions and advertising incurred to promote the initial release of
our procurement agent.
General and administrative expenses
General and administrative expenses increased to $2.4 million, or 11.6% of
our revenues, in 1998 from $2.1 million, or 11.7% of our revenues, in 1997.
This increase was primarily due to increased employee costs.
24
<PAGE>
Net loss
The net loss applicable to common shareholders increased to $1.9 million in
1998 from $117,000 in 1997. This increase was primarily due to the increased
loss from operations of $554,000 and increased interest expense of $1.1 million
relating to redeemable stock purchase warrants.
Liquidity and Capital Resources
Since 1997, we have financed our operations primarily through the issuance
of debt and equity securities. In July 1997, we raised a total of $3.0 million
from the sale of a senior subordinated note and warrants to purchase our common
stock. In March 1999, we raised $10.0 million from the issuance of our
mandatorily redeemable convertible preferred stock and approximately $7.2
million in cash proceeds from the sale of our mandatorily redeemable common
stock. In September 1999, we raised $10.0 million from the issuance of our
mandatorily redeemable common stock. We have also financed our operations
through borrowings under credit facilities, none of which are currently
outstanding. At December 31, 1999, we had cash and cash equivalents totaling
approximately $5.1 million. In February 2000, we raised $50.0 million from the
issuance of our Series B mandatorily redeemable convertible preferred stock.
For the year ended December 31, 1999, net cash used in operations was $9.6
million as compared to cash used in operations of $1.2 million in 1998 and $1.1
million in 1997. The increase in net cash used in operating activities is
primarily due to an increase in our net loss to $17.9 million in 1999 from $1.9
million in 1998 and a higher level of accounts receivable. Working capital at
December 31, 1999 was $7.7 million as compared to $1.5 million at December 31,
1998.
For the year ended December 31, 1999, net cash used in investing activities
was $13.4 million, primarily reflecting net capital expenditures of $8.1
million and the acquisition of Accurate for $5.3 million, net of cash acquired.
Of the $8.1 million in net capital expenditures, $7.1 million was used in the
development of the Free Trade Zone. We estimate that our 2000 capital
expenditures will increase substantially primarily due to the further
development of the Free Trade Zone. For the years ended December 1998 and 1997,
net cash used in investing activities were approximately $151,000 and $232,000,
respectively, primarily related to net capital expenditures.
For the year ended December 31, 1999, net cash provided by financing
activities was $27.9 million, primarily resulting from proceeds received from
the issuance of mandatorily redeemable securities of $25.8 million, proceeds
received from the issuance of debt of $5.2 million offset by debt repayments of
$1.7 million and redemption of common stock of approximately $850,000. Net cash
provided by financing activities was $1.3 million for the year ended December
31, 1998, primarily reflecting issuance of short-term debt. Net cash provided
by financing activities was $1.5 million for the year ended December 31, 1997
reflecting proceeds from the issuance of a note payable and warrants of $3.0
million offset by certain financing costs and repayment of short-term debt.
In September 1999, we entered into a three-year agreement with Cahners
Business Information, Inc., an affiliate of one of our principal shareholders,
in which we agreed to use Cahners as our exclusive advertising sales agent for
our Free Trade Zone. We have agreed to pay Cahners a fee of 20.0% of all
advertising revenues sold by Cahners on our behalf. We also have agreed to
purchase a minimum of $500,000 in annual advertising from Cahners during the
term of the agreement. In addition, Cahners is entitled to a fee of 1% of any
revenues generated over our Free Trade Zone from customers referred to us by
Cahners during this three-year period.
In connection with the IQXpert acquisition, we agreed to enter into a
services agreement with IHS, one of our principal shareholders. This agreement
provides us with leasing of space and utilities, hosting of our CAPSXpert
databases, shipping and order assembly related to CAPSXpert subscriptions, data
processing and other general and administrative services. This agreement
requires us to make monthly service fee payments of $248,000 to IHS. We have
the option to cancel this agreement with respect to some or all of the services
provided upon 30 days' notice.
25
<PAGE>
Since 1996, we have experienced net losses and negative cash flows from our
operations. For the foreseeable future, we expect to experience significant net
losses and negative cash flows. On February 16, 2000, we issued shares of
mandatorily redeemable convertible preferred stock to investors, resulting in
proceeds to us of approximately $50.0 million. We believe that the net proceeds
from this offering, together with current cash and cash equivalents, will be
sufficient to fund our operations for at least the next 12 months. However, our
future capital needs, and the timing of those needs, are subject to substantial
uncertainty. In the event the net proceeds of this offering, together with
other available resources and cash generated by operations, are insufficient to
satisfy our long-term liquidity requirements, we may seek to raise additional
capital by selling debt or equity securities. These securities may have rights
and preferences superior to those of our common stock, and our shareholders may
experience dilution. In addition, financing may not be available to us on
acceptable terms, if at all.
Recent Accounting Pronouncements
In 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivatives
and Hedging Activities", which establishes accounting and reporting standards
for derivative instruments including certain derivative instruments embedded in
other contracts and for hedging. In July 1999, SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities Deferral of the Effective Date of
Financial Accounting Standards Board Statement No. 133", was issued. SFAS 137
deferred the effective date of SFAS 133 from fiscal years beginning after June
15, 1999 to all fiscal years beginning after June 15, 2000. We have no
derivative instruments and the adoption of SFAS 133 should have no impact on
our financial condition or results of operations.
Year 2000 Compliance
Prior to January 1, 2000, there was a great deal of concern regarding the
ability of computers to adequately recognize 21st century dates from 20th
century dates due to the two-digit date fields used in many systems. Most
reports to date, however, have indicated that computer systems are functioning
normally and the compliance and remediation work accomplished leading up to
2000 was effective to prevent any problems. We did not incur any material
interruption in our business or material costs in connection with our
preparation for possible Year 2000 problems. Computer experts have warned that
there may still be residual consequences of the change in centuries. It is also
possible that errors or defects may remain undetected, or that dates other than
January 1, may trigger Year 2000 type problems. As a result, although we have
not experienced any Year 2000 problems to date, it is possible that we could
face problems or disruptions during 2000. Any Year 2000 problems could cause
difficulties accessing www.partminer.com and www.freetradezone.com, thereby
resulting in decreased sales of our products and services to our customers and
damage to our reputation.
Market Risks
Interest Rate Risk
To date, we have not utilized derivative financial instruments or derivative
commodity instruments. We invest our cash in money market funds, which are
subject to minimal credit and market risk. We believe the market risks
associated with these financial instruments are immaterial.
Foreign Currency Risk
A majority of our revenues and cost of revenues are transacted in United
States dollars. However, we have entered into sales or purchase agreements in
certain local currencies, primarily the Euro. The effect of foreign exchange
rate fluctuations was not material for the year ended December 31, 1999. As we
expand our foreign sales organization and transact more business in local
currencies, our foreign exchange rate exposure may increase. We will monitor
this risk going forward and will utilize any such financial instruments we deem
necessary in order to minimize any material exposures.
26
<PAGE>
In addition, we are also exposed to foreign exchange rate fluctuations,
primarily with respect to the Euro and the Israeli Shekel, as the financial
results of foreign subsidiaries are translated into United States dollars for
consolidation. As exchange rates vary, these results, when translated, may vary
from expectations and adversely impact net income (loss) and overall
profitability. The effect of foreign exchange rate fluctuation for the year
ended December 31, 1999 was not material.
27
<PAGE>
BUSINESS
Overview
We are a leading provider of business-to-business services for the
procurement of electronic components worldwide. We provide proprietary
Internet-based applications to buyers of electronic components in order to
facilitate their product selection and purchasing processes. We act as a market
maker, meaning we source electronic components and resell them to our
customers, in the electronic components spot market. The spot market is the
market in which buyers purchase electronic components on an unscheduled, as
needed basis. Buyers often use our market maker services when their usual
sources of supply fail. As a market maker, we source immediately needed
components from our extensive electronic network of over 4,000 suppliers
worldwide. We generate substantially all of our revenues in the spot market by
purchasing components against a customer's buy order and reselling the
components to the customer. We also serve as a spot market clearinghouse for
our customers, providing quality assurance and consolidation services. We
provide other services to reduce inefficiencies in the supply chain, including
electronic components databases, component supplier management software and
excess inventory management. We have been in operation since 1993, and in 1999
had a customer base of over 5,000 customers in 52 countries.
In mid-1998, we began moving our business to the Internet with the release
of our proprietary Internet procurement agent at no cost. Our procurement agent
is a software application that can be downloaded from the Internet that allows
users to source electronic components on the Internet and facilitates the
online purchase of electronic components of all types from multiple suppliers.
As of March 31, 2000, there were over 100,000 registered users of our
procurement agent. To accommodate our rapid growth and further accelerate our
transition to the Internet, we recently completed two acquisitions that
provided us with additional customers as well as added infrastructure and
extensive proprietary Internet-based electronic component databases.
Our current Internet products facilitate the selection, sourcing and
procurement of electronic components online, and act as a gateway to our market
making services which are currently processed offline. In order to further
automate the procurement process we are developing the Free Trade Zone, a suite
of Internet-based software applications, including an Internet marketplace, for
the electronic components industry, which we expect to commercially launch in
the second half of 2000. In addition to the current functionality provided by
our Internet products, our Free Trade Zone will enable component buyers to use
the Internet to transact business with their preferred suppliers by
transmitting requests for quotation, or RFQs, receiving quotes, negotiating
terms and placing orders online. The Free Trade Zone will automatically detect
when a preferred supplier cannot satisfy the terms of a RFQ, and, in such
event, we will source and quote a price on the requested component or offer a
quote on an alternative component with similar functions. We believe that the
supply and demand information we will obtain with respect to RFQs and responses
on our Free Trade Zone will significantly enhance our ability to source
components for our customers and act as a market maker in the spot market. We
expect that, over time, we will increasingly automate our market making
services as part of our Free Trade Zone. We intend to migrate our existing
users and customers to the Free Trade Zone and make the Free Trade Zone
accessible to the entire electronic components purchasing community at no cost.
Industry Background
The Internet Business-to-Business Opportunity
The Internet provides companies the opportunity to conduct business with
other companies directly and more efficiently. Business-to-business, or B2B, e-
commerce over the Internet is projected to accelerate in the next five years.
Forrester Research forecasts that online business trade will grow from an
estimated $406 billion in 2000 to $2.7 trillion in 2004. As B2B e-commerce
continues to grow, industry-specific marketplaces are achieving increasing
acceptance. These marketplaces bring together buyers, sellers, and information
in online marketplaces that automate complex business processes and supply
chains. We believe that B2B e-commerce marketplaces are most likely to be
successful in industries characterized by:
. large numbers of buyers and sellers;
. a high degree of fragmentation among buyers, sellers or both;
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. complex supply chains;
. significant dependence on information exchange;
. large transaction volume; and
. large product selection.
The Electronic Components Industry
The electronic components industry is composed mainly of electronic
component manufacturers, franchised distributors and independent distributors
on the supply side and product manufacturers, such as original equipment
manufacturers and contract manufacturers, on the demand side. Component
manufacturers sell components directly to large product manufacturers and also
sell through both franchised and non-franchised, or independent, distributors.
Franchised distributors are those distributors that distribute specific product
lines in specific geographic territories pursuant to agreements with component
manufacturers. Product manufacturers in the computer, telecommunications,
medical equipment, military, consumer electronics and other industries rely on
component manufacturers and distributors for the constant supply of electronic
components used in their products. According to industry sources, electronic
components represented a $220 billion global market in 1999, which is expected
to grow to $440 billion by 2004.
In order to achieve economies of scale and manufacturing efficiencies,
electronic component manufacturers generally require significant lead-time in
manufacturing their products. Therefore, product manufacturers are typically
required to order their electronic components weeks or even months in advance
of production, based on expected demand and other factors. Accordingly, product
manufacturers satisfy the majority of their electronic component needs by
placing advance orders with their preferred suppliers. When a product
manufacturer is required to purchase components closer to, or at the time of
production, it typically will first attempt to purchase the needed components
from its usual sources of supply for those components. If these usual sources
of supply cannot meet the demand, product manufacturers typically seek to
purchase components in the spot market.
Inefficiencies in the Electronic Components Industry
Limited Access to Product Information. Millions of electronic components are
produced by thousands of suppliers worldwide. A component produced by a
particular manufacturer may provide the same functionality as other parts
produced by other manufacturers, but each will generally have its own
manufacturer-specific part number. An engineer or buyer who wishes to identify
or compare components is required to engage in a time-consuming and expensive
process of obtaining data sheets and other information on the components. This
process limits the ability of engineers and buyers to realize cost and
efficiency savings by comparing a broader range of components based on cost and
functionality.
Inefficient Procurement Process. In order to source and purchase components,
buyers generally begin by obtaining price and availability quotes from multiple
suppliers. This process is usually conducted by sending a RFQ, to each supplier
by phone, fax, or e-mail. The RFQ typically will include a list of the
components, requested delivery dates, and other relevant information. Suppliers
generally respond to RFQs by phone, fax, or e-mail, and the buyer then collects
this information, often in an electronic spreadsheet, in order to compare the
responses. Once the buyer chooses a particular supplier or suppliers, the buyer
again communicates with the supplier by phone, fax, or e-mail and eventually
completes the purchase. This process, which generally requires multiple
discrete contacts with multiple suppliers, is time-consuming and costly.
Inefficient Enterprise-Wide Supplier Management. In many large enterprises,
components are sourced and purchased independently at numerous operating units,
and in many cases these independent units do not coordinate with each other
regarding their component selection and procurement processes. As a result, it
is
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common for operating units within the same enterprise to duplicate the product
selection process for certain components, and, in addition, these units may
purchase similar components from different suppliers at disparate costs. These
inefficiencies prevent the enterprise from consolidating their selection and
purchasing processes and benefiting from associated volume discounts and cost
savings processes.
Inefficiencies in the Supply Chain. There is often an imbalance between
supply and demand for components, resulting in shortages of some components and
surpluses of others. Shortages occur as a result of a variety of factors
including:
. Supply Side Causes. Component manufacturers and distributors may
experience difficulty or delay in supplying required parts to product
manufacturers for a variety of reasons. Changes in market conditions may
require component manufacturers to reallocate manufacturing capacity to
other products. Manufacturers may encounter unexpected delays in the
manufacturing process, and both manufacturers and distributors may
experience logistical, distribution or delivery problems. Additionally,
manufacturers and distributors may disparately allocate their inventory
among geographic regions or specific customers.
. Demand Side Causes. Product manufacturers may underestimate consumer
demand for their finished goods and as a result schedule orders for fewer
components than are actually needed. By the time product manufacturers
realize that a need exists, they may be unable to obtain timely supply from
the component manufacturer or distributor due to required lead times.
. Demand for Obsolete Components. Product manufacturers may be unable or
unwilling to incorporate newer components in their manufacturing process
and may continue to use discontinued components. In addition, obsolete
components are also needed for the repair of existing products. Obsolete
components are often unavailable through traditional channels and must be
purchased in the spot market.
. Proprietary Supplier Channel Conflicts. Product manufacturers often
source electronic components from franchised distributors and other
intermediaries. These intermediaries often are bound by contractual
arrangements that discourage or prevent them from selling similar products
manufactured by competing component manufacturers. In addition, franchised
distributors generally are not permitted to purchase components from any
source, including other distributors, other than the component
manufacturer, and they generally are not permitted to sell components
outside their franchised geographic territory. As a result of these channel
conflicts, buyers may experience shortages despite supply in the market.
When a product manufacturer is unable to source sufficient quantities of a
required component through its primary supply chain, the product manufacturer
may incur high costs associated with an interruption of the manufacturing
process. These costs are measured by the direct costs of shutting down a
factory and the indirect costs of not delivering the finished goods to a
customer in a timely manner, which adversely affects the manufacturer's brand
name and reputation. Consequently, in the event of a shortage of a needed
component, the price that a product manufacturer is willing to pay is no longer
dictated by the intrinsic value of the component, but rather reflects the
opportunity costs associated with interrupting a manufacturing process. In this
situation, product manufacturers generally source and purchase the needed
components in the spot market.
Inefficient Spot Market. The spot market is primarily served by a highly
fragmented group of independent distributors, brokers, trading companies and
market makers that operate without the contractual limitations concerning
buying and selling components that limit franchised distributors. They provide
a critical source for electronic components not available through a product
manufacturer's primary distribution channels at any given point in time.
Companies operating in this independent channel range in size from thousands of
small firms worldwide to larger multi-million dollar corporations.
The spot market has historically exhibited a variety of deficiencies,
including:
Industry Fragmentation. Thousands of small companies worldwide engage in
some form of market making. These companies are typically operated as small
businesses and in many cases are unknown to potential customers.
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Lack of Information. There is limited centralized information regarding
available supply in the spot market. Thus, spot market makers must expend a
disproportionate amount of time and money in order to source and procure
products for their customers.
Lack of Automation. Most existing spot market makers lack the resources
and scale necessary to automate their work-flow processes by integrating
with their supply chain or customers. Accordingly, product manufacturers
may find transactions with these companies to be slow and inefficient.
The PartMiner Solution
We provide online procurement services that, along with our market making
and other services, address many of the inefficiencies in the electronic
components industry. Our Free Trade Zone, which we expect to commercially
launch in the second half of 2000, will incorporate our current online services
as well as additional functionality, and is designed to provide our customers
with a comprehensive procurement solution. We believe our solution provides the
following benefits to the buyers and suppliers of electronic components:
Benefits to Product Manufacturers
Improved Access to Electronic Components Data. Our CAPSXpert databases
contain information on more than 12,000,000 discrete electronic component part
numbers and include sophisticated search capabilities that allow users to
search the databases based on a variety of component characteristics. The
CAPSXpert databases give engineers and buyers access to critical design and
purchasing information, allowing them to reduce costs and enhance functionality
at the component level through a broader range of product selection. In
addition, our CAPSXpert databases give buyers who have not been able to source
a given component the ability to identify substitute, functionally equivalent,
components that may be available in the market.
Streamlined Procurement Process. The current procurement process requires
buyers to contact multiple sources independently, usually by phone, fax or e-
mail. Our procurement agent allows users to source electronic components on the
Internet and facilitates the online purchase of electronic components from
multiple suppliers, reducing the time and cost associated with traditional
procurement methods. Our Free Trade Zone will further streamline this process
by allowing buyers to use the Internet to transact business with their
preferred suppliers by sending RFQs, receiving quotes, negotiating terms and
placing orders online.
More Efficient Supplier Management. Our ItemQuest software helps companies
manage the process of procuring components and keep track of their suppliers.
The software can be used by many different departments within a company,
including engineering, purchasing, and manufacturing. Our ItemQuest software
can be used to build a database with search capabilities that classifies
product, supplier, commodity and component information. By utilizing the
software, customers can determine, among other things, if they have purchased
less expensive substitute components and whether components can be procured on
a more cost effective basis. Our ItemQuest software enables our customers to
analyze and potentially improve their component procurement process.
Enhanced Product Availability. In the event that a buyer is unable to obtain
components from its preferred suppliers, our market maker service enables
customers to source components through us from a broader group of components
suppliers. We maintain an electronic network of more than 4,000 suppliers
worldwide and internal databases that track availability and pricing of more
than 8,000,000 electronic component part numbers. As a result, a buyer is more
likely to locate a needed component, reducing the risk of a production delay or
shutdown. Buyers are also able to achieve cost savings by outsourcing their
procurement to us, reducing the number of vendors with whom they deal directly,
the number of orders that are processed and the number of shipments they
receive. When a buyer uses our Free Trade Zone to source components from its
preferred suppliers, and those suppliers are unable to meet this demand, we
will source the components from our extensive network of suppliers and provide
the buyer with a quote for the component.
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Reduced Inventory Carrying Costs. Current options available to product
manufacturers for the disposition of surplus component inventory are limited
and often result in significant costs for write-offs. Our inventory management
services enable product manufacturers to reduce surplus inventory at a lower
cost by offering such inventory to our customers and online users, who
represent a much larger targeted group of potential buyers.
Benefits to Component Suppliers
Enhancement of Existing Relationships. Unlike some online solutions
addressing the electronic components market that seek to displace or compete
with existing suppliers, our solution is intended to enhance existing
relationships between buyers and sellers of electronic components. We intend to
provide a quote to buyers using our Free Trade Zone only after the buyer has
sent a RFQ to its preferred suppliers and those suppliers have been unable to
provide the needed components.
Greater Ability to Service Customers. Because of the improved efficiencies
associated with communicating over the Internet rather than through traditional
methods, we believe our services allow suppliers to better serve their
customers, in particular smaller customers whose transaction volume might not
justify the costs associated with traditional methods of communication.
Our Strategy
Our objective is to be the leading online provider of business-to-business
procurement services to the global electronic components industry. Our strategy
to achieve this objective includes the following key elements:
Establish the Free Trade Zone as the Leading Procurement Network for the
Electronic Components Industry. We believe that the Free Trade Zone will over
time provide a comprehensive procurement solution and serve as the leading
online marketplace to the entire electronic components industry. We intend to
promote its use to our current customers and users of our Internet products.
After the Free Trade Zone is launched, users of our procurement agent will be
directed to enter the Free Trade Zone when they sign on to use our procurement
agent. Over time, we intend to transition our current traditional relationships
with component manufacturers, distributors and buyers into online relationships
on our Free Trade Zone by educating them about its benefits and efficiencies.
We also intend to provide free access through the Free Trade Zone to our
CAPSXpert databases, which we believe will attract new users to the Free Trade
Zone. Over time, we expect to incorporate additional features into the Free
Trade Zone to make it more attractive to participants. For example, we intend
to integrate our surplus inventory management services into the Free Trade
Zone.
Expand Brand Awareness. We intend to increase industry awareness of our
brand and the capabilities of our Free Trade Zone. We plan to accomplish this
through targeted marketing efforts, advertisements in industry publications,
participation in industry trade shows and through our relationships with
component manufacturers, distributors and buyers. We also intend to leverage
our strategic relationship with Cahners Business Information, one of the
largest business-to-business information providers. We intend to hire
additional business development professionals to actively encourage the
adoption of the Free Trade Zone by product manufacturers, component
manufacturers, buyers, and suppliers on an enterprise wide basis. We believe
that the benefits offered by our Free Trade Zone will further enhance our
recognition as a leading global market maker to the electronics components
industry.
Leverage Our Existing Expertise and Infrastructure. We have been engaged as
a market maker in the electronic components spot market since 1993. We have
substantial experience and know-how in sourcing components globally for the
spot market and completing purchase and sale transactions. We intend to
capitalize on our industry relationships and expertise to provide a
comprehensive procurement solution and value proposition to our customers.
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Pursue Strategic Relationships and Strategic Acquisitions. We intend to
continue to pursue strategic relationships to expand our customer base and
further extend our services for electronic components buyers. For example, we
intend to offer our CAPSXpert databases for inclusion in products and services
offered by third parties, including other marketplaces, exchanges, purchasing
applications and enterprise resource planning solutions, in exchange for
becoming the exclusive market maker to those products and services. We will
also pursue strategic acquisitions and joint ventures, as appropriate.
Explore Opportunities in Other Industry Specific Markets. We believe the
technology embedded in our Free Trade Zone may be adapted to other industries.
Eventually, we may explore opportunities to adapt the technology underlying our
Free Trade Zone and our experience in creating an electronic marketplace in the
electronic components industry to develop similar e-commerce services and
marketplaces in other industries.
Our Services
We provide electronic component procurement services, including Internet
procurement, market making services, surplus inventory management, and
component and supplier management services. We intend to integrate these
services into our Free Trade Zone.
Market Making. We conduct reverse auctions on behalf of our customers for
components in the spot market. Upon receipt of a request for a component from a
customer, we search our internal databases to determine price and availability
of the component. Our network of over 4,000 suppliers worldwide, supported by
our internal databases, allows us to track the pricing, availability and other
data of over 8,000,000 component part numbers. Upon confirmation of available
product, we provide our customer with a quote. If the customer accepts our
quote, we buy the component for resale to the customer. The purchased component
is then shipped to us and inspected. We provide quality assurance and
consolidation services by maintaining a logistics infrastructure that serves as
a clearinghouse for our customers.
Internet Procurement. The electronic component procurement process can be
complex and time consuming for buyers. Selecting, sourcing and purchasing
multiple components from multiple suppliers is typically accomplished using
phone, fax and e-mail. Our procurement agent allows users to source electronic
components on the Internet and facilitates the online purchase of electronic
components from multiple suppliers. A component buyer can enter an entire bill
of materials into our procurement agent and obtain price and availability
information from multiple distributors, data sheets from thousands of
manufacturers and other relevant information on millions of components. Our
Internet procurement services replace the fragmented and time-consuming process
of searching through paper-based components catalogs and visiting dozens of Web
sites to conduct individual searches for parts.
Our Internet procurement agent currently is based on client server
technology, requiring a user to download a file, complete a user registration
form, and install the software on a local computer. Our procurement agent
allows the user to enter a series of part numbers or import a bill of materials
from an external application. The user then can execute a search to extract
component data from multiple Web sites. This component data may include
manufacturer part number, description, price, quantity available, manufacturer
and data sheet where available. A user can export this component data to a
spreadsheet for analysis. Users can also select a line item related to a
specific component and our procurement agent will transport the user to the
supplier's Web site. The user may then purchase the component online to the
extent the supplier's Web site offers the functionality to execute the
transaction.
When commercially launched, our Free Trade Zone is designed to provide users
with additional procurement functionality that will allow them to send RFQs to
their preferred suppliers. The system will automatically route RFQs to the
selected suppliers, who will be able to respond directly to the requesting user
through the Free Trade Zone. The user will also be able to negotiate online
with the supplier and once the parties have reached agreement on terms, the
user can generate a purchase order online.
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Our Free Trade Zone is designed to monitor all communications in the
marketplace. We will participate in the Free Trade Zone as the market maker if
the Free Trade Zone detects that no preferred supplier has indicated that it
can satisfy the terms of a RFQ. In this event, we will source the component or
an alternative component, determine price and availability, and then respond to
the user's RFQ. If the participant accepts our response, we will purchase the
product and resell it to the customer.
Content Delivery. Our CAPSXpert databases are recognized as the most
comprehensive aggregation of electronic components data in the world. Access to
these databases is now available through the Internet and these databases
contain information on more than 12,000,000 discrete component part numbers
produced by over 1,800 component manufacturers. The CAPSXpert databases
facilitate the identification, comparison and selection process of components.
Surplus Inventory Management. In addition to managing the procurement of
electronic components for buyers, we also offer our customers surplus component
inventory management services. Our surplus inventory management services enable
sellers to maximize prices received for inventories by making these inventories
available to our global network of buyers, assessing market conditions for best
available pricing and demand characteristics and facilitating the marketing and
sale of this inventory. We intend to automate these services and incorporate
them into our Free Trade Zone.
Supply Chain Management. We enable our customers to improve their electronic
component usage and procurement processes, reducing costs associated with these
functions. Our ItemQuest software helps companies manage the process of
procuring components and keep track of their suppliers. The software can be
used by many different departments within a company, including engineering,
purchasing, and manufacturing. Our ItemQuest software can be used to build a
database with search capabilities that classifies product, supplier, commodity
and component information. By utilizing the software, customers can determine,
among other things, if they have purchased less expensive substitute components
and whether components can be procured on a more cost effective basis. Our
ItemQuest software enables our customers to analyze and potentially improve
their component procurement process.
Customers
We have an extensive customer base which includes many of the world's
largest original equipment manufacturers, contract manufacturers, and
distributors. During 1999, we had a customer base of over 5,000 customers in 52
countries. Some of the largest customers of our market making service include
British Aerospace, Infos, Lucent, Motorola, Nortel and Solectron. Our recent
acquisition of IQXpert provided us with another large, complementary customer
base. In 1999, approximately 2,000 customers representing over 20,000 users or
seats paid for subscriptions to the CAPSXpert databases. The largest customers
of the CAPSXpert databases in 1999 included Boeing, Lockheed Martin, Seagate
Technology, Solectron, Sony and TRW.
In 1999, our largest 20 customers accounted for $16.0 million of our total
$41.5 million in sales, our largest 50 customers accounted for $22.3 million of
our total $41.5 million in sales, and our top 100 customers accounted for $27.2
million of our total $41.5 million in sales. In 1999, British Aerospace
accounted for approximately 6% of our total sales. No other customer accounted
for more than 5% of our total sales in 1999.
Distribution and Fulfillment
We operate two distribution and fulfillment centers in the United States and
one in Denmark. Our United States facilities are located in Palisades Park, NJ
and in Bohemia, NY. We provide a complete set of services including receiving,
inspection, verification, quality check, order tracking, consolidation,
repackaging, export documentation and shipping in each facility. Our facility
in Bohemia is certified under ISO 9002, a set of standards published by the
International Standardization Organization used to document, implement and
demonstrate quality management and assurance systems.
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The goal of our distribution and fulfillment activity is to provide our
customers with rapid turnaround, on-time and accurate fulfillment, and an
overall high level of service. We actively monitor our performance and work
closely with our customers and suppliers to address any problems that may
occur.
Sales and Marketing
We currently market our services through 11 domestic offices and four
foreign offices. In addition, we maintain relationships with sales
representatives located in four additional foreign offices. Our sales force
targets buyers and engineers at product manufacturers.
After the Free Trade Zone is commercially operational, users of our
procurement agent will be directed to enter our Free Trade Zone when they sign
on to use the procurement agent. We will also utilize a direct sales force,
telemarketing efforts, and strategic relationships to promote the adoption and
use of our Free Trade Zone. We intend to conduct marketing programs designed to
create brand awareness for the Free Trade Zone and educate potential
participants as to its functionality and efficiency. In addition, we will
advertise and conduct direct mail, public relations and event marketing
campaigns. We also expect to be active at industry trade shows and other
available public forums.
We recently entered into a three-year agreement with Cahners Business
Information Inc., or Cahners, for the creation of interfaces between our online
products and Cahners' e-inSITE online network of Web sites. Cahners is one of
the largest business-to-business information providers with more than 125
targeted print magazines, 140 Web sites, research databases and CD-ROMs serving
16 markets. Cahners is an affiliate of Cahners Information Holdings, Inc., one
of our principal shareholders. Cahners' EDN magazine is a provider of printed
information concerning complex design problems, product announcements, industry
news and events to over 215,000 design and development engineers and
engineering managers. EDN Access, Cahners' Web site for the industry, offers
online access to information provided in EDN and has attracted over 75,000
users during the past two years. Under the agreement, Cahners has agreed to
promote us as its exclusive e-commerce business partner for electronic
components to the electronic original equipment market on e-inSITE and in
Cahners' publications. In return, we have agreed to use Cahners as the
exclusive advertising sales agent for our procurement agent and our Free Trade
Zone to electronic component distributors and manufacturers.
Technology and Systems
Our Information Systems department is responsible for internal
infrastructure as well as software development. Infrastructure encompasses all
of our internal technology and systems, including networks and desktops,
internal application support, internal help desk, data acquisition and
management and external customer support. Software development is responsible
for the design, creation, development and maintenance of the Free Trade Zone.
The Free Trade Zone's applications, databases, connection to the Internet
and physical environment require considerable resources, maintenance,
monitoring and support. The Free Trade Zone will support multiple electronic
document formats. The Free Trade Zone will be hosted on IBM RS/6000 equipment
at a hosting site in New York City operated by Intira Corporation. Intira
specializes in the physical operation of large-scale Web sites and has been
chosen by us to operate and manage the physical platform in their secure
facilities with multiple, high-speed connections to the Internet, dual
connections to the electrical power grid, and multiple environmental control
systems. We have entered into a three-year agreement with Intira that requires
it to provide the equipment, facilities and services necessary to host our Free
Trade Zone. In addition, Intira also will provide us with data management,
security and Internet access services. As part of their service, Intira has
provided that our Free Trade Zone website will be available and accessible
99.5% of the time within any given calendar month, and has provided other
assurances relating to the functioning of Intira's systems, networks and
facilities.
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The CAPSXpert databases operate on computer equipment manufactured by
Digital Equipment Corporation. Presently, the CAPSXpert databases reside at a
hosting site in Denver, CO operated by Information Handling Services, Inc., one
of our principal shareholders. We intend to move the CAPSXpert databases to the
Intira hosting site and integrate them with the Free Trade Zone. In addition,
we intend to increase the service level so that the CAPSXpert databases can
accommodate the increase in traffic expected from making the databases free of
charge to users of the Free Trade Zone.
Competition
The markets in which we operate are characterized by intense competition
from several types of companies, including but not limited to component
manufacturers, distributors, market makers, brokers, online catalog
aggregators, online excess surplus auction companies, enterprise software
companies, e-procurement providers and content providers. Many of these
companies have established strategic alliances which may create additional
competitive product and service offerings. We expect there are or will be other
types of potential competitors that we have not identified.
We expect to face further competition from new entrants to the market not
yet known, as well as from alliances between competitors in the future. Many of
our current and potential future competitors have greater financial, technical,
market and other resources than us and may have deeper strategic relations with
a broader supply and customer base than we do. As a result, these competitors
may be able to provide a more competitive solution, respond more quickly to new
or emerging technologies and changes in customer requirements or devote greater
resources to the development, promotion and sales of their services than we
can. We may not be able to compete successfully with existing or new
competitors and competition may have a material adverse effect on our business,
financial condition, prospects and operating results.
Intellectual Property
Our intellectual property is very important to our business. We rely on a
combination of contractual provisions, employee and third-party nondisclosure
agreements, and copyright, trademark, service mark, trade secret and patent
laws to establish and protect the proprietary rights of our software and
services.
Our efforts to protect our intellectual property may not be adequate. Our
competitors may independently develop similar technology or duplicate our
software and services. Intellectual property laws provide limited protection.
Moreover, the laws of some foreign countries do not offer the same level of
protection for intellectual property as the laws of the United States. We may
be unable to detect some unauthorized use of our intellectual property. We may
have to resort to litigation to enforce our intellectual property rights, or to
determine the validity and scope of the proprietary rights of others. Any such
litigation may be expensive and time-consuming.
We could be subject to intellectual property infringement claims. Defending
against these claims, even if not meritorious, could be expensive and divert
our attention from operating our company. If we become liable to third parties
for infringing upon their intellectual property rights, we could be required to
pay substantial damage awards and be forced to develop noninfringing
technology, obtain a license or cease using the applications that contain the
infringing technology or content. We may be unable to develop noninfringing
technology or content or obtain a license on commercially reasonable terms, or
at all.
We have registered trademarks in the United States for "PartMiner," "CAPS,"
and "ItemQuest." We have pending service mark applications for the registration
of "Free Trade Zone," "PartMiner Free Trade Zone," "Electronic Commerce Free
Trade Zone," "Fast. Simple Complete. Which part don't you get?," "CAPSXpert,"
and "IQXpert" (and design), and have also used "Market-Trak," "Accu-Trak," and
"Req-Trak" in the course of our business. In addition, we currently have two
pending patent applications in the United States, one relating to the Free
Trade Zone's business model and one relating to our ItemQuest software. We may
not be successful in obtaining the patents or service mark registrations for
which we have applied. Even if we are issued a patent, it is possible that
others may be able to challenge such patent and/or that no competitive
advantage will be gained from such patent.
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We license some components of our technology from third parties. These
licenses from third parties may not be available to us on commercially
reasonable terms in the future. The loss of these licenses could delay release
or enhancement of our services until equivalent technology could be licensed,
developed or otherwise obtained. Any such delay could have a material adverse
effect on our business.
We cannot determine whether future patent, service mark or trademark
applications, if any, will be granted. No certainty exists as to whether our
current intellectual property, or any future intellectual property that we may
develop, will be challenged, invalidated or circumvented or will provide us
with any competitive advantage.
In connection with the development of our Free Trade Zone, we entered into a
master agreement with IBM providing for the development and purchase or license
of hardware, software and services. Our obligations under this agreement
include paying for the hardware, software and services provided by IBM,
designating a project manager to work with IBM personnel, providing content and
data for inclusion in the Free Trade Zone, and granting IBM an irrevocable,
non-exclusive license to use specified custom deliverables developed for us by
IBM. In general, the agreement may be terminated by us upon termination or
expiration of our obligations, or by either party if the other party does not
comply with the terms of the agreement.
Pursuant to this agreement, we currently license a portion of our Free Trade
Zone's underlying code from IBM. Among the considerations made in selecting IBM
to assist us in the initial development of the Free Trade Zone was IBM's
ability to incorporate some of their preexisting resources into the Free Trade
Zone. Our contractual arrangements with IBM provide that IBM will continue to
own these preexisting resources subject to IBM having granted us an
irrevocable, non-exclusive, perpetual license to use these preexisting
resources. We will own all custom deliverables that have been created during
this development project, but we are required to grant IBM a license to use
some of the custom deliverables developed for us by IBM prior to December 1,
1999.
We believe that we own or have the right to use all intellectual property
necessary for the commercial acceptance and success of the Free Trade Zone.
However, if IBM were to provide its preexisting resources along with those
custom deliverables for which they have a license to other IBM customers, many
of whom may be larger, more well established and have greater access to
resources than we do, such customers may introduce similar or competing e-
commerce products and services that achieve market acceptance, which could make
the success of our Free Trade Zone less likely. In such event, our business,
financial condition, prospects and operating results would be seriously harmed.
Government Regulation
Export Controls. We derive revenues from sales of goods and technology to
customers in countries other than the United States. The United States
government controls the export of goods and technology through rules and
regulations promulgated and enforced by the Department of Commerce, the
Department of the Treasury, and the Department of State. Export licenses for
the shipment of goods and technology may be required for some items sold to
certain foreign customers or to all customers in certain countries. In
addition, export of all goods and technology may be forbidden from the United
States to certain countries. The need for export licenses could disrupt some
sales due to the inability to obtain licenses in a timely manner or the
inability to ship to some customers or countries because of export law
restrictions. Failure to obtain an export license when one is required or other
violations of export laws and regulations may result in civil and/or criminal
penalties and fines. The civil fines and penalties imposed are assessed at the
discretion of the authorized government agency and may include monetary fines
of up to $10,000 per violation (or up to $100,000 per violation involving
national security controls), and/or denial of export privileges. Penalties may
also include seizure and forfeiture of subject items. The criminal penalties
for willful violations may include fines of either five times the value of the
export involved or $50,000, whichever is greater, or imprisonment of not more
than five years, or both. For willful violations involving controls for foreign
policy purposes or military or intelligence gathering purposes, penalties may
include fines of not more than five times the value of
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<PAGE>
the export involved or $1,000,000, whichever is greater; and in the case of an
individual, a fine of not more than $250,000, or imprisonment of not more than
10 years, or both.
Internet Regulation. There are an increasing number of laws and regulations
pertaining to the Internet. In addition, a number of legislative and regulatory
proposals are under consideration by federal, state, local and foreign
governments and agencies. Laws or regulations may be adopted with respect to
the Internet relating to the liability for information retrieved from or
transmitted over the Internet, on-line content regulation, user privacy,
taxation and the quality of products and services. Moreover, it may take years
to determine whether and how existing laws such as those governing issues
relating to intellectual property ownership and infringement, privacy, libel,
copyright, trademark, trade secret, taxation and the regulation of the sale of
other specified goods and services apply to the Internet. The requirement that
we comply with any new legislation or regulation, or any unanticipated
application or interpretation of existing laws, may decrease the use of the
Internet, which could in turn decrease the demand for our service, increase our
cost of doing business or otherwise have a material adverse effect on our
business, financial condition, prospects and operating results.
Internet Taxation. A number of legislative proposals have been made at the
Federal, state and local level, and by foreign governments, that would impose
additional taxes on the sale of goods and services over the Internet and
certain states have taken measures to tax Internet-related activities. Although
in October 1998 Congress enacted a three-year moratorium on state and local
taxes on Internet access or on discriminatory taxes on electronic commerce,
existing state or local laws were expressly excepted from this moratorium. Once
this moratorium is lifted, some type of Federal and/or state taxes may be
imposed upon Internet commerce. Similar risks relating to the taxation of the
Internet exist with respect to foreign jurisdictions. Such legislation or other
attempts at regulating commerce over the Internet may substantially impair the
growth of commerce on the Internet and, as a result, adversely affect our
opportunity to derive financial benefit from such activities.
Regulation of Communications Facilities. To some extent, the rapid growth of
the Internet in the United States has been due to the relative lack of
government intervention in the marketplace for Internet access. Lack of
intervention may not continue in the future. For example, several
telecommunications carriers are seeking to have telecommunications over the
Internet regulated by the Federal Communications Commission in the same manner
as other telecommunications services. Additionally, local telephone carriers
have petitioned the Federal Communications Commission to regulate Internet
service providers in a manner similar to long distance telephone carriers and
to impose access fees on such providers. Some Internet service providers are
seeking to have broadband Internet access over cable systems regulated in much
the same manner as telephone services, which could slow the deployment of
broadband Internet access services. Because of these proceedings or others, new
laws or regulations could be enacted which could burden the companies that
provide the infrastructure on which the Internet is based, thereby slowing the
rapid expansion of the medium and its availability to new users.
Facilities
Our headquarters are located in New York, NY in an office consisting of
approximately 9,000 square feet of office space. We lease approximately 18,000
square feet in Denver, CO that serves as the main office of IQXpert. We lease
approximately 61,500 square feet in Melville, New York, 17,500 square feet in
Bohemia, NY and 6,200 square feet in Palisades Park, NJ for sales, accounting
and warehouse functions. In addition, we also lease foreign sales offices in
Denmark, Israel, Singapore and the United Kingdom, as well as domestic sales
offices in California, Georgia, Massachusetts and North Carolina. We lease all
of our facilities with terms expiring in 2001 through 2007. We may require
additional space to meet our needs in the next 12 months, and we are currently
evaluating additional space. We believe that suitable additional facilities
will be available as needed on commercially reasonable terms.
Employees
As of March 31, 2000, we had a total of 382 full-time employees. Of the
total employees, 53 were in finance and administration, 24 in operations and
fulfillment, 165 in purchasing, sales and marketing, 63 in
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information systems, 53 in content development and 24 in business development.
None of our employees are represented by a labor union or subject to any
collective bargaining agreements. We consider our relations with our employees
to be good.
Legal Proceedings
We are party to routine litigation incidental to our business. We do not
believe that any legal proceedings to which we are a party or to which any of
our property is subject will have a material adverse effect on our business,
financial condition, prospects or operating results.
39
<PAGE>
MANAGEMENT
Executive Officers and Directors
Our executive officers and directors and their respective ages and positions
as of March 31, 2000 are set forth below.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
Daniel Nissanoff............ 34 President and Chief Executive Officer;
Chairman of the Board of Directors
Earle Zucht................. 45 Chief Operating Officer; Executive Vice
President--Business Development
William R. Engles, Jr. ..... 41 Chief Financial Officer
William E. Barron........... 40 Chief Marketing Officer
Mark A. Schenecker.......... 39 Chief Technology Officer
Kimberly Hibler............. 41 Senior Vice President--Sales and Purchasing
Richard P. Sobel............ 38 Senior Vice President--Strategic Planning
and Development
Michael R. Manley........... 33 Vice President and General Counsel;
Secretary
Terri L. Pike............... 37 Vice President--Corporate Controller
Bruce M. Friedman........... 34 Director; Executive Vice President--
International Operations
L. Christopher Meyer........ 52 Director
Eben S. Moulton............. 53 Director
Brian Nairn................. 51 Director
Gerhard Schulmeyer.......... 61 Director
James M. Wilson............. 47 Director
</TABLE>
Daniel Nissanoff is our founder and has served as President, Chief Executive
Officer and Chairman of our Board of Directors since our inception in 1993.
Prior to founding our company, Mr. Nissanoff was an associate attorney in the
corporate reorganization department of the law firm of Weil, Gotshal & Manges
from August 1992 to October 1993.
Earle Zucht has served as Executive Vice President--Business Development
since April 1999 and Chief Operating Officer since October 1999. From January
1997 to February 1999, Mr. Zucht served as senior vice president of
semiconductor marketing at Wyle Electronics, a large franchised distributor of
electronic components, and as senior vice president of corporate sales from
March 1994 to January 1997.
William R. Engles, Jr. has served as Chief Financial Officer since January
2000. From April 1992 to January 2000, Mr. Engles was employed with Bear,
Stearns & Co. Inc., a securities firm, most recently as a managing director in
the investment banking department, where he principally advised companies in
the electronic components and contract manufacturing sectors.
William E. Barron has served as Chief Marketing Officer since January 1999.
From November 1997 to December 1998, Mr. Barron served as publishing director
of CMP Media Inc.'s electronics group, from January 1996 to October 1997, as
publisher of CMP Media's Electronic Buyer's News, and from August 1994 to
December 1995, as Associate Publisher of CMP Media's Electronic Engineering
Times.
Mark A. Schenecker has served as Chief Technology Officer since May 1999.
From October 1998 to May 1999, Mr. Schenecker served as vice president of
electronic commerce strategies at Doculabs where he provided analysis and
strategic advisory services to companies considering the use of the Internet as
a business application platform for conducting commerce. From March 1994 to
September 1998, Mr. Schenecker served as vice president of research and
development for Optika Inc.
Kimberly Hibler has served as Senior Vice President--Sales and Purchasing
since December 1999 and served as Vice President of Strategic Alliances from
June 1999 through December 1999. From March 1994 to
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<PAGE>
June 1999, Ms. Hibler was employed with Wyle Electronics, as marketing director
from September 1998 to June 1999, as vice president of Atlas Services from
March 1998 to September 1998, as vice president-operations from June 1997 to
March 1998 and as vice president of the southwest region from March 1994 to
June 1997.
Richard P. Sobel has served as a consultant to us since December 1999 and as
Senior Vice President-- Strategic Planning and Development since February 2000.
From July 1992 to December 1999, Mr. Sobel served in various venture capital
and financial advisory positions with CIBC Oppenheimer, ING Barings, and the
European Bank for Reconstruction and Development.
Michael R. Manley has served as Vice President and General Counsel and
Secretary since May 1999. From April 1993 to May 1999, Mr. Manley was an
attorney at the law firm of Gould & Wilkie LLP, where he was responsible for
developing the firm's New Media practice.
Terri L. Pike has served as Vice President--Corporate Controller since
December 1999 and as controller from May 1999 through November 1999. Ms. Pike
was employed with TLC Beatrice International Holdings, Inc., as vice
president--controller from November 1998 to May 1999, as controller from July
1993 to October 1998 and as assistant controller from July 1992 to July 1993.
Ms. Pike was also employed by Inter-Act Systems from June 1997 to October 1998
as controller. During her employment with Inter-Act Systems, Ms. Pike worked on
a limited, as-needed basis for TLC Beatrice International Holdings, Inc.
Bruce M. Friedman has served as Director and Executive Vice President--
International Operations since March 1999 and served as our Chief Operating
Officer from November 1996 to December 1998. From November 1995 to November
1996, Mr. Friedman served as a consultant to us. From January 1993 to December
1995, Mr. Friedman was president of Certified Industries International Inc.
L. Christopher Meyer has served as a Director since March 1999. He has
served as a member of the compensation committee since March 1999 and as a
member of the audit committee since September 1999. Mr. Meyer has served as
president and chief operating officer at Information Handling Services, Inc.
since June 1996 and as executive vice president and chief financial officer
from June 1989 to June 1996.
Eben S. Moulton has served as a Director since March 1999. He has served as
a member of the compensation committee since March 1999 and as a member of the
audit committee since September 1999. Mr. Moulton has served as the senior
managing director of Seacoast Capital Corporation since November 1994.
Mr. Moulton also serves as a director of IEC Electronics Corp.
Brian Nairn has served as a Director and a member of the compensation
committee since September 1999. In September 1996, Mr. Nairn joined Cahners
Business Information as executive vice president in charge of business
publications and was promoted to chief operating officer in September 1999.
From January 1991 to August 1996, Mr. Nairn was employed by Advanstar
Communications where he held a number of senior positions and was promoted to
president of the publishing division in 1994.
Gerhard Schulmeyer has served as a Director since December 1999. Mr.
Schulmeyer has served as president and chief executive officer of Siemens
Corporation since January 1999. From July 1994 until December 1998, Mr.
Schulmeyer served as president and chief executive officer of Siemens Nixdorf.
Mr. Schulmeyer also serves as a director of Alcan Aluminum Limited, Korn/Ferry
International, FirePond, Inc. and Ingram Micro, Inc.
James M. Wilson has served as a Director since March 1999. He has served as
a member of the compensation committee since March 1999 and as a member of the
audit committee since September 1999. Mr. Wilson has served as managing
director of Boston Ventures Limited Partnership V since its formation in 1996.
Mr. Wilson has been a partner in each of Boston Ventures prior four investment
funds beginning in 1983.
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<PAGE>
Our Board of Directors consists of seven members. Four of our Directors are
affiliated with certain of our principal shareholders. All of our Directors
have been elected to such positions pursuant to a stockholders agreement with
us. This stockholders agreement will terminate upon the closing of this
offering. Our officers serve at the discretion of our Board of Directors,
subject to the terms of any employment agreements.
Classes of our Board of Directors
Our Board of Directors is divided into four classes that serve staggered
four-year terms as follows:
<TABLE>
<CAPTION>
Expiration
Class of Term Member(s)
----- ---------- -----------------------------------
<S> <C> <C>
Class I....................... 2000 Gerhard Schulmeyer
Class II...................... 2001 Brian Nairn, L. Christopher Meyer
Class III..................... 2002 Eben S. Moulton, James M. Wilson
Class IV...................... 2003 Daniel Nissanoff, Bruce M. Friedman
</TABLE>
Committees of our Board of Directors
Our Board of Directors has two standing committees, an audit committee and a
compensation committee. Our audit committee currently consists of L.
Christopher Meyer, Eben S. Moulton, Brian Nairn and James M. Wilson. This
committee is responsible for choosing and interacting with our independent
accountants, reviewing the scope and results of our audits with our independent
accountants and raising any issues with management and the full Board of
Directors and evaluating the adequacy of our internal accounting and control
procedures. Our compensation committee currently consists of L. Christopher
Meyer, Eben S. Moulton, Brian Nairn and James M. Wilson. This committee is
responsible for the design, review, recommendation and approval of compensation
arrangements, including salaries and bonuses, for our directors, executive
officers and key employees. In addition, it is responsible for the
administration of our stock plans, including the approval of grants under such
plans to consultants and other non-employees.
Director Compensation
Non-employee Directors are entitled to receive a fee of up to $15,000 per
year, or such other amount as the Board of Directors may deem advisable, and
all Directors are entitled to reimbursement of his or her related expenses.
Compensation Committee Interlocks and Insider Participation
Prior to the establishment of our compensation committee, Daniel Nissanoff,
our President, Chief Executive Officer and Chairman of our Board of Directors,
participated in deliberations of our Board of Directors concerning executive
officer compensation.
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<PAGE>
Executive Compensation
The following table sets forth compensation information for fiscal year 1999
in respect of our Chief Executive Officer and our four other most highly
compensated executive officers whose total annual salary and bonus exceeded
$100,000 for services rendered in all capacities to us and our subsidiaries
during 1999. We refer to these executive officers as our "named executive
officers" in various parts of this prospectus.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
------------------------------------
Securities
Underlying All Other
Name and Principal Position Salary Bonus Options/SARs (#) Compensation
- --------------------------- ---------- ------------------------- ------------
<S> <C> <C> <C> <C>
Daniel Nissanoff............ $ 334,427 $ 3,125 -- $ 547(5)
President and Chief
Executive Officer
William E. Barron(1)........ 222,917 -- 600,000 --
Chief Marketing Officer
Bruce M. Friedman(2)........ 199,792 1,875 -- 21,302(6)
Executive Vice President--
International Operations
Mark A. Schenecker(3)....... 121,282 -- 214,800 --
Chief Technology Officer
Earle Zucht(4).............. 121,043 -- 414,800 --
Chief Operating Officer and
Executive
Vice President--Business
Development
</TABLE>
- --------
(1) Mr. Barron was hired in January 1999 at an annual base salary of $250,000.
(2) Mr. Friedman's employment agreement, dated March 16, 1999, provides for an
annual base salary of $225,000.
(3) Mr. Schenecker was hired in May 1999 at an annual base salary of $200,000.
(4) Mr. Zucht was hired in April 1999 at an annual base salary of $150,000. His
annual base salary was increased to $200,000 as of September 1999.
(5) Reflects our matching contributions to the PartMiner, Inc. 401(k) Plan, as
allowable under Section 401(k) of the Internal Revenue Code of 1986, as
amended.
(6) Reflects personal expenses paid by us in the amount of $20,722 and our
matching contributions to the PartMiner, Inc. 401(k) Plan in the amount of
$580.
In January 2000, we hired William R. Engles, Jr. as our Chief Financial
Officer. Pursuant to his employment agreement, Mr. Engles is entitled to an
annual base salary of $200,000 and was granted options to purchase 570,000
shares of common stock, subject to vesting requirements.
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<PAGE>
Option Grants
The following table contains information concerning the stock option grants
which were made to our named executive officers in fiscal year 1999. Only three
of such officers were granted options. These options may terminate before their
expiration dates if the optionee's employment is terminated or upon the
optionee's death or disability.
<TABLE>
<CAPTION>
Potential Realizable Value at
Assumed Annual Rates of Stock
Price Appreciation for Option
Individual Grants Term
------------------------------------------------------- ---------------------------------
Number of % of Total Fair
Shares Options Market
Underlying Granted to Exercise Value
Options Employees Price on Date of Expiration
Name Granted in 1999(1) (per share) Grant Date 0% 5% 10%
- ---- ---------- ---------- ----------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
William E. Barron....... 600,000 -- $0.50 $0.91 1/26/09 $5,100,000 $7,913,000 $12,033,000
Mark A. Schenecker...... 214,800 17 1.16 1.16 7/29/09 1,684,000 2,614,000 3,980,000
Earle Zucht............. 214,800 17 1.16 1.16 7/12/09 1,684,000 2,614,000 3,980,000
Earle Zucht............. 200,000 16 2.10 3.66 10/01/09 1,380,000 2,142,000 3,260,000
</TABLE>
- --------
(1) Mr. Barron holds an option to purchase 600,000 shares of common stock. To
the extent Mr. Barron exercises all or a portion of these options, Mr.
Nissanoff and Seacoast Capital Partners Limited Partnership, two of our
existing shareholders, are required to contribute common stock to us to
satisfy these options. Therefore, this amount was not included in this
column for calculating these percentages.
The potential realizable value is calculated based on the ten-year term of
the option at time of grant. Stock price appreciation at 5% and 10% annual
rates is assumed pursuant to rules promulgated by the Securities and Exchange
Commission and does not represent our prediction of our stock price
performance. The potential realizable value at 5% and 10% appreciation is
calculated by assuming that the estimated value on the date of this offering
(based on the assumed initial public offering price of $9.00 per share)
appreciates at the indicated rates for the entire term of the option and that
the option is exercised at the exercise price and the shares sold on the last
day of its term at the appreciated prices.
Fiscal Year-End Option Values
The following table sets forth information concerning the year-end number
and value of unexercised options with respect to three of our named executive
officers. The other two named executive officers did not hold any options as of
the end of fiscal year 1999 to acquire common stock from us. No options were
exercised in fiscal year 1999 by any of our named executive officers. No stock
appreciation rights were exercised by the named executive officers in fiscal
year 1999 or were outstanding at the end of that year. There was no public
trading market for our common stock as of December 31, 1999. Accordingly, the
values set forth below have been calculated on the basis of the assumed initial
public offering price of $9.00 per share, less the applicable exercise price
per share, multiplied by the number of shares underlying the options.
<TABLE>
<CAPTION>
Number of
Securities Underlying Value of Unexercised
Unexercised Options In-the-Money Options at
at Fiscal Year-End (#) Fiscal Year-End
------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
William E. Barron........... 200,000 400,000 $1,700,000 $3,400,000
Mark A. Schenecker.......... 71,600 143,200 561,000 1,123,000
Earle Zucht................. 71,600 343,200 561,000 2,691,000
</TABLE>
In addition to the outstanding options set forth in the above table, Bruce
M. Friedman, one of our named executive officers, and his wife jointly held
options to purchase from Daniel Nissanoff shares of our common stock for an
exercise price of approximately $0.13 per share. In February 2000, Daniel
Nissanoff contributed to us 2,796,175 shares of common stock and we thereafter
granted options to Mr. and Mrs. Friedman covering these shares. Mr. and Mrs.
Friedman exercised all of these options on February 16, 2000 and currently hold
no options to purchase shares of our common stock.
44
<PAGE>
Employment Agreements
We have employment agreements with all of our named executive officers and
with our recently hired Chief Financial Officer. Each of Daniel Nissanoff and
Bruce M. Friedman's employment agreement has an initial five-year term expiring
on March 16, 2004 and each may be extended beyond the initial term with the
prior written agreement of Mr. Friedman or Mr. Nissanoff, respectively, and us.
Mr. Nissanoff's employment agreement provides for his employment as our
President and Chief Executive Officer at a base salary of $300,000 per year and
an additional amount of $2,000 per month to be used to pay for, in his
discretion, an automobile, parking, health insurance or other similar fringe
benefit. Mr. Friedman's employment agreement provides for his employment as an
executive officer at a base salary of $225,000 per year.
If we terminate either of Messrs. Nissanoff or Friedman's employment without
cause (as cause is defined in each such employment agreement), we must continue
to pay their base salaries and benefits for two years or until the scheduled
terms of their employment agreements expire, whichever period is shorter. If we
terminate Mr. Nissanoff's or Mr. Friedman's employment without cause or decide
not to renew or extend the term of either of their employment agreements or if
either terminates their employment for good reason (as defined in each
employment agreement), they have the right to require us to repurchase their
shares of common stock at the fair market value. This repurchase provision will
expire upon the consummation of this offering.
William E. Barron's employment agreement provides for his employment as our
Chief Marketing Officer for a term ending on February 15, 2001. Mr. Barron has
a base salary of $250,000 per year. If we terminate Mr. Barron's employment
without cause, we must continue to pay his base salary and provide his benefits
until February 15, 2001 and all of Mr. Barron's stock options will immediately
vest. If Mr. Barron's employment is terminated due to death or disability, all
of his options shall immediately vest.
Mark A. Schenecker's employment agreement provides for his employment as our
Chief Technology Officer for a term ending on May 24, 2001. Mr. Schenecker has
a base salary of $200,000 per year under his agreement.
Earle Zucht's employment agreement provides for his employment as our
Executive Vice President-Business Development for a term ending on April 5,
2001. Mr. Zucht has a base salary of $150,000 per year under his agreement. His
annual salary was increased to $200,000 as of September 1999. If we terminate
Mr. Zucht's employment without cause or if Mr. Zucht terminates his employment
for good reason, we must continue to pay his health insurance and other
benefits (not including salary) for a period of 12 months from the date of
termination.
William R. Engles, Jr.'s employment agreement provides for his employment as
our Chief Financial Officer for a term ending on January 30, 2002. Mr. Engles
has a base salary of $200,000 per year under his agreement. If we terminate Mr.
Engles's employment without cause or if Mr. Engles terminates his employment
for good reason, we must pay a lump sum payment equal to the net present value
of his base salary for the remainder of his employment term provided that we
have cash available to make such a payment and all of his options will
immediately vest. If we do not have the cash to make the payment, we must pay
him continuing payments of base salary and benefits in accordance with our
regular payroll practice until we are capable of making the balance of the lump
sum payment.
All of our named executive officers and our Chief Financial Officer are
entitled to participate in our benefit plans, to reimbursement of reasonable
expenses incurred in the performance of their duties and, in the case of
Messrs. Nissanoff and Friedman, the provision of life insurance benefits. In
addition, all of our named executive officers and our Chief Financial Officer
have agreed to restrictions on their ability to compete with us and to keep
certain information confidential.
45
<PAGE>
In addition to the employment agreements with our named executive officers
and Chief Financial Officer, we have entered into employment and/or severance
agreements or arrangements providing for total annual salary and bonus over
$100,000 with several of our other executive officers. We also have
arrangements with several of our employees, including some of our named
executive officers, in which we provide and pay for corporate apartments for
such employees in New York City and pay for round-trip weekly airfare from the
locations of their primary residence to New York City.
1999 Stock Plans
1999 Stock Plan. In May 1999, our Board of Directors established the 1999
Stock Plan to enable our directors, officers and key employees to participate
in our future and to enable us to attract and retain such persons by offering
them stock options, stock appreciation rights and/or restricted stock in our
company. Our shareholders adopted this plan in May 1999. The plan will be
administered by the Board or the Board's compensation committee. Our Board
selects participants of the plan who, in its judgment, are in a position to
contribute materially to our continued growth, development and long-term
financial success.
The total number of shares of our common stock subject to issuance under the
plan may not exceed 2,498,200 shares (subject to appropriate adjustment upon a
stock split and other similar events). The plan will remain in effect until all
the shares of common stock subject to it have been purchased or acquired. No
stock options or restricted stock may be granted under the plan on or after the
plan's tenth anniversary.
Our Board has complete discretion, subject to the provisions of the plan, in
determining the terms and conditions of any stock option grant, including
whether to grant stock options, the number of stock options to grant, the
exercise price, the term, any vesting requirements and whether the stock option
is to be an incentive stock option or a nonstatutory stock option. Each stock
option award must be made pursuant to an option agreement. Each stock option
will expire at an expiration date determined by the Board and no later than 10
years from the grant date. The exercise price for options granted is determined
by the Board. Incentive stock options may not have an exercise price that is
less than the fair market value of the underlying stock on the date the stock
option is granted. Any stock option granted to a person who owns greater than
5% of our stock must have an exercise price of not less than 110% of the fair
market value of the underlying stock on the date the stock option is granted.
The Board has the discretion, in connection with a stock option grant, to
grant stock appreciation rights covering the same shares of common stock
subject to the stock option grant or on a stand alone basis. The terms and
conditions of the stock appreciation rights will be included in the stock
option agreement issued in connection with the stock option grant or in a
separate agreement. Upon the exercise of a stock option, any related stock
appreciation right will be canceled. Similarly, upon the exercise of a stock
appreciation right, any related stock option will be canceled. Stock
appreciation rights may not be exercised until six months after the grant date.
Each grant of restricted stock must be made pursuant to an agreement
containing such restrictions, terms and conditions as determined by our Board.
Transfer and other restrictions will be removed from the restricted stock after
the end of the period of restrictions. During the period of restrictions,
holders of restricted stock will have full voting rights and be entitled to
receive dividends and distributions.
The Board has the discretion to accelerate the exercisability date(s) for
stock options and the term of the restricted period for restricted stock upon a
change in control of our company. Such acceleration may be automatic or, at the
discretion of the Board, may depend upon whether a majority of the Board
approves the change in control or may be pursuant to other criteria specified
by the Board.
The Board may include provisions in the applicable agreement that restrict
the transfer of shares purchased or granted under the plan unless they are
first offered to our company or to another shareholder. In addition, the Board
may include a provision providing us with a right to repurchase or redeem all
shares held by a person under the plan upon termination of his or her
employment.
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<PAGE>
As of April 4, 2000, we had stock options outstanding under the 1999 Stock
Plan to purchase 2,485,900 shares of common stock, 498,900 of which were vested
and 1,987,000 of which were subject to future vesting requirements. None of the
stock options have been exercised. We have not granted any stock appreciation
rights or restricted stock pursuant to the plan.
1999 Employee Incentive Stock Plan. The Board of Directors established the
1999 Employee Incentive Stock Plan in September 1999 to enable our employees
and consultants to participate in our future and to enable us to attract and
retain such persons by offering them stock options, stock appreciation rights
or restricted stock in our company. Our shareholders adopted the plan in
November 1999. The plan is administered by the Board or the Board's
Compensation Committee. All of our employees and consultants are eligible to
participate in the plan. The Board and/or its Compensation Committee selects
the actual participants in the plan.
The total number of shares of our common stock subject to issuance under the
plan may not exceed 2,155,000 shares (subject to appropriate adjustment upon a
stock split and other similar events). The plan will remain in effect until all
the shares of common stock subject to it have been purchased or acquired,
unless the Board decides to terminate the plan earlier. No stock options or
restricted stock may be granted under the plan on or after the plan's tenth
anniversary.
Our Board has complete discretion, subject to the provisions of the plan, in
determining the terms and conditions of any stock option grant, including
whether to grant stock options, the number of stock options to grant and
whether the stock option is to be an incentive stock option or a nonstatutory
stock option. Each stock option award must be made pursuant to an option
agreement. Each stock option will expire according to an expiration date
determined by the Board and no later than 10 years from the grant date. The
exercise price for options granted is determined by the Board. Incentive stock
options may not have an exercise price that is less than the fair market value
of the underlying stock on the date the stock option is granted. Any stock
option granted to a person who owns greater than 10% of our stock must have an
exercise price of not less than 110% of the fair market value of the underlying
stock on the date the stock option is granted.
The Board has the discretion, in connection with a stock option grant, to
grant stock appreciation rights covering the same shares of common stock
subject to the stock option grant or on a stand alone basis. The terms and
conditions of the stock appreciation rights will be included in the stock
option agreement issued in connection with the stock option grant or in a
separate agreement. Upon the exercise of a stock option, any related stock
appreciation right will be canceled. Similarly, upon the exercise of a stock
appreciation right, any related stock option will be canceled. Stock
appreciation rights may not be exercised until six months after the grant date.
Each grant of restricted stock must be made pursuant to an agreement
containing such restrictions, terms and conditions as determined by our Board.
Transfer and other restrictions will be removed from the restricted stock after
the end of the period of restriction. During the period of restriction, holders
of restricted stock will have full voting rights and be entitled to receive
dividends and distributions.
The Board has the discretion to accelerate the exercisability date(s) for
stock options and the term of the restricted period for restricted stock upon a
change in control of our company. Such acceleration may be automatic or, at the
discretion of the Board, may depend upon whether a majority of the Board
approves the change in control or may be pursuant to other criteria specified
by the Board.
The Board may include provisions in the applicable agreement that restrict
the transfer of shares purchased or granted under the plan unless they are
first offered to our company or to another shareholder. In addition, the Board
may include a provision providing us with a right to repurchase or redeem all
shares held by a person under the plan upon termination of his or her
employment or engagement with us.
As of April 4, 2000, we had stock options outstanding under the 1999
Employee Incentive Stock Plan to purchase 1,193,175 shares of common stock.
These options will vest only in the event of an initial public offering. Upon
the effective date of the registration statement, 238,635 of these options
become immediately exercisable and 954,540 will be subject to future vesting
requirements. We have not granted any stock appreciation rights or restricted
stock pursuant to the plan.
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<PAGE>
RELATED PARTY TRANSACTIONS
In March 1999, we sold 81,632 shares of our Series A mandatorily redeemable
convertible preferred stock to Boston Ventures Limited Partnership V, or Boston
Ventures, for $10,000,000 and 10,204,100 shares of our common stock to Thybo
New Ventures Limited, or Thybo, for $7,150,000 in cash. Thybo has since
transferred these shares to its affiliate, Vulcan Securities Limited, or
Vulcan. The 81,632 shares of Series A mandatorily redeemable convertible
preferred stock will automatically convert into 8,163,200 shares of common
stock upon the closing of this offering. In addition, in March 1999 we executed
a license agreement with Information Handling Services, Inc., a related party
of Thybo. This license agreement was terminated in November 1999.
On March 16, 1999, we entered into a stock purchase agreement with Seacoast
Capital Partners Limited Partnership, or Seacoast. Pursuant to this stock
purchase agreement, Seacoast converted its 12.5% Senior Subordinated Note of
ours in the principal amount of $3,000,000 issued on July 30, 1997 into 24,490
shares of Series A mandatorily redeemable convertible preferred stock,
exercised warrants for nominal consideration issued in connection with the Note
for 5,000,000 shares of mandatorily redeemable common stock and terminated all
of its then existing contractual arrangements with us that it had entered into
relating to its purchase of the Note and warrants. The 24,490 shares of Series
A mandatorily redeemable convertible preferred stock will automatically convert
into 2,449,000 shares of common stock upon the closing of this offering.
On March 16, 1999, Boston Ventures granted to Daniel Nissanoff and Bruce M.
Friedman an option to purchase an aggregate of 1,020,400 shares of common stock
held by Boston Ventures at a price of $1.225 per share.
In March 1999, we loaned Daniel Nissanoff, our Chief Executive Officer and
President, $850,000 in exchange for a promissory note in the principal amount
of $850,000. Mr. Nissanoff used the proceeds of the loan to purchase 15,000,000
shares of our common stock held by Stacy Jargowsky Nissanoff, then a principal
shareholder of ours, and at the time, Mr. Nissanoff's wife. In March 1999, we
repurchased 15,000,000 shares of common stock owned by Mr. Nissanoff in
exchange for cancelling the promissory note.
On September 10, 1999, we entered into a stock purchase agreement with
Elsevier Realty Information Inc., or Elsevier. Pursuant to this stock purchase
agreement, Elsevier purchased 4,630,600 shares of mandatorily redeemable common
stock from us for a purchase price of $10,000,000 and an aggregate of 2,315,300
shares of common stock from Messrs. Nissanoff and Friedman for an aggregate
purchase price of $5,000,000. Elsevier has since changed its name to Cahners
Information Holdings, Inc., or Cahners. In connection with such sale, we
entered into a three-year agreement with Cahners, in which we agreed to pay
Cahners a fee of 20% of all advertising sold by Cahners on our behalf. We are
obligated to purchase a minimum of $500,000 in annual advertising from Cahners.
In addition, Cahners is entitled to a fee of 1% of any revenues generated
during this three-year period over our Free Trade Zone from customers referred
to us by Cahners. In exchange Cahners has agreed to promote us as its exclusive
e-commerce business partner for electronic components to the electronic
original equipment market on its e-inSITE online network of Web sites and in
Cahners' publications.
On November 30, 1999, we entered into an agreement and plan of merger with,
among others, Information Handling Services, Inc., or IHS, and Thybo. Pursuant
to this agreement and plan of merger, we issued to IHS 9,360,600 shares of our
common stock, an additional 437,800 shares of our common stock to Thybo, and a
total of an additional 1,920,600 shares of our common stock to other
individuals in exchange for all of the outstanding shares of common stock of
IQXpert Holdings Inc. Thybo has since transferred these shares to its
affiliate, Vulcan. As part of the agreement and plan of merger, we agreed to
negotiate in good faith to license to IHS the CAPSXpert databases and other
data, and IHS agreed to negotiate in good faith to license to us some of their
additional databases. Additionally, we agreed to enter into a services
agreement with IHS to pay IHS approximately $248,000 per month in return for
the provision of corporate services by IHS. We currently pay this amount to
IHS. This services arrangement is unrelated to our license agreement with IHS
that was terminated in November 1999. Although a formal written agreement has
not been signed, the services we receive include leasing of space and
utilities, hosting of our CAPSXpert databases shipping and order assembly
related to CAPSXpert subscriptions, data processing and other general and
administrative services.
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<PAGE>
James M. Wilson, one of our Directors, is a related person of Boston
Ventures. L. Christopher Meyer, one of our Directors, is a related person of
Thybo, Vulcan and IHS. Eben S. Moulton, one of our Directors, is a related
person of Seacoast. Brian Nairn, one of our Directors, is a related person of
Cahners.
On December 20, 1999, Boston Ventures paid Messrs. Nissanoff and Friedman an
aggregate of $4.0 million in consideration for terminating the option granted
to them by Boston Ventures on March 16, 1999. This option had originally been
scheduled to terminate if the option had not vested by December 31, 2001.
On December 20, 1999, we entered into a revolving credit facility with HAIC
Inc., an entity affiliated with IHS, Thybo and Vulcan. The credit facility
allowed us to borrow up to $10,000,000. Pursuant to a security agreement
entered into in connection with such credit facility, we granted HAIC Inc. a
first priority security interest in all of our inventory and accounts
receivable as collateral for such facility. During December 1999 and January
and February 2000 we borrowed a total of $9,000,000 under this facility. This
credit facility has been repaid with the net proceeds of our issuance of Series
B mandatorily redeemable convertible preferred stock in February 2000. Both the
credit facility and the security agreement have been terminated.
On February 16, 2000, Bruce M. Friedman and his wife exercised an option
they had with us to purchase 2,796,175 of shares of common stock contributed to
us by Mr. Nissanoff for an exercise price of approximately $0.13 per share. Mr.
and Mrs. Friedman sold 1,287,975 of those shares of common stock to three of
our other shareholders for an aggregate amount equal to $4,500,000.
On February 16, 2000, we sold 1,320,994, 1,013,309, 924,656 and 862,204
shares of our Series B mandatorily redeemable convertible preferred stock to
Vulcan, Boston Ventures, Seacoast and Cahners, respectively, for an aggregate
purchase price of $20,000,000, or $4.853 per share. These shares were sold
pursuant to a stock purchase agreement dated February 16, 2000 and will
automatically convert to common stock on a one-to-one basis upon the closing of
this offering.
On February 16, 2000, we entered into a third amended and restated
registration rights agreement with Vulcan, Boston Ventures, Seacoast, IHS and
Cahners, our principal shareholders, as well as other shareholders of ours.
We are party to a license agreement with Market Maker Systems Corporation,
an entity which is 50% owned by Mr. Nissanoff. Pursuant to the license
agreement, we received a license to use their Priority Data Software System for
a term of 50 years in exchange for our leasing space to Market Maker for one
year rent free. We have no future monetary obligations to Market Maker under
this license agreement.
We believe that all of the transactions described above were made on overall
terms no less favorable to us than could have been obtained from unaffiliated
third parties at such time. All future transactions between us and our
directors, officers, principal shareholders and their affiliates will be
approved by a majority of the Board of Directors, including a majority of the
disinterested directors on the Board of Directors, and will be on terms we
believe to be no less favorable to us than could be obtained from unaffiliated
third parties at such time.
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<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth information with respect to the actual
beneficial ownership of our common stock as of the date of this prospectus and
as adjusted to reflect our sale of the common stock in this offering by the
following:
. each person (or group of affiliated persons) whom we know to own
beneficially more than five (5%) percent of our common stock;
. each of our Directors;
. each of our named executive officers; and
. all of our Directors and executive officers as a group.
The numbers of shares and the percentages of beneficial ownership in the
following table are based on 67,468,805 shares of common stock outstanding as
of the date of this prospectus, assuming the conversion of all outstanding
shares of our mandatorily redeemable convertible preferred stock into shares of
common stock. The number of shares of common stock outstanding after the
offering includes the 5,000,000 shares of common stock being offered for sale
by us in this offering and assumes no exercise of the underwriters' over-
allotment option.
Under the rules of the Securities and Exchange Commission, beneficial
ownership includes sole or shared voting and/or investment power with respect
to shares and includes shares issuable under stock options that are exercisable
within 60 days from the date of this prospectus. Shares issuable under such
stock options are deemed outstanding for computing the percentage of the person
holding such options but are not outstanding for computing the percentage of
any other person.
To our knowledge, except as noted in the footnotes to the table, the persons
named below have sole voting and investment power with respect to all shares
beneficially owned by them. Unless otherwise indicated, the business address
for each person listed in the table is c/o PartMiner, Inc., 432 Park Avenue
South, 12th Floor, New York, New York 10016.
<TABLE>
<CAPTION>
Percentage of Shares
------------------------
Number of Shares Before After
Name of Beneficial Owner Beneficially Owned Offering Offering
- ------------------------ ------------------ -------- ----------
<S> <C> <C> <C>
Daniel Nissanoff(1)............. 9,888,525 14.7% 13.6%
Vulcan Securities Limited....... 11,962,894 17.7% 16.5%
Par La Ville Place
14 Par La Ville Place
Hamilton HM JK Bermuda
Boston Ventures Limited......... 9,176,509 13.6% 12.7%
Partnership V
c/o Boston Ventures Management,
Inc.
One Federal Street
23rd Floor
Boston, Massachusetts 02110
Seacoast Capital Partners
Limited Partnership(2)......... 8,067,175 12.0% 11.1%
c/o Seacoast Capital
Corporation
55 Ferncroft Road
Danvers, Massachusetts 01923
Information Handling Services,
Inc............................ 7,988,618 11.8% 11.0%
15 Inverness Way East
Englewood, Colorado 80112
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
Percentage of Shares
---------------------------
Number of Shares Before After
Name of Beneficial Owner Beneficially Owned Offering Offering
- ------------------------ ------------------ --------- ----------
<S> <C> <C> <C>
Cahners Information
Holdings, Inc.............. 7,808,104 11.6% 10.8%
275 Washington Street
Newton, Massachusetts 02458
Bruce M. Friedman(3)........ 1,508,200 2.2% 2.1%
William E. Barron(4)........ 400,000 * *
Mark A. Schenecker(4)....... 214,800 * *
Earle Zucht(4).............. 71,600 * *
L. Christopher Meyer(5)..... 685,991 1.0% *
Eben S. Moulton(5)(6)....... -- -- --
Brian Nairn(5).............. -- -- --
Gerhard Schulmeyer.......... -- -- --
James M. Wilson(5).......... -- -- --
All executive officers and
directors as a group (15
persons)(6)(7)............. 13,040,716 19.1% 17.8%
</TABLE>
- --------
* Less than one (1%) percent.
(1) 1,500,000 of these shares are subject to stock options granted to some of
our employees.
(2) 500,000 of these shares are subject to stock options granted to some of our
employees.
(3) These shares are held jointly by Bruce Friedman and his wife Lynne
Friedman. Includes 30,000 shares subject to an option held by Eben S.
Moulton.
(4) Represents options to purchase shares of common stock that are exercisable
within 60 days of the date of this prospectus.
(5) Pursuant to rules of the Securities and Exchange Commission, L. Christopher
Meyer may be deemed to beneficially own the shares held by Information
Handling Services, Inc.; Eben S. Moulton may be deemed to beneficially own
the shares held by Seacoast Capital Partners Limited Partnership and an
additional 306,480 shares held by an entity related to Seacoast Capital
Partners Limited Partnership; Brian Nairn may be deemed to beneficially own
the shares held by Cahners Information Holdings, Inc.; and James M. Wilson
may be deemed to beneficially own the shares held by Boston Ventures
Limited Partnership V. The foregoing individuals disclaim beneficial
ownership of such shares to the extent they have no pecuniary interest in
such shares.
(6) Does not include options to purchase 30,000 shares of common stock that was
granted by Bruce M. Friedman and his wife to Mr. Moulton at the initial
public offering price.
(7) Includes options to purchase 958,000 shares of common stock that are
exercisable within 60 days of the date of this prospectus. Does not include
the shares deemed to be beneficially owned by L. Christopher Meyer, Eben S.
Moulton, Brian Nairn and James M. Wilson described in footnote 5 of this
table.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 150,000,000 shares of common stock,
$.0001 par value, 106,122 shares of Series A mandatorily redeemable convertible
preferred stock, $.01 par value, and 10,302,905 shares of Series B mandatorily
redeemable convertible preferred stock, $.01 par value. Upon the closing of
this offering, all outstanding shares of our mandatorily redeemable convertible
preferred stock will automatically convert into shares of common stock.
Common Stock
As of the date of this prospectus, there are 67,468,805 shares of common
stock issued and outstanding assuming the conversion of all outstanding shares
of our mandatorily redeemable convertible preferred stock into shares of common
stock. As of such date, our capital stock is held of record by 33 shareholders.
There will be 72,468,805 shares of common stock outstanding (assuming no
exercise of the underwriters' over-allotment option and no exercise after
, 2000 of any outstanding options) after giving effect to the sale of
the shares of common stock in this offering and to the conversion of all
outstanding shares of our mandatorily redeemable convertible preferred stock
into shares of common stock.
The following summarizes the rights of holders of our common stock:
. each share of common stock is entitled to one vote on all matters to be
voted on by shareholders, including the election of directors;
. there are no cumulative voting rights;
. subject to any preferences that may be applicable to any preferred stock
outstanding at the time, the holders of our common stock are entitled to
dividends and other distributions out of assets legally available at
such times and in such amounts as our directors may determine from time
to time; and
. upon our liquidation, dissolution or winding-up, the holders of shares
of common stock will be entitled to share ratably in the distribution of
all of our assets remaining available for distribution after
satisfaction of all our liabilities and the payment of the liquidation
preference(s) of any then outstanding preferred stock.
All outstanding shares of common stock are fully paid and nonassessable, and
the shares of common stock to be issued upon completion of this offering will
be, upon issuance, fully paid and nonassessable.
Preferred Stock
Prior to the closing of this offering, we have shares of Series A and Series
B mandatorily redeemable convertible preferred stock outstanding. Each series
of mandatorily redeemable convertible preferred stock will automatically
convert into common stock upon the closing of this offering. The shares of
mandatorily redeemable convertible preferred stock vote together with our
common stock on all matters, subject to applicable law, and enjoy certain
preferences over our common stock in the case of our liquidation. Concurrent
with the closing of this offering, we intend to amend our certificate of
incorporation to delete references to our outstanding mandatorily redeemable
convertible preferred stock.
We intend to further amend our certificate of incorporation concurrent with
the closing of this offering to authorize undesignated shares of preferred
stock and authorize our Board of Directors to create and issue one or more
series of preferred stock and determine the rights and preferences of each
series within the limits set forth in our certificate of incorporation and
applicable law. Among other rights, we intend to authorize the Board to
determine, without further vote or action by our shareholders:
. the number of shares constituting the series and the distinctive
designation of the series;
. the dividend rate on the shares of the series, whether dividends will be
cumulative, and if so, from which date or dates, and the relative rights
of priority, if any, of payment of dividends on shares of the series;
52
<PAGE>
. whether the series will have voting rights in addition to the voting
rights provided by applicable law and, if so, the terms of the voting
rights;
. whether the series will have conversion privileges and, if so, the terms
and conditions of conversion;
. whether or not the shares of the series will be redeemable or
exchangeable, and, if so, the dates, terms and conditions of redemption
or exchange, as the case may be;
. whether the series will have a sinking fund for the redemption or
repurchase of shares of that series, and, if so, the terms and amount of
the sinking fund; and
. the rights of the shares of the series in the event of our voluntary or
involuntary liquidation, dissolution or winding-up and the relative
rights or priority, if any, of payment of shares of the series.
Although we have no present plans to issue any shares of preferred stock,
any future issuance of shares of preferred stock, or the issuance of rights to
purchase preferred shares, may have the effect of delaying, deferring or
preventing a change of control of our company or an unsolicited acquisition
proposal. The issuance of preferred stock could also decrease the amount of
earnings and assets available for distribution to the holders of common stock
and/or could adversely affect the rights and powers, including voting rights,
of the holders of the common stock.
Registration Rights
The holders of 56,072,080 outstanding shares of our common stock (assuming
the conversion of all outstanding shares of our mandatorily redeemable
convertible preferred stock) have rights to cause us to register their shares
under the Securities Act of 1933, as amended, as follows:
. Demand Registration Rights: Some of our existing shareholders may make a
demand for registration beginning 180 days after the closing of this
offering by providing a written demand from the holders of at least 30%
of the shares of common stock held by all such shareholders. We have
agreed to use our best efforts to effect such registration as soon as
possible after receipt of notice. We are obligated to effect a total of
two such demand registrations. We do not, however, have to effect such a
registration more than once during any six-month period.
. Piggyback Registration Rights: Our existing shareholders (other than our
President and Chief Executive Officer, Daniel Nissanoff and our
executive officer and director, Bruce Friedman) may request to have
their shares registered anytime we file a registration statement (not
including the one filed in connection with this offering) to register
any of our securities for our own account or for the account of others.
The number of such registration opportunities is not limited but the
number of shares that can be registered for such shareholders may be
eliminated entirely or reduced in certain situations by the
underwriters.
. S-3 Registration Rights: After we have qualified for registration on
Form S-3, some of our existing shareholders can request us to register
their shares if the aggregate price of the shares to be offered to the
public is not less than $3,000,000. Such a request must be in writing
from the holders of at least 30% of the shares of common stock held by
all such shareholders. We are not obligated to register these investors'
shares on Form S-3 more than once during any six-month period or more
than a total of six registrations.
These registration rights are subject to conditions and limitations,
including the right of the underwriters in such offering to reduce the number
of shares included in that registration under specified circumstances. We are
responsible for paying expenses related to these registration rights, including
registration and filing fees, exchange listing fees, printing expenses,
transfer taxes and fees and expenses of our counsel. In addition, we are
responsible for paying reasonable fees of up to $50,000 for each registration
and expenses of one counsel for our shareholders seeking registration. We are
not responsible for underwriting discounts or commissions.
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<PAGE>
Although we are obligated to effect a total of six registrations on Form S-3
for some of our existing shareholders, we have to pay the expenses for only
three of the registrations.
Anti-Takeover Effects of Provisions of New York Law, Our Certificate of
Incorporation and Proposed Amended By-laws
General
Provisions of New York law and our restated certificate of incorporation
could make more difficult or delay the acquisition of our company by means of a
tender offer, a proxy contest or otherwise and the removal of incumbent
directors. In addition, we intend to amend our by-laws to include provisions
that may also make it more difficult to attempt or delay the unsolicited
acquisition of our company or the removal of incumbent directors. These
provisions are intended to discourage coercive takeover practices and
inadequate takeover bids, even though such a transaction may offer our
shareholders the opportunity to sell their stock at a price above the
prevailing market price. They may also encourage persons seeking to acquire
control of us to negotiate with us first.
New York Takeover Statute
We are subject to the business combination provisions of Section 912 of the
New York Business Corporation Law and expect to continue to be so subject if
and for so long as we have a class of securities registered under Section 12 of
the Securities Exchange Act of 1934, as amended. Section 912 provides, with
certain exceptions, that a New York corporation may not engage in a business
combination (e.g., merger, consolidation, recapitalization or disposition of
stock) with any "interested shareholder" for a period of five years from the
date that such person first became an interested shareholder unless:
. the transaction resulting in a person becoming an interested shareholder
was approved by the board of directors of the corporation prior to that
person becoming an interested shareholder;
. the business combination is approved by the holders of a majority of the
outstanding voting stock not beneficially owned by such interested
shareholder;
. the business combination is approved by the disinterested shareholders
at a meeting called no earlier than five years after the interested
shareholder's stock acquisition date; or
. the business combination meets specified valuation requirements for the
capital stock of the New York corporation.
An interested shareholder is defined as any person that is the beneficial
owner of 20% or more of the outstanding voting stock of a New York corporation
or is an affiliate or associate of the corporation that at any time during the
prior five years was the beneficial owner, directly or indirectly, of 20% or
more of the then outstanding voting stock. A business combination includes
mergers, asset sales and other transactions resulting in a financial benefit to
the interested shareholder.
This statute could prohibit or delay the accomplishment of mergers, tender
offers or other takeover or change in control attempts with respect to us and,
accordingly, may discourage attempts to acquire us. These provisions are likely
to impose greater restrictions on new, unaffiliated shareholders than on our
existing shareholders who will continue to own a majority of our outstanding
common stock after this offering.
The stock acquisition date, with respect to any person and any New York
corporation, means the date that such person first becomes an interested
shareholder of such corporation.
Classified Board of Directors
Our restated certificate of incorporation divides our Board of Directors
into four classes with staggered four-year terms. Our directors cannot be
removed except for cause.
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<PAGE>
Meetings of Shareholders
Our proposed by-laws provide that special meetings of our shareholders may
be called only by our President, our Board of Directors, or upon the written
request of shareholders owning a majority of the shares of capital stock
issued and outstanding at such time.
Amendment of By-laws and Certificate of Incorporation
Our certificate of incorporation may be amended by our shareholders. Our
proposed by-laws may be amended or repealed by our Board of Directors or by
our shareholders. An amendment by shareholders with respect to the term,
vacancy or removal of directors and with respect to the amendment provision of
our by-laws and/or our certificate of incorporation will require the approval
of holders of at least 80% of the shares of capital stock issued and
outstanding at such time.
This system of electing directors, the ability of shareholders to remove
directors only for cause and the inability of shareholders holding less than a
majority of the issued and outstanding shares of capital stock to call a
special meeting may discourage someone from attempting to obtain control of
our company and may prevent a party who acquires control of a majority of the
outstanding shares of common stock from immediately obtaining control of our
Board of Directors.
Limitations of Liability and Indemnification Matters
As permitted by the New York Business Corporation Law, our restated
certificate of incorporation provides that a director is not personally liable
to us or our shareholders for damages for any breach of duty in his capacity
as a director unless a judgment or other final adjudication adverse to such
director establishes that (i) his acts or omissions were in bad faith or
involved intentional misconduct or a knowing violation of law, (ii) such
director personally gained a financial profit or other advantage to which he
was not legally entitled or (iii) his acts violated Section 719 of the New
York Business Corporation Law.
The provisions of our restated certificate of incorporation are intended to
afford our directors protection, and limit their potential liability, to the
fullest extent permitted by New York law. As a result of the inclusion of such
provisions, shareholders may be unable to recover monetary damages against
directors for actions taken by them that constitute negligence or, in some
cases, gross negligence or that are in violation of certain of their fiduciary
duties. This provision does not affect a director's responsibilities under any
other laws, such as the Federal securities laws. In addition, our restated
certificate of incorporation provides that we will indemnify our directors and
officers to the fullest extent permitted by New York law.
We have obtained directors' and officers' insurance for our directors and
officers for specified liabilities.
Transfer Agent and Registrar
The Transfer Agent and Registrar for our common stock is American Stock
Transfer & Trust Company.
55
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for any of our
securities. Therefore, future sales of substantial amounts of our common stock
in the public market could adversely affect market prices prevailing from time
to time. Furthermore, because only a limited number of shares of common stock
will be available for resale shortly after this offering due to contractual and
legal restrictions on resale as described below, sales of substantial amounts
of our common stock in the public market after such restrictions lapse could
adversely affect the then prevailing market price and our ability to raise
equity capital in the future.
Upon completion of this offering, we will have 72,468,805 shares of common
stock outstanding, assuming no exercise of outstanding options or the
underwriters' over-allotment option and the automatic conversion of all
outstanding shares of mandatorily redeemable convertible preferred stock into
shares of common stock. All of the 5,000,000 shares of common stock sold in
this offering and any shares sold upon exercise of the underwriters' over-
allotment option will be freely tradable without restriction or further
registration under the Securities Act of 1933, unless purchased by our
"affiliates," as such term is defined in Rule 144 under the Securities Act,
which shares will be subject to applicable limitations of Rule 144. The
remaining shares will, subject to any lock-up agreements, become eligible for
public sale as follows:
<TABLE>
<CAPTION>
Approximate
Date of Availability of Sale Number of Shares
---------------------------- ----------------
<S> <C>
, 2000 (180 days after the date of this
prospectus, in some cases under Rule 144)................
at various times after , 2000 ...................
</TABLE>
Rule 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person, or persons whose shares are aggregated,
who owns shares that were purchased from us, or any affiliate of ours, at least
one year previously, is entitled to sell within any three-month period a number
of shares that does not exceed the greater of 1% of our then outstanding shares
of common stock, which will equal approximately 720,000 shares immediately
after this offering, or the average weekly trading volume of our common stock
on The Nasdaq National Market during the four calendar weeks preceding the
filing of a notice of the sale on Form 144. Sales under Rule 144 are also
subject to manner of sale provisions, notice requirements and the availability
of current public information about us. Any person, or persons whose shares are
aggregated, who is not deemed to have been one of our affiliates at any time
during the three months preceding a sale, and who owns shares that were
purchased from us, or any affiliate of ours, at least two years previously,
would be entitled to sell the shares under Rule 144(k) without regard to the
volume limitations, manner of sale provisions, public information requirements
or notice requirements.
Rule 701
Subject to limitations on the aggregate offering price of a transaction and
other conditions, Rule 701 may be relied upon with respect to the resale of
securities originally purchased from us by our employees, directors, officers,
consultants or advisers prior to the date we become subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended, or the
Exchange Act, under written compensatory benefit plans or written contracts
relating to the compensation of these persons. In addition, the Securities and
Exchange Commission has indicated that Rule 701 will apply to typical stock
options granted by an issuer before it becomes subject to the reporting
requirements of the Exchange Act, along with the shares acquired upon exercise
of the options, including exercises after the date of this prospectus.
Securities issued in reliance on Rule 701 are restricted securities and,
subject to the contractual restrictions described above, beginning 90 days
after the date of this prospectus, may be sold by persons other than affiliates
subject only to the manner of sale provisions of Rule 144 and by affiliates
under Rule 144 without compliance with its minimum holding period
56
<PAGE>
requirements only. However, all shares that could be sold in reliance on Rule
701 are subject to lock up agreements and will only become eligible for sale
when the 180-day lock-up period expires.
Lock-up Agreements
Our officers, directors, shareholders and optionholders have agreed,
pursuant to lock-up agreements with the underwriters, not to offer, sell,
contract to sell, pledge, or otherwise dispose of any shares of common stock,
or any securities convertible into or exchangeable or exercisable for any
shares of common stock, owned by them without the prior written consent of
Credit Suisse First Boston Corporation, for a period of 180 days from the date
of this prospectus. However, Credit Suisse First Boston Corporation may, in its
sole discretion, at any time and without public notice, release all or any
portion of the shares subject to lock-up agreements.
57
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , 2000, we have agreed to sell to the underwriters
named below, for whom Credit Suisse First Boston Corporation, Bear, Stearns &
Co. Inc. and FleetBoston Robertson Stephens Inc. are acting as representatives,
the following respective numbers of shares of common stock:
<TABLE>
<CAPTION>
Number
Underwriter of Shares
----------- ---------
<S> <C>
Credit Suisse First Boston Corporation................................
Bear, Stearns & Co. Inc...............................................
FleetBoston Robertson Stephens Inc....................................
---------
Total............................................................. 5,000,000
=========
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all 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 750,000 additional shares at the initial public 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 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 broker/dealers may be changed by
the representatives.
The following table summarizes the compensation and estimated 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.
58
<PAGE>
We have agreed that we 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 of 1933
relating to, any 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
issuances pursuant to the exercise of employee stock options outstanding on the
date hereof.
Our officers, directors, shareholders and optionholders have agreed that
they will not offer, sell, contract to sell, pledge or otherwise dispose of,
directly or indirectly, any securities or securities convertible into or
exchangeable or exercisable for any securities, enter into a transaction which
would have the same effect, or enter into any swap, hedge or other arrangement
that transfers, in whole or in part, any of the economic consequences of
ownership of our securities, whether any such aforementioned transaction is to
be settled by delivery of our common stock or such other securities, in cash or
otherwise, or publicly disclose the intention to make any such offer, sale,
pledge or disposition, or to enter into any such transaction, swap, hedge or
other arrangement, without, in each case, the prior written consent of Credit
Suisse First Boston Corporation for a period of 180 days after the date of this
prospectus.
The underwriters have reserved for sale, at the initial public offering
price, up to shares of the common stock for employees, directors and certain
other persons associated with us who have expressed an interest in purchasing
common stock in the offering. The number of shares available for sale to the
general public in the offering will be reduced to the extent such persons
purchase such reserved shares. Any reserved shares not so purchased will be
offered by the underwriters to the general public on the same terms as the
other shares.
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 that respect.
We have applied to list the shares of common stock on The Nasdaq Stock
Market's National Market under the symbol "PTMR."
Prior to this offering, there has been no public market for our common
stock. Consequently, the initial public offering price for the common stock
will be determined by negotiations between us and the representatives of the
underwriters. Among the factors to be considered in those negotiations will be:
. our results of operations in recent periods;
. estimates of our prospects and the industry in which we compete;
. an assessment of our management;
. the general state of the securities markets at the time of this
offering; and
. the prices of similar securities 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 the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions.
59
<PAGE>
. 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 or 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 Stock Market's National Market or otherwise and, if
commenced, may be discontinued at any time.
A prospectus in electronic format may be made available on the Web sites
maintained by one or more of the underwriters participating in this offering.
The representatives may agree to allocate a number of shares to underwriters
for sale to their online brokerage account holders. Internet distributions will
be allocated by the underwriters that will make Internet distributions on the
same basis as other allocations.
In the past, Bear, Stearns & Co. Inc. has provided financial advisory
services to us. In connection with such services, in addition to their portion
of the underwriting discounts and commissions, we have agreed to make a payment
in cash to Bear, Stearns & Co. Inc. upon the consummation of this offering. The
amount of this cash payment will be based upon the gross proceeds to us in this
offering, but in no event will the payment exceed $1.4 million.
60
<PAGE>
NOTICE TO CANADIAN RESIDENTS
Resale Restrictions
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any resale of the common
stock in Canada must be made under securities laws which will vary depending on
the relevant jurisdiction, and which may require resales to be made under
available statutory exemptions or under a discretionary exemption granted by
the Canadian securities regulatory authority that has jurisdiction. 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 represent to us and the dealer from whom the purchase
confirmation is received that: (i) the purchaser is entitled under the
provincial securities laws that apply to the purchaser to purchase the common
stock without the benefit of a prospectus qualified under these securities
laws; (ii) the purchaser is purchasing as principal and not as agent if the
purchaser is not allowed to purchase as agent under the provincial securities
laws that apply to the purchaser; and (iii) the purchaser has reviewed the text
above under "--Resale Restrictions."
Rights of Action of 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 Canada and, as a result, it may not be
possible for Canadian purchasers to serve process within Canada upon the issuer
or these persons. All or a substantial portion of the assets of the issuer and
these persons may be located outside Canada and, as a result, it may not be
possible to satisfy a judgment against the issuer or these persons in Canada or
to enforce a judgment obtained in Canadian courts against the issuer or these
persons outside Canada.
Notice to British Columbia Residents
A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that the 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 the purchaser under 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 for 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 with their own legal and
tax advisors about the tax consequences of an investment in the common stock in
their particular circumstances and about the eligibility of the common stock
for investment by the purchaser under Canadian legislation.
61
<PAGE>
LEGAL MATTERS
The validity of the issuance of the shares of common stock offered by this
prospectus will be passed upon for us by Kirkpatrick & Lockhart LLP, New York,
NY. Proskauer Rose LLP, New York, NY has acted as counsel for the underwriters
in connection with this offering.
EXPERTS
The audited financial statements and schedules included in this prospectus
and elsewhere in the registration statement have been audited by
PricewaterhouseCoopers LLP, independent accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
CHANGE IN INDEPENDENT ACCOUNTANTS
Effective September 22, 1999, we dismissed Ernst & Young LLP, or E&Y, and
engaged PricewaterhouseCoopers LLP, or PwC, as our independent accountants to
audit our financial statements as of December 31, 1998 and 1999 and for each of
the three years ended December 31, 1999. During the two years ended December
31, 1998 and through the date E&Y ceased serving as our accountants, we had no
disagreements with E&Y on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of E&Y, would have caused it
to make a reference to the subject matter of the disagreements in connection
with its reports. E&Y's report on our financial statements for the two years
ended December 31, 1998, contained no adverse opinion or disclaimer of opinion
and was not qualified or modified as to uncertainty, audit scope or accounting
principles. During the period from January 1, 1997 through the date of E&Y's
dismissal, there were no "reportable events" within the meaning of Item
304(a)(1)(v) of Regulation S-K promulgated under the Securities Act of 1933.
We did not consult with PwC during the two years ended December 31, 1998 or
through September 22, 1999 on either the application of accounting principles
or type of opinion PwC might issue on our financial statements or any specific
transaction. The decision to change accounting firms was approved by our Board
of Directors on the recommendation of our management.
We provided a copy of the Form S-1 of which this prospectus forms a part to
E&Y and have requested that E&Y furnish us with a letter addressed to the
Securities and Exchange Commission stating whether it agrees with the above
statements and, if not, stating the respects in which it does not agree. A copy
of E&Y's letter to the Securities and Exchange Commission is filed as an
exhibit to the Form S-1 of which this prospectus forms a part.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the common stock
offered by this prospectus. This prospectus does not contain all of the
information set forth in the registration statement and the exhibits. For
further information with respect to us and the common stock offered by this
prospectus, reference is made to the registration statement and the exhibits.
Statements contained in this prospectus regarding the contents of any contract
or any other document to which reference is made are accurate in all material
respects. In each instance where a copy of a contract or other document has
been filed as an exhibit to the registration statement, reference is made to
the exhibit for a more complete description of the matter involved. A copy of
the registration statement and the exhibits may be inspected without charge at
the Public Reference Room of the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and copies of all or any part of the
registration
62
<PAGE>
statement may be obtained from the Public Reference Section of the Commission
upon the payment of the fees prescribed by the Commission. The public may
obtain information on the operation of the Public Reference Room by calling the
Commission at 1-800-SEC-0330. The Commission also maintains a Web site
(http://www.sec.gov) that contains reports, proxy and information statements
and other information regarding registrants, such as us, that file (or will
file) electronically with the Commission. We intend to provide our shareholders
with annual reports containing consolidated financial statements audited by an
independent accounting firm.
63
<PAGE>
PARTMINER, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PartMiner, Inc. Consolidated Financial Statements
Report of Independent Accountants........................................ F-2
Consolidated Balance Sheets at December 31, 1998 and 1999................ F-3
Consolidated Statements of Operations for the years ended December 31,
1997, 1998 and 1999..................................................... F-4
Consolidated Statements of Mandatorily Redeemable Securities and
Shareholders' Equity (Deficit) for the years ended December 31, 1997,
1998 and 1999........................................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1997, 1998 and 1999..................................................... F-6
Notes to Consolidated Financial Statements............................... F-7
Accurate Components Inc. and Affiliate Combined Financial Statements
Report of Independent Accountants........................................ F-28
Combined Balance Sheets at December 31, 1998 and September 1999.......... F-29
Combined Statements of Operations for the year ended December 31, 1998
and for the nine months ended September 30, 1999........................ F-30
Combined Statements of Shareholder's Equity for the year ended December
31, 1998 and for the nine months ended September 30, 1999............... F-31
Combined Statements of Cash Flows for the year ended December 31, 1998
and for the nine months ended September 30, 1999........................ F-32
Notes to Combined Financial Statements................................... F-33
IQXpert Holdings Inc. and Affiliate Combined Financial Statements
Report of Independent Accountants........................................ F-37
Combined Balance Sheets at November 30, 1998 and 1999.................... F-38
Combined Statements of Operations for the years ended November 30, 1998
and 1999................................................................ F-39
Combined Statements of Owners' Equity for the years ended November 30,
1998 and 1999........................................................... F-40
Combined Statements of Cash Flows for the years ended November 30, 1998
and 1999................................................................ F-41
Notes to Combined Financial Statements................................... F-42
PartMiner, Inc.
Schedule II--Valuation and Qualifying Accounts........................... F-50
PartMiner, Inc. Unaudited Pro Forma Condensed Consolidated Financial
Information
Selected Unaudited Pro Forma Condensed Consolidated Financial
Information............................................................. F-51
Unaudited Pro Forma Condensed Consolidated Statement of Operations for
the year ended
December 31, 1999....................................................... F-52
Notes to Unaudited Pro Forma Condensed Consolidated Statement of
Operations.............................................................. F-53
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
PartMiner, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of mandatorily redeemable securities and
shareholders' equity (deficit) and of cash flows present fairly, in all
material respects, the financial position of PartMiner, Inc. (the "Company") at
December 31, 1998 and 1999, and the results of its operations and its cash
flows for each of the three years ended December 31, 1999 in conformity with
accounting principles generally accepted in the United States. In addition, in
our opinion, the financial statement schedule of PartMiner, Inc. listed in the
accompanying index presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related financial
statements. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States,
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
New York, New York
February 16, 2000 except for Paragraph 1 of Note 15 for which the date is April
4, 2000.
F-2
<PAGE>
PARTMINER, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
Pro Forma as
of
December 31, December 31, December 31,
1998 1999 1999
------------ ------------ ------------
(unaudited)
(See Note 1)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents.............. $ 127 $ 5,063 $ 52,063
Accounts receivable, net of allowance
for doubtful accounts of $40 at
December 31, 1998 and $900 at
December 31, 1999, respectively....... 3,003 17,069 17,069
Inventories, net....................... 1,039 3,603 3,603
Prepaid expenses and other current
assets................................ 157 1,418 1,418
------ -------- --------
Total current assets................. 4,326 27,153 74,153
Fixed assets, net...................... 391 9,248 9,248
Deferred financing costs, net of
accumulated amortization of $116 at
December 31, 1998..................... 318 -- --
Intangible assets, net of accumulated
amortization of $6 and $3,049 at
December 31, 1998 and 1999,
respectively.......................... 68 110,272 110,272
Other assets........................... 100 228 228
------ -------- --------
Total assets......................... $5,203 $146,901 $193,901
====== ======== ========
Liabilities, Mandatorily Redeemable
Securities and Shareholders' Equity
Current liabilities:
Accounts payable....................... $1,021 $ 7,919 $ 7,919
Accrued expenses....................... 301 4,405 4,405
Short-term debt and current portion of
long-term debt........................ 1,487 692 692
Income taxes payable................... -- 1,209 1,209
Deferred revenues...................... -- 5,210 5,210
------ -------- --------
Total current liabilities............ 2,809 19,435 19,435
Long-term debt.......................... 2,275 4,331 1,331
Redeemable stock purchase warrants...... 2,363 -- --
Other liabilities....................... -- 495 495
------ -------- --------
Total liabilities.................... 7,447 24,261 21,261
Commitments and contingencies (Note
12)....................................
Mandatorily redeemable securities:
Mandatorily redeemable convertible
preferred stock, Series A, $.01 par
value; 106,122 shares authorized and
outstanding at December 31, 1999; no
pro forma authorized, issued and
outstanding shares (liquidation
preference of $13,000)................ -- 24,434 --
Mandatorily redeemable convertible
preferred stock, Series B, $.01 par
value; 10,302,905 pro forma shares
authorized, none issued and
outstanding........................... -- -- --
Mandatorily redeemable common stock;
22,150,000 shares issued and
outstanding at December 31, 1999; no
pro forma issued and outstanding
shares................................ -- 43,604 --
------ -------- --------
Total mandatorily redeemable
securities.......................... -- 68,038 --
Shareholders' equity (deficit):
Common stock, $.0001 par value;
150,000,000 shares authorized;
(22,150,000 shares designated as
mandatorily redeemable at December
31,
1999 actual; no shares pro forma)
30,000,000 shares issued and
outstanding at December 31, 1998,
24,403,700 shares issued and
outstanding at December 31, 1999 and
67,468,805 shares issued and
outstanding pro forma ................ 3 2 7
Additional paid-in capital............. 17 98,509 216,542
Deferred compensation.................. -- (1,026) (1,026)
Accumulated other comprehensive loss... -- (2) (2)
Accumulated deficit.................... (2,264) (42,881) (42,881)
------ -------- --------
Total shareholders' equity
(deficit)........................... (2,244) 54,602 172,640
------ -------- --------
Total liabilities, mandatorily
redeemable securities and
shareholders' equity (deficit)...... $5,203 $146,901 $193,901
====== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
PARTMINER, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share data)
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Revenues
Product revenues....................... $ 18,255 $ 20,655 $ 40,328
Other revenues......................... -- -- 1,175
----------- ----------- -----------
Total revenues....................... 18,255 20,655 41,503
Cost of revenues....................... 12,737 14,711 29,669
----------- ----------- -----------
Gross profit......................... 5,518 5,944 11,834
Operating expenses
Selling and marketing, exclusive of
stock-based compensation expense of
$395 in 1999.......................... 2,950 3,500 11,081
General and administrative, exclusive
of stock-based compensation expense
of $4,026 in 1999..................... 2,144 2,395 6,967
Technology and development, exclusive
of stock-based compensation expense
of $144 in 1999....................... -- 173 1,812
Stock-based compensation............... -- -- 4,565
Amortization of intangibles............ -- 6 3,826
----------- ----------- -----------
Total operating expenses............. 5,094 6,074 28,251
----------- ----------- -----------
Income (loss) from operations........... 424 (130) (16,417)
Other (income) expense
Increase in redeemable stock purchase
warrants.............................. 150 1,213 673
Other interest expense................. 345 740 180
Interest and other income.............. (25) (195) (402)
----------- ----------- -----------
Total other expense, net............. 470 1,758 451
----------- ----------- -----------
Loss before provision (benefit) for
income taxes and extraordinary item.... (46) (1,888) (16,868)
Provision (benefit) for income taxes.... 71 (38) 33
----------- ----------- -----------
Loss before extraordinary item.......... (117) (1,850) (16,901)
Extraordinary item--loss on early
extinguishment of debt, net of income
tax benefit of $0 in 1999.............. -- -- (1,030)
----------- ----------- -----------
Net loss................................ (117) (1,850) (17,931)
Accretion of mandatorily redeemable
convertible preferred stock............ -- -- (12,075)
----------- ----------- -----------
Net loss applicable to common
shareholders........................... $ (117) $ (1,850) $ (30,006)
=========== =========== ===========
Basic and diluted loss per common share:
Loss before extraordinary item......... $ -- $ (.06) $ (.79)
Extraordinary item..................... -- -- (.03)
----------- ----------- -----------
Basic and diluted net loss per common
share................................. $ -- $ (.06) $ (.82)
=========== =========== ===========
Weighted average shares used in
computing basic and diluted net loss
per common share....................... 24,219,178 30,000,000 36,676,134
=========== =========== ===========
Pro forma basic and diluted loss per
common share (unaudited)
Loss before extraordinary item......... $ (.37)
Extraordinary item..................... (.02)
-----------
Pro forma basic and diluted net loss
per common share...................... $ (.39)
===========
Weighted average shares used in
computing pro forma basic and diluted
net loss per common share (unaudited).. 45,107,745
===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
PARTMINER, INC.
CONSOLIDATED STATEMENTS OF MANDATORILY REDEEMABLE SECURITIES AND SHAREHOLDERS'
EQUITY (DEFICIT)
(in thousands, except share data)
<TABLE>
<CAPTION>
Mandatorily Redeemable
----------------------------------
Convertible
Preferred Stock Common Stock Common Stock
--------------- ------------------ -------------------
Total Accumulated
Mandatorily Additional Other
Redeemable Paid-in Deferred Comprehensive
Shares Amount Shares Amount Securities Shares Amount Capital Compensation Loss
------- ------- ---------- ------- ----------- ----------- ------ ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
January 1,
1997............ -- $ -- -- $ -- $ -- 30,000,000 $ 3 $ 17 $ -- $--
Distributions to
founders........ -- -- -- -- -- -- -- -- -- --
Net loss........ -- -- -- -- -- -- -- -- -- --
------- ------- ---------- ------- ------- ----------- --- -------- ------- ---
Balance at
December 31,
1997............ -- -- -- -- -- 30,000,000 3 17 -- --
Distributions to
founders........ -- -- -- -- -- -- -- -- -- --
Net loss........ -- -- -- -- -- -- -- -- -- --
------- ------- ---------- ------- ------- ----------- --- -------- ------- ---
Balance at
December 31,
1998............ -- -- -- -- -- 30,000,000 3 17 -- --
Redemption and
retirement of
common stock.... -- -- -- -- -- (15,000,000) (2) -- -- --
Issuance of
mandatorily
redeemable
preferred stock
for cash, net of
issuance costs
of $641......... 81,632 9,359 -- -- 9,359 -- -- -- -- --
Issuance of
mandatorily
redeemable
convertible
preferred stock
in exchange for
note payable.... 24,490 3,000 -- -- 3,000 -- -- -- -- --
Issuance of
mandatorily
redeemable
common stock for
cash, net of
issuance costs
of $669......... -- -- 12,858,079 21,481 21,481 (2,315,300) -- -- -- --
Issuance of
mandatorily
redeemable
common stock in
exchange for a
license
agreement....... -- -- 4,291,921 4,726 4,726 -- -- -- -- --
Issuance of
mandatorily
redeemable
common stock in
exchange for
exercise of
warrants........ -- -- 5,000,000 3,036 3,036 -- -- -- -- --
Issuance of
common stock in
connection with
IQXpert
acquisition..... -- -- -- -- -- 11,719,000 1 102,499 -- --
Compensation
relating to
stock options... -- -- -- -- -- -- -- 1,591 (1,026) --
Accretion of
mandatorily
redeemable
securities...... -- 12,075 -- 14,361 26,436 -- -- (9,598) -- --
Executive
compensation
expense related
to stock option
grants.......... -- -- -- -- -- -- -- 4,000 -- --
Foreign currency
translation
adjustment...... -- -- -- -- -- -- -- -- -- (2)
Net loss........ -- -- -- -- -- -- -- -- -- --
------- ------- ---------- ------- ------- ----------- --- -------- ------- ---
Balance at
December 31,
1999............ 106,122 $24,434 22,150,000 $43,604 $68,038 24,403,700 $ 2 $ 98,509 $(1,026) $(2)
======= ======= ========== ======= ======= =========== === ======== ======= ===
<CAPTION>
Total
Shareholders'
Accumulated Equity
Deficit (Deficit)
----------- -------------
<S> <C> <C>
Balance at
January 1,
1997............ $ (149) $ (129)
Distributions to
founders........ (68) (68)
Net loss........ (117) (117)
----------- -------------
Balance at
December 31,
1997............ (334) (314)
Distributions to
founders........ (80) (80)
Net loss........ (1,850) (1,850)
----------- -------------
Balance at
December 31,
1998............ (2,264) (2,244)
Redemption and
retirement of
common stock.... (848) (850)
Issuance of
mandatorily
redeemable
preferred stock
for cash, net of
issuance costs
of $641......... -- --
Issuance of
mandatorily
redeemable
convertible
preferred stock
in exchange for
note payable.... -- --
Issuance of
mandatorily
redeemable
common stock for
cash, net of
issuance costs
of $669......... (5,000) (5,000)
Issuance of
mandatorily
redeemable
common stock in
exchange for a
license
agreement....... -- --
Issuance of
mandatorily
redeemable
common stock in
exchange for
exercise of
warrants........ -- --
Issuance of
common stock in
connection with
IQXpert
acquisition..... -- 102,500
Compensation
relating to
stock options... -- 565
Accretion of
mandatorily
redeemable
securities...... (16,838) (26,436)
Executive
compensation
expense related
to stock option
grants.......... -- 4,000
Foreign currency
translation
adjustment...... -- (2)
Net loss........ (17,931) (17,931)
----------- -------------
Balance at
December 31,
1999............ $(42,881) $ 54,602
=========== =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
PARTMINER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1997 1998 1999
------- ------- --------
<S> <C> <C> <C>
Cash flows from operating activities
Net loss.......................................... $ (117) $(1,850) $(17,931)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization................... 184 393 4,081
Interest expense for accretion of warrants...... 150 1,213 673
Extraordinary loss on early extinguishment of
debt........................................... -- -- 1,030
Stock-based compensation........................ -- -- 4,565
Deferred income taxes........................... -- (38) --
Changes in operating assets and liabilities, net
of effect of acquisitions:
Accounts receivable............................ (1,626) (103) (6,941)
Inventories.................................... (367) (404) (2,033)
Prepaid and other current assets............... (173) 77 (333)
Other assets................................... (8) (24) (116)
Accounts payable and accrued expenses.......... 834 (491) 7,794
Deferred revenues.............................. -- -- (388)
------- ------- --------
Net cash used in operating activities......... (1,123) (1,227) (9,599)
Cash flows from investing activities
Acquisitions of businesses, net of cash acquired.. -- -- (5,282)
Net capital expenditures.......................... (232) (77) (8,128)
Acquisition of intangible assets.................. -- (74) --
------- ------- --------
Net cash used in investing activities......... (232) (151) (13,410)
Cash flows from financing activities
Proceeds from issuance of mandatorily redeemable
common stock, net................................ -- -- 16,481
Proceeds from issuance of mandatorily redeemable
convertible preferred stock, net................. -- -- 9,359
Proceeds from borrowings.......................... 3,000 1,450 5,191
Repayments of borrowings.......................... (1,060) (58) (1,687)
Deferred financing and registration costs......... (409) (25) (547)
Redemption of common stock and distributions to
shareholders..................................... (68) (80) (850)
------- ------- --------
Net cash provided by financing activities..... 1,463 1,287 27,947
Foreign exchange effects on cash and cash
equivalents...................................... -- -- (2)
Net increase (decrease) in cash and cash
equivalents...................................... 108 (91) 4,936
Cash and cash equivalents, beginning of year...... 110 218 127
------- ------- --------
Cash and cash equivalents, end of year............ $ 218 $ 127 $ 5,063
======= ======= ========
Supplemental Cash Flow Information:
Cash paid (received) during the year for:
Interest........................................ $ 241 $ 482 $ 268
Income taxes.................................... 56 1 (61)
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
PARTMINER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data)
1. Organization and Summary of Significant Accounting Policies
Organization and Description of Business
PartMiner, Inc. (formerly Dast Corporation) (the "Company"), a New York
Corporation, was incorporated in September 1993. On May 19, 1999, Dast
Corporation changed its name to PartMiner, Inc. The Company is a provider of
business-to-business services for the procurement of electronic components
worldwide.
In mid-1998, the Company began moving its business to the Internet with the
release of its proprietary Internet procurement agent at no cost to users. The
procurement agent allows users to source electronic components on the Internet
and facilitates the online purchase of electronic components from multiple
suppliers. In 1999, the Company commenced the development of the Free Trade
Zone, an online procurement platform for the electronic components industry. At
December 31, 1999, the Free Trade Zone and its related infrastructure was still
under development; accordingly, no revenues have been generated through
December 31, 1999 from the Free Trade Zone. In 1999, costs of $7,086 associated
with the development of the Free Trade Zone were capitalized as computer
software developed or obtained for internal use.
The Company is subject to risks common to rapidly growing technology-based
companies, including rapid technological change, growth and commercial
acceptance of the Internet, dependence on principal products, new product
development, new product introductions and other activities of competitors, and
a limited operating history in Internet related e-commerce activities.
Since 1996, the Company has experienced net losses and negative cash flows
from operations. For the foreseeable future, the Company expects to experience
continuing net losses and negative cash flows as management executes its
current business plan. At December 31, 1999, the Company had cash and cash
equivalents totaling approximately $5,063. In September 1999, the Company's
Board of Directors authorized the Company to pursue the sale of shares of the
Company's common stock in an initial public offering. Management believes that
the net proceeds from this offering, together with the Company's current cash
and cash equivalents, will be sufficient to fund its operations for at least
the next twelve months. If the IPO is not completed in a timely manner, the
Company would seek additional financing through private equity or debt
financing sources.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All significant intercompany
account balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
F-7
<PAGE>
PARTMINER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share data)
Revenue Recognition
Product Revenues
To date, substantially all of the Company's revenues have been derived from
the sale of electronic components in the spot market. The Company recognizes
revenues on sales of electronic components, net of any discounts, when the
products are shipped and the customer takes ownership and assumes risk of loss.
The Company provides an allowance for sales returns, which have not been
significant, based on historical experience.
Other Revenues
As a result of the recent acquisition of IQXpert (see Note 2) effective
November 30, 1999, the Company began to derive revenues from the sale of
subscriptions to the CAPSXpert databases and software licensing and related
services. Deferred revenue comprises amounts billed or collected by the Company
prior to satisfying the applicable revenues recognition criteria and related
principally to database subscription revenues.
Revenues from the sale of subscriptions are recognized ratably over the term
of the subscription period, generally 12 months. Royalties and commissions
associated with database subscriptions are deferred and amortized to expense
over the subscription period. Software licensing and related services revenues,
which were not significant for the year ended December 31, 1999, are recognized
in accordance with the provisions of Statement of Position 97-2, "Software
Revenue Recognition" ("SOP 97-2"), as amended by Statement of Position 98-4.
Software-related license revenues are generated from licensing the rights to
the periodic or perpetual use of the Company's software products. Software-
related service revenues are generated from sales of maintenance, consulting
and training services performed for customers that license the Company's
products.
Additionally, the American Institute of Certified Public Accountants
recently issued Statement of Position 98-9, which provides certain amendments
to SOP 97-2, which is effective for transactions entered into beginning January
1, 2000. This pronouncement is not expected to materially impact the Company's
revenue recognition practices.
The Company intends to integrate the CAPSXpert databases content and search
functionality into the Free Trade Zone and make it available to the Company's
users at no cost. Consequently, the Company does not expect it will derive
significant amounts of database subscription revenues in the future periods.
Based on the integration of IQXperts' operations into the Free Trade Zone
business model, the Company continues to operate as one business segment.
Cash and Cash Equivalents
Cash equivalents consist of financial instruments which are readily
convertible to cash and have original maturities of three months or less. Such
investments are carried at cost which approximate fair value.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash and cash equivalents and accounts
receivable. Cash and cash equivalents are deposited with high credit quality
financial institutions. The Company maintains an allowance for doubtful
accounts based upon the expected collectibility of accounts receivable. No
customer accounted for 10% or more of net accounts receivable at December 31,
1998 and 1999, respectively. One customer represented 11% of revenues for the
year ended December 31, 1997. No customer represented 10% or more of revenues
during the years ended December 31, 1998 or 1999.
F-8
<PAGE>
PARTMINER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share data)
Fair Value of Financial Instruments
The carrying amounts of the Company's financial instruments, including cash
and cash equivalents, accounts receivable, accounts payable and accrued
expenses approximate fair value because of their short-term maturities. The
carrying amounts of long-term debt, including current portions, approximate
fair value based on interest rates currently available for instruments with
similar terms.
Inventory
Inventory, consisting of purchased electronic component parts, is stated at
the lower of cost or market. Cost is determined on the specific identification
method.
Property and Equipment
Property and equipment are stated at cost, and depreciation is computed
using the straight-line method over the estimated useful lives of the assets
which range from three to seven years. Leasehold improvements are amortized
over the shorter of the lease term or the estimated useful lives of the
respective assets.
Computer Software Developed or Obtained for Internal Use
The Company follows the provisions of Statement of Position 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use" ("SOP 98-1"), which requires the capitalization of certain costs
incurred in connection with developing or obtaining software for internal use.
These costs are amortized over a period of 3 years, the estimated useful life
of the software. No costs for computer software developed for internal use were
capitalized during the years ended December 31, 1997 and 1998, respectively.
Capitalized computer software developed or obtained for internal use
approximated $7,358 for the year ended December 31, 1999. No amortization
expense for computer software developed or obtained for internal use was
recorded for the year ended December 31, 1999, as the software was not ready
for its intended use as of December 31, 1999.
Intangible Assets
Intangible assets, which represent the excess of the purchase price paid
over the fair value of the tangible net assets acquired, is being amortized on
a straight-line basis over periods which range from 3 to 10 years. The Company
assesses the recoverability of its intangible assets by determining whether the
unamortized balance over its remaining life can be recovered through forecasted
cash flows. If undiscounted forecasted cash flows indicate that the unamortized
amounts will not be recovered, an adjustment will be made to reduce the net
amounts to an amount consistent with forecasted future cash flows discounted at
the Company's incremental borrowing rate. Cash flow forecasts are based on
trends of historical performance and management's estimate of future
performance, giving consideration to existing and anticipated competitive and
economic conditions. Management has evaluated forecasted cash flows and
amortization periods in the current period and has determined that no
impairment currently exists.
Income Taxes
Effective August 1, 1997, the Company began to recognize deferred taxes
using the asset and liability method, wherein, deferred income taxes are
determined based on differences between the financial reporting
F-9
<PAGE>
PARTMINER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share data)
and tax bases of assets and liabilities and are measured using the enacted tax
laws and rates in effect for the years in which the differences are expected to
reverse. In addition, valuation allowances are established when necessary to
reduce deferred tax assets to the amounts expected to be realized.
Prior to August 1, 1997, the Company elected to be taxed as an S
corporation, which provides that, in lieu of corporate income taxes, the
stockholders report their pro rata share of the Company's items of income,
deductions, losses, and credits. Accordingly, no income tax provision or
deferred tax amounts were recorded prior to this date. See Note 11 for pro
forma tax provision for the year ended December 31, 1997.
Advertising Costs
Advertising costs are expensed as incurred. Such costs amounted to
approximately $71, $105 and $2,041 for the years ended December 31, 1997, 1998
and 1999, respectively.
Foreign Currency Translation
The functional currency of the Company's subsidiaries are the local
currencies. The financial statements of these subsidiaries are translated into
U.S. dollars using rates of exchange in effect at the end of the reporting
period for assets and liabilities and average rates of exchange during the year
for revenues, cost of revenues and expenses. Translation gains and losses are
recorded in accumulated other comprehensive loss.
Stock-Based Compensation
The Company accounts for its employee stock option plans in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25"), and related interpretations. As such, compensation
expense related to employee stock options is recorded only if, on the date of
grant, the fair value of the underlying stock exceeds the exercise price. The
Company adopted the disclosure only requirements of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123"), which allows entities to continue to apply the provisions of APB 25 for
transactions with employees and provide pro forma earnings and pro forma
earnings per share disclosures for employee stock grants made in 1999 and
future years as if the fair value based method of accounting in SFAS 123 had
been applied to these transactions.
Technology and Development
Technology and development expenses consist primarily of the payroll and
operating expenses for the information technology group, database content
development costs, as well as all costs associated with the Company's web site,
including designing, developing and third party hosting. The useful life of
technology and development costs is less than one year and, accordingly, are
expensed as incurred.
Comprehensive Loss
Effective January 1, 1998, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS 130"). SFAS 130 establishes standards for reporting comprehensive loss
and its components in financial statements. For the year ended December 31,
1999, comprehensive loss consisted of foreign currency translation adjustments
of $2 and the net loss of $17,931. There were no elements of comprehensive loss
for the years ended December 31, 1997 and 1998, other than the net loss
incurred during each of those years.
F-10
<PAGE>
PARTMINER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share data)
Net loss per common share
Basic net loss per common share is computed by dividing the net loss
applicable to common shareholders for the year by the weighted average number
of common and redeemable common shares outstanding during the year. Diluted net
loss per common share is computed by dividing the net loss applicable to common
shareholders for the year by the weighted average number of common, redeemable
common and common equivalent shares outstanding during the year. Common
equivalent shares, composed of common shares issuable upon the exercise of
stock options, warrants and upon conversion of the mandatorily redeemable
convertible preferred stock, are included in the diluted net loss per share
computation to the extent such shares are dilutive. There is no difference
between basic and diluted earnings per share since potential common shares from
common equivalent shares are anti-dilutive for the years ended December 31,
1997, 1998 and 1999, respectively.
The following table summarizes common stock equivalents that are excluded
from the historical basic and diluted net loss per share calculation because to
do so would be anti-dilutive for the years indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Weighted average effect of common equivalent
shares:
Mandatorily redeemable convertible preferred
stock......................................... -- -- 8,431,611
Warrants to purchase common stock.............. 2,109,589 5,000,000 --
Options to purchase common stock............... -- -- 470,198
--------- --------- ---------
2,109,589 5,000,000 8,901,809
========= ========= =========
</TABLE>
Pro forma basic and diluted net loss per share for the year ended December
31, 1999 has been computed as described above and also gives effect to the
automatic conversion of the mandatorily redeemable convertible preferred stock
that will occur upon completion of the Company's initial public offering.
Accordingly, the Company has included the equivalent number of common shares
from the conversion of the mandatorily redeemable convertible preferred stock
in the calculation of pro forma loss per share from the date of issuance and
excluded the related mandatorily redeemable preferred stock accretion charges
of $12,075.
F-11
<PAGE>
PARTMINER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share data)
A reconciliation of the numerator and denominator used in the calculation of
basic and diluted and pro forma basic and diluted net loss per common share
follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Numerator:
Net loss before extraordinary item..... $ (117) $ (1,850) $ (16,901)
Extraordinary item--loss on early
extinguishment of debt................ -- -- (1,030)
Accretion of mandatorily redeemable
convertible preferred stock........... -- -- (12,075)
----------- ----------- -----------
Net loss applicable to common
shareholders......................... $ (117) $ (1,850) $ (30,006)
=========== =========== ===========
Denominator:
Weighted average shares of common stock
outstanding........................... 24,219,178 30,000,000 19,077,504
Weighted average shares of mandatorily
redeemable common stock outstanding .. -- -- 17,598,630
----------- ----------- -----------
Denominator for basic and diluted
calculation.......................... 24,219,178 30,000,000 36,676,134
----------- ----------- -----------
Basic and diluted net loss per common
share:
Loss before extraordinary item......... $ -- $ (.06) $ (.79)
Extraordinary item..................... -- -- (.03)
----------- ----------- -----------
Basic and diluted net loss per common
share................................. $ -- $ (.06) $ (.82)
=========== =========== ===========
Weighted average shares used in
computing basic and diluted net loss
per common share....................... 36,676,134
-----------
Adjustment to reflect the assumed
conversion of the mandatorily
redeemable convertible preferred
stock.................................. 8,431,611
-----------
Weighted average shares used in
computing pro forma basic and diluted
net loss per common share (unaudited).. 45,107,745
-----------
Pro forma basic and diluted net loss per
common share (unaudited)
Loss before extraordinary item......... $ (.37)
Extraordinary item..................... (.02)
-----------
Pro forma basic and diluted net loss
per common share...................... $ (.39)
===========
</TABLE>
Unaudited Pro Forma Information
As described in Notes 8 and 15, upon completion of the Company's initial
public offering, the Series A and Series B mandatorily redeemable convertible
preferred stock outstanding as of the closing date, will automatically be
converted into an aggregate of 20,915,105 shares of common stock. In addition,
the mandatory redemption feature associated with 22,150,000 shares of common
stock outstanding at December 31, 1999 will terminate upon completion of the
initial public offering.
The unaudited pro forma consolidated balance sheet information gives effect
to the following:
. the issuance of 10,302,905 shares of Series B mandatorily redeemable
convertible preferred stock for $50,000 consummated in February 2000;
. the repayment of $3,000 of indebtedness outstanding at December 31, 1999
with a portion of the proceeds of such issuance;
. the automatic termination of the mandatorily redeemable feature of the
mandatorily redeemable common stock upon the closing of this offering;
and
. the automatic conversion of all outstanding shares of our Series A and B
mandatorily redeemable convertible preferred stock into 20,915,105
shares of common stock upon the closing of this offering.
F-12
<PAGE>
PARTMINER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share data)
Recent Accounting Pronouncements
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivatives and Hedging Activities" ("SFAS 133"), establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging. In July 1999,
Statement of Financial Accounting Standards No. 137, "Accounting for Derivative
Instruments and Hedging Activities--Deferral of the Effective Date of Financial
Accounting Standards Board Statement No. 133" ("SFAS 137"), was issued. SFAS
137 deferred the effective date of SFAS 133 from fiscal years beginning after
June 15, 1999 to all fiscal years beginning after June 15, 2000. Currently, as
the Company has no derivative instruments, the adoption of SFAS 133 would have
no impact on the Company's financial condition or results of operations.
2. Acquisitions
IQXpert
Effective November 30, 1999, the Company acquired all of the outstanding
common stock of IQXpert Holdings Inc. and its wholly-owned subsidiaries and
substantially all of the assets and liabilities of an affiliated business
(collectively, "IQXpert"), in exchange for 11,719,000 common shares of the
Company valued at $8.75 per share, which in management's opinion was the fair
market value of the common stock at the date of issuance. IQXpert is engaged in
the design and development of software and database systems relating to
enterprise client/server software products and electronic components
information, including the CAPSXpert databases and the ItemQuest software.
IQXpert was a majority-owned subsidiary of Information Handling Services, Inc.
("IHS"), which is a significant shareholder of the Company's common stock both
directly and through an affiliated company.
The acquisition was accounted for using the purchase method of accounting,
and accordingly, the results of the acquired businesses have been included in
the Company's financial statements from the date of acquisition. The aggregate
purchase price which includes the unamortized balance of $4,017 on the
acquisition date relating to the CAPSXpert license with IHS (see Notes 8 and
13), was allocated based on the fair value of the acquired assets and assumed
liabilities as follows:
<TABLE>
<S> <C>
Current assets.................................................. $ 4,235
Current liabilities............................................. (6,719)
Non-current assets.............................................. 801
Intangible assets............................................... 108,200
--------
$106,517
========
</TABLE>
Accurate Components
On November 12, 1999, the Company acquired all of the common stock of
Accurate Components Inc. and Market Trading Concepts Inc., its affiliate
(collectively, "Accurate Components"), an ISO 9002 certified market maker, for
cash of $6,462. The purchase agreement requires the payment of additional
consideration contingent on future operating results of Accurate Components
through December 31, 2000.
F-13
<PAGE>
PARTMINER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share data)
Contingent consideration of $510 was recorded as additional goodwill and
accrued expenses on December 31, 1999 in connection with a payment due under
the contingent payment arrangement. Payments under the contingent payment
arrangement during the year ended December 31, 2000, if any, will similarly
increase goodwill. The maximum contingent consideration payable for the year
ending December 31, 2000 is $1,190.
The acquisition was accounted for using the purchase method of accounting
and, accordingly, the results of the acquired businesses have been included in
the Company's financial statements from the date of acquisition. The purchase
price, including direct costs of the acquisition of $171, was allocated based
on the fair values of the acquired assets and assumed liabilities as follows:
<TABLE>
<S> <C>
Current assets.................................................... $5,723
Current liabilities............................................... (3,856)
Non-current assets................................................ 155
Intangible assets................................................. 5,121
------
$7,143
======
</TABLE>
The following unaudited summary presents consolidated results of operations
for the Company as if the acquisitions of Accurate Components and IQXpert had
been consummated on January 1, 1998. The pro forma information does not
necessarily reflect the actual results that would have been achieved, nor is it
necessarily indicative of future consolidated results of the Company.
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1998 1999
------------ ------------
<S> <C> <C>
Revenues...................................... $ 53,976 $ 76,439
Loss before extraordinary item................ $ (39,428) $ (48,653)
Net loss...................................... $ (39,428) $ (49,683)
Basic and diluted net loss per share, before
extraordinary item, applicable to common
shareholders................................. $ (.95) $ (1.28)
Basic and diluted net loss per share
applicable to common
shareholders.................................. $ (.95) $ (1.30)
</TABLE>
3. Fixed Assets
Fixed assets consist of the following:
<TABLE>
<CAPTION>
December
31,
-----------
1998 1999
---- ------
<S> <C> <C>
Computer equipment........................................... $511 $1,559
Computer software developed or obtained for internal use..... -- 7,358
Furniture and fixtures....................................... 140 366
Leasehold improvements....................................... 27 237
---- ------
678 9,520
Less: accumulated depreciation and amortization.............. 287 272
---- ------
$391 $9,248
==== ======
</TABLE>
Depreciation and amortization expense was $81, $131 and $210 for the years
ended December 31, 1997, 1998 and 1999, respectively.
F-14
<PAGE>
PARTMINER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share data)
4. Intangible Assets
Intangible assets consist of the following:
<TABLE>
<CAPTION>
December 31,
-------------------
1998 1999
---------- --------
<S> <C> <C>
Goodwill............................................. $ 74 $ 75,321
Electronic components database....................... -- 20,000
Software............................................. -- 18,000
---------- --------
74 113,321
Less--Accumulated amortization....................... 6 3,049
---------- --------
Intangible assets, net............................... $ 68 $110,272
========== ========
</TABLE>
Amortization expense was $6 and $3,826 for the years ended December 31, 1998
and 1999, respectively. There was no amortization expense of intangible assets
for the year ended December 31, 1997.
5. Accrued Expenses
Accrued expenses consist of the following at December 31, 1998 and 1999:
<TABLE>
<CAPTION>
December 31,
-------------------
1998 1999
---------- --------
<S> <C> <C>
Payroll and related benefits......................... $ 135 $ 779
Professional services................................ 25 739
Acquisition consideration............................ -- 510
Due to related party (Note 13)....................... -- 1,417
Other................................................ 141 960
---------- --------
$ 301 $ 4,405
========== ========
</TABLE>
6. Borrowings
Related Party Borrowings
On December 20, 1999, the Company entered into a $10,000 revolving credit
agreement (the "Credit Agreement") with an affiliate of IHS. The funds
available under the Credit Agreement are to be used solely for the development
of the Company's Free Trade Zone, working capital and capital expenditure
purposes. In addition, the funds are restricted such that credit advances shall
not exceed $3,000 for each of the monthly periods from December 1999 to
February 2000 and $2,000 for each of the monthly periods from March 2000 to the
January 31, 2001 maturity date. The Credit Agreement also contains other
customary conditions and events of default, the failure to comply with, or
occurrence of, would prevent any further borrowings and would generally require
the repayment of any outstanding borrowings under the Credit Agreement.
Borrowings, including accrued interest, under the Credit Agreement are due
on the earlier of (i) January 31, 2001; (ii) the third business day after the
closing date of an initial public offering by the Company; or (iii) the third
business day after the closing day of a refinancing, as defined. Borrowings
bear interest at the prime rate of approximately 8.5%, and are collateralized
primarily by accounts receivable and inventory. As of December 31, 1999, the
Company had $3,000 of borrowings outstanding under the Credit Agreement.
F-15
<PAGE>
PARTMINER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share data)
Equipment and Service Financing
In 1999, the Company entered into a three year financing arrangement, as
amended, with a financing affiliate of a vendor in the amount of $2,191 for the
purchase of computer software equipment and related service support. This
arrangement provides for monthly payments of the financed amount with interest
accruing at annual rates ranging from 12.9% to 15.9%. Total payments for the
year ended December 31, 1999 were $332, of which $133 represented interest
expense. This financing arrangement is collateralized by computer equipment.
As of December 31, 1999, future principal payments under this financing
agreement are as follows:
<TABLE>
<S> <C>
Year ending December 31,
2000............................................................... $ 671
2001............................................................... 782
2002............................................................... 539
------
Total future principal payments.................................... 1,992
Less current portion............................................... (671)
------
Long term portion.................................................. $1,321
======
</TABLE>
Line of Credit
On October 22, 1998, the Company entered into a $3,000 line of credit
agreement with a bank (the "Line Agreement"). Borrowings under the Line
Agreement bore interest at the LIBOR base rate, as defined, plus 2.25% or the
bank's cost of funds base rate, as defined, plus 2.25%. Such borrowings, were
based on eligible accounts receivable and inventory, were payable on demand and
were collateralized by a security interest in substantially all the assets of
the Company. At December 31, 1998, the Company had $1,450 of borrowings
outstanding under the Line Agreement. During 1999, the Company repaid all
outstanding borrowings and subsequently terminated this Line Agreement on
December 31, 1999.
Note Payable
On July 30, 1997, the Company issued a senior subordinated note (the "Note")
to an unrelated third party in the amount of $3,000. The Note had a stated
interest rate of 12.5% per annum, which was adjustable to 16.5% upon the
occurrence of any event of default, as defined. In connection with issuance of
the Note, the Company (i) incurred financing costs of approximately $409,
primarily consisting of investment banking and legal fees, which were deferred
and amortized over the life of the Note and (ii) issued warrants to the Note
holder to purchase 5,000,000 common shares of the Company (See Note 7).
Principal on the Note was due and payable annually on December 31 in an
amount equal to 50% of the Company's free cash flow, as defined, provided that
the cumulative amounts that were due and payable did not exceed $600, $1,200,
$1,800 and $2,400 for the years ended December 31, 1998, 1999, 2000 and 2001,
respectively. Any remaining outstanding principal amounts would then be payable
on July 29, 2002. No payments were due under the Note at December 31, 1998.
Substantially all of the assets and outstanding common stock of the Company
were pledged as collateral for the Note. The rights to such collateral were
subordinate to those of the Line Agreement. In addition, the Note also provided
for, among other things, the maintenance of certain covenants, as defined,
including (i) minimum net worth; (ii) minimum earnings before interest, taxes,
depreciation and amortization ("EBITDA") to interest coverage ratio; and (iii)
maximum indebtedness to net worth ratio.
F-16
<PAGE>
PARTMINER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share data)
On March 16, 1999, the Note holder exchanged the Note for 24,490 shares of
mandatorily redeemable convertible preferred stock having a fair value of
$3,000. In connection with the exchange of the Note, the Company recorded a
loss on the early extinguishment of debt of $1,030, consisting of (i) $726,
which represented the difference between the fair value of the securities
issued in exchange for the Note and the carrying amount of the Note and (ii)
$304, which represented the unamortized deferred financing costs. Amortization
expense for deferred financing costs was $34, $82 and $14 for the years ended
December 31, 1997, 1998 and 1999, respectively.
Other
Long-term debt includes other notes payable of $69 and $31 at December 31,
1998 and 1999, respectively, including current portions of $37 in 1998 and $21
in 1999.
7. Redeemable Stock Purchase Warrants
In connection with the senior subordinated note financing (see Note 6), the
Company issued warrants to the Note holder to purchase 5,000,000 shares of the
Company's common stock, at an exercise price of $.0001 per share. The warrants
were exercisable at any time prior to the earlier of ten years or six years
from the date on which the Note was paid, as defined. The Note was recorded net
of a discount of $1,000, which represented the estimated fair value of warrants
on July 30, 1997. The discount was being amortized as interest expense
utilizing the effective interest method over the life of the Note. Interest
expense recorded in connection with the warrants was $69, $174 and $31 for the
years ended December 31, 1997, 1998 and 1999, respectively.
The Company also granted the warrant holder a put option ("Put Option") to
sell to the Company such warrant shares plus any other shares of capital stock
owned, as defined, at a per share price as defined in the agreement. The Put
Option was exercisable after the earlier to occur of July 30, 2002 or upon the
occurrence of an event of default, as defined. The Company recorded interest
expense of $150, $1,213 and $673 for the years ended December 31, 1997, 1998
and 1999 for accretion of the warrants to their redemption price.
In March 1999, in connection with the exchange of the note payable, the Note
holder exercised the warrants and was issued 5,000,000 shares of the Company's
mandatorily redeemable common stock.
8. Mandatorily Redeemable Securities and Shareholders' Equity
Authorization of Series A Mandatorily Redeemable Convertible Preferred Stock
In 1999, the Company amended and restated its articles of incorporation to
authorize 106,122 shares of $.01 par value Series A mandatorily redeemable
convertible preferred stock. The preferred stock is voting and is convertible
into shares of common stock on a 100 for 1 basis, subject to certain
adjustments. The preferred stockholders are entitled to receive dividends when
declared by the Board of Directors. In the event of any liquidation,
dissolution or winding up of the Company, the convertible preferred stock has a
liquidation preference of $122.50 per share. The preferred stock is immediately
convertible into common stock, at the option of the holder, and shall
automatically convert into common stock upon closing of an initial public
offering of common stock in which the aggregate net proceeds received by the
Company are at least $30,000.
Redeemable Stock Purchase Agreements
On March 16, 1999, the Company issued 81,632 shares of convertible preferred
stock, for proceeds of $9,359, net of issuance costs of $641, to an investor.
On March 16, 1999, the Company issued 10,204,100 shares of mandatorily
redeemable common stock, for proceeds of $11,235, net of issuance costs of
$641, of which $6,509 was in cash and $4,726 was the value
F-17
<PAGE>
PARTMINER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share data)
assigned to a license agreement entered into with IHS, an affiliate of the
purchaser of the redeemable common shares. (See Note 13).
On September 10, 1999, the Company issued 4,630,600 shares of mandatorily
redeemable common stock, for proceeds of $9,972, net of issuance costs of $28,
to an investor. In connection with this equity transaction, the founder also
sold 2,315,300 shares of common stock to this investor for $5,000.
The investors which purchased the convertible preferred stock and common
stock in March and September 1999, respectively, are parties to a stockholders
agreement. Pursuant to the terms of the stockholders agreement, if the Company
has not already completed an initial public offering with net proceeds of
$30,000, the holders of the convertible preferred stock and common stock issued
may require the Company to redeem their shares. The earliest redemption dates
are March 16, 2004 for the convertible preferred stockholders and March 16,
2006 for the common stockholders, respectively. The redemption price shall be
the fair market value of the Company's convertible preferred stock and common
stock on the redemption date, as defined. The carrying values of these
mandatorily redeemable securities are being accreted over the period from
issuance through the earliest redemption date. Accretion for these mandatorily
redeemable securities was $26,436 for the year ended December 31, 1999.
If the convertible preferred stock and common stockholders elect to exercise
their redemption options after March 16, 2007, the redemption price shall be
the original issuance price.
In February 2000, the Company amended its certificate of incorporation to
authorize the issuance of Series B convertible preferred shares (See Note 15).
Common Stock
In connection with the Company's 1999 amended and restated articles of
incorporation, the Company authorized a 100 for 1 common stock split. At
December 31, 1999, the authorized common stock consists of 150,000,000 shares
of common stock, at $.0001 par value. All per share amounts and number of
shares in the accompanying financial statements have been retroactively
adjusted to reflect the stock split.
The common stockholders are entitled to dividends and other distributions
out of assets legally available at such times and in such amounts as the
directors may determine from time to time. The holders of shares of common
stock are entitled to one vote per share of common stock. Upon liquidation,
dissolution or winding-up, the holders of shares of common stock will be
entitled to share ratably in the distribution of all of the assets remaining
available for distribution after satisfaction of all the liabilities and the
payment of the liquidation preference(s) of any then outstanding preferred
stock.
Share Redemption
On March 16, 1999, the Company redeemed 15,000,000 shares or 50% of the
outstanding common shares of the Company, for $850. Immediately prior to and
immediately after the redemption, the founder controlled 100% of the
outstanding common stock of the Company.
Shareholder Repurchase Option
In connection with the March 1999 convertible preferred stock issuance, the
founder and certain option holders (collectively, the "Optionees") entered into
an option agreement with the convertible preferred stock investor. Pursuant to
the terms of the agreement, the Optionees are entitled to repurchase 1,020,400
shares of preferred stock from the convertible preferred stock investor at
$1.225 per share. The repurchase option was exercisable on December 31, 2001 if
the Company reached certain operating profit or market capitalization
thresholds, as defined. In December 1999, the convertible preferred stock
investor and the Optionees entered into an agreement to terminate the option
agreement. In connection with the termination of this agreement, the
F-18
<PAGE>
PARTMINER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share data)
convertible preferred stock investor paid the Optionees $4,000, or
approximately $3.92 per convertible preferred share. Accordingly, the $4,000
option termination payment was accounted for as compensation expense and as a
contribution to additional paid-in capital by the convertible preferred stock
investor.
Reserved Shares
As of December 31, 1999, common stock was reserved for future issuance as
follows:
<TABLE>
<S> <C>
Conversion of mandatorily redeemable convertible preferred
stock......................................................... 10,612,200
1999 Stock Plan................................................ 2,148,200
1999 Employee Incentive Stock Option Plan...................... 2,505,000
----------
15,265,400
==========
</TABLE>
9. Stock Option Plans
During 1999, certain stockholders granted 600,000 non-qualified stock
options to an employee to purchase shares of common stock held by the
shareholders at an exercise price of $.50 per share. The Company recorded
deferred compensation relating to these options totaling $245, representing the
aggregate difference between the estimated fair market value of the Company's
common stock on the date of grant and the exercise price of each option. This
deferred compensation is being amortized over the two-year vesting period of
the related options, resulting in stock-based compensation of $156 for the year
ended December 31, 1999.
The Company also has various stock plans which provide for the issuance of
incentive and non-qualified stock options, stock appreciation rights and
restricted stock. A summary of the various stock plans is as follows:
1999 Stock Plan
Effective May 1999, the Company's Board of Directors established the
PartMiner 1999 Stock Plan (the "1999 Stock Plan"), under which the Company may
issue awards including non-qualified and incentive stock options, stock
appreciation rights and restricted stock for directors, officers and key
employees. A total of 2,148,200 shares of common stock have been reserved for
issuance under the 1999 Stock Plan. Each stock option under the 1999 Stock Plan
allows for the purchase of common stock, generally vests within two to four
years of the grant date and expires at an expiration date determined by the
Board no later than 10 years from the grant date.
Under the terms of the 1999 Stock Plan, the exercise price of incentive
stock options granted shall be at exercise prices not less than 100% of the
fair market value of the Company's common stock on the date of grant, as
determined by the Company's Board or the Board's compensation committee, except
that incentive stock option grants to an optionee who owns greater than 5% of
the Company's stock must have an exercise price of not less than 110% of the
fair market value of the underlying common stock on the date the stock option
is granted. Non-statutory stock options may be granted at exercise prices
determined by the Board of Director's or the Board's compensation committee,
except that the exercise price may not be less than the statutory minimum.
During 1999, the Company granted 1,286,700 non-qualified stock options to
employees to purchase shares of its common stock at exercise prices ranging
from $1.16 to $2.15 per share. The Company recorded deferred compensation
relating to these options totaling $1,346, representing the aggregate
difference between the
F-19
<PAGE>
PARTMINER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share data)
estimated fair market value of the Company's common stock on the date of grant
and the exercise price of each stock option. This deferred compensation is
being amortized over the two to three year vesting period of the related stock
options, resulting in stock-based compensation of $409 for the year ended
December 31, 1999.
1999 Employee Incentive Stock Plan
Effective October 1999, the Company's Board of Directors approved the
adoption of the PartMiner 1999 Employee Incentive Stock Plan (the "1999
Employee Stock Plan"), under which the Company may issue employees and
consultants stock options, stock appreciation rights or restricted stock in the
Company. A total of 2,505,000 shares of the Company's common stock have been
reserved for issuance under the 1999 Employee Stock Plan. Each option under the
1999 Employee Stock Plan allows for the purchase of shares of the Company's
common stock, generally vests within five years of grant date and must be
exercised no later than ten years from the date of grant.
Under the 1999 Employee Stock Plan, incentive stock options may not have an
exercise price that is less than the fair market value of the underlying stock
on the date the stock option is granted, as determined by the Company's Board
of Directors or the Board's compensation committee, except that any stock
option granted to an optionee who owns greater than 10% of the Company's stock
must have an exercise price of not less than 110% of the fair market value of
the underlying common stock on the date the stock option is granted. Non-
statutory stock options may be granted at exercise prices determined by the
Company's Board of Director's or the Board's compensation committee, except
that the exercise price may not be less than the statutory minimum. Each stock
option will expire according to an expiration date determined by the Board and
no later than 10 years from the grant date, except for any stock options
granted to an optionee who owns greater than 10% of the voting stock on the
date the stock option is granted in which case the option term shall be five
years from the grant date. During 1999, no stock options, stock appreciation
rights or restricted stock in the Company were granted under this plan.
The following table summarizes the activity of the Company's stock option
grants:
<TABLE>
<CAPTION>
Weighted-
Outstanding Average
Options Exercise Price
----------- --------------
<S> <C> <C>
Balance at January 1, 1999........................ -- $ --
Options granted................................... 1,286,700 1.48
--------- -----
Balance at December 31, 1999.................... 1,286,700 $1.48
========= =====
</TABLE>
The following table summarizes information about stock options issued by the
Company that are outstanding and exercisable at December 31, 1999.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------- ------------------------
Weighted-
Average Weighted- Weighted-
Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Price Outstanding Life Price Outstanding Price
-------- ----------- ----------- --------- ----------- ---------
(In Years)
<S> <C> <C> <C> <C> <C>
$1.16 859,200 9.5 $1.16 286,400 $1.16
$2.10 311,400 9.8 $2.10 23,800 $2.10
$2.15 116,100 9.9 $2.15 38,700 $2.15
--------- -------
1,286,700 348,900
========= =======
</TABLE>
F-20
<PAGE>
PARTMINER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share data)
The Company applies APB 25 and related interpretations in accounting for its
stock option plans. Had compensation cost been recognized pursuant to SFAS 123,
the Company's net loss would have been as follows:
<TABLE>
<CAPTION>
Year Ended
December 31,
1999
------------
<S> <C>
Net loss applicable to common shareholders
As reported................................................... $(30,006)
Pro forma..................................................... $(30,117)
Net loss per share applicable to common shareholders
As reported................................................... $ (.82)
Pro forma..................................................... $ (.82)
</TABLE>
For these pro forma calculations, the fair value of each option granted was
estimated on the date of grant using the Black-Scholes option pricing model,
utilizing the following weighted-average assumptions: (1) weighted average risk
free interest rate of 5.82%, (2) weighted-average expected option life of 3.19
years, and (3) expected dividend yield of 0. The effects of applying the fair
value method may be material to the pro forma results of operations in future
years because the determination of the fair value of all options granted after
the Company becomes a public entity will include an expected volatility factor,
additional option grants are expected to be made subsequent to December 31,
1999 and most options vest over several years.
10. Employee Savings and Retirement Plan
The Company has a 401(k) plan that allows eligible employees to contribute
up to 15% of their salary, subject to annual limits. Under the plan, eligible
employees may defer a portion of their pretax salaries but not more than
statutory limit. The Company may make discretionary matching contributions,
limited to a maximum of 3% of participants' eligible compensation. The Company
contributed approximately $13, $18 and $13 to the plan during the years ended
December 31, 1997, 1998, and 1999, respectively.
11. Income Taxes
The provision (benefit) for income taxes is summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1997 1998 1999
------- -------- -------
<S> <C> <C> <C>
Current:
Federal........................................ $ 56 $ -- $ --
State.......................................... 15 -- --
Foreign........................................ -- -- 33
------- -------- -------
71 -- 33
------- -------- -------
Deferred:
Federal........................................ -- (30) --
State.......................................... -- (8) --
Foreign........................................ -- -- --
------- -------- -------
-- (38) --
------- -------- -------
Provision (benefit) for income taxes......... $ 71 $ (38) $ 33
======= ======== =======
</TABLE>
F-21
<PAGE>
PARTMINER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share data)
The tax effects of temporary differences that give rise to a significant
portion of the deferred income taxes are as follows:
<TABLE>
<CAPTION>
December 31,
-------------
1998 1999
----- ------
<S> <C> <C>
Deferred tax asset:
Net operating loss carryforwards............................ $ 189 $7,427
Reserves and accruals....................................... 35 287
Other temporary differences................................. 11 379
----- ------
235 8,093
Less: valuation allowance................................. (193) (7,927)
----- ------
42 166
----- ------
Deferred tax liability:
Depreciation and amortization............................... (4) (128)
----- ------
Net deferred tax asset........................................ $ 38 $ 38
===== ======
</TABLE>
Due to the uncertainty of the Company generating future taxable income, the
Company has recorded a valuation allowance against certain deferred tax assets,
which more than likely will not be realized.
The provision for income taxes differs from the amount computed by applying
the federal income tax rate of 34% as a result of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1997 1998 1999
------- ------- ---------
<S> <C> <C> <C>
Expected benefit at federal income tax rate.... $ (31) $ (642) $ (5,735)
Foreign, state, and other taxes, net of federal
benefit....................................... 13 (41) (1,068)
Change in valuation allowance for deferred tax
assets........................................ -- 193 5,261
Amortization of intangibles.................... -- -- 1,301
Non-deductible interest expense................ 74 472 239
Other.......................................... 15 (20) 35
------ ------- ---------
Provision (benefit) for income tax............. $ 71 $ (38) $ 33
====== ======= =========
</TABLE>
At December 31, 1999, the Company had net operating loss carryforwards of
approximately $18,263, which expire through 2019. The Company's utilization of
net operating loss carryforwards will be limited pursuant to Internal Revenue
Code Section 382, due to cumulative changes in ownership in excess of 50%
within a three year period.
F-22
<PAGE>
PARTMINER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share data)
Effective August 1, 1997 (see Note 1), the Company's S corporation status
was terminated and the Company began operations as a C corporation. If the
Company had operated as a C corporation since January 1, 1997, the pro forma
income tax provision for the year ended December 31, 1997 would have been $154
(unaudited), without contemplating any applicable tax laws related to the
utilization of net operating losses. The following sets forth pro forma net
loss and net loss per share data assuming the Company operated as a
C corporation throughout the year ended December 31, 1997.
<TABLE>
<S> <C>
Loss before provision for income taxes......................... $ (46)
Pro forma income tax provision................................. (108)
----------
Pro forma net loss............................................. $ (154)
==========
Pro forma basic and diluted net loss per common share: $ (.01)
==========
Weighted average shares used in computing pro forma basic and
diluted net loss per share.................................... 24,219,178
==========
</TABLE>
No pro forma adjustments are required for the years ended December 31, 1998
and 1999 as the Company was operating as a C corporation during those years.
12. Commitments and Contingencies
Leases
The Company leases its warehouse and office facilities, under noncancelable
operating leases which expire at various dates through 2004.
Future minimum lease payments under these leases are as follows:
<TABLE>
<CAPTION>
Operating
Leases
---------
<S> <C>
Year ending December 31,
2000............................................................. $1,067
2001............................................................. 833
2002............................................................. 441
2003............................................................. 299
2004............................................................. 97
</TABLE>
Rent expense charged to operations amounted to approximately $208, $291 and
$733 for the years ended December 31, 1997, 1998 and 1999, respectively.
Employment Agreements
The Company has employment agreements with various executive officers and
management personnel which provide for annual base salaries pursuant to
agreements, which expire through March 2004. The Company's aggregate
prospective commitment under such agreements is approximately $2,000 as of
December 31, 1999. In addition, the employment agreements provide for annual
bonuses which are contingent upon the Company's operating performance.
In connection with the March 16, 1999 equity financing (see Note 8), the
Company entered into a five year employment agreement with its chief executive
officer which provides for an annual salary and certain
F-23
<PAGE>
PARTMINER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share data)
other benefits, as defined. In addition, if the chief executive officer is
terminated, as defined, the chief executive officer may require the Company to
repurchase all of the outstanding common stock held by the chief executive
officer at the fair market value, as defined, of the common stock at the date
of termination. This repurchase provision expires upon an initial public
offering of the Company's common stock with aggregate net proceeds of $30,000.
Consulting Agreements
In 1999, the Company entered into agreements with certain consultants
whereby the Company is committed to grant non-qualified stock options to the
consultants upon the completion of an initial public offering by the Company.
The number of options to be granted will be the equivalent of $275,000 divided
by the fair value of the Company's common stock underlying the non-qualified
stock options on the date of the initial public offering. The exercise price
for these options will be equal to the initial public offering price.
Litigation and Other Contingencies
The Company is party to various legal and administrative matters arising in
the normal course of business. The resolution of these matters is subject to
many uncertainties, and the ultimate outcome of these proceedings cannot
presently be determined. It is reasonably possible that the final resolution of
some of these matters may require the Company to make expenditures, in excess
of established reserves, over an extended period of time, and in a range of
amounts that cannot be reasonably estimated. Management believes, after
consulting with legal counsel, the ultimate liability in excess of reserves
currently provided for is not expected to have a material adverse effect on the
financial position or overall trends in results of operations of the Company.
13. Other Related Party Transactions
License Agreements
The Company has a 50 year license agreement with an affiliate company, which
is 50% owned by the Company's founder, for the use of a specialized computer
software system which expires in the year 2045. The above agreement does not
call for any payments to be received or paid. No amounts were due to the
affiliate at December 31, 1999.
In March 1999, and concurrent with the sale of 10,204,100 shares of
mandatorily redeemable common stock to an affiliate of IHS, the Company entered
into an agreement with IQXpert to license certain electronic component database
information. Under the terms of this license, IQXpert was to receive an annual
royalty payment of 2% on the first $100,000 of the Company's on-line revenues
and 1% of the revenues in excess of $100,000. In addition, the Company was to
compensate IQXpert for lost revenues attributable to certain customers which
failed to renew their subscription to the database. Concurrent with the
Company's acquisition of IQXpert on November 30, 1999, this license agreement
was terminated. No amounts were due to IQXpert from March 1999 to November 30,
1999.
Advertising Agreement
On September 10, 1999, the Company entered into a three year agreement with
a shareholder for the creation of interfaces between the Company's search
engine and Free Trade Zone and the stockholder's online network of websites.
Pursuant to the agreement, the shareholder agreed to promote the Company as its
exclusive e-commerce business partner for electronic components in the
electronic original equipment market on the shareholder's online network of
websites and in the shareholder's publications. The Company agreed to
F-24
<PAGE>
PARTMINER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share data)
use the shareholder as the Company's exclusive advertising agent of the
Company's search engine and Free Trade Zone to electronic component
distributors and manufacturers.
The Company has agreed to pay the shareholder a fee of 20% of all
advertising sold by the shareholder on the Company's behalf and is obligated to
purchase a minimum of $500 in annual advertising from the shareholder. In
addition, the shareholder is entitled to a fee of 1% of the Company's
consolidated revenues received from customer purchases resulting from this
agreement. Related party advertising expense for the year ended December 31,
1999 was $486 and is included in selling and marketing expenses in the
consolidated statements of operations for the year ended December 31, 1999.
IQXpert Agreements
In connection with the IQXpert acquisition, the Company agreed to enter into
a service agreement with IHS, which provides transitional support functions to
the Company. This agreement requires monthly service fees of $248. Service fees
for the year ended December 31, 1999 were $248. The Company has the option to
cancel either a portion or the entire service agreement with a 30-day notice.
IHS has paid certain expenses, primarily employee salary expenses, during
the period from December 1, 1999 through December 31, 1999 on the Company's
behalf. Amounts due to IHS were $1,417 at December 31, 1999 and are included in
accrued expenses on the accompanying consolidated balance sheet.
The Company is party to a non-exclusive sales agency agreement with IHS,
which expires in April 2000. Pursuant to the agreement, IHS is entitled to
receive an 18% commission on the net price paid by customers for new and
renewal subscriptions to the CAPSXpert products. Commission expense for the
year ended December 31, 1999 was $180.
F-25
<PAGE>
PARTMINER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share data)
14. Operating Segment and Geographic Information
Statement of Financial Accounting Standards No. 131, "Disclosure about
Segments of an Enterprise and Related Information", establishes standards for
reporting information about operating segments in annual financial statements
and for related disclosures about products and services, geographic areas and
major customers. For the following geographic area data, revenues are
attributed to geographic regions based on the location of the customer.
Identifiable assets in the United States as of December 31, 1998 and 1999
include net intangible assets of $68 and $110,272, respectively.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Revenues:
Product Sales:
United States..................................... $ 4,920 $ 7,908 $18,770
Israel............................................ 3,266 3,826 5,358
Australia......................................... 1,968 1,439 2,718
Finland........................................... 1,638 1,248 1,506
Other Foreign Countries........................... 6,463 6,234 11,976
Other:
United States..................................... -- -- 823
Other Foreign Countries........................... -- -- 352
------- ------- -------
Total............................................... $18,255 $20,655 $41,503
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
December 31,
---------------
1998 1999
------ --------
<S> <C> <C>
Identifiable assets:
United States.............................................. $4,939 $146,313
Foreign countries.......................................... 264 588
------ --------
Total........................................................ $5,203 $146,901
====== ========
</TABLE>
15. Subsequent Events
Stock Options
During the period from January through March 2000, the Company granted an
aggregate of 2,392,375 options to its employees and a director at exercise
prices ranging from $2.50 to $5.15 per share. In connection with these option
grants, the Company will record approximately $3,910 of deferred compensation
during the quarter ended March 31, 2000, which will be amortized over the
vesting period of two to four years. Upon the closing of its proposed initial
public offering, the Company estimates that it will record an immediate
compensation charge of $1,699 and additional deferred compensation of $3,675
relating to 1,313,175 options that will begin to vest on such date.
In February 2000, the Company amended its 1999 Stock Plan to increase the
number of common shares reserved for issuance by 350,000 common shares from
2,148,200 to 2,498,200. In addition, the Company reduced the number of common
shares reserved for issuance of the 1999 Employee Incentive Stock Plan by
350,000 common shares from 2,505,000 to 2,155,000.
In February 2000, the founder contributed 2,796,175 shares of common stock
to the Company. Such contributed shares were previously subject to an option
agreement between the founder and an executive officer
F-26
<PAGE>
PARTMINER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share data)
of the Company. Simultaneous with the contribution of the common shares by the
founder, the Company issued options to the officer to purchase 2,796,175 shares
of the Company's common stock, at an exercise price equivalent to the original
option exercise price between the founder and the officer.
Amendment to Certification of Incorporation
In February 2000, the Board of Director's of the Company authorized a
restatement of the Company's certification of incorporation to (i) increase the
number of authorized $.01 par value shares of preferred stock to 10,409,027,
(ii) to designate the 106,122 already outstanding convertible preferred shares
as Series A mandatorily redeemable convertible preferred shares ("Series A")
and (iii) to designate 10,302,905 convertible preferred shares as Series B
convertible preferred shares ("Series B").
The Series B preferred shares have substantially all of the same rights and
preferences as the Series A mandatorily redeemable convertible preferred
shares, except that (i) the Series B shares are convertible into shares of
common stock on a 1 for 1 basis, subject to certain adjustments, and (ii) in
the event of a liquidation, dissolution or winding up of the Company, the
Series B shares have a liquidation preference of $4.853 per share.
The Series A and B preferred shares are immediately convertible into common
shares, at the option of the holder, and shall automatically convert into
common stock, upon the closing of a firm commitment underwritten initial public
offering of the Company's common stock in the which the aggregate proceeds
received by the Company are at least $30,000 and at an initial public offering
price of at least $6.06 per common share. The Company intends to amend its
certificate of incorporation immediately following the automatic conversion of
the Series A and Series B preferred shares upon the completion of the initial
public offering to cancel the authorization of such shares.
Private Placement
In February 2000, the Company issued 10,302,905 shares of Series B
convertible preferred stock for proceeds of $50,000.
The Series B shares were issued with a conversion ratio that represented a
discount from the market value of the Company's common stock at the time of
issuance. Accordingly, the discount amount is considered incremental yield
("the beneficial conversion"), to the Series B convertible preferred
shareholder's. Based on the conversion terms of the Series B shares, an
embedded dividend will be added to the net loss in the calculation of net loss
applicable to common shareholders in the first quarter of 2000.
Repayment of Related Party Borrowings
In connection with the equity proceeds raised in the February 2000 private
placement, the Company repaid all outstanding borrowings under its Credit
Agreement, of which $3,000 was outstanding at December 31, 1999 ($9,000 was
outstanding immediately prior to the repayment) and subsequently terminated
this agreement.
F-27
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder of
Accurate Components Inc. and Affiliate
In our opinion, the accompanying combined balance sheets and the related
combined statements of operations, of shareholder's equity and of cash flows
present fairly, in all material respects, the financial position of Accurate
Components Inc. and Affiliate (the "Company") at December 31, 1998 and
September 30, 1999, and the results of their operations and their cash flows
for the year ended December 31, 1998 and for the nine months ended September
30, 1999, in conformity with accounting principles generally accepted in the
United States. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
New York, New York
November 12, 1999
F-28
<PAGE>
ACCURATE COMPONENTS INC. AND AFFILIATE
COMBINED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents......................... $ 281 $1,792
Accounts receivable, net for allowance for
doubtful accounts of $47 at December 31, 1998 and
$52 at September 30, 1999, respectively.......... 1,663 2,220
Inventory, net.................................... 755 544
Deferred income taxes............................. 356 434
Current portion of related party promissory note
receivable....................................... 10 10
------ ------
Total current assets............................ 3,065 5,000
Property and equipment, net......................... 148 126
Related party promissory note receivable............ 147 139
Other assets........................................ 11 12
------ ------
Total assets.................................... $3,371 $5,277
====== ======
Liabilities and Shareholder's Equity
Current liabilities:
Accounts payable.................................. $ 352 $ 692
Accrued salaries and benefits..................... 196 347
Income taxes payable.............................. 1,336 1,986
Notes payable..................................... 16 --
------ ------
Total current liabilities....................... 1,900 3,025
------ ------
Commitments and contingencies (Note 9)
Shareholder's equity:
Common stock (Note 7)............................. 7 7
Retained earnings................................. 1,726 2,631
Advances to related party (Note 8)................ (262) (386)
------ ------
Total shareholder's equity...................... 1,471 2,252
------ ------
Total liabilities and shareholder's equity...... $3,371 $5,277
====== ======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-29
<PAGE>
ACCURATE COMPONENTS INC. AND AFFILIATE
COMBINED STATEMENTS OF OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
For The For The Nine
Year Ended Months Ended
December 31, September 30,
1998 1999
------------ -------------
<S> <C> <C>
Revenues............................................. $15,582 $15,358
Cost of revenues..................................... 10,394 9,865
------- -------
Gross profit....................................... 5,188 5,493
Selling and marketing................................ 3,198 2,463
General and administrative expenses.................. 2,014 1,612
------- -------
Total operating expenses........................... 5,212 4,075
------- -------
(Loss) income from operations........................ (24) 1,418
Interest income, net................................. 72 64
------- -------
Income before provision for income taxes........... 48 1,482
Provision for income taxes........................... 23 577
------- -------
Net income......................................... $ 25 $ 905
======= =======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-30
<PAGE>
ACCURATE COMPONENTS INC. AND AFFILIATE
COMBINED STATEMENTS OF SHAREHOLDER'S EQUITY
(in thousands)
<TABLE>
<CAPTION>
Common Total
Stock Retained Advances to Shareholder's
Amount Earnings Shareholder's Equity
------ -------- ------------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1997....... $ 7 $1,701 $(137) $1,571
Net income......................... -- 25 -- 25
Advances to related party.......... -- -- (125) (125)
--- ------ ----- ------
Balance at December 31, 1998....... 7 1,726 (262) 1,471
Net income......................... -- 905 -- 905
Advances to related party.......... -- -- (124) (124)
--- ------ ----- ------
Balance at September 30, 1999...... $ 7 $2,631 $(386) $2,252
=== ====== ===== ======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-31
<PAGE>
ACCURATE COMPONENTS INC. AND AFFILIATE
COMBINED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
For The For the Nine
Year Ended Months Ended
December 31, September
1998 30, 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities
Net income.......................................... $ 25 $ 905
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization..................... 21 22
Deferred income taxes............................. (302) (78)
Changes in operating assets and liabilities:
Accounts receivable, net........................ 54 (557)
Inventory, net.................................. (191) 211
Other assets.................................... -- (1)
Accounts payable and accrued expenses........... (100) 491
Income taxes payable............................ 393 650
----- ------
Net cash (used in) provided by operating
activities................................... (100) 1,643
Cash flows from investing activities
Purchases of property and equipment................. (102) --
Repayments of promissory note receivable............ 8 8
Advances to related party........................... (125) (124)
----- ------
Net cash used in investing activities......... (219) (116)
Cash flows from financing activities
Repayments of notes payable......................... (16) (16)
----- ------
Net cash used in financing activities......... (16) (16)
----- ------
Net (decrease) increase in cash and cash
equivalents........................................ (335) 1,511
Cash and cash equivalents, beginning of period...... 616 281
----- ------
Cash and cash equivalents, end of period............ $ 281 $1,792
===== ======
Supplemental disclosure of cash flow information
Income taxes paid................................... $ -- $ 5
===== ======
Interest paid....................................... $ 2 $ 1
===== ======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-32
<PAGE>
ACCURATE COMPONENTS INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
(in thousands, except share data)
1. Organization and Summary of Significant Accounting Policies
Organization
Accurate Components Inc. and Affiliate (the "Company") are engaged in the
procurement and wholesale distribution of electronic components within the
domestic and international markets.
Basis of Presentation
Accurate Components Inc. ("ACI") and Marketing Trading Concepts Inc.
("MTCI") are presented on a combined basis since both entities are owned by the
same stockholder, are under common management and have significant financial,
operational, administrative, and legal relationships. All intercompany
transactions and balances have been eliminated in the combined presentation.
Cash and Cash Equivalents
Cash equivalents consist of financial instruments which are readily
convertible to cash and have original maturities of three months or less. Such
financial instruments are carried at cost which approximate fair value.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash and cash equivalents and accounts
receivable. Cash and cash equivalents are deposited with high credit quality
financial institutions. The Company maintains an allowance for doubtful
accounts based upon the expected collectibility of accounts receivable. No
customer accounted for more than 10% of net accounts receivable at December 31,
1998 and September 30, 1999, respectively. No customer represented 10% of
revenues during the year ended December 31, 1998 and during the nine months
ended September 30, 1999, respectively.
Inventory
Inventory, consisting of purchased electronic components parts, is stated at
the lower of cost or market. Cost is determined on the specific identification
method.
Property and Equipment
Property and equipment are stated at cost and depreciation is computed using
the straight-line method over the estimated useful lives of the assets, which
range from five to seven years. Leasehold improvements are amortized over the
shorter of the lease term or the estimated useful lives of the respective
assets.
Revenue Recognition
The Company recognizes revenue on product sales, net of any discounts, when
the products are shipped and the customer takes ownership and assumes risk of
loss. The Company provides an allowance for sales returns at the time the
related revenue is recognized.
Income Taxes
The Company recognizes deferred taxes by the asset and liability method of
accounting for income taxes. Under the asset and liability method, deferred
income taxes are recognized for differences between the financial statement and
tax basis of assets and liabilities at enacted statutory tax rates in effect
for the years in which the differences are expected to reverse. The effect on
deferred taxes of a change in tax rates is recognized in income in the period
that includes the enactment date. In addition, valuation allowances are
established when
F-33
<PAGE>
ACCURATE COMPONENTS INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share data)
necessary to reduce deferred tax assets to the amounts expected to be realized.
The income tax expense and income tax assets and liabilities reflected in the
combined financial statements are based upon the aggregate tax expense and tax
assets and liabilities of ACI and MTCI since each entity files a separate
income tax return.
Fair Value of Financial Instruments
The carrying amounts of the Company's financial instruments, including cash
and cash equivalents, accounts receivable, promissory note receivable, advances
to related party, accounts payable, accrued salaries and benefits and notes
payable, approximate fair value because of their short-term maturities.
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 amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
2. Property and Equipment
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
<S> <C> <C>
Furniture and fixtures.. $263 $263
Leasehold improvements.. 84 84
---- ----
347 347
Less: accumulated
depreciation and
amortization........... 199 221
---- ----
$148 $126
==== ====
</TABLE>
Depreciation and amortization expense was $21 and $22 for the year ended
December 31, 1998 and for the nine months ended September 30, 1999,
respectively.
3. Line of Credit
On September 1, 1999, the Company entered into a $1,000 line of credit
agreement (the "Line") with a bank. Borrowings bear interest at approximately
8%. There were no borrowings under this Line at any time during the nine months
ended September 30, 1999.
4. Note Payable
On September 1, 1993, the Company entered into an agreement with a former
shareholder, which provided for a $80 loan, in the form of a promissory note.
The note bore interest at an annual rate of 8% and was repaid in September
1999. Interest expense during the year ended December 31, 1998 and during the
nine months ended September 30, 1999 was approximately $2 and $1, respectively.
5. Employee Savings and Retirement Plan
The Company has a 401(k) profit sharing plan that allows eligible employees
to contribute up to 25% of their salary, subject to annual limits. Under the
plan, eligible employees may defer a portion of their pretax salaries but not
more than the statutory limit. The Company may make discretionary
contributions, limited to a
F-34
<PAGE>
ACCURATE COMPONENTS INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share data)
maximum, as described in the plan document. The Company contributed $11 to the
plan during the year ended December 31, 1998. There were no Company
contributions during the nine months ended September 30, 1999.
6. Income Taxes
The provision (benefit) for income taxes is summarized as follows:
<TABLE>
<CAPTION>
For The Year For The Nine
Ended Months Ended
December 31, September 30,
1998 1999
------------ -------------
<S> <C> <C>
Current:
Federal......................................... $276 $557
State........................................... 49 98
---- ----
325 655
---- ----
Deferred:
Federal......................................... (257) (66)
State........................................... (45) (12)
---- ----
(302) (78)
---- ----
Provision for income taxes........................ $ 23 $577
==== ====
</TABLE>
The components of the deferred tax assets (liability) consist of the
following:
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
<S> <C> <C>
Deferred tax assets:
Bad debt reserve................................ $ 19 $ 21
Inventory reserve............................... 58 131
Accrual to cash adjustment...................... 480 282
----- ----
557 434
----- ----
Deferred tax liability:
Accrual to cash adjustment...................... (201) --
----- ----
Net deferred tax asset........................ $ 356 $434
===== ====
</TABLE>
For income tax purposes, MTCI's income is generally reported in the period
cash is actually received and expenses are generally reported in the period
payments are actually made.
The provision for income taxes differs from the amount computed by applying
the federal income tax rate of 34% as a result of the following:
<TABLE>
<CAPTION>
For The Year For The Nine
Ended Months Ended
December 31, September 30,
1998 1999
------------ -------------
<S> <C> <C>
Expected expenses at federal income tax rate.... $16 $504
State taxes, net of federal benefit............. 2 59
Other........................................... 5 14
--- ----
Provision for income tax........................ $23 $577
=== ====
</TABLE>
F-35
<PAGE>
ACCURATE COMPONENTS INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share data)
7. Shareholder's Equity
The common stock of the combined companies consists of the following:
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
<S> <C> <C>
Accurate Components, Inc.
Common Stock--No par value
Authorized--200 shares
Issued and outstanding--180 shares............ $ 2 $ 2
Marketing Trading Concepts, Inc.
Common Stock--No par value
Authorized--200 shares
Issued and outstanding--100 shares............ 5 5
--- ---
$ 7 $ 7
=== ===
</TABLE>
8. Related Party Transactions
On July 18, 1994, the Company purchased a promissory note related to and
secured by the principal residence of the sole shareholder for $190. The
promissory note bears interest at 8.75% annually and requires monthly
installments of approximately $2 through July 2009. Interest income on this
note was $14 and $10 for the year ended December 31, 1998 and for the nine
months ended September 30, 1999, respectively.
Advances to related party consist of loans to the sole shareholder by the
Company and are classified as a reduction of shareholder's equity. Such loans
bear interest at an annual rate of 8.75% and have no fixed repayment terms. No
repayments were made by the sole shareholder during the year ended December 31,
1998 and during the nine months ended September 30, 1999. Interest income with
respect to such advances was approximately $17 and $20 for the year ended
December 31, 1998 and for the nine months ended September 30, 1999,
respectively.
9. Commitments and Contingencies
The Company leases its office and operations facilities and other equipment
under noncancellable operating leases which expire at various dates through
2001.
Future minimum lease payments under these noncancellable operating leases
are as follows:
<TABLE>
<CAPTION>
Operating
Leases
---------
<S> <C>
Period ending December 31,
1999 (three month period remaining).............................. $ 35
2000............................................................. 146
2001............................................................. 53
</TABLE>
Rent expense charged to operations amounted to approximately $92 and $92 for
the year ended December 31, 1998 and for the nine months ended September 30,
1999, respectively.
10. Subsequent Event
On November 12, 1999, the Company was acquired by PartMiner, Inc.
F-36
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
IQXpert Holdings Inc. and Affiliate
In our opinion, the accompanying combined balance sheets and the related
combined statements of operations, of owners' equity and of cash flows present
fairly, in all material respects, the financial position of IQXpert Holdings
Inc., and the affiliated Data division, operating units of Information Handling
Services Group, Inc. (collectively, the "Company"), at November 30, 1998 and
1999 and the results of their operations and their cash flows for the years
then ended in conformity with accounting principles generally accepted in the
United States. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
The accompanying combined financial statements have been prepared from the
records maintained by Information Handling Services Group, Inc. and may not
necessarily be indicative of the conditions that would have existed or the
results of operations if IQXpert Holdings, Inc. and the affiliated Data
division had been operated as unaffiliated entities. Portions of certain
expenses represent allocations made from and applicable to Information Handling
Services Group, Inc. as a whole.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
New York, New York
January 14, 2000
F-37
<PAGE>
IQXPERT HOLDINGS INC. AND AFFILIATE
COMBINED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
November 30,
--------------
1998 1999
------ -------
<S> <C> <C>
Assets
Current assets
Accounts receivable, net of allowance for doubtful accounts
of $103 and $95 in 1998 and 1999 ........................... $3,094 $ 4,152
Prepaid expenses and other assets............................ 247 408
------ -------
Total current assets....................................... 3,341 4,560
Property and equipment, net.................................... 108 1,101
Intangible assets, net......................................... 3,533 27,527
------ -------
Total assets............................................... $6,982 $33,188
====== =======
Liabilities and Owners' Equity
Current liabilities
Accounts payable and accrued expenses........................ $ -- $ 786
Deferred revenues............................................ 5,104 5,598
------ -------
Total current liabilities.................................. 5,104 6,384
------ -------
Commitments and contingencies (Note 9)
Owners' Equity
Common stock; $0.001 par value, 110,000,000 shares
authorized; 9,556,130 shares issued and outstanding at
November 30, 1999 (Notes 1 and 3)........................... -- 10
Additional paid-in capital................................... -- 30,161
Accumulated deficit.......................................... -- (3,367)
Net contribution from owner ................................. 1,878 --
------ -------
Total owners' equity....................................... 1,878 26,804
------ -------
Total liabilities and owners' equity....................... $6,982 $33,188
====== =======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-38
<PAGE>
IQXPERT HOLDINGS INC. AND AFFILIATE
COMBINED STATEMENTS OF OPERATIONS
(In thousands)
<TABLE>
<CAPTION>
For the Years
Ended
November 30,
----------------
1998 1999
------- -------
<S> <C> <C>
Revenues:
Database product subscription revenues, net.................. $13,342 $12,920
Software licenses and services revenues, net................. -- 3,546
------- -------
Total revenues, net........................................ 13,342 16,466
Cost of goods and services................................... 7,417 7,351
Cost of software licenses and services....................... -- 886
------- -------
Gross profit............................................... 5,925 8,229
Selling and marketing expenses............................... 3,929 4,454
General and administrative expenses.......................... 1,052 1,816
Research and development..................................... 256 1,612
Amortization of intangible assets............................ 1,223 3,490
------- -------
Operating loss before provision (benefit) for income
taxes..................................................... (535) (3,143)
Provision (benefit) for income taxes......................... (207) 144
------- -------
Net loss................................................... $ (328) $(3,287)
======= =======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-39
<PAGE>
IQXPERT HOLDINGS INC. AND AFFILIATE
COMBINED STATEMENTS OF OWNERS' EQUITY
(In thousands, except share data)
<TABLE>
<CAPTION>
Common Stock
--------------------------
Additional Total
Par Paid-in Accumulated Contributions Owners'
Shares Value Capital Deficit by Owner Equity
--------- ----- ---------- ----------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at November 30,
1997................... -- $ -- $ -- $ -- $ 4,482 $ 4,482
Net distributions to
owner.................. -- -- -- -- (2,276) (2,276)
Net loss................ -- -- -- -- (328) (328)
--------- ---- -------- -------- ------- --------
Balance at November 30,
1998................... -- -- -- -- 1,878 1,878
Net distribution to
owner.................. -- -- -- -- (1,162) (1,162)
Net income through March
31, 1999............... -- -- -- -- 80 80
--------- ---- -------- -------- ------- --------
Balance at March 31,
1999................... -- -- -- -- 796 796
Incorporation and
capitalization of
IQXpert Holdings Inc... 7,632,977 8 12,405 -- (796) 11,617
Issuance of shares in
connection with
acquisition of ICI..... 1,923,153 2 17,756 -- -- 17,758
Net loss from April 1,
1999................... -- -- -- (3,367) -- (3,367)
--------- ---- -------- -------- ------- --------
Balance at November 30,
1999................... 9,556,130 $ 10 $ 30,161 $ (3,367) $ -- $ 26,804
========= ==== ======== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-40
<PAGE>
IQXPERT HOLDINGS INC. AND AFFILIATE
COMBINED STATEMENTS OF CASH FLOWS
(In thousands, except share data)
<TABLE>
<CAPTION>
For the Years
Ended November
30,
-----------------
1998 1999
------- --------
<S> <C> <C>
Cash flows from operating activities
Net loss............................................... $ (328) $ (3,287)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization........................ 1,655 4,332
Deferred income taxes................................ -- 38
Changes in operating assets and liabilities, net of
effect of acquisitions
Accounts receivable, net........................... 512 (774)
Prepaid expenses and other assets.................. (23) (199)
Accounts payable and accrued expenses.............. (35) 588
Deferred revenues.................................. 516 494
------- --------
Net cash provided by operating activities........ 2,297 1,192
Cash flows from investing activities
Purchase of ICI, net of cash acquired.................. -- (10,905)
Purchase of ExtraTime.................................. -- (250)
Purchase of property and equipment..................... (21) (468)
Other.................................................. -- (23)
------- --------
Net cash used in investing activities............ (21) (11,646)
Cash flows from financing activities
Net contributions from (distributions to) owner........ (2,276) 10,454
------- --------
Net cash (used in) provided by financing
activities...................................... (2,276) 10,454
------- --------
Net change in cash..................................... -- --
Cash and cash equivalents, beginning of period......... -- --
------- --------
Cash and cash equivalents, end of period............... $ -- $ --
======= ========
Supplemental disclosure of cash flow information:
Income taxes paid...................................... $ -- $ --
======= ========
Interest paid.......................................... $ -- $ --
======= ========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-41
<PAGE>
IQXPERT HOLDINGS INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
(In thousands, except share data)
1. Organization and Description of Business
IQXpert Holdings Inc. (the "Company") is engaged in the design and
development of information database systems relating to electronic components,
including the CAPSXpert database, and the sale of subscriptions to such
databases through its wholly-owned subsidiary IQXpert Inc. ("IQXpert") and the
affiliated Data division ("Data"). IQXpert Holdings Inc. and Data were
operating units of Information Handling Services Group, Inc. ("IHS") through
November 30, 1999. On November 30, 1999, IHS sold IQXpert Holdings Inc. and
substantially all of the assets and liabilities of Data to PartMiner, Inc. The
accompanying financial statements do not give effect to any adjustments which
would arise as a result in the change in the Company's ownership on November
30, 1999.
On March 24, 1999, the Company was incorporated in Delaware, at which time
IHS transferred cash and certain assets to the Company, consisting primarily of
the CAPSXpert database assets and operations, in return for 7,632,977 common
shares of the Company. Net assets contributed were recorded at their historical
net book value and totaled approximately $796 at March 31, 1999.
Effective April 1, 1999, the Company acquired all of the outstanding common
stock of International ComputTex, Inc. ("ICI"), a developer and provider of
enterprise client/server software products and services that enable
manufacturers to improve product development and business processes through
component and supplier management and product data management.
On September 1, 1999, the Company acquired certain assets of ExtraTime
Technologies, LLC ("ExtraTime"). ExtraTime provides software development,
support and implementation services.
IHS, a Delaware corporation, is a wholly owned subsidiary of HAIC Inc.,
which is a wholly owned subsidiary of Holland America Investment Corporation
("HAIC").
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying financial statements are presented on a combined basis as
both IQXpert Holdings Inc. and its subsidiaries and Data were under common
ownership and management for the periods presented and have significant
financial, operational, administrative and legal relationships. All material
intercompany transactions and balances have been eliminated in the combined
presentation.
The Company does not maintain corporate treasury, legal, tax, purchasing and
other similar corporate support functions. For purposes of preparing the
accompanying financial statements, certain IHS corporate costs were allocated
to the Company using the allocation methods described in Note 8.
Cash and Cash Equivalents
The Company's cash management functions are performed by IHS. All excess
cash balances of the Company are paid to IHS daily, and as a result, the
Company holds no cash or cash equivalents.
Financial Risks
Financial instruments that potentially subject the Company to credit risk
consist of accounts receivable. The Company maintains an allowance for doubtful
accounts based upon the expected collectibility of accounts
F-42
<PAGE>
IQXPERT HOLDINGS INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share data)
receivable. No customer accounted for more than 10% of accounts receivable at
November 30, 1998 and 1999. No customer represented 10% of revenues during the
year ended November 30, 1998. One customer represented 10% or more of revenues
during the year ended November 30, 1999.
The Company operates in the United States. Export sales to customers
(principally in Europe) comprised approximately 39% and 38% in 1998 and 1999,
respectively. The Company's aggregate sales to various customers within the
U.S. federal government approximated 8% of total revenues in each of 1998 and
1999.
The Company's business is subject to other risks and uncertainties common to
growing technology-based companies, including rapidly changing business models,
new service introductions and other activities of competitors.
Property and Equipment
Property and equipment are stated at cost, and depreciation is computed
using the straight-line method over the estimated useful lives of the assets,
which range from five to seven years.
Intangible Assets
Intangible assets are amortized on a straight-line basis over the estimated
periods benefited which range from five to fifteen years. The realizability of
intangible assets is evaluated periodically when events or circumstances
indicate a possible inability to recover the carrying amounts. Such evaluation
is based on various analyses, including cash flow and profitability
projections. The analyses involve significant management judgment to evaluate
the capacity of an acquired business to perform within projections.
Revenue Recognition
The Company has historically derived revenues from the sale of subscriptions
to its database of electronic components information. Commencing with the
acquisition of ICI, the Company began to derive revenue from the sale of
software licenses and related services. Deferred revenue comprises amounts
billed or collected by the Company prior to satisfying the applicable revenue
recognition criteria and relate principally to database subscription revenues.
Database Subscription Revenue
Revenue from the sale of database subscriptions is recognized ratably over
the term of the subscription period, generally 12 months. Royalties and
commissions associated with database subscriptions are deferred and amortized
to expense over the subscription period.
Software and Service Revenue
Software licensing and services revenues are recognized in accordance with
the provisions of Statement of Position 97-2, "Software Revenue Recognition"
("SOP 97-2"), as amended by Statement of Position 98-4. Additionally, the
American Institute of Certified Public Accountants recently issued Statement of
Position 98-9, which provides certain amendments to SOP 97-2, which is
effective for transactions entered into beginning January 1, 2000. This
pronouncement is not expected to materially impact the Company's revenue
recognition practices.
F-43
<PAGE>
IQXPERT HOLDINGS INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share data)
Software-related license revenues are generated from licensing the rights to
the periodic or perpetual use of the Company's software products. Software-
related service revenues are generated from sales of maintenance, consulting
and training services performed for customers that license the Company's
products.
Revenues from software license agreements are generally recognized over the
software implementation period if persuasive evidence of an arrangement exists,
collection is probable, the fee is fixed or determinable, and vendor-specific
objective evidence exists to allocate the total fee to all elements of the
arrangement. The Company has concluded that the implementation services are
essential to the customer's use of the software in arrangements where
implementation services are provided. As such, the Company recognizes revenue
for these arrangements following the percentage-of-completion method over the
implementation period. Percentage of completion is measured by the percentage
of implementation hours incurred to date to estimated total implementation
hours.
Vendor-specific objective evidence is based on the price charged when an
element is sold separately. Elements included in multiple-element arrangements
could consist of software licenses, maintenance, consulting and training
services.
Revenues from maintenance services are recognized ratably over the term of
the contract, typically one year. Consulting revenues are primarily related to
implementation services performed on a time-and-materials basis under separate
service arrangements. Revenues from consulting and training services are
recognized as services are performed.
The Company provides allowances for sales returns at the time the related
revenue is recognized.
Research and Development
Research and development activities are expensed as incurred.
Income Taxes
From April 1, 1999 to November 30, 1999, the Company was a separate taxable
entity for federal, state and local income tax purposes. The Company's tax
provision has been prepared in accordance with Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes, on a separate return
basis for all periods presented.
Deferred taxes result from differences between the financial and tax bases
of the Company's assets and liabilities and are adjusted for changes in tax
rates and tax laws when changes are enacted. Valuation allowances are recorded
to reduce deferred tax assets when it is more likely than not that a tax
benefit will not be realized by the Company.
Owners' Equity and Accumulated Deficit
Prior to incorporation in March 1999, the Company was not a separate legal
entity and had no historical capital structure. For all periods prior to the
Company's incorporation, funding provided by and distributions made to IHS, and
net losses incurred by the Company, have been recorded as Owners' Equity.
Subsequent to incorporation, all losses have been recorded in Accumulated
Deficit.
Fair Value of Financial Instruments
The carrying amounts of the Company's financial instruments, including
accounts receivable, accounts payable and accrued expenses approximate fair
value because of their short-term maturities.
F-44
<PAGE>
IQXPERT HOLDINGS INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share data)
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 amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
3. Acquisitions
Effective April 1, 1999, the Company acquired 91.3% of the outstanding
common stock of ICI for an aggregate purchase price of $25,528 including
$10,905 in cash plus 1,566,153 shares of the Company's common stock. The
remaining 8.7% interest in ICI was previously held by Thybo New Ventures
Limited ("Thybo"), an affiliate of IHS. Thybo exchanged its 8.7% interest in
ICI for 357,000 newly issued shares of IQXpert. This exchange was accounted for
at Thybo's original cost of the shares of $3,135 which approximated their fair
value on April 1, 1999. The transaction has been accounted for as a purchase
and the assets and liabilities of ICI have been recorded at fair value on the
date of acquisition as follows:
<TABLE>
<S> <C>
Accounts receivable................................................. $ 284
Other assets........................................................ --
Property, plant and equipment....................................... 735
Software development costs.......................................... 1,968
Goodwill............................................................ 25,875
Accounts payable and accrued expenses............................... (199)
</TABLE>
The results of ICI's operations are included in those of the Company for the
period from acquisition to November 30, 1999.
Supplemental Pro Forma Information (unaudited):
Results of operations for the years ended November 30, 1998 and 1999
assuming that the Company and ICI had been combined at the beginning of such
periods are as follows:
<TABLE>
<CAPTION>
1998 1999
------- -------
<S> <C> <C>
Revenue.................................................... $17,739 $16,761
Net loss................................................... (7,239) (6,007)
</TABLE>
The pro forma information does not reflect the actual results that would
have been achieved, nor is it necessarily indicative of future consolidated
results of the Company.
On September 1, 1999, the Company acquired certain fixed assets and
intangible assets of ExtraTime for approximately $250 in cash in a transaction
accounted for as a purchase.
The purchase price was allocated as follows:
<TABLE>
<S> <C>
Computer equipment...................................................... $ 5
Goodwill................................................................ 245
</TABLE>
The results of ExtraTime's operations are included in those of the Company
for the period from acquisition to November 30, 1999. Supplemental pro forma
information has not been included herein as the results of ExtraTime's
operations for the periods presented are not material to the combined results
of the Company.
F-45
<PAGE>
IQXPERT HOLDINGS INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share data)
4. Property and Equipment
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
--------------
1998 1999
----- ------
<S> <C> <C>
Furniture and computer equipment............................. $ 683 $1,814
Less--accumulated depreciation............................... (575) (713)
----- ------
$ 108 $1,101
===== ======
</TABLE>
Depreciation expense was $68 and $215 for the years ended November 30, 1998
and 1999, respectively.
5. Intangible Assets
Intangible assets consist of the following:
<TABLE>
<CAPTION>
Useful Lives 1998 1999
------------ ------- -------
<S> <C> <C> <C>
Goodwill...................................... 5 years $ -- $26,120
Software development costs.................... 5 years 360 2,328
Acquired database assets...................... 15 years 4,685 4,685
Copyrights and patents........................ 12 years 500 523
------- -------
5,545 33,656
Less--accumulated amortization................ (2,012) (6,129)
------- -------
$ 3,533 $27,527
======= =======
</TABLE>
Amortization expense for the years ended November 30, 1998 and 1999 was
$1,587 and $4,117, respectively, of which $364 and $627 is included in cost of
goods and services in the accompanying combined statements of operations for
the years ended November 30, 1998 and 1999, respectively.
F-46
<PAGE>
IQXPERT HOLDINGS INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share data)
6. Income Taxes
At November 30, 1999, the Company had net operating loss carryforwards of
approximately $6,148 and research credit carryforwards of approximately $88,
which expire through 2014. The net operating loss carryforwards were generated
by ICI prior to its acquisition by the Company on April 1, 1999. The Internal
Revenue Code places certain limitations on the annual amount of net operating
loss carryforwards which can be utilized if certain changes in the Company's
ownership occur. Changes in the Company's ownership may limit the use of such
carryforward benefits.
Deferred tax assets and liabilities are comprised of the following:
<TABLE>
<CAPTION>
December 31,
--------------
1998 1999
----- -------
<S> <C> <C>
Deferred tax assets
Allowance for doubtful accounts............................... $ 38 $ 50
Net operating loss carryforwards.............................. -- 2,459
Research credit carryforwards................................. -- 88
----- -------
Gross deferred tax assets................................... 38 2,597
Deferred tax liabilities
Accumulated depreciation and amortization................... -- (124)
----- -------
Gross deferred tax liabilities............................ -- (124)
----- -------
38 2,473
Valuation allowance........................................... -- (2,473)
----- -------
Net deferred tax assets................................... $ 38 $ --
===== =======
A valuation allowance has been provided for as of November 30, 1999 relating
to the Company's deferred tax assets due to the fact that it is more likely
than not that such benefits will not be realized.
The following summarizes the provision (benefit) for income taxes for the
years ended November 30, 1998 and 1999:
<CAPTION>
1998 1999
----- -------
<S> <C> <C>
Current:
Federal....................................................... $(147) $ 92
State......................................................... (22) 14
----- -------
(169) 106
----- -------
Deferred:
Federal....................................................... (35) 35
State......................................................... (3) 3
----- -------
(38) 38
----- -------
Provision (benefit) for income taxes............................ $(207) $144
===== =======
</TABLE>
F-47
<PAGE>
IQXPERT HOLDINGS INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share data)
The income tax provision (benefit) differs from the amount computed by
applying the U.S. federal income tax rate of 34% to the loss before income
taxes. The amounts for the years ended November 30, 1998 and 1999 are
reconciled as follows:
<TABLE>
<CAPTION>
1998 1999
----- -------
<S> <C> <C>
U.S. federal income tax benefit at statutory rate............ $(182) $(1,068)
Change in valuation allowance................................ -- 56
State income tax benefit, net of federal expense............. (25) 17
Research credits............................................. -- (30)
Nondeductible goodwill....................................... -- 1,177
Other........................................................ -- (8)
----- -------
Income tax provision (benefit)............................... $(207) $ 144
===== =======
</TABLE>
7. Employee Benefit Plans
The Company participates, as part of IHS and along with other affiliated
companies, in a non-contributory, defined benefit retirement plan administered
by HAIC. The plan covers substantially all salaried employees. Pension costs
are allocated and funded based upon annual actuarial estimates, except that
funding is subject to limitations under applicable tax regulations. The
Company's allocated pension costs totaled approximately $7 for each of the
years ended November 30, 1998 and 1999.
The Company provides workers' compensation, medical and traditional dental
insurance coverages. Costs allocated to the Company were approximately $360 and
$270 for these programs for the years ended November 30, 1998 and 1999,
respectively.
In addition, the Company provides certain health care benefits, along with
other IHS affiliates, for retired employees. Substantially all of the Company's
employees may become eligible for these benefits if they reach normal
retirement age while working for the Company. Costs allocated to the Company
for such benefits totaled approximately $6 and $7 for the years ended November
30, 1998 and 1999, respectively.
Employees may participate in IHS sponsored defined contribution retirement
plans. Benefit expense relating to these plans was approximately $64 and $83
for the years ended November 30, 1998 and 1999, respectively.
On April 1, 1999, the Company established a non-qualified stock option plan
for certain key employees. A total of 288,500 options at an exercise price of
$14.80 per share were issued in 1999 under the plan. The plan was terminated on
November 30, 1999 and all options issued thereunder were cancelled.
8. Related Party Transactions
As discussed in Note 1, the financial statements of the Company reflect
certain allocated corporate support costs from IHS. Such allocations and
charges are based on a percentage of total costs of the services provided,
based on factors such as headcount, revenues, gross asset value, or the
specific level of activity directly related to such costs.
Management believes that these allocations are based on assumptions that are
reasonable under the circumstances. However, these allocations are not
necessarily indicative of the costs and expenses that would have resulted in
the business had been operated as a separate entity.
F-48
<PAGE>
IQXPERT HOLDINGS INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share data)
The following summarizes the corporate costs allocated to the Company for
the years ended November 30, 1998 and 1999:
<TABLE>
<CAPTION>
1998 1999
------ ----
<S> <C> <C>
Marketing and advertising....................................... $3,367 $986
General and administrative...................................... 829 211
Data processing................................................. 1,200 300
</TABLE>
In March 1999, the Company entered into a services agreement with IHS under
which it agreed to pay IHS a fixed monthly fee of $331 in exchange for many of
the services that IHS formerly provided on an allocated basis. A total of
approximately $2,648 was charged to the Company under this agreement during the
period from April 1, 1999 to November 30, 1999.
In March 1999, the Company entered into a non-exclusive sales agency
agreement with IHS, pursuant to which IHS shall receive an 18% commission on
the net price paid by customers for new and renewal subscriptions to the
CAPSXpert products. Commissions paid by the Company to IHS under this agreement
totaled $1,440 through November 30, 1999. This agreement terminates in April
2000.
The Company receives and pays cash to IHS from time to time as necessary for
reimbursement of Company expenses incurred by IHS and for corporate cash
management purposes. No formal borrowing agreement exists between the Company
and IHS and no interest income or expense has been charged or allocated to the
Company. As of November 30, 1999, no amounts were owed to or between IHS and
the Company under this informal agreement.
9. Commitments and Contingencies
Rent expense allocated to the Company by IHS amounted to approximately $200
for each of the years ended November 30, 1998 and 1999, respectively. In
addition, the Company incurred direct rental expenses of $134 in 1999. Minimum
rental commitments under non-cancelable operating leases in effect at November
30, 1999 are as follows:
<TABLE>
<S> <C>
For the Year Ending November 30,
2000................................................................. $202
2001................................................................. 209
2002................................................................. 85
</TABLE>
F-49
<PAGE>
Schedule II
PartMiner, Inc.
Valuation and Qualifying Accounts
(in thousands)
The following is a rollforward of the Company's provision for doubtful
accounts and tax valuation allowances for the years ended December 31, 1997,
1998 and 1999:
<TABLE>
<CAPTION>
Balance at Charges Additions
Beginning of Costs, and due to Balance at
Period Expenses Acquisitions Deductions End of Period
------------ ---------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1997:
Provision for doubtful
accounts.............. $ 30 $ -- $ -- $ 10 $ 20
Tax valuation
allowances............ -- -- -- -- --
Year ended December 31,
1998:
Provision for doubtful
accounts.............. 20 20 -- -- 40
Tax valuation
allowances............ -- 193 -- -- 193
Year ended December 31,
1999:
Provision for doubtful
accounts.............. 40 375 485 -- 900
Tax valuation
allowances............ $193 $5,261 $2,473 $-- $7,927
</TABLE>
F-50
<PAGE>
PARTMINER, INC.
SELECTED UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION
The selected unaudited pro forma condensed consolidated financial
information for PartMiner, Inc. (the "Company") set forth below gives effect to
the acquisition of Accurate Components Inc. and Market Trading Concepts, Inc.,
its affiliate (collectively, "Accurate Components"), and IQXpert Holdings Inc.
and its wholly-owned subsidiaries (collectively, "IQXpert"). The historical
financial information set forth below has been derived from, and is qualified
by reference to, the financial statements of the Company, Accurate Components
and IQXpert and should be read in conjunction with those financial statements
and the notes thereto included elsewhere herein.
The selected unaudited pro forma condensed consolidated financial
information presents the condensed consolidated results of operations of the
companies for the year ended December 31, 1999, giving effect to the
acquisitions of Accurate Components and IQXpert as if such acquisitions had
been consummated as of January 1, 1999 under the purchase method of accounting.
Pro forma condensed consolidated balance sheet information has not been
presented because the assets and liabilities of Accurate Components and IQXpert
are included in the Company's audited consolidated balance sheet at December
31, 1999, which is included elsewhere herein.
The selected unaudited pro forma condensed consolidated financial
information reflects certain adjustments, including adjustments to reflect the
amortization of intangible assets resulting from the acquisitions. The
information should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Financial
Statements--the Company, Accurate Components and IQXpert." The selected
unaudited pro forma condensed consolidated financial information does not
purport to represent what the consolidated results of operations or financial
condition of the Company would actually have been if the Accurate Components
and IQXpert acquisitions had in fact occurred on such date or to project the
future consolidated results of operations or financial condition of the
Company.
See notes to unaudited pro forma financial statements for further
information.
F-51
<PAGE>
PARTMINER, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share data)
<TABLE>
<CAPTION>
Year Ended December 31, 1999
----------------------------------------------------------
Accurate Pro forma
PartMiner Components IQXpert Adjustments Pro forma
---------- ---------- ------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Revenues
Product revenues ...... $ 40,328 $19,235 $ -- $ -- $ 59,563
Other revenues......... 1,175 -- 15,701 -- 16,876
---------- ------- ------- ---------- ----------
Total revenues......... 41,503 19,235 15,701 -- 76,439
Cost of revenues........ 29,669 12,512 7,893 -- 50,074
---------- ------- ------- ---------- ----------
Gross profit........... 11,834 6,723 7,808 -- 26,365
Operating expenses
Selling and marketing,
exclusive of stock-
based compensation
expense of $395....... 11,081 2,997 4,371 -- 18,449
General and
administrative,
exclusive of stock-
based compensation
expense of $4,026..... 6,967 1,988 2,207 -- 11,162
Technology and
development, exclusive
of stock-based
compensation expense
of $144............... 1,812 -- 1,962 -- 3,774
Stock-based
compensation.......... 4,565 -- -- -- 4,565
Amortization of
intangibles........... 3,826 -- 4,784 33,539 (a) 36,656
(709)(b)
(4,784)(c)
---------- ------- ------- ---------- ----------
Total operating
expenses.............. 28,251 4,985 13,324 28,046 74,606
---------- ------- ------- ---------- ----------
Income (loss) from
operations............. (16,417) 1,738 (5,516) (28,046) (48,241)
Other (income) expense
Increase in redeemable
stock purchase
warrants.............. 673 -- -- -- 673
Other interest
expense............... 180 -- -- -- 180
Interest and other
income................ (402) (72) -- -- (474)
---------- ------- ------- ---------- ----------
Total other (income)
expense............... 451 (72) -- -- 379
---------- ------- ------- ---------- ----------
Income (loss) before
provision for income
taxes and extraordinary
item................... (16,868) 1,810 (5,516) (28,046) (48,620)
---------- ------- ------- ---------- ----------
Provision for income
taxes.................. 33 726 144 (870)(d) 33
---------- ------- ------- ---------- ----------
Income (loss) before
extraordinary item..... (16,901) 1,084 (5,660) (27,176) (48,653)
Extraordinary item--loss
on early extingushment
of debt, net of income
tax benefit of $0 in
1999................... (1,030) -- -- -- (1,030)
---------- ------- ------- ---------- ----------
Net income (loss)....... (17,931) 1,084 (5,660) (27,176) (49,683)
---------- ------- ------- ---------- ----------
Accretion of mandatorily
redeemable convertible
preferred stock........ (12,075) -- -- -- (12,075)
---------- ------- ------- ---------- ----------
Net income (loss)
applicable to common
shareholders........... $ (30,006) $ 1,084 $(5,660) $ (27,176) $ (61,758)
========== ======= ======= ========== ==========
Basic and diluted net
loss per share, before
extraordinary item,
applicable to common
shareholders........... $ (0.79) $ (1.28)
========== ==========
Weighted average number
of shares used in
computing basic and
diluted per share
calculations........... 36,676,134 10,723,688 (e) 47,399,822
========== ========== ==========
</TABLE>
The accompanying notes and management's assumptions to the unaudited
pro forma condensed consolidated statements of operations are an integral part
of this statement.
F-52
<PAGE>
PARTMINER, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
(in thousands, except share data)
1. Basis of Presentation
The unaudited pro forma condensed consolidated statements of operations give
effect to the acquisitions by the Company of Accurate Components and IQXpert,
as if such acquisitions had occurred on January 1, 1999. Such unaudited pro
forma condensed consolidated statements of operations set forth the historical
results of operations of the Company for the year ended December 31, 1999, of
Accurate Components for the period January 1, 1999 to November 12, 1999 (date
of acquisition) and of IQXpert for the period from January 1, 1999 through
November 30, 1999 (effective date of acquisition) (inclusive of the pro forma
effects of IQXpert's acquisition of International CompuTex Inc. ("ICI") as if
such acquisition had occurred on January 1, 1999). The operations of Accurate
Components for the period November 13, 1999 through December 31, 1999 and the
operations of IQXpert for the period December 1, 1999 through December 31, 1999
are included in the historical results of operations of the Company for the
year ended December 31, 1999.
The Company's historical diluted weighted average shares of common stock
outstanding for the year ended December 31, 1999 does not include the impact of
common stock equivalents then outstanding, as the effect of their inclusion
would be antidilutive.
2. Pro forma adjustments
The pro forma adjustments to the unaudited pro forma condensed consolidated
statements of operations are as follows:
a) To increase amortization expense by $33,539 due to goodwill and other
intangible assets of $113,321 generated from the acquisitions of Accurate
Components and IQXpert. Amortization will be recognized on a straight-line
basis over the following number of years:
<TABLE>
<CAPTION>
Accurate Components: IQXpert:
-------------------- --------
<S> <C>
Goodwill--10 years Goodwill--3 years
Other intangible assets--3 years
</TABLE>
b) To reverse the amortization expense of $709 associated with the
database licensed from IHS for the period from March 16, 1999 (date of
license agreement) through November 30, 1999 (date of acquisition of
database).
c) To reverse the amortization expense of $3,490 associated with
intangibles of IQXpert for the period January 1, 1999 through November 30,
1999 and the pro forma amortization of $1,294 associated with the
intangibles of ICI.
d) To record the $870 income tax effect of combining the Company's,
Accurate Components and IQXpert's results of operations and pro forma
adjustments, excluding the impact of non-deductible amounts.
e) To adjust shares used in computing basic and diluted net loss per
share attributable to common shareholders for common shares issued upon the
IQXpert acquisition that would have been outstanding for the entire year
had the acquisition occurred on January 1, 1999.
F-53
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth estimated expenses expected to be incurred in
connection with the issuance and distribution of the securities being
registered.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee.............. $ 19,800
NASD Fee ........................................................ 8,000
Nasdaq National Market Listing Fee............................... 95,000
Printing and Engraving Expenses.................................. 250,000
Accounting Fees and Expenses..................................... 900,000
Legal Fees and Expenses.......................................... 800,000
Blue Sky Qualification Fees and Expenses......................... 15,000
Transfer Agent Fees and Expenses................................. 3,500
Miscellaneous.................................................... 1,758,700
----------
Total.......................................................... $3,850,000
==========
</TABLE>
- --------
Item 14. Indemnification of Directors and Officers.
The New York Business Corporation Law, or BCL, provides that if a derivative
action is brought against a director or officer of a corporation, the
corporation may indemnify him or her against amounts paid in settlement and
reasonable expenses, including attorneys' fees incurred by him or her, in
connection with the defense or settlement of such action, if such director or
officer acted in good faith for a purpose which he or she reasonably believed
to be in the best interests of the corporation, except that no indemnification
shall be made without court approval in respect of a threatened action, or a
pending action settled or otherwise disposed of, or in respect of any matter as
to which such director or officer has been found liable to the corporation. In
a nonderivative action or threatened action, the BCL provides that a
corporation may indemnify a director or officer against judgments, fines,
amounts paid in settlement and reasonable expenses, including attorneys' fees
incurred by him or her in defending such action, if such director or officer
acted in good faith for a purpose which he or she reasonably believed to be in
the best interests of the corporation.
Under the BCL, a director or officer who is successful, either in a
derivative or nonderivative action, is entitled to indemnification as outlined
above. Under any other circumstances, such director or officer may be
indemnified only if certain conditions specified in the BCL are met. The
indemnification provisions of the BCL are not exclusive of any other rights to
which a director or officer seeking indemnification may be entitled pursuant to
the provisions of the certificate of incorporation or the by-laws of a
corporation or, when authorized by such certificate of incorporation or by-
laws, pursuant to a shareholders' resolution, a directors' resolution or an
agreement providing for such indemnification.
The above is a general summary of certain provisions of the BCL and is
subject, in all cases, to the specific and detailed provisions of Sections 721-
725 of the BCL.
Section 726 of the BCL also contains provisions authorizing a corporation to
obtain insurance on behalf of any director and officer against liabilities,
whether or not the corporation would have the power to indemnify against such
liabilities. We maintain insurance coverage under which our directors and
officers are insured, subject to the limits of the policy, against certain
losses, as defined in the policy, arising from claims made against such
directors and officers by reason of any wrongful acts as defined in the policy,
in their respective capacities as directors or officers. Our restated
certificate of incorporation provides that we shall indemnify and advance
expenses to our directors and officers to the fullest extent permitted by law.
II-1
<PAGE>
The Underwriting Agreement filed as an exhibit hereto contains provisions
pursuant to which each Underwriter severally agrees to indemnify us, any person
controlling us within the meaning of Section 15 of the Securities Act of 1933,
as amended, or Section 20 of the Securities Exchange Act of 1934, as amended,
each director of ours, and each officer of ours who signs this registration
statement with respect to information relating to such Underwriter furnished in
writing by or on behalf of such Underwriter expressly for use in this
registration statement.
Item 15. Recent Sales of Unregistered Securities.
Within the past three years, we have sold shares of our capital stock in the
following transactions that were not registered under the Securities Act of
1933, as amended.
. On July 29, 1997, we issued 10,000,000 shares of our common stock to two
executive officers.
. On July 30, 1997, we issued a warrant for the purchase of 5,000,000
shares of our common stock to an investor in connection with a loan of
$3,000,000 by the investor to us.
. On March 16, 1999, we issued 10,204,100 shares of our common stock to an
investor for a purchase price of $7,150,000, and 106,122 shares of our
Series A mandatorily redeemable convertible preferred stock to two
investors for an aggregate purchase price of $13,000,000. The 106,122
shares of Series A mandatorily redeemable convertible preferred stock
will automatically convert into 10,612,200 shares of common stock upon
the closing of this offering. These transactions occurred subsequent to
a redemption of shares by our President that resulted in his owning 100%
of our outstanding common stock at the time of such redemption.
. Since our inception, we have granted to officers, members of management
and employees options to purchase an aggregate of 3,679,075 shares of
our common stock at an average exercise price of $3.78 per share.
. On September 10, 1999, we issued 4,630,600 shares of our mandatorily
redeemable common stock to an investor for a purchase price of
$10,000,000.
. On December 6, 1999, we issued 11,719,000 shares of our common stock to
a group of investors in connection with a merger in which we acquired
all the outstanding capital stock of IQXpert Holdings Inc. Our common
stock was valued at $8.75 per share for this transaction.
. In July and September of 1999, we granted options to purchase shares at
an exercise price equal to the initial public offering price with an
aggregate value of $275,000 to two consultants.
. On February 16, 2000, we issued 10,302,905 shares of our Series B
mandatorily redeemable convertible preferred stock to 15 investors,
including four principal shareholders, for an aggregate purchase price
of approximately $50 million. The 10,302,905 shares of Series B
mandatorily redeemable convertible preferred stock will automatically
convert into 10,302,905 shares of common stock upon the closing of this
offering.
The share amounts for the issuances of common stock referred to above
reflect the ten thousand-for-one split of the common stock effected in March
1999 and the one hundred-for-one split of our common stock effected in December
1999.
We used the net proceeds of the stock sales for working capital and other
general corporate purposes (including corporate acquisitions) and repayment of
indebtedness.
The sales of the securities listed above were deemed to be exempt from
registration under the Securities Act of 1933, as amended, in reliance on
Section 4(2) of such Act or, with respect to issuances to employees, Rule 701
promulgated under Section 3(b) of such Act as transactions by an issuer not
involving a public offering or transactions pursuant to compensatory benefit
plans and contracts relating to compensation. The
II-2
<PAGE>
recipients of securities in each transaction 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. Appropriate legends were affixed
to the instruments representing such securities issued in such transactions.
All recipients had adequate access, through their relationships or agreements
with us, to information about us.
Item 16. Exhibits and Financial Statement Schedules.
(a) The following exhibits are filed as part of this registration statement:
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement ***
3.1 Amended and Restated Certificate of Incorporation of PartMiner, Inc.**
3.2 By-laws of PartMiner, Inc.**
Form of certificate evidencing ownership of Common Stock of
4.1 PartMiner**
5.1 Opinion of Kirkpatrick & Lockhart LLP***
10.1 1999 Stock Plan
10.2 1999 Employee Incentive Stock Plan
10.3 Intentionally omitted
10.4 Third Amended and Restated Stockholders Agreement, dated as of
February 16, 2000, by and among PartMiner, Boston Ventures Limited
Partnership V, Seacoast Capital Partners Limited Partnership, Seacoast
Investors LLC, Vulcan Securities Limited, Cahners Information
Holdings, Inc., Information Handling Services Inc., Emil H. Dahan,
Michael J. Galvin, Patricia Tuxbury Salem, Peter W. Jeng, James L.
McAlarney, III, Daniel Nissanoff, Integral Capital Partners IV, L.P.,
Integral Capital Partners IV, MS Side Fund, L.P., Agile Software
Corporation, Impact Ventures L.P., OMI Partnership Holdings Generation
Capital Partners L.P., State Board of Administration of Florida,
Generation Parallel Management Partners L.P., Broadview SLP and The
Goldman Sachs Group, Inc.
10.5 Third Amended and Restated Registration Rights Agreement, dated as of
February 16, 2000, by and among PartMiner, Boston Ventures Limited
Partnership V, Seacoast Capital Partners Limited Partnership, Seacoast
Investors LLC, Vulcan Securities Limited, Cahners Information
Holdings, Inc., Information Handling Services Inc., Emil H. Dahan,
Michael J. Galvin, Patricia Tuxbury Salem, Peter W. Jeng, James L.
McAlarney, III, Daniel Nissanoff, Integral Capital Partners IV, L.P.,
Integral Capital Partners IV MS Side Fund, L.P., Agile Software
Corporation, Impact Ventures L.P., OMI Partnership Holdings Ltd.,
Generation Capital Partners, L.P. State Board of Administration of
Florida, Generation Parallel Management Partners L.P., Broadview SLP
and The Goldman Sachs Group, Inc.
10.6 Credit Agreement, dated December 20, 1999, by and between PartMiner,
IQXpert Holdings Inc., IQXpert Inc., ExtraTime Technologies, Inc.,
Accurate Components Inc., Market Trading Concepts Inc. and HAIC Inc.
10.7 Security Agreement, dated December 20, 1999 by and among PartMiner,
IQXpert Holdings Inc., IQXpert Inc., ExtraTime Technologies, Inc.,
Accurate Components Inc., Market Trading Concepts Inc. and HAIC Inc.
10.8 Agreement and Plan of Merger, dated as of November 30, 1999, by and
between PartMiner, PartMiner Acquisition Corp., IQXpert Holdings Inc.,
Information Handling Services Inc., Thybo New Ventures Limited, Emil
H. Dahan, Michael J. Galvin, Patricia Tuxbury Salem, Peter W. Jeng and
James L. McAlarney, III
10.9 Stock Purchase Agreement, dated November 12, 1999, by and between
PartMiner, Accurate Components Inc., Market Trading Concepts Inc. and
Anthony Arena
10.10 Stock Purchase Agreement, dated as of September 10, 1999, by and among
PartMiner, Elsevier Realty Information, Inc. and Daniel Nissanoff
10.11 Joint Marketing Agreement, dated September 10, 1999, by and between
PartMiner and Cahners Business Information, a division of Reed
Elsevier Inc.
10.12 IBM Customer Agreement, dated May 20, 1999, between PartMiner (doing
business as Microcom Technologies Inc.) and International Business
Machines Corporation
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
10.13 Amendment dated August 2, 1999, to IBM Customer Agreement, dated May
20, 1999, between PartMiner and International Business Machines
Corporation
10.14 Letter Agreement, dated July 26, 1999, between PartMiner and Fred
Couples
10.15 Agreement of Sublease, dated April 20, 1999, between PartMiner and
Burrell Communications Group
10.16 Lease, dated July 23, 1999, between PartMiner and Investment
Properties Associates
10.17 Stock Purchase Agreement, dated as of March 16, 1999, by and among
PartMiner, Boston Ventures Limited Partnership V, Thybo New Ventures
Limited and Daniel Nissanoff
10.18 Stock Purchase Agreement, dated as of March 16, 1999, by and among
PartMiner, Seacoast Capital Partners Limited Partnership and Daniel
Nissanoff
10.19 Stock Purchase Agreement, dated as of February 16, 2000, by and among
PartMiner, Boston Ventures Limited Partnership V, Seacoast Capital
Partners Limited Partnership, Seacoast Investors LLC, Vulcan
Securities Limited, Cahners Information Holdings, Inc., Information
Handling Services Inc., Emil H. Dahan, Michael J. Galvin, Patricia
Tuxbury Salem, Peter W. Jeng, James L. McAlarney, III, Integral
Capital Partners IV, L.P., Integral Capital Partners IV MS Side Fund,
L.P., Agile Software Corporation, Impact Ventures, L.P., OMI
Partnership Holdings Ltd., Generation Capital Partners, L.P., State
Board of Administration of Florida, Generation Parallel Management
Partners L.P., Broadview SLP and The Goldman Sachs Group, Inc.
10.20 License Agreement, dated October 30, 1995, between PartMiner and
Market Maker Systems Corporation
10.21 Employment Letter Agreement, dated July 12, 1999, between PartMiner
and Earle Zucht
10.22 Employment Letter Agreement, dated June 18, 1999, between PartMiner
and Kim Hibler
10.23 Employment Letter Agreement, dated May 18, 1999, between PartMiner and
Mark Schenecker
10.24 Severance Agreement, dated April 28, 1999, between PartMiner and
Michael R. Manley
10.25 Employment Agreement, dated as of March 16, 1999, by and between
PartMiner and Daniel Nissanoff
10.26 Employment Agreement, dated March 16, 1999, between PartMiner and
Bruce Friedman
10.27 Employment Letter Agreement, dated January 26, 1999, between PartMiner
and William L. Barron
10.28 Letter Agreement, dated September 27, 1999, between PartMiner and
Cyber Management, Inc.
10.29 Employment Letter Agreement, dated January 31, 2000, between PartMiner
and William R. Engles, Jr.
10.30 Netsourcing Services Agreement, dated March 3, 2000, by and between
PartMiner and Intira Corporation**
10.31 Sublease Agreement, dated March 16, 2000, between Heidelberg USA, Inc.
and PartMiner***
11.1 Statement Regarding Computation of Earnings Per Share
16.1 Letter from Ernst & Young
21.1 Subsidiaries
23.1 Consents of PricewaterhouseCoopers LLP**
23.2 Consent of Kirkpatrick & Lockhart LLP (to be included in opinion to be
filed as Exhibit 5.1)***
24.1 Power of Attorney
27.1 Financial Data Schedule
</TABLE>
- --------
All non-asterisked Exhibits listed above were previously filed with the
Securities and Exchange Commission as an exhibit to PartMiner's Registration
Statement on Form S-1 (File No. 333-30700) filed on February 18, 2000.
* The registrant hereby agrees to furnish supplementally to the Securities
and Exchange Commission, upon request, a copy of any omitted schedule to
any of the agreements contained herein.
** Filed herewith
*** To be filed by amendment
(b) The following financial statement schedules are filed herewith,
accompanied by reports of independent accountants on such schedules:
II-4
<PAGE>
Financial statement schedules not listed above have been omitted because
they are inapplicable, are not required under applicable provisions of
Regulation S-X, or the information that would otherwise be included in such
schedules is contained in the registrant's financial statements or accompanying
notes.
Item 17. Undertakings.
The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, as amended, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment No. 1 to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of New York, State of New York, on April 5, 2000.
PartMiner, Inc.
/s/ Daniel Nissanoff*
By: _________________________________
Daniel Nissanoff
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 1 to Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ Daniel Nissanoff* President and Chief April 5, 2000
____________________________________ Executive Officer, Director
Daniel Nissanoff (principal executive
officer)
/s/ William R. Engles, Jr.* Chief Financial Officer April 5, 2000
____________________________________ (principal financial and
William R. Engles, Jr. accounting officer)
/s/ Bruce Friedman* Director April 5, 2000
____________________________________
Bruce Friedman
/s/ L. Christopher Meyer* Director April 5, 2000
____________________________________
L. Christopher Meyer
/s/ Eben S. Moulton* Director April 5, 2000
____________________________________
Eben S. Moulton
/s/ Brian Nairn* Director April 5, 2000
____________________________________
Brian Nairn
/s/ Gerhard Schulmeyer* Director April 5, 2000
____________________________________
Gerhard Schulmeyer
/s/ James M. Wilson* Director April 5, 2000
____________________________________
James M. Wilson
* By Michael R. Manley,
Attorney-in-fact pursuant
to a Power of Attorney
previously filed.
/s/ Michael R. Manley April 5, 2000
____________________________________
Attorney-in-fact
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement ***
3.1 Amended and Restated Certificate of Incorporation of PartMiner, Inc.**
3.2 By-laws of PartMiner, Inc.**
Form of certificate evidencing ownership of Common Stock of
4.1 PartMiner**
5.1 Opinion of Kirkpatrick & Lockhart LLP***
10.1 1999 Stock Plan
10.2 1999 Employee Incentive Stock Plan
10.3 Intentionally omitted
10.4 Third Amended and Restated Stockholders Agreement, dated as of
February 16, 2000, by and among PartMiner, Boston Ventures Limited
Partnership V, Seacoast Capital Partners Limited Partnership, Seacoast
Investors LLC, Vulcan Securities Limited, Cahners Information
Holdings, Inc., Information Handling Services Inc., Emil H. Dahan,
Michael J. Galvin, Patricia Tuxbury Salem, Peter W. Jeng, James L.
McAlarney, III, Daniel Nissanoff, Integral Capital Partners IV, L.P.,
Integral Capital Partners IV, MS Side Fund, L.P., Agile Software
Corporation, Impact Ventures L.P., OMI Partnership Holdings Generation
Capital Partners L.P., State Board of Administration of Florida,
Generation Parallel Management Partners L.P., Broadview SLP and The
Goldman Sachs Group, Inc.
10.5 Third Amended and Restated Registration Rights Agreement, dated as of
February 16, 2000, by and among PartMiner, Boston Ventures Limited
Partnership V, Seacoast Capital Partners Limited Partnership, Seacoast
Investors LLC, Vulcan Securities Limited, Cahners Information
Holdings, Inc., Information Handling Services Inc., Emil H. Dahan,
Michael J. Galvin, Patricia Tuxbury Salem, Peter W. Jeng, James L.
McAlarney, III, Daniel Nissanoff, Integral Capital Partners IV, L.P.,
Integral Capital Partners IV MS Side Fund, L.P., Agile Software
Corporation, Impact Ventures L.P., OMI Partnership Holdings Ltd.,
Generation Capital Partners, L.P. State Board of Administration of
Florida, Generation Parallel Management Partners L.P., Broadview SLP
and The Goldman Sachs Group, Inc.
10.6 Credit Agreement, dated December 20, 1999, by and between PartMiner,
IQXpert Holdings Inc., IQXpert Inc., ExtraTime Technologies, Inc.,
Accurate Components Inc., Market Trading Concepts Inc. and HAIC Inc.
10.7 Security Agreement, dated December 20, 1999 by and among PartMiner,
IQXpert Holdings Inc., IQXpert Inc., ExtraTime Technologies, Inc.,
Accurate Components Inc., Market Trading Concepts Inc. and HAIC Inc.
10.8 Agreement and Plan of Merger, dated as of November 30, 1999, by and
between PartMiner, PartMiner Acquisition Corp., IQXpert Holdings Inc.,
Information Handling Services Inc., Thybo New Ventures Limited, Emil
H. Dahan, Michael J. Galvin, Patricia Tuxbury Salem, Peter W. Jeng and
James L. McAlarney, III
10.9 Stock Purchase Agreement, dated November 12, 1999, by and between
PartMiner, Accurate Components Inc., Market Trading Concepts Inc. and
Anthony Arena
10.10 Stock Purchase Agreement, dated as of September 10, 1999, by and among
PartMiner, Elsevier Realty Information, Inc. and Daniel Nissanoff
10.11 Joint Marketing Agreement, dated September 10, 1999, by and between
PartMiner and Cahners Business Information, a division of Reed
Elsevier Inc.
10.12 IBM Customer Agreement, dated May 20, 1999, between PartMiner (doing
business as Microcom Technologies Inc.) and International Business
Machines Corporation
10.13 Amendment dated August 2, 1999, to IBM Customer Agreement, dated May
20, 1999, between PartMiner and International Business Machines
Corporation
10.14 Letter Agreement, dated July 26, 1999, between PartMiner and Fred
Couples
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
10.15 Agreement of Sublease, dated April 20, 1999, between PartMiner and
Burrell Communications Group
10.16 Lease, dated July 23, 1999, between PartMiner and Investment
Properties Associates
10.17 Stock Purchase Agreement, dated as of March 16, 1999, by and among
PartMiner, Boston Ventures Limited Partnership V, Thybo New Ventures
Limited and Daniel Nissanoff
10.18 Stock Purchase Agreement, dated as of March 16, 1999, by and among
PartMiner, Seacoast Capital Partners Limited Partnership and Daniel
Nissanoff
10.19 Stock Purchase Agreement, dated as of February 16, 2000, by and among
PartMiner, Boston Ventures Limited Partnership V, Seacoast Capital
Partners Limited Partnership, Seacoast Investors LLC, Vulcan
Securities Limited, Cahners Information Holdings, Inc., Information
Handling Services Inc., Emil H. Dahan, Michael J. Galvin, Patricia
Tuxbury Salem, Peter W. Jeng, James L. McAlarney, III, Integral
Capital Partners IV, L.P., Integral Capital Partners IV MS Side Fund,
L.P., Agile Software Corporation, Impact Ventures, L.P., OMI
Partnership Holdings Ltd., Generation Capital Partners, L.P., State
Board of Administration of Florida, Generation Parallel Management
Partners L.P., Broadview SLP and The Goldman Sachs Group, Inc.
10.20 License Agreement, dated October 30, 1995, between PartMiner and
Market Maker Systems Corporation
10.21 Employment Letter Agreement, dated July 12, 1999, between PartMiner
and Earle Zucht
10.22 Employment Letter Agreement, dated June 18, 1999, between PartMiner
and Kim Hibler
10.23 Employment Letter Agreement, dated May 18, 1999, between PartMiner and
Mark Schenecker
10.24 Severance Agreement, dated April 28, 1999, between PartMiner and
Michael R. Manley
10.25 Employment Agreement, dated as of March 16, 1999, by and between
PartMiner and Daniel Nissanoff
10.26 Employment Agreement, dated March 16, 1999, between PartMiner and
Bruce Friedman
10.27 Employment Letter Agreement, dated January 26, 1999, between PartMiner
and William L. Barron
10.28 Letter Agreement, dated September 27, 1999, between PartMiner and
Cyber Management, Inc.
10.29 Employment Letter Agreement, dated January 31, 2000, between PartMiner
and William R. Engles, Jr.
10.30 Net Sourcing Services Agreement, dated March 3, 2000, by and between
PartMiner and Intira Corporation**
10.31 Sublease Agreement, dated March 16, 2000, between Heidelberg USA, Inc.
and PartMiner***
11.1 Statement Regarding Computation of Earnings Per Share
16.1 Letter from Ernst & Young
21.1 Subsidiaries
23.1 Consents of PricewaterhouseCoopers LLP**
23.2 Consent of Kirkpatrick & Lockhart LLP (to be included in opinion to be
filed as Exhibit 5.1)***
24.1 Power of Attorney
27.1 Financial Data Schedule
</TABLE>
- --------
All non-asterisked Exhibits listed above were previously filed with the
Securities and Exchange Commission as an exhibit to PartMiner's Registration
Statement on Form S-1 (File No. 333-30700) filed on February 18, 2000.
* The registrant hereby agrees to furnish supplementally to the Securities
and Exchange Commission, upon request, a copy of any omitted schedule to
any of the agreements contained herein.
** Filed herewith
*** To be filed by amendment
<PAGE>
Exhibit 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
PARTMINER, INC.
UNDER SECTION 807 OF THE BUSINESS CORPORATION LAW
The undersigned, being respectively the President and Secretary of PartMiner,
Inc., a New York corporation (the "Corporation"), do hereby certify as follows:
1. The name of the Corporation is:
PARTMINER, INC.
2. The certificate of incorporation of the Corporation was filed by the
Department of State on September 9, 1993.
3. The certificate of incorporation, as heretofore amended, is hereby
amended as follows:
A. Article FOURTH of the certificate of incorporation of the Corporation,
relating to the authorized capital stock of the Corporation is hereby amended to
increase the number of authorized shares of Preferred Stock from 106,122 shares,
par value $.01 per share, to 10,409,027 shares, par value $.01 per share, to
designate and change 106,122 currently outstanding shares of Preferred Stock,
into 106,122 issued shares of Series A Preferred Stock, to designate 10,302,905
shares of Preferred Stock as Series B Preferred Stock, and to fix the
designations, powers, preferences and rights of the shares of the capital stock
of the Corporation.
B. Article FIFTH of the certificate of incorporation of the Corporation
relating to the ability of the shareholders to remove directors without cause is
hereby deleted.
C. The certificate of incorporation of the Corporation is hereby amended to
add a new article relating to the ability of the shareholders to remove
directors only for cause, hereinafter set forth as Article FIFTH.
D. The certificate of incorporation of the Corporation is hereby amended to
add a new article relating to indemnification of directors and officers of the
Corporation, hereinafter set forth as Article EIGHTH.
E. The certificate of incorporation of the Corporation is hereby amended
to add a new article relating to the creation of a classified board of
directors, hereinafter set forth as Article NINTH.
<PAGE>
F. The certificate of incorporation of the Corporation is hereby amended to
add a new article relating to super-majority voting provisions in respect of
certain Articles, hereinafter set forth as Article TENTH.
G. To change the service of process address.
4. The restatement of the certificate of incorporation of the Corporation
was authorized by the unanimous consent of the Board of Directors of the
Corporation, followed by the written consent of holders of all outstanding
shares of the Corporation entitled to vote on the said restatement of the
certificate of incorporation in accordance with Section 615 of the Business
Corporation Law.
5. To accomplish the foregoing amendments, the text of the certificate of
incorporation is hereby restated and amended or changed to read in its entirety
as hereinafter set forth:
FIRST: The name of the Corporation is:
-----
PARTMINER, INC.
SECOND: The Corporation is formed for the following purposes:
------
To engage in any lawful act or activity for which corporations may be
formed under the Business Corporation Law; provided, that the Corporation is not
--------
formed to engage in any act or activity which requires the consent or approval
of any state official, department, board agency or other body, without such
approval or consent first having been obtained.
For the accomplishment of the aforesaid purposes, and in furtherance
thereof, the Corporation shall have and may exercise all of the powers conferred
by the Business Corporation Law upon corporations formed thereunder, subject to
any limitations contained in Article 2 of said Law or in accordance with the
provisions of any other statute of the State of New York.
THIRD: The office of the Corporation in the State of New York is to be
-----
located in the County of New York.
FOURTH: The total number of shares authorized to be issued by the
------
Corporation is (a) 150,000,000 shares of common stock, with $.0001 par value
(the "Common Shares"), and (b) 10,409,027 shares of preferred stock, with $.01
par value (the "Preferred Shares"), of which 106,122 shares shall be designated
as Series A Convertible Preferred Stock (the "Series A Preferred Shares") and
10,302,905 shares shall be designated as Series B Convertible Preferred Stock
(the "Series B Preferred Shares").
The following is a statement of designations, and the rights, preferences
and privileges, and the qualifications, limitations or restrictions thereof, in
respect of each issued class of capital stock of the Corporation.
A. Dividends. The holders of the Series A Preferred Shares, Series B
---------
Preferred Shares and Common Shares shall be entitled to receive such dividends
on a pro rata basis according to their holdings of shares (subject to
appropriate adjustment in the event of any stock dividend, stock split,
-2-
<PAGE>
combination or other similar recapitalization affecting such shares) when, as
and if such may be declared by the Board of Directors of the Corporation out of
any funds legally available therefor. The holders of Series A Preferred Shares
and the Series B Preferred Shares shall be entitled to an amount equal to the
dividend that would have been payable if such Shares were converted into Common
Shares as of the date of declaration. No dividends shall accrue unless declared.
B. Liquidation Preference. In the event of any liquidation or dissolution
----------------------
or winding up of the Corporation, whether voluntary or involuntary, the holders
of record of the Series A Preferred Shares and Series B Preferred Shares shall
be entitled, before any amount shall be paid to the holders of record of the
Common Shares, to be paid an amount equal to $122.50 per Share and $4.853 per
Share, respectively (subject to appropriate adjustment in the event of any stock
dividend, stock split, combination or other similar recapitalization affecting
such shares), plus any dividends declared but unpaid thereon. If upon any
liquidation or dissolution or winding up of the Corporation, the assets of the
Corporation distributable among the holders of the Series A Preferred Shares and
the Series B Preferred Shares shall be insufficient to permit the payment to
them of the full preferential amounts to which they would otherwise be entitled,
then the entire assets of the Corporation to be distributed shall be distributed
ratably among the holders of the Series A Preferred Shares and the Series B
Preferred Shares in proportion to the sums of their respective per Share
liquidation preferences. After the payment to the holders of record of the
Series A Preferred Shares and Series B Preferred Shares shall have been paid in
full the amounts to which they shall be entitled, the remaining assets of the
Corporation (if any) shall be paid pro rata to the holders of the Common Shares.
The occurrence of any of the following transactions shall be deemed to be a
liquidation, dissolution, or winding up of the Corporation: (i) a sale or other
similar disposition of all or substantially all of the assets of the
Corporation, or (ii) a consolidation, merger, reorganization or other business
combination of the Corporation or the sale or issuance of capital stock of the
Corporation, in one transaction or a series of related transactions, resulting
in more than 50% of the Corporation's then outstanding capital stock (after
consummation of the transaction) being beneficially held by persons or entities,
other than the persons and entities that beneficially held, directly or
indirectly, more than 50% of the capital stock immediately prior to such merger,
consolidation, sale or transfer (either, a "Change of Control Event"). The
holders of 50% or more of the voting power of the then outstanding Series A and
Series B Preferred Shares may, respectively, execute a written waiver of any
Change of Control Event.
Whenever the distribution provided for in this Section B shall be payable in
---------
securities or property other than cash, the value of such distribution shall be
the fair market value of such property as determined in good faith by the Board
of Directors. Any securities shall be valued as follows:
(i) Securities not subject to investment letter or other similar
restrictions on free marketability covered by (ii) below:
(a) If traded on a securities exchange or through the Nasdaq
National Market, the value shall be deemed to be the average of the
closing prices of the securities on such exchange or system over the
twenty (20) day period ending three (3) days prior to the closing;
(b) If traded in the Nasdaq Small Cap or over-the-
-3-
<PAGE>
counter markets, the value shall be deemed to be the higher of (x) the
average of the closing bid and asking prices and (y) the closing sale
prices, over the twenty (20) day period ending three (3) days prior to
the closing; and
(c) If there is no active public market, the value shall be
the fair market value thereof, as mutually determined by the
Corporation and the holders of a majority of the voting power of all
then outstanding shares of Preferred Stock.
(ii) The method of valuation of securities subject to investment
letter or other restrictions on free marketability (other than restrictions
arising solely by virtue of a shareholder's status as an affiliate or
former affiliate) shall be to make an appropriate discount from the market
value determined as in subsection (i)(a), (b) or (c) above to reflect the
approximate fair market value thereof, as mutually determined by the
Corporation and the holders of a majority of the voting power of all then
outstanding Preferred Shares.
C. Conversion.
----------
1. Right to Convert Series A Preferred Shares. The Series A Preferred Shares
------------------------------------------
may be converted by the holder at any time into Common Shares of the Corporation
upon the following terms and conditions:
(a) Each Series A Preferred Share may be converted, at the option of the
holder thereof, at any time after the date of issuance of such share at the
office of the Corporation or any transfer agent for such stock, into such number
of fully paid and nonassessable Common Shares as is determined by dividing
$122.50 by the Series A Conversion Price (as defined below), determined as
hereafter provided, in effect on the date the certificate is surrendered for
conversion. The price at which Common Shares shall be deliverable upon
conversion of the Series A Preferred Shares (the "Series A Conversion Price")
shall initially be $1.225. Such initial Series A Conversion Price shall be
adjusted as hereinafter provided.
(b) If the outstanding Common Shares shall be split or subdivided into a
greater number of shares, or a dividend in Common Shares or other securities of
the Corporation convertible or exchangeable for Common Shares (in which latter
event the number of Common Shares issuable upon the conversion or exchange of
such securities shall be deemed to have been distributed), shall be paid in
respect to the Common Shares, the Series A Conversion Price in effect
immediately prior to such split, subdivision or at the record date of such
dividend shall, simultaneously with the effectiveness of such subdivision or
immediately after the record date of such dividend, be proportionately reduced,
and conversely, if the outstanding Common Shares shall be combined into a
smaller number of shares, the Series A Conversion Price in effect immediately
prior to such combination shall, simultaneously with the effectiveness of such
combination, be proportionately increased. Any adjustment to the Series A
Conversion Price under this subsection (b) shall become effective at the close
of business on the date the split, subdivision, dividend or combination referred
to herein becomes effective.
-4-
<PAGE>
(c) In the event the Corporation at any time, or from time to time, shall
make or issue, or fix a record date for the determination of holders of Common
Shares entitled to receive a dividend or other distribution payable in
securities of the Corporation other than Common Shares or securities convertible
into or exchangeable for Common Shares, then and in each such event, provision
shall be made so that holders of Series A Preferred Shares shall receive upon
conversion thereof, in addition to the number of Common Shares receivable
thereupon, the number of securities of the Corporation which they would have
received had their Series A Preferred Shares been converted into Common Shares
on the date of such event and had thereafter, during the period from the date of
such event to and including the date of conversion, retained such securities
receivable by them as aforesaid during such period, giving application to all
adjustments called for during such period under this subsection (c) with respect
to the rights of the holders of Series A Preferred Shares.
(d) In the event of a Reorganization, the holders of the Series A Preferred
Shares shall thereafter be entitled to receive, and provision shall be made
therefor in any agreement relating to such Reorganization, upon conversion of
the Series A Preferred Shares the kind and number of Common Shares or other
securities or property (including cash) of the Corporation, which the Series A
Preferred Shares entitled the holder thereof to convert to immediately prior to
such Reorganization; and in any such case appropriate adjustment shall be made
in the application of the provisions herein set forth with respect to the rights
and interests thereafter of the holders of the Series A Preferred Shares, to the
end that the provisions set forth herein (including the specified changes and
other adjustments to the Series A Conversion Price) shall thereafter be
applicable, as nearly as reasonably may be, in relation to any shares, to such
other securities or property thereafter receivable upon conversion of the Series
A Preferred Shares. The provisions of this subsection (d) shall similarly apply
to successive Reorganizations.
(e) If at any time or from time to time the Corporation shall issue or sell
Additional Shares (as defined below) subsequent to February 15, 2000 other than
in a transaction which falls within subsections (b), (c) or (d) above, without
consideration or for a consideration per share less than the Series A Conversion
Price then in effect, then, and in each such case, the then existing Series A
Conversion Price shall be adjusted to a Series A Conversion Price (calculated to
the nearest cent) determined by multiplying the Series A Conversion Price by a
fraction, the numerator of which shall be the number of Common Shares
outstanding immediately prior to such issuance plus the number of Common Shares
that the aggregate consideration received by the Corporation for such issuance
of Additional Shares would purchase at the Series A Conversion Price in effect
immediately prior to such issuance; and the denominator of which shall be the
number of Common Shares outstanding immediately prior to such issuance plus the
number of shares of such Additional Shares. As used herein, the term "Additional
Shares" shall mean additional Common Shares or other securities, options or
other rights convertible into or exchangeable for Common Shares, or entitling
the holder thereof to receive, directly or indirectly, additional Common Shares,
other than Common Shares issuable, issued or deemed to be issued to employees,
consultants, officers or directors directly or pursuant to benefit plans
approved by the Board of Directors (including a majority of outside directors)
of the Corporation.
-5-
<PAGE>
(A) No adjustment of the Series A Conversion Price shall be made in an
amount less than one cent per share. Except to the limited extent provided for
in Sections C.1(e)(D)(3) and C.1(e)(D)(4), no adjustment of the Series A
--------------------- ---------
Conversion Price pursuant to this Section C.1(e) shall have the effect of
--------------
increasing the Series A Conversion Price above the Series A Conversion Price in
effect immediately prior to such adjustment.
(B) In the case of the issuance of Common Shares for cash, the
consideration shall be deemed to be the amount of cash paid therefor before
deducting any reasonable discounts, commissions or other expenses allowed, paid
or incurred by the Corporation for any underwriting or otherwise in connection
with the issuance and sale thereof.
(C) In the case of the issuance of the Common Shares for a
consideration in whole or in part other than cash, the consideration other than
cash shall be deemed to be the fair value thereof as determined in good faith by
the Board of Directors irrespective of any accounting treatment.
(D) In the case of the issuance of options to purchase or rights to
subscribe for Common Shares, securities by their terms convertible into or
exchangeable for Common Shares or options to purchase or rights to subscribe for
such convertible or exchangeable securities, the following provisions shall
apply for all purposes of this Section C.1(e):
--------------
(1) The aggregate maximum number of Common Shares deliverable upon
exercise (assuming the satisfaction of any conditions to exercisability,
including without limitation, the passage of time, but without taking into
account potential antidilution adjustments) of such options to purchase or
rights to subscribe for Common Shares shall be deemed to have been issued at the
time such options or rights were issued and for a consideration equal to the
consideration (determined in the manner provided in Sections C.1(e)(B) and
------------------
C.1(e)(C)), if any, received by the Corporation upon the issuance of such
- ---------
options or rights plus the aggregate prices provided in such options or rights
(without taking into account potential antidilution adjustments) for the Common
Shares covered thereby.
(2) The aggregate maximum number of Common Shares deliverable upon
conversion of or in exchange (assuming the satisfaction of any conditions to
convertibility or exchangeability, including, without limitation, the passage of
time, but without taking into account potential antidilution adjustments) for
any such convertible or exchangeable securities or upon the exercise of options
to purchase or rights to subscribe for such convertible or exchangeable
securities and subsequent conversion or exchange thereof shall be deemed to have
been issued at the time such securities were issued or such options or rights
were issued and for a consideration equal to the consideration, if any, received
by the Corporation for any such securities and related options or rights
(excluding any cash received on account of
-6-
<PAGE>
accrued interest or accrued dividends), plus the aggregate additional
consideration, if any, to be received by the Corporation (without taking into
account potential antidilution adjustments) upon the conversion or exchange of
such securities or the exercise of any related options or rights (the
consideration in each case to be determined in the manner provided in Sections
--------
C.1(e)(B) and C.1(e)(C)).
- --------- ----------
(3) In the event of any change in the number of Common Shares
deliverable or in the consideration payable to the Corporation upon exercise of
such options or rights or upon conversion of or in exchange for such convertible
or exchangeable securities, including, but not limited to, a change resulting
from the antidilution provisions thereof, the Series A Conversion Price, to the
extent in any way affected by or computed using such options, rights or
securities, shall be recomputed to reflect such change, but no further
adjustment shall be made for the actual issuance of Common Shares or any payment
of such consideration upon the exercise of any such options or rights or the
conversion or exchange of such securities.
(4) Upon the expiration of any such options or rights, the
termination of any such rights to convert or exchange or the expiration of any
options or rights related to such convertible or exchangeable securities, the
Series A Conversion Price, to the extent in any way affected by or computed
using such options, rights or securities or options or rights related to such
securities, shall be recomputed to reflect the issuance of only the number of
Common Shares (and convertible or exchangeable securities which remain in
effect) actually issued upon the exercise of such options or rights, upon the
conversion or exchange of such securities or upon the exercise of the options or
rights related to such securities.
(5) The number of Common Shares deemed issued and the
consideration deemed paid therefor pursuant to Sections C.1(e)(D)(1) and (2)
--------------------- ---
shall be appropriately adjusted to reflect any change, termination or expiration
of the type described in either Section C.1(e)(D)(3) or (4).
-------------------- ---
g. No Impairment. The Corporation will not, by amendment of its
-------------
Certificate of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this Section and in the taking of all such action as may
be necessary or appropriate in order to protect the conversion rights of the
holders of the Series A Preferred Shares against impairment.
-7-
<PAGE>
h. No Fractional Shares and Certificate as to Adjustments.
------------------------------------------------------
(i) No fractional shares shall be issued upon the conversion of
any of the Series A Preferred Shares, and the number of Common Shares to be
issued shall be rounded to the nearest whole share. Whether or not fractional
shares are issuable upon such conversion shall be determined on the basis of the
total number of shares of Series A Preferred Shares the holder is converting
into Common Shares and the number of Common Shares issuable upon such aggregate
conversion.
(ii) Upon the occurrence of each adjustment or readjustment of
the Series A Conversion Price pursuant to this Section C.(1) the Corporation, at
its expense, shall promptly compute such adjustment or readjustment in
accordance with the terms hereof and prepare and furnish to each holder of
Series A Preferred Shares a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Series A Preferred Shares, furnish or cause to be
furnished to such holder a like certificate setting forth (A) such adjustment
and readjustment, (B) the Conversion Price for the Series A Preferred Shares at
the time in effect, and (C) the number of Common Shares and the amount, if any,
of other property which at the time would be received upon the conversion of a
Series A Preferred Share.
i. Notices of Record Date. In the event of any taking by the
----------------------
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, the Corporation
shall mail to each holder of Series A Preferred Shares, at least 10 days prior
to the date specified therein, a notice specifying the date on which any such
record is to be taken for the purpose of such dividend, distribution or right,
and the amount and character of such dividend, distribution or right.
j. Reservation of Stock Issuable Upon Conversion. The Corporation
---------------------------------------------
shall at all times reserve and keep available out of its authorized but unissued
Common Shares, solely for the purpose of effecting the conversion of the Series
A Preferred Shares, such number of its Common Shares as shall from time to time
be sufficient to effect the conversion of all outstanding shares of the Series A
Preferred Shares; and if at any time the number of authorized but unissued
Common Shares shall not be sufficient to effect the conversion of all then
outstanding Series A Preferred Shares, in addition to such other remedies as
shall be available to the holders of such Preferred Shares, the Corporation will
take such corporate action as may, in the opinion of its counsel, be necessary
to increase its authorized but unissued shares of Common Shares to such number
of shares as shall be sufficient for such purposes, including, without
limitation, engaging in best efforts to obtain the requisite shareholder
approval of any necessary amendment to these articles.
-8-
<PAGE>
k. Notices. Any notice required by the provisions of this Section to
-------
be given to the holders of Series A Preferred Shares shall be deemed given
if deposited in the United States mail, postage prepaid, and addressed to
each holder of record at his address appearing on the books of the
Corporation.
l. Taxes and Costs. The issue of certificates evidencing Common Shares
---------------
upon conversion of Series A Preferred Shares in accordance with the terms
provided herein shall be made without charge to the holders of such shares
for any issuance tax in respect thereof or other cost incurred by the
Corporation in connection with such conversion; provided, however, the
Corporation shall not be required to pay any tax that may be payable in
respect of any transfer involved in the issuance and delivery of any
certificate in a name other than that of the holder of the Series A
Preferred Shares so converted.
2. Right to Convert Series B Preferred Shares. The Series B Preferred
------------------------------------------
Shares may be converted by the holder at any time into Common Shares of the
Corporation upon the following terms and conditions:
(a) Each Series B Preferred Share may be converted, at the option of
the holder thereof, at any time after the date of issuance of such share at
the office of the Corporation or any transfer agent for such stock, into
such number of fully paid and nonassessable Common Shares as is determined
by dividing $4.853 by the Series B Conversion Price (as defined below),
determined as hereafter provided, in effect on the date the certificate is
surrendered for conversion. The price at which Common Shares shall be
deliverable upon conversion of the Series B Preferred Shares (the "Series B
Conversion Price") shall initially be $4.853. Such initial Series B
Conversion Price shall be adjusted as hereinafter provided.
(b) If the outstanding Common Shares shall be split or subdivided into
a greater number of shares, or a dividend in Common Shares or other
securities of the Corporation convertible or exchangeable for Common Shares
(in which latter event the number of Common Shares issuable upon the
conversion or exchange of such securities shall be deemed to have been
distributed), shall be paid in respect to the Common Shares, the Series B
Conversion Price in effect immediately prior to such split, subdivision or
at the record date of such dividend shall, simultaneously with the
effectiveness of such subdivision or immediately after the record date of
such dividend, be proportionately reduced, and conversely, if the
outstanding Common Shares shall be combined into a smaller number of
shares, the Series B Conversion Price in effect immediately prior to such
combination shall, simultaneously with the effectiveness of such
combination, be proportionately increased. Any adjustment to the Series B
Conversion Price under this subsection (b) shall become effective at the
close of business on the date the split, subdivision, dividend or
combination referred to herein becomes effective.
(c) In the event the Corporation at any time, or from time to time,
shall make or issue, or fix a record date for the determination of holders
of Common Shares entitled to receive a dividend or other distribution
payable in securities of the Corporation other than Common Shares or
securities convertible into or exchangeable for Common Shares, then and in
each such event,
-9-
<PAGE>
provision shall be made so that holders of Series B Preferred Shares shall
receive upon conversion thereof, in addition to the number of Common Shares
receivable thereupon, the number of securities of the Corporation which they
would have received had their Series B Preferred Shares been converted into
Common Shares on the date of such event and had thereafter, during the period
from the date of such event to and including the date of conversion, retained
such securities receivable by them as aforesaid during such period, giving
application to all adjustments called for during such period under this
subsection (c) with respect to the rights of the holders of Series B Preferred
Shares.
(d) In the event of a Reorganization, the holders of the Series B Preferred
Shares shall thereafter be entitled to receive, and provision shall be made
therefor in any agreement relating to such Reorganization, upon conversion of
the Series B Preferred Shares the kind and number of Common Shares or other
securities or property (including cash) of the Corporation, which the Series B
Preferred Shares entitled the holder thereof to convert to immediately prior to
such Reorganization; and in any such case appropriate adjustment shall be made
in the application of the provisions herein set forth with respect to the rights
and interests thereafter of the holders of the Series B Preferred Shares, to the
end that the provisions set forth herein (including the specified changes and
other adjustments to the Series B Conversion Price) shall thereafter be
applicable, as nearly as reasonably may be, in relation to any shares, to such
other securities or property thereafter receivable upon conversion of the Series
B Preferred Shares. The provisions of this subsection (d) shall similarly apply
to successive Reorganizations.
(e) If at any time or from time to time the Corporation shall issue or sell
Additional Shares subsequent to the date of the first issuance of the Series B
Preferred Shares other than in a transaction which falls within subsections (b),
(c) or (d) above, without consideration or for a consideration per share less
than the Series B Conversion Price then in effect, then, and in each such case,
the then existing Series B Conversion Price shall be adjusted to a Series B
Conversion Price (calculated to the nearest cent) determined by multiplying the
Series B Conversion Price by a fraction, the numerator of which shall be the
number of Common Shares outstanding immediately prior to such issuance plus the
number of Common Shares that the aggregate consideration received by the
Corporation for such issuance of Additional Shares would purchase at the Series
B Conversion Price in effect immediately prior to such issuance; and the
denominator of which shall be the number of Common Shares outstanding
immediately prior to such issuance plus the number of shares of such Additional
Shares.
(A) No adjustment of the Series B Conversion Price shall be made in an
amount less than one cent per share. Except to the limited extent provided for
in Sections C.2(e)(D)(3) and C.2(e)(D)(4), no adjustment of the Series B
--------------------- ---------
Conversion Price pursuant to this Section C.2(e) shall have the effect of
--------------
increasing the Series B Conversion Price above the Series B Conversion Price in
effect immediately prior to such adjustment.
(B) In the case of the issuance of Common Shares for cash, the
consideration shall be deemed to be the amount of cash paid therefor before
deducting any reasonable discounts, commissions or other expenses allowed, paid
-10-
<PAGE>
or incurred by the Corporation for any underwriting or otherwise in connection
with the issuance and sale thereof.
(C) In the case of the issuance of the Common Shares for a
consideration in whole or in part other than cash, the consideration other than
cash shall be deemed to be the fair value thereof as determined in good faith by
the Board of Directors irrespective of any accounting treatment.
(D) In the case of the issuance of options to purchase or rights to
subscribe for Common Shares, securities by their terms convertible into or
exchangeable for Common Shares or options to purchase or rights to subscribe for
such convertible or exchangeable securities, the following provisions shall
apply for all purposes of this Section C.2(e):
--------------
(1) The aggregate maximum number of Common Shares deliverable upon
exercise (assuming the satisfaction of any conditions to exercisability,
including without limitation, the passage of time, but without taking into
account potential antidilution adjustments) of such options to purchase or
rights to subscribe for Common Shares shall be deemed to have been issued at the
time such options or rights were issued and for a consideration equal to the
consideration (determined in the manner provided in Sections C.2(e)(B) and
------------------
C.2(e)(C)), if any, received by the Corporation upon the issuance of such
- ---------
options or rights plus the aggregate exercise prices provided in such options or
rights (without taking into account potential antidilution adjustments) for the
Common Shares covered thereby.
(2) The aggregate maximum number of Common Shares deliverable upon
conversion of or in exchange (assuming the satisfaction of any conditions to
convertibility or exchangeability, including, without limitation, the passage of
time, but without taking into account potential antidilution adjustments) for
any such convertible or exchangeable securities or upon the exercise of options
to purchase or rights to subscribe for such convertible or exchangeable
securities and subsequent conversion or exchange thereof shall be deemed to have
been issued at the time such securities were issued or such options or rights
were issued and for a consideration equal to the consideration, if any, received
by the Corporation for any such securities and related options or rights
(excluding any cash received on account of accrued interest or accrued
dividends), plus the aggregate additional consideration, if any, to be received
by the Corporation (without taking into account potential antidilution
adjustments) upon the conversion or exchange of such securities or the exercise
of any related options or rights (the consideration in each case to be
determined in the manner provided in Sections C.2(e)(B) and C.2(e)(C)).
------------------ ---------
(3) In the event of any change in the number of Common Shares
deliverable or in the consideration payable to the Corporation upon exercise of
such options or rights or upon conversion of or in exchange for such convertible
or exchangeable securities, including, but not limited to, a change resulting
from the antidilution provisions thereof, the Series B Conversion Price, to the
extent in
-11-
<PAGE>
any way affected by or computed using such options, rights or securities, shall
be recomputed to reflect such change, but no further adjustment shall be made
for the actual issuance of Common Shares or any payment of such consideration
upon the exercise of any such options or rights or the conversion or exchange of
such securities.
(4) Upon the expiration of any such options or rights, the
termination of any such rights to convert or exchange or the expiration of any
options or rights related to such convertible or exchangeable securities, the
Series B Conversion Price, to the extent in any way affected by or computed
using such options, rights or securities or options or rights related to such
securities, shall be recomputed to reflect the issuance of only the number of
Common Shares (and convertible or exchangeable securities which remain in
effect) actually issued upon the exercise of such options or rights, upon the
conversion or exchange of such securities or upon the exercise of the options or
rights related to such securities.
(5) The number of Common Shares deemed issued and the
consideration deemed paid therefor pursuant to Sections C.2(e)(D)(1) and (2)
--------------------- ---
shall be appropriately adjusted to reflect any change, termination or expiration
of the type described in either Section C.2(e)(D)(3) or (4).
-------------------- ---
g. No Impairment. The Corporation will not, by amendment of its
-------------
Certificate of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this Section and in the taking of all such action as may
be necessary or appropriate in order to protect the conversion rights of the
holders of the Series B Preferred Shares against impairment.
h. No Fractional Shares and Certificate as to Adjustments.
------------------------------------------------------
(i) No fractional shares shall be issued upon the conversion of
any of the Series B Preferred Shares, and the number of Common Shares to be
issued shall be rounded to the nearest whole share. Whether or not fractional
shares are issuable upon such conversion shall be determined on the basis of the
total number of shares of Series B Preferred Shares the holder is converting
into Common Shares and the number of Common Shares issuable upon such aggregate
conversion.
(ii) Upon the occurrence of each adjustment or readjustment of the
Series B Conversion Price pursuant to this Section C.(2), the Corporation, at
its expense, shall promptly compute such adjustment or readjustment in
accordance with the terms hereof and prepare and furnish to each holder of
Series B Preferred Shares a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Series B Preferred Shares,
-12-
<PAGE>
furnish or cause to be furnished to such holder a like certificate setting forth
(A) such adjustment and readjustment, (B) the Conversion Price for the Series B
Preferred Shares at the time in effect, and (C) the number of Common Shares and
the amount, if any, of other property which at the time would be received upon
the conversion of a Series B Preferred Share.
i. Notices of Record Date. In the event of any taking by the
----------------------
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, the Corporation
shall mail to each holder of Series B Preferred Shares, at least 10 days prior
to the date specified therein, a notice specifying the date on which any such
record is to be taken for the purpose of such dividend, distribution or right,
and the amount and character of such dividend, distribution or right.
j. Reservation of Stock Issuable Upon Conversion. The Corporation
---------------------------------------------
shall at all times reserve and keep available out of its authorized but unissued
Common Shares, solely for the purpose of effecting the conversion of the Series
B Preferred Shares, such number of its Common Shares as shall from time to time
be sufficient to effect the conversion of all outstanding shares of the Series B
Preferred Shares; and if at any time the number of authorized but unissued
Common Shares shall not be sufficient to effect the conversion of all then
outstanding Series B Preferred Shares, in addition to such other remedies as
shall be available to the holders of such Preferred Shares, the Corporation will
take such corporate action as may, in the opinion of its counsel, be necessary
to increase its authorized but unissued shares of Common Shares to such number
of shares as shall be sufficient for such purposes, including, without
limitation, engaging in best efforts to obtain the requisite shareholder
approval of any necessary amendment to these articles.
k. Notices. Any notice required by the provisions of this Section to
-------
be given to the holders of Series B Preferred Shares shall be deemed given if
deposited in the United States mail, postage prepaid, and addressed to each
holder of record at his address appearing on the books of the Corporation.
l. Taxes and Costs. The issue of certificates evidencing Common
---------------
Shares upon conversion of Series B Preferred Shares in accordance with the terms
provided herein shall be made without charge to the holders of such shares for
any issuance tax in respect thereof or other cost incurred by the Corporation in
connection with such conversion; provided, however, the Corporation shall not be
-------- -------
required to pay any tax that may be payable in respect of any transfer involved
in the issuance and delivery of any certificate in a name other than that of the
holder of the Series B Preferred Shares so converted.
-13-
<PAGE>
3. Conversion Procedures
---------------------
(a) The holder of any Series A Preferred Shares or Series B Preferred
Shares desiring to convert such Shares shall surrender and deliver, duly
endorsed in blank, the certificate or certificates representing the shares
to be converted (the "Converting Shares") to the Secretary of the
Corporation at its office, together with notice in writing that such holder
desires to convert such Shares.
(b) Upon receipt by the Secretary of a certificate or certificates
representing Converting Shares with the notice that the holder thereof
desires to convert the same, the Corporation shall cause to be issued to
the holder of such Converting Shares the appropriate number of Common
Shares pursuant to subparagraph (a) above, and subject to Section C.2
hereof, for each share of Converting Shares surrendered for conversion, and
deliver to such holder a certificate or certificates for such Common
Shares.
(c) A sufficient number of Common Shares shall at all times be set
aside and reserved for issuance upon conversion of the Converting Shares as
herein provided.
(d) Certificates representing Converting Shares which have been
converted hereunder shall be immediately canceled.
(e) The Corporation shall promptly provide to the holders of Preferred
Shares such information concerning the terms of any proposed liquidation,
dissolution or winding up of the Corporation as may reasonably be requested
in order to assist them in determining whether to convert their Preferred
Shares to Common Shares prior to the record date of any such event.
4. Automatic Conversion. All outstanding Series A Preferred Shares and
--------------------
Series B Preferred Shares shall be converted automatically, without any action
by the holders thereof, into Common Shares, at the then applicable respective
Conversion Rates and Conversion Prices, upon the closing of the sale of Common
Shares in an underwritten public offering pursuant to a registration statement
under the Securities Act of 1933, as amended, other than a registration relating
solely to a transaction under Rule 145 under the Securities Act (or any
successor thereto) or to an employee benefit plan of the Corporation, in which
the aggregate gross proceeds to the Corporation exceed $30 million at a public
offering price per share of at least $6.06 (as adjusted for any subsequent stock
dividends, stock splits or recapitalizations). Following conversion,
certificates for the Series A Preferred Shares and Series B Preferred Shares
shall be deemed to represent only the number of Common Shares into which such
Preferred Shares have been converted, and new certificates shall be delivered to
the holder of such new Common Shares.
D. Voting Rights. Except as otherwise required by applicable law, all
-------------
holders of Common Shares shall be entitled to one vote per share on all matters
to be voted on by the Corporation's shareholders and holders of Series A
Preferred Shares and Series B Preferred Shares shall be entitled to that number
of votes per share equal to the number of Common Shares issuable upon conversion
of the Series A Preferred Shares and Series B Preferred Shares, respectively.
-14-
<PAGE>
E. Other Voting Rights.
-------------------
1. Series A Voting Rights. In addition to any class or series votes as may
----------------------
be required by applicable law, so long as Series A Preferred Shares remain
outstanding, the consent of the holders of at least a majority of the then
outstanding Series A Preferred Shares shall be required to take any action which
(i) amends or repeals any provision of this Certificate of Incorporation if such
action would materially and adversely change the rights, preferences or
privileges of the Series A Preferred Shares or increase or decrease the number
of Series A Preferred Shares; (ii) exchanges, reclassifies or cancels all or
part of the Series A Preferred Shares (other than pursuant to automatic
conversion); or (iii) creates a new class of shares having rights, preferences
or privileges prior to, or being on a parity with, the Series A Preferred Shares
or increases the rights, preferences or privileges or the number of authorized
shares of any class having preferences or privileges prior to, or on a parity
with, the Series A Preferred Shares.
2. Series B Voting Rights. In addition to any class or series votes as may
----------------------
be required by applicable law, so long as Series B Preferred Shares remain
outstanding, the consent of the holders of at least a majority of the then
outstanding Series B Preferred Shares shall be required to take any action which
(i) amends or repeals any provision of this Certificate of Incorporation if such
action would materially and adversely change the rights, preferences or
privileges of the Series B Preferred Shares or increase or decrease the number
of Series B Preferred Shares; (ii) exchanges, reclassifies or cancels all or
part of the Series B Preferred Shares (other than pursuant to automatic
conversion); or (iii) creates a new class of shares having rights, preferences
or privileges prior to, or being on a parity with, the Series B Preferred Shares
or increases the rights, preferences or privileges or the number of authorized
shares of any class having preferences or privileges prior to, or on a parity
with, the Series B Preferred Shares.
F. No Preemptive Rights. Unless otherwise provided by the Board of
--------------------
Directors of the Corporation or otherwise provided by written agreement, no
holder of any shares of the Corporation shall, because of its, his or her
ownership of shares, have a preemptive or other right to subscribe for,
purchase, take or receive any part of any unissued or additional shares of the
Corporation of any class whether now or hereafter authorized, or of any notes,
debentures, bonds or other securities or instruments convertible into,
exchangeable for or carrying options or rights to purchase shares of the
Corporation, which may be or are proposed to be issued, optioned or sold by the
Corporation at any time, and all such shares or such notes, debentures, bonds or
other securities or instruments convertible into, exchangeable for or carrying
options or rights to purchase shares of the Corporation may be issued and
disposed of by the Board of Directors of the Corporation at any time to such
person or persons and upon such terms and for such consideration (so far as may
be permitted by law) as the Board of Directors may, in its sole discretion, deem
proper and advisable.
FIFTH: Any or all of the directors of the Corporation may be removed by
-----
vote of the Corporation's shareholders only for cause.
SIXTH: The Secretary of State is designated as agent of the Corporation
-----
upon whom process against the Corporation may be served, and the address to
which the Secretary of State shall mail a copy of any process against the
Corporation served upon it is: 432 Park Avenue South, 12th Floor, New York, New
York 10016.
SEVENTH: The personal liability of the directors of the Corporation to the
-------
Corporation and/or its shareholders is eliminated to the fullest extent
permitted by the provisions
-15-
<PAGE>
of paragraph (b) of Section 402 of the Business Corporation Law, as the same may
be amended and/or supplemented.
EIGHTH: The Corporation shall, to the fullest extent permitted by Article 7
------
of the Business Corporation Law, as the same may be amended and/or supplemented,
indemnify and advance expenses to any and all persons whom it shall have power
to indemnify under said Article from and against any and all of the expenses,
liabilities, or other matters referred to in or covered by said Article, and the
indemnification provided for herein shall not be deemed exclusive of any other
rights to which any person may be entitled under any By- Law, resolution of
shareholders, resolution of directors, agreement, or otherwise, as permitted by
said Article, as to action in any capacity in which such person served at the
request of the Corporation.
NINTH: A. The business and affairs of the Corporation shall be managed by
-----
or under the direction of a Board of Directors consisting of such number of
directors as is determined from time to time by resolution adopted by the
affirmative vote of not less than two-thirds of the entire Board of Directors;
provided, however, that in no event shall the number of directors be less than
five (5). The directors shall be divided into four (4) classes, designated Class
I, Class II, Class III and Class IV. Each class shall consist, as nearly as may
be possible, of one-fourth (1/4) of the total number of directors constituting
the entire board of directors. Effective upon the filing of this Restated
Certificate of Incorporation, Class I directors shall serve for a term ending
upon the annual meeting of shareholders held in the Corporation's fiscal 2000
year, Class II directors shall serve for a term ending upon the annual meeting
of shareholders held in the Corporation's fiscal 2001 year, Class III directors
shall serve for a term ending upon the annual meeting of shareholders held in
the Corporation's fiscal 2002 year and Class IV directors shall serve for a term
ending upon the annual meeting of shareholders held in the Corporation's fiscal
2003 year. At each succeeding annual meeting of shareholders beginning with the
annual meeting of shareholders held in the Corporation's fiscal 2000 year,
successors to the class of directors whose term expires at such annual meeting
shall be elected for a four-year term. If the number of directors is changed,
any increase or decrease shall be apportioned among the classes so as to
maintain the number of directors in each class as nearly equal as possible, and
any additional director of any class elected to fill a vacancy resulting from an
increase in such class shall hold office for a term that shall coincide with the
remaining term of that class, but in no case will a decrease in the number of
directors shorten the term of any incumbent director. A director shall hold
office until the annual meeting for the year in which his or her term expires
and until his or her successor shall be elected and shall qualify, subject,
however, to prior death, resignation, incapacitation or removal from office, and
except as otherwise required by law. In the event such election is not held at
an annual meeting of shareholders, it shall be held at any adjournment thereof
or a special meeting.
B. Except as otherwise required by applicable law, any vacancy on the Board
of Directors or any additional directorship(s) that results from an increase in
the authorized number of directors of the Corporation may be filled only by a
majority vote of the members of the Board of Directors then in office
immediately prior to such increase in number, provided that a quorum is present,
and any other vacancy occurring in the Board of Directors (including by death,
resignation or removal) shall be filled by a majority of the directors then in
office, even if less than a quorum, or by a sole remaining director. Any
director elected to fill a vacancy not resulting from an increase in the number
of directors shall have the same remaining term as that of his or her
predecessor.
-16-
<PAGE>
TENTH: Article FIFTH and Article NINTH of this Certificate of Incorporation
-----
may not be amended or repealed except by an affirmative vote of holders of at
least 80% of the outstanding Common Shares.
-17-
<PAGE>
IN WITNESS WHEREOF, we hereunto sign our names and affirm that the
statements made herein are true under the penalties of perjury.
Dated: February 15, 2000
/s/ Daniel Nissanoff
------------------------------------
Daniel Nissanoff
President
/s/ Michael R. Manley
------------------------------------
Michael R. Manley
Secretary
-18-
<PAGE>
EXHIBIT 3.2
BY-LAWS
of
PARTMINER, INC.
February 15, 2000
--------------------------------------------------------------------------
ARTICLE I - OFFICES
-------------------
The principal office of the corporation shall be in the City of New York,
County of New York, State of New York. The corporation may also have offices at
such other place within or without the State of New York as the board may from
time to time determine or the business of the corporation may require.
ARTICLE II - SHAREHOLDERS
-------------------------
1. PLACE OF MEETINGS.
Meetings of shareholders shall be held at the principal office of the
corporation or at such place within or without the State of New York as the
board shall authorize.
2. ANNUAL MEETING.
The annual meeting of the shareholders, at which the shareholders shall
elect a Board and transact such other business as may properly come before the
meeting, shall be held on the 9th day of September, at 11:00 A.M. in each year
if not a legal holiday, or on such other date and/or time each year as may be
set by the Board of Directors.
3. SPECIAL MEETINGS.
Special meetings of the shareholders may be called by the board or by the
president and shall be called by the president or the secretary at the request
in writing of a majority of the board or at the request in writing by
shareholders owning a majority in amount of the shares issued and outstanding.
Such request shall state the purpose or purposes of the proposed meeting.
Business transacted at a special meeting shall be confined to the purposes
stated in the notice.
4. FIXING RECORD DATE.
For the purpose of determining the shareholders entitled to notice of or to
vote at any meeting of shareholders or any adjournment thereof, or to express
consent to or dissent from any proposal without a meeting, or for the purpose of
determining shareholders entitled to receive payment of any dividend or the
allotment of any rights, or for the purpose of any other action, the
<PAGE>
board shall fix, in advance, a date as the record date for any such
determination of shareholders. Such date shall not be more than fifty nor less
than ten days before the date of such meeting, nor more than fifty days prior to
any other action. If no record date is fixed it shall be determined in
accordance with the provisions of law.
5. NOTICE OF MEETINGS OF SHAREHOLDERS.
Written notice of each meeting of shareholders shall state the purpose or
purposes for which the meeting is called, the place, date and hour of the
meeting and unless it is the annual meeting, shall indicate that it is being
issued by or at the direction of the person or persons calling the meeting.
Notice shall be given either personally or by mail to each shareholder entitled
to vote at such meeting, not less than ten nor more than fifty days before the
date of the meeting. If action is proposed to be taken that might entitle
shareholders to payment for their shares, the notice shall include a statement
of that purpose and to that effect. If mailed, the notice is given when
deposited in the United State mail, with postage thereon prepaid, directed to
the shareholder at his address as it appears on the record of shareholders, or,
if he shall have filed with the secretary a written request that notices to him
be mailed to some other address, then directed to him at such other address.
6. WAIVERS.
Notices of meeting need not be given to any shareholder who signs a waiver
of notice, in person or by proxy, whether before or after the meeting. The
attendance of any shareholder at a meeting, in person or by proxy, without
protesting prior to the conclusion of the meeting the lack of notice of such
meeting, shall constitute a waiver of notice by him.
7. QUORUM OF SHAREHOLDERS.
Unless the certificate of incorporation provides otherwise, the holders of
a majority of the shares entitled to vote thereat shall constitute a quorum at a
meeting of shareholders for the transaction of any business, provided that when
a specified item of business is required to be voted on by a class or classes,
the holders of a majority of the shares of such class or classes shall
constitute a quorum for the transaction of such specified item of business.
When a quorum is once present to organize a meeting, it is not broken by
the subsequent withdrawal of any shareholders.
The shareholders present may adjourn the meeting despite the absence of a
quorum.
8. PROXIES.
Every shareholder entitled to vote at a meeting of shareholders or to
express consent or dissent without a meeting may authorize another person or
persons to act for him by proxy.
2
<PAGE>
Every proxy must be signed by the shareholder or his attorney-in-fact. No
proxy shall be valid after expiration of eleven months from the date thereof
unless otherwise provided in the proxy. Every proxy shall be revocable at the
pleasure of the shareholder executing it, except as otherwise provided by law.
9. QUALIFICATION OF VOTERS.
Every shareholder of record shall be entitled at every meeting of
shareholders to one vote for every share standing in his name on the record of
shareholders, unless otherwise provided in the certificate of incorporation.
10. VOTE OF SHAREHOLDERS.
Except as otherwise required by statute or by the certificate of
incorporation;
(a) directors shall be elected by a plurality of the votes cast at a
meeting of shareholders by the holders of shares entitled to vote in the
election;
(b) all other corporate action shall be authorized by a majority of the
votes cast.
11. WRITTEN CONSENT OF SHAREHOLDERS.
Any action that may be taken by vote may be taken without a meeting on
written consent, setting forth the action so taken, signed by the holders of all
the outstanding shares entitled to vote thereon or signed by such lesser number
of holders as may be provided for in the certificate of incorporation.
ARTICLE III - DIRECTORS
-----------------------
1. BOARD OF DIRECTORS.
Subject to any provision in the certificate of incorporation the business
of the corporation shall be managed by its board of directors.
2. NUMBER OF DIRECTORS.
The number of directors shall be seven (7).
3. ELECTION AND TERM OF DIRECTORS.
At each annual meeting of shareholders, the shareholders shall elect
directors to hold office until the next annual meeting. Each director shall
hold office until the expiration of the term for which he is elected and until
his successor has been elected and qualified, or until his prior resignation or
removal.
3
<PAGE>
4. NEWLY CREATED DIRECTORSHIPS AND VACANCIES.
Vacancies in the Board for any reason shall be filled only by the
shareholders. A director elected to fill the vacancy caused by resignation,
death, or removal shall be elected to hold office for the unexpired term of his
predecessor.
5. REMOVAL OF DIRECTORS.
Any or all of the directors may be removed for cause by vote of the
shareholders or by action of the board. Directors may be removed without cause
only by vote of the shareholders.
6. RESIGNATION.
A director may resign at any time by giving written notice to the board,
the president or the secretary of the corporation. Unless otherwise specified
in the notice, the resignation shall take effect upon receipt thereof by the
board or such officer, and the acceptance of the resignation shall not be
necessary to make it effective.
7. QUORUM OF DIRECTORS.
Unless otherwise provided in the certificate of incorporation, a majority
of the entire board shall constitute a quorum for the transaction of business or
of any specified item of business.
8. ACTION OF THE BOARD.
Unless otherwise required by law, the vote of a majority of the directors
present at the time of the vote, if a quorum is present at such time, shall be
the act of the board. Each director present shall have one vote regardless of
the number of shares, if any, which he may hold.
9. PLACE AND TIME OF BOARD MEETINGS.
The board may hold its meetings at the office of the corporation or at such
other places, either within or without the State of New York, as it may from
time to time determine.
10. REGULAR ANNUAL MEETING.
A regular annual meeting of the board shall be held immediately following
the annual meeting of shareholders at the place of such annual meeting of
shareholders.
4
<PAGE>
11. NOTICE OF MEETINGS OF THE BOARD, ADJOURNMENT.
(a) Regular meetings of the board may be held upon at least three (3) days
prior notice to each director either personally or by mail or wire at such time
and place as it shall from time to time determine. Special meetings of the
board shall be held upon notice to the directors and may be called by the
president upon three days notice to each director either personally or by mail
or by wire; special meetings shall be called by the president or by the
secretary in a like manner on written request of two directors. Notice of a
meeting need not be given to any director who submits a waiver of notice whether
before or after the meeting or who attends the meeting without protesting prior
thereto or at its commencement, the lack of notice to him.
(b) A majority of the directors present, whether or not a quorum is
present, may adjourn any meeting to another time and place. Notice of the
adjournment shall be given all directors who were absent at the time of the
adjournment and, unless such time and place are announced at the meeting, to the
other directors.
12. CHAIRMAN.
At all meetings of the board the president, or in his absence, a chairman
chosen by the board shall preside.
13. EXECUTIVE AND OTHER COMMITTEES.
The board, by resolution adopted by a majority of the entire board, may
designate from among its members an executive committee and other committees,
each consisting of three or more directors. Each such committee shall serve at
the pleasure of the board.
ARTICLE IV - OFFICERS
---------------------
1. OFFICES, ELECTION, TERM.
(a) Unless otherwise provided for in the certificate of incorporation, the
board may elect or appoint a president, one or more vice-presidents, a secretary
and a treasurer, and such other officers as it may determine, who shall have
such duties, powers and functions as hereinafter provided.
(b) All officers shall be elected or appointed to hold office until the
meeting of the board following the annual meeting of shareholders.
(c) Each officer shall hold office for the term for which he is elected or
appointed and until his successor has been elected or appointed and qualified.
5
<PAGE>
2. REMOVAL, RESIGNATION, SALARY, ETC.
(a) Any officer elected or appointed by the board may be removed by the
board with or without cause.
(b) In the event of the death, resignation or removal of an officer, the
board in its discretion may elect or appoint a successor to fill the unexpired
term.
(c) Any two or more offices may be held by the same person, except the
offices of president and secretary. When all of the issued and outstanding
stock of the corporation is owned by one person, such person may hold all or any
combination of offices.
(d) The salaries of all officers shall be fixed by the board.
(e) The directors may require any officer to give security for the faithful
performance of his duties.
3. PRESIDENT.
The president shall be the chief executive officer of the corporation; he
shall preside at all meetings of the shareholders and of the board; he shall
have the management of the business of the corporation and shall see that all
orders and resolutions of the board are carried into effect.
4. VICE-PRESIDENTS.
During the absence or disability of the president, the vice-president, or
if there are more than one, the executive vice-president, shall have all the
powers and functions of the president. Each vice-president shall perform such
other duties as the board shall prescribe.
5. SECRETARY.
The secretary shall:
(a) attend all meetings of the board and of the shareholders;
(b) record all votes and minutes of all proceedings in a book to be kept
for that purpose;
(c) give or cause to be given notice of all meetings of shareholders and of
special meetings of the board;
(d) keep in safe custody the seal of the corporation and affix it to any
instrument when authorized by the board;
6
<PAGE>
(e) when required, prepare or cause to be prepared and available at each
meeting of shareholders a certified list in alphabetical order of the names of
shareholders entitled to vote thereat, indicating the number of shares of each
respective class held by each;
(f) keep all the documents and records of the corporation as required by
law or otherwise in a proper and safe manner.
(g) perform such other duties as may be prescribed by the board.
6. ASSISTANT-SECRETARIES.
During the absence or disability of the secretary, the assistant-secretary,
or if there are more than one, the one so designated by the secretary or by the
board, shall have all the powers and functions of the secretary.
7. TREASURER.
The treasurer shall:
(a) have the custody of the corporate funds and securities;
(b) keep full and accurate accounts of receipts and disbursements in the
corporate books;
(c) deposit all money and other valuables in the name and to the credit of
the corporation in such depositories as may be designated by the board;
(d) disburse the funds of the corporation as may be ordered or authorized
by the board and preserve proper vouchers for such disbursements;
(e) render to the president and board at the regular meetings of the board,
or whenever they require it, an account of all his transactions as treasurer and
of the financial condition of the corporation;
(f) render a full financial report at the annual meeting of the
shareholders if so requested;
(g) be furnished by all corporate officers and agents at his request, with
such reports and statements as he may require as to all financial transactions
of the corporation;
(h) perform such other duties as are given to him by these by-laws or as
from time to time are assigned to him by the board or the president.
7
<PAGE>
8. ASSISTANT-TREASURER.
During the absence or disability of the treasurer, the assistant-treasurer,
or if there are more than one, the one so designated by the secretary or by the
board, shall have all the powers and functions of the treasurer.
9. SURETIES AND BONDS.
In case the board shall so require, any officer or agent of the corporation
shall execute to the corporation a bond in such sum and with such surety or
sureties as the board may direct, conditioned upon the faithful performance of
his duties to the corporation and including responsibility for negligence and
for the accounting for all property, funds or securities of the corporation
which may come into his hands.
ARTICLE V- CERTIFICATES FOR SHARES
----------------------------------
1. CERTIFICATES.
The shares of the corporation shall be represented by certificates. They
shall be numbered and entered in the books of the corporation as they are
issued. They shall exhibit the holder's name and the number of shares and shall
be signed by the president or a vice-president and the treasurer or the
secretary and shall bear the corporate seal.
2. LOST OR DESTROYED CERTIFICATES.
The board may direct a new certificate or certificate to be issued in place
of any certificate or certificates theretofore issued by the corporation,
alleged to have been lost or destroyed, upon the making of an affidavit of that
fact by the person claiming the certificate to be lost or destroyed. When
authorizing such issue of a new certificate or certificates, the board may, in
its discretion and as a condition precedent to the issuance thereof, require the
owner of such lost or destroyed certificate or certificates, or his legal
representative, to advertise the same in such manner as it shall require and/or
give the corporation a bond in such sum and with such surety or sureties as it
may direct as indemnity against any claim that may be made against the
corporation with respect to the certificate alleged to have been lost or
destroyed.
3. TRANSFERS OF SHARES.
(a) Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, it shall be the
duty of the corporation to issue a new certificate to the person entitled
thereto, and cancel the old certificate; every such transfer shall be entered on
the transfer book of the corporation which shall be kept at its principal
office. No transfer shall be made within ten days next preceding the annual
meeting of shareholders.
8
<PAGE>
(b) The corporation shall be entitled to treat the holder of record of any
share as the holder in fact thereof and, accordingly, shall not be bound to
recognize any equitable or other claim to or interest in such share on the part
of any other person whether or not it shall have express or other notice
thereof, except as expressly provided by the laws of New York.
4. CLOSING TRANSFER BOOKS.
The board shall have the power to close the share transfer books of the
corporation for a period of not more than ten days during the thirty day period
immediately preceding (1) any shareholders' meeting, or (2) any date upon which
shareholders shall be called upon to or have a right to take action without a
meeting, or (3) any date fixed for the payment of a dividend or any other form
of distribution, and only those shareholders of record at the time the transfer
books are closed, shall be recognized as such for the purpose of (1) receiving
notice of or voting at such meeting, or (2) allowing them to take appropriate
action, or (3) entitling them to receive any dividend or other form of
distribution.
ARTICLE VI - DIVIDENDS
----------------------
Subject to the provisions of the certificate of incorporation and to
applicable law, dividends on the outstanding share of the corporation may be
declared in such amounts and at such time or times as the board may determine.
Before payment of any dividend, there may be set aside out of the net profits of
the corporation available for dividends such sum or sums as the board from time
to time in its absolute discretion deems proper as a reserve fund to meet
contingencies, or for equalizing dividends, or for repairing or maintaining any
property of the corporation, or for such other purpose as the board shall think
conducive to the interests of the corporation, and the board may modify or
abolish any such reserve.
ARTICLE VII - CORPORATE SEAL
----------------------------
The seal of the corporation shall be circular in form and bear the name of
the corporation, the year of its organization of the words "Corporate Seal, New
York." The seal may be used by causing it to be impressed directly on the
instrument or writing to be sealed, or upon adhesive substance affixed thereto.
The seal on the certificates for shares or on any corporate obligation for the
payment of money may be a facsimile, engraved or printed.
ARTICLE VIII - EXECUTION OF INSTRUMENTS
---------------------------------------
All corporate instruments and documents shall be signed or countersigned,
executed, verified or acknowledged by such officer or officers or other person
or persons as the board may from time to time designate.
9
<PAGE>
ARTICLE IX - FISCAL YEAR
------------------------
The fiscal year shall begin the first day of January in each year.
ARTICLE X - REFERENCES TO CERTIFICATE OF INCORPORATION
------------------------------------------------------
Reference to the certificate of incorporation in these by-laws shall
include all
amendments thereto or changes thereof unless specifically excepted.
ARTICLE XI - BY-LAW CHANGES
---------------------------
AMENDMENT, REPEAL, ADOPTION, ELECTION OF DIRECTORS.
(a) Except as otherwise provided in the certificate of incorporation the
by-laws may be amended, repealed or adopted by vote of the holders of the shares
at the time entitled to vote in the election of any directors. By-laws may also
be amended, repealed or adopted by the board but any by-law adopted by the board
may be amended by the shareholders entitled to vote thereon as hereinabove
provided. Notwithstanding the foregoing, Paragraph 2 of Article III of the By-
Laws setting forth the number of directors and Paragraph 4 of Article III of the
By-Laws with respect to filling vacancies in the Board may be amended only by
the shareholders.
(b) If any by-law regulating an impending election of directors is adopted,
amended or repealed by the board, there shall be set forth in the notice of the
next meeting of shareholders for the election of directors the by-law so
adopted, amended or repealed, together with a concise statement of the changes
made.
10
<PAGE>
Exhibit 4.1
[STOCK CERTIFICATE]
NUMBER SHARES
PartMiner, Inc.
INCORPORATED UNDER THE LAWS OF THE STATE OF NEW YORK
THIS CERTIFIES THAT
SPECIMEN
is the owner of
shares of the Common Stock of the par value of $.0001 each, of PartMiner, Inc.
hereinafter called the corporation transferable on the books of the corporation
by the holder hereof in person or by duly authorized attorney, upon surrender of
this certificate properly endorsed. This certificate is not valid unless
countersigned and registered by the Transfer Agent and Registrar.
WITNESS the facsimile signatures of its duly authorized officers and the
facsimile seal of the corporation hereunto affixed.
Dated:
/s/ Michael R. Manley /s/ Daniel Nissanoff
---------------------- ---------------------
SECRETARY PRESIDENT
PARTMINER, INC.
CORPORATE
SEAL
1993
NEW YORK
Countersigned and Registered:
AMERICAN STOCK TRANSFER & TRUST COMPANY
(NEW YORK, N.Y.) Transfer Agent and Registrar
Authorized Signature
SECURITY-COLUMBIAN UNITED STATE BANKNOTE COMPANY 1960
<PAGE>
EXHIBIT 10.30
[LOGO OF INTIRA]
Contract No.__________________
NETSOURCING SERVICES AGREEMENT
------------------------------
THIS NETSOURCING SERVICES AGREEMENT ("Agreement") is entered into as of
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March 3, 2000 (the "Effective Date") by and between digital broadcast network
--------------
corporation, d/b/a INTIRA CORPORATION, a Missouri corporation ("Intira"), and
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PARTMINER, INC., a New York corporation ("Customer").
--------
BACKGROUND
Customer wishes Intira to provide certain hosting and data management, Internet
access, and security services in connection with certain applications of
Customer to be made available on Intira's private network and/or the Internet,
and Intira is willing provide such services, subject to the terms and conditions
of this Agreement. Intira and Customer, therefore, agree as follows:
SECTION 1 - DEFINITIONS
The following defined terms, and other capitalized terms defined herein and as
described in the exhibits attached to this Agreement, will govern the
interpretation of this Agreement.
"Customer's Application" means the content, coding, text, applications, and
----------------------
software that are hosted on, or are provided to Intira for which Intira will
provide the Netsourcing Services and which will be stored on, the Server
(defined in (S)2.1 below) including, without limitation, Customer's "Free Trade
Zone" website.
"Documentation" means all written, video or audio materials, including
-------------
training materials, relating to the Netsourcing Services provided by Intira to
Customer for use in connection with the Netsourcing Services under this
Agreement.
"Netsourcing Services" shall have the meaning set forth in Section 2.1 of
--------------------
this Agreement.
"Netsourcing Services Term" means (1) the Thirty-Six (36) month period
-------------------------
beginning on the date the Netsourcing Services are successfully installed,
tested, and made available to Customer, and (2) any extension or renewal of such
period, pursuant to the terms of this Agreement.
SECTION 2 - NETSOURCING SERVICES
2.1 During the Netsourcing Services Term, Intira will provide the people,
products, processes, equipment, facilities and services necessary to host,
operate, maintain, and manage, Customer's Application, as well as to provide
security and connectivity therefor to and on behalf of Customer (collectively,
the "Netsourcing Services"):
--------------------
(a) Data Management Services. During the Netsourcing Services Term,
Intira will provide, as part of the Netsourcing Services, the hosting and data
management services described in the Statement of Work ("SoW"), which shall be
---
completed and mutually agreed upon by the parties following execution of this
Agreement, and attached hereto and incorporated herein as Exhibit "A", including
providing a server or servers (collectively, the "Server") and all other
------
computer hardware and operating system software necessary to operate and support
the Customer's Application; a more detailed description of the Server and such
other hardware and software shall be set forth in the SoW. Except as otherwise
provided in this Agreement and except during periods of scheduled maintenance
downtime, the parties acknowledge that Intira scheduled maintenance currently is
scheduled Tuesdays and Thursdays from 2:30 a.m. to 6:30 a.m., local time; Intira
will provide Customer with reasonable notice of any changes in such scheduled
maintenance policy. The parties agree to work together to minimize any adverse
impact scheduled maintenance may have on the operation of Customer's
Application. In the event that, after such efforts, the scheduled maintenance
has a material adverse impact on the operation of Customer's Application such
that it is no longer commercially practicable for Customer to continue operating
Customer's Application, Customer may terminate this Agreement as if Intira had
become in material breach of this Agreement under Section 5.2(b); provided,
however, Customer must first provide Intira with twenty-one (21) days prior
written notice of such termination and an opportunity to cure before terminating
this Agreement pursuant to this provision. Intira will use commercially
reasonable efforts to ensure that the Server and equipment is operational (as
such term is more fully described and defined in the SoW) on a twenty-four-hour-
a-day, seven-days-a-week basis. Intira will provide all necessary software
(excluding Customer provided software), hardware, network access,
infrastructure, people and management expertise, pursuant to the terms of the
SoW. Intira shall also provide storage services in the manner described in the
SoW.
(b) Security Services. As part of the Netsourcing Services, Intira shall
take commercially reasonable actions to provide such products, processes,
services, people, equipment, and devices as are necessary to secure the Server
and Customer's Application from unauthorized access, to the extent and pursuant
to the design and performance standards as shall be set forth in the SoW (the
"Security Services"). The parties acknowledge that the nature and scope of the
-----------------
Security Services shall not exceed those set forth in the SoW, unless otherwise
agreed to in a writing signed by all the parties hereto. As part of the
Security Services, Intira will provide certain monthly reports, including
monthly reports on usage and attempted and actual security intrusions and policy
violations. Intira will immediately notify Customer of all actual security
intrusions and policy violations as well as any attempted such intrusions or
violations (but only to the extent such attempts, in Intira's sole
determination, constitute "high priority" attempts or concerted, continual, and
intentional attempts) and will take such actions as are necessary to remedy such
policy violations or such security intrusions and to prevent any additional
security intrusions and policy violations. Additional reporting is available
upon agreement of the parties and for an additional fee. Further, in connection
with the Security Services, Intira will provide hardware and software, pre-
configured to the Customer's network and security needs, as shall be described
in the SoW. Intira will maintain ownership of all such hardware and software,
other than such hardware and/or software, if any, provided by Customer.
(c) Internet Access Services. Intira shall provide, as part of the
Netsourcing Services, the Internet access services identified in the SoW
("Internet Access Services"). Customer may request additional Internet Access
------------------------
Services on Intira's service order forms in effect from time to time (any such
order is a "Service Order"). Each Service Order shall reference this Agreement
-------------
and shall become a part of and subject to the terms of this Agreement when
executed by a duly authorized Intira representative. In the event of a conflict
between any Service Order and this Agreement, the terms of this Agreement shall
control.
<PAGE>
2.2 Intira shall not be, and Customer shall be, responsible for Customer's
Application and the Server content management, including all file uploads,
downloads, and transfers. If Customer authorizes Intira in writing, and Intira
agrees in writing, to provide Server content management services during the
Netsourcing Services Term, then, absent a billing arrangement otherwise, Intira
will perform such management at Intira's then current hourly rates for such
management services, which will be billed to Customer in addition to all other
charges for the Netsourcing Services being provided hereunder. Customer shall be
responsible for all end-user support, order entry, help desk, sales, marketing,
pricing and service plans, billings and collections (including without
limitation, credit card fraud and any other type of credit fraud) with respect
to the users and the sale of Customer's products and services and shall perform
those duties and obligations described in this Agreement. Customer shall have
sole responsibility for installation, testing, operation and maintenance of the
interconnection equipment and all computer software programs provided by
Customer or any user, other than the equipment specifically provided by Intira
under this Agreement. Unless otherwise provided in the SoW, Customer is
responsible for providing its own security measures prior to interconnection
with Intira's network and/or to the point at which Intira shall provide Security
Services under this Agreement. Customer is responsible for: credit card
verification, user pre-screening, identification, login access and security,
address verification and identification, and merchant bankcard transaction
reconciliation. Both Intira and Customer shall fully comply with all laws and
regulations and Intira's current policies and guidelines regarding Internet and
network usage, which can be found on Intira's website. In the event Intira
changes such policies or guidelines, Intira shall provide Customer reasonable
notice of such changes.
2.3 Intira shall deliver and perform the Netsourcing Services described in
this Agreement and the Service Level Agreement ("SLA") negotiated by the parties
and attached hereto as Exhibit "B" and all exhibits and attachments. Intira
shall timely deliver the Netsourcing Services and guarantees the availability
and quality of such Netsourcing Services during the Netsourcing Services Term,
to the extent set forth in the SLA. The SLA may only be amended in a writing
signed by both parties. Intira's obligations with respect to the SLA shall
commence after the Netsourcing Services are successfully installed, implemented,
and made available to Customer by Intira and tested and accepted by Customer;
provided, however, such SLA obligations shall not commence until the
"Stabilization Period" (as such term is defined in the SoW) has expired, which
shall be calculated as a period of sixty (60) days from the date of this
Agreement During the Stabilization Period, the Netsourcing Services shall be
tested and adjusted post-installation and post-implementation. Notwithstanding
anything herein to the contrary, the parties acknowledge that the On-Time
Installation Guaranty, as set forth in the SLA, shall become effective on the
date on which this Agreement is executed by the parties, regardless of whether
the Netsourcing Services Term has begun as of that date, and shall not be
subject to the Stabilization Period described herein.
SECTION 3 - OWNERSHIP
3.1 Intira Technology. Notwithstanding any other provision of this Agreement
-----------------
to the contrary, and except to the extent otherwise set forth in this Section 3,
Intira shall retain all right and title to and in any software (excluding
Customer provided software, Customer's Application, and Customer Technology
(defined below)), methodology, physical security system, access control system,
databases, computer programs, hardware, audio/visual equipment, tools, general
utility programs, libraries, discoveries, inventions, techniques, writings,
know-how, designs, or other information either owned by Intira prior to the date
hereof, acquired during the term of this Agreement, developed during the term of
this Agreement or specifically created for the purpose of performing the
Netsourcing Services, but excluding the Customer's Application (collectively,
the "Intira Technology"). Any Intira Technology developed during the course of
-----------------
this Agreement in connection with performing the Netsourcing Services shall not
be work made for hire. However, any Intira Technology developed exclusively for
Customer and at Customer's request during the course of this Agreement for a
purpose other than performing the Netsourcing Services shall be work made for
hire unless otherwise mutually agreed.
3.2 Customer Technology. Notwithstanding any other provision of this
-------------------
Agreement to the contrary, Customer shall retain all right, title and interest
in and to the Customer's Application and in any Customer provided software
(excluding Intira provided software and the Intira Technology), methodology,
physical security system, access control system, databases, computer programs,
hardware, audio/visual equipment, tools, general utility programs, libraries,
discoveries, inventions, techniques, writings, know-how, designs, or other
information either licensed or owned by Customer prior to the date hereof,
acquired by Customer during the term of this Agreement, or developed by a party
other than Intira or by a party other than a third party hired or engaged by
Intira during the term of this Agreement for a purpose other than performing the
Netsourcing Services (collectively, the "Customer Technology"). Any Customer
-------------------
Technology developed by Intira or any third party hired by or engaged by Intira
during the course of this Agreement exclusively for Customer and at Customer's
request and for a purpose other than performing the Netsourcing Services shall
be work made for hire unless otherwise mutually agreed.
SECTION 4 - PAYMENT
4.1 Fees. Subject to the terms of this Agreement, Customer agrees to pay
----
Intira all Installation Fees and Monthly Service Fees as set forth on Exhibit
"C", Pricing. Unless otherwise agreed by the parties in writing, Monthly
Services Fees and any other recurring or non-recurring charges under this
Agreement shall become due and payable thirty (30) days from the date of invoice
from Intira. All Monthly Service Fees shall be billed in advance, unless all or
any portion of the Netsourcing Services requires measurement of Customer's usage
in order to determine the appropriate Monthly Service Fee. Intira shall submit
the first invoice to Customer for Monthly Service Fees beginning in the month
after the first month in which the Netsourcing Services have been made available
to Customer, and for each month thereafter during the Netsourcing Services Term.
4.2 Report Fee. Unless other billing arrangements are agreed upon in writing
----------
by the parties or except to the extent otherwise set forth in this Agreement or
the SoW, Customer will pay Intira an hourly rate of one hundred twenty five
dollars ($125.00) for the initial development and formatting of customized
reports, not otherwise described in the Statement of Work, requested by Customer
and agreed to by Intira. Intira shall make all such reports available to
Customer via a secure and protected report retrieval area on the Internet. Such
reports shall include reports on backbone usage and Internet drains. Reporting
with respect to site availability and latency shall be available upon reasonable
request by Customer.
4.3 Taxes. All sales, use, value-added, and other taxes (excluding taxes
-----
based on the income of Intira or any subsidiary or affiliate thereof), customs
and duties arising out of the Netsourcing Services provided under this Agreement
will be paid by Customer, or, if Intira is required to pay any of the same, will
be reimbursed to Intira by Customer.
4.4 Change Requests. Upon execution of this Agreement and any appropriate
---------------
Exhibits, Service Orders, or SoWs, Intira shall begin the process of ordering,
installing, testing, and implementing the necessary infrastructure, equipment,
and processes so as to provide the Netsourcing Services. During such process,
any request by Customer to change Customer's order or the Netsourcing Services
in any way must be submitted to Intira in writing. Intira shall use
commercially reasonably efforts to accommodate any change requests submitted
during the Netsourcing Services Term within a reasonable time after submission
of such request; however, Intira cannot
Initra Proprietary and Confidential
Page 2 of 10
<PAGE>
guarantee that every change order request can or will be made by Intira. In the
event Customer requests such a change prior to Intira's beginning installation
or implementation, and in the event Intira is able to make such requested change
without incurring any additional third-party charges, Intira may make the
changes so requested free of additional charge. Notwithstanding anything herein
to the contrary, in the event that, in Intira's sole judgment, Customer's change
request expands, in whole or in part, the Netsourcing Services beyond the scope
of the SoW, Intira shall not be obligated to implement such change request
unless and until the parties have agreed, in a writing signed by both parties,
to a revised price structure for the Netsourcing Services (as expanded by
Customer's change request). Such amended pricing structure shall become
incorporated into this Agreement upon execution.
4.5 Late Charges If any fees or expenses are not paid within forty (40) days
------------
after the date of Intira's first invoice for such fees or expenses, Intira may,
at its option, charge Customer a late fee at the rate of 1.0% per month (but in
no event more than the maximum rate allowed by applicable law) on such fees.
Customer will be responsible for all reasonable costs of collection incurred by
Intira, including without limitation, litigation costs, reasonable attorneys'
fees and court costs.
SECTION 5 - TERM, EXPIRATION, AND TERMINATION
5.1 Term and Expiration. This Agreement will take effect upon the Effective
-------------------
Date and will continue until the end of the Netsourcing Services Term, unless
otherwise terminated as provided herein. Intira shall provide Customer with 90
days written notice before the expiration of the Netsourcing Services Term.
Upon expiration of the Netsourcing Services Term, if Customer fails to provide
Intira with written notice of its intent to cancel this Agreement, and absent an
agreement by the parties to renew this Agreement, Intira may continue providing
the Netsourcing Services on a month-to-month basis, at the fees set forth on the
attached Exhibit "C", until such time as a renewal agreement can be reached by
the parties. During such automatic renewal period, either party may terminate
this Agreement upon thirty (30) days notice. Except as otherwise provided in
this Agreement, Intira may not terminate the Netsourcing Services or this
Agreement during the Netsourcing Services Term.
5.2 Termination. During the Netsourcing Services Term, this Agreement may only
-----------
be terminated pursuant to this Section 5.2.
(a) Termination without Cause by Customer. Customer may terminate this
Agreement by providing Intira with sixty (60) days prior written notice. In the
event Customer terminates this Agreement under this paragraph, Customer shall be
liable for any outstanding balance due and owing at the time of termination, any
Monthly Service Fees earned by Intira through the date of termination, any
reasonable costs, without markup and including all discounts and rebates,
incurred by Intira as a result of Customer's termination, including but not
limited to telephone circuit termination charges, and a Cancellation Fee equal
in an amount as set forth below. In the event Customer terminates this
Agreement under this Section 5.2(a) during the first twelve (12) months of the
Netsourcing Services Term, the Cancellation Fee shall be an amount equal to
seventy-five percent (75%) of the minimum Monthly Service Fee hereunder
multiplied by the number of months remaining in the Netsourcing Services Term.
In the event Customer terminates this Agreement under this Section 5.2(a) during
the second twelve (12) months of the Netsourcing Services Term, the Cancellation
Fee shall be an amount equal to fifty percent (50%) of the minimum Monthly
Service Fee hereunder multiplied by the number of months remaining in the
Netsourcing Services Term. In the event Customer terminates this Agreement
under this Section 5.2(a) during the third twelve (12) months of the Netsourcing
Services Term, the Cancellation Fee shall be an amount equal to twenty-five
percent (25%) of the minimum Monthly Service Fee hereunder multiplied by the
number of months remaining in the Netsourcing Services Term.
(b) Termination with Cause By Customer. Customer may terminate this
Agreement if (a) Intira is in material breach of this Agreement, and such
material breach continues for a period of not less than twenty-one (21) days
after Customer provides written notice of such breach (Intira shall use
reasonable commercial efforts to cure such breach in less than twenty-one days),
or (b) a proceeding is commenced by or against Intira seeking liquidation,
reorganization, being declared insolvent, or other relief under any bankruptcy
or similar law, and such proceeding is not dismissed within thirty (30) days of
filing. In the event Customer terminates this Agreement pursuant to this
paragraph, Customer shall remain liable for any outstanding balance due and
owing as of the date of termination, and any Monthly Service Fees earned by
Intira through the date of termination.
(c) Termination with Cause by Intira. During the Netsourcing Services
Term, Intira may only terminate this Agreement in the event Customer is in
Default of this Agreement. For purposes of this Agreement, Customer shall be
considered to be in "Default" if (a) Customer fails to make any payment required
-------
hereunder, and such failure remains uncorrected for twenty (20) days after the
date upon which Intira provides written notice that such payment is overdue; (b)
Customer is in material breach of any of its other obligations under this
Agreement, and such breach continues for a period of thirty (30) days after
Intira provides written notice of such breach; (c) a proceeding is commenced by
or against Customer seeking liquidation, reorganization, being declared
insolvent, or other relief under any bankruptcy or similar law, and such
proceeding is not dismissed within thirty (30) days of filing; (d) Customer's
use of any products, equipment, hardware, software, or services supplied
hereunder is in material violation of Intira's Acceptable Use Policy, as such
policy is set forth in Intira's website, www.intira.com.; or (e) Customer is in
material default of any other Agreement with Intira. Intira will provide
Customer with no less than thirty (30) days written notice before any changes to
the Acceptable Use Policy become effective. In the event this Agreement is
terminated hereunder, Customer shall remain liable for any amounts for which
Customer would have been liable had Customer terminated this Agreement pursuant
to Section 5.2(a).
5.3 Upon termination of the Netsourcing Services and this Agreement, Intira
shall provide Customer reasonable assistance in removing all data and other
materials stored on the Server and Customer shall have sixty (60) days to remove
the data stored on the Server by Intira subject to paying all amounts owed to
Intira, including any costs incurred by Intira in helping Customer remove the
stored data. Intira shall not terminate the Netsourcing Services before the
expiration of such sixty-day period unless Customer has secured alternate
arrangements to have such Netsourcing Services or their substantial equivalent
provided elsewhere; provided, however, Customer shall remain liable for any
Monthly Service Fees arising out of the Netsourcing Services provided during
such sixty-day period.
5.4 Intira, upon termination of this Agreement shall provide reasonable
assistance to Customer in obtaining possession of, removing and moving all
Customer property including, without limitation, the Customer's Application to
Customer's location, or another location, of Customer's choice. In the event
Customer terminates this Agreement under Section 5.2(b), Intira shall bear the
cost of such services; however, in the event the Agreement becomes terminated
for any other reason, Customer shall bear the cost of such services.
SECTION 6 - REPRESENTATIONS AND WARRANTIES
6.1 Customer Representations and Warranties. Customer represents and warrants
---------------------------------------
that (i) Customer has the right and/or title to use the Customer's Application
or that Customer's Application either contains material that is in the public
domain or for which Customer has sufficient rights to use in the manner
contemplated by this Agreement; (ii) to the best of its knowledge and belief,
Customer's Application, and Intira's provision of the Netsourcing Services using
Initra Proprietary and Confidential
Page 3 of 10
<PAGE>
Customer's Application as contemplated hereunder, will not infringe upon or
violate any patent, copyright, trade secret, trademark or other intellectual
property right of any third party, or any law applicable to the provision of the
Netsourcing Services; (iii) to the best of its knowledge and belief, Customer's
Application complies with all law, rules, legislation, and regulations of
applicable jurisdictions; (iv) to the best of its knowledge and belief,
Customer's Application is not for any illegal, obscene, offensive or immoral
purpose; (v)to the best of its knowledge and belief, Customer is in compliance
with and will abide by all federal, state and local laws, rules, and ordinances,
of applicable jurisdictions, specifically including, but not limited to, the
Communications Decency Act of 1996, as amended, and Customer will not transmit
communications described in 47 U.S.C. Section 223(b) and will restrict such
access to Customer's Application accordingly; and (vi) to the best of its
knowledge and belief, Customer's Application shall be free from viruses, worms,
trojan horses and other malicious code and shall be Y2K compliant.
6.2 Intira Representations and Warranties. Intira represents and warrants that
-------------------------------------
(i) Intira has the right and/or title to use the Intira Technology in the manner
contemplated by this Agreement; (ii) to the best of its knowledge and belief,
Intira Technology does not infringe upon or violate any patent, copyright, trade
secret, trademark, or other intellectual property right of any third party or
constitute a defamation, invasion of privacy, or violate any right of publicity
or other third-party right; (iii) to the best of its knowledge and belief,
Intira's provision of Netsourcing Services as contemplated hereunder will not
infringe upon or violate any patent, copyright, trade secret, trademark or other
intellectual property right of any third party, or any law applicable to the
provision of the Netsourcing Services; (iv) to the best of its knowledge and
belief, Intira's Technology complies with all law, rules, and legislation of
applicable jurisdictions; (v) to the best of its knowledge and belief, Intira's
performance of the Netsourcing Services is not for any illegal, obscene,
offensive or immoral purpose; (vi) to the best of its knowledge and belief,
Intira is in compliance with and will abide by all federal, state and local
laws, rules, regulations and ordinances; (vii) to the best of its knowledge and
belief, Intira Technology shall be free from viruses, worms, trojan horses and
other malicious code and shall be Y2K compliant.
SECTION 7 - WARRANTIES, LIMITATION OF LIABILITY AND INDEMNIFICATION
7.1 Warranties and Limitation of Liability.
--------------------------------------
(a) INTIRA SHALL USE REASONABLE BEST EFFORTS TO PROVIDE THE NETSOURCING
SERVICES ERROR-FREE AND SHALL USE REASONABLE BEST EFFORTS TO PROVIDE THE
NETSOURCING SERVICES ON A TWENTY-FOUR (24) HOUR, SEVEN (7) DAY PER WEEK BASIS.
IN CONNECTION THEREWITH, INTIRA SHALL USE REASONABLE BEST EFFORTS TO PROVIDE THE
NETWORK SERVICES, AS SET FORTH IN THE SOW, ERROR-FREE AND SECURE, AND, FURTHER,
SHALL USE REASONABLE BEST EFFORTS TO ENSURE THAT THE NETWORK SERVICES,
INCLUDING, WITHOUT LIMITATION, COMMUNICATIONS SENT BY MEANS OF THE FIREWALL,
WILL BE PRIVATE (TO THE EXTENT SET FORTH IN THE SOW). INTIRA SHALL PERFORM THE
NETSOURCING SERVICES HEREUNDER IN A PROFESSIONAL AND WORKMANLIKE MANNER,
SUBSTANTIALLY IN COMPLIANCE WITH THE STATEMENT OF WORK (AS SAME MAY BE AMENDED
IN WRITING BY THE PARTIES FROM TIME TO TIME). UNLESS OTHERWISE SET FORTH IN THIS
AGREEMENT, INTIRA MAKES NO FURTHER REPRESENTATION OR WARRANTY, EXPRESS OR
IMPLIED, WRITTEN OR ORAL. INTIRA DISCLAIMS ALL AND CUSTOMER RECEIVES NO FURTHER
WARRANTIES, INCLUDING ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE OR ANY WARRANTY THAT THE NETSOURCING SERVICES WILL BE
UNINTERRUPTED OR ERROR-FREE. ALL WARRANTIES WITH RESPECT TO THE NETSOURCING
SERVICES ARE STRICTLY LIMITED TO THOSE SET FORTH IN THIS AGREEMENT.
(b) (1) IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR
ANY CONSEQUENTIAL, DIRECT OR INDIRECT, PUNITIVE, INCIDENTAL DAMAGES OR ANY LOSS
OF PROFIT, REVENUE, OR DAMAGES FOR BODILY INJURY OR DEATH INCURRED OR SUFFERED
AS A RESULT OF UNAVAILABILITY, PERFORMANCE, NONPERFORMANCE, TERMINATION, OR
OTHER ACTION OR INACTION UNDER THIS AGREEMENT. THE FOREGOING LIMITATION ON
LIABILITY, HOWEVER, SHALL NOT RELIEVE THE PARTIES FROM LIABILITY FOR DIRECT
DAMAGES ARISING SOLELY OUT OF SUCH PARTIES' GROSS NEGLIGENCE OR WANTON OR
WILLFUL MISCONDUCT IN PERFORMANCE OF THE NETSOURCING SERVICES.
(2) INTIRA'S TOTAL LIABILITY FOR DAMAGES IN CONNECTION WITH THIS
AGREEMENT, WHETHER IN CONTRACT, TORT, OR OTHERWISE, SHALL NOT EXCEED THE GREATER
OF (A) THE TOTAL AMOUNT RECEIVED BY INTIRA UNDER THIS AGREEMENT FOR THE SIX-
MONTH PERIOD IMMEDIATELY RECEEDING THE DATE UPON WHICH SUCH LIABILITY ARISES, OR
(B) SEVEN HUNDRED FIFTY THOUSAND DOLLARS ($750,000).
(c) NOTHING IN THIS SECTION 7.1 SHALL SERVE TO RELIEVE INTIRA FROM ANY
LIABILITY ARISING SOLELY OUT OF THE SERVICE LEVEL AGREEMENT ("SLA"), BETWEEN
---
THE PARTIES, ATTACHED HERETO AS EXHIBIT "B". CUSTOMER'S REMEDY FOR INTIRA'S
FAILURE TO SATISFY ITS SLA AS SET FORTH IN THE SLA, AND ANY OTHER RIGHTS OR
REMEDIES THEREFOR, SHALL BE SUBJECT TO THE LIMITATIONS ON LIABILITY IMPOSED
HEREUNDER. NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, INTIRA'S FAILURE TO
MEET ANY OF THE COMMITMENTS SET FORTH IN THE SLA SHALL NOT CONSTITUTE A MATERIAL
BREACH OF THIS AGREEMENT (FOR PURPOSES OF SECTION 5.2(B) UNLESS SUCH FAILURE
PERSISTS ON A ROUTINE AND CONSISTENT BASIS. NOTWITHSTANDING ANYTHING TO THE
CONTRARY, INTIRA'S FAILURE TO MEET THE ON-TIME INSTALLATION GUARANTY SHALL NOT
BE CONSIDERED A MATERIAL BREACH OF THIS AGREEMENT FOR PURPOSES OF SECTION
5.2(B).
(d) CUSTOMER ACKNOWLEDGES AND AGREES THAT THE SECURITY SERVICES INTIRA
SHALL PERFORM UNDER THE SOW CONSTITUTE ONLY ONE COMPONENT OF CUSTOMER'S OVERALL
SECURITY PROGRAM AND ARE NOT A COMPREHENSIVE SECURITY SOLUTION.
7.2 Indemnification by Customer. Customer will defend, indemnify, and hold
---------------------------
Intira harmless from and against all claims, liabilities, costs (including
reasonable attorneys' fees) and/or damages to or suffered or incurred by Intira
arising out of (a) any use by Intira that is consistent with this Agreement of
any data or files provided by Customer to Intira under this Agreement, (b) any
material breach by Customer of this Agreement, including without limitation any
failure by Customer to observe or satisfy any material terms or conditions of
this Agreement, or (c) any material violation of any applicable federal, state
or local laws with regard to the transmission and use of information and
content, including laws related to privacy, publicity, or the Communications
Decency Act of 1996, arising out of the Customer's Application. Further,
Customer shall indemnify Intira for any loss, damage, costs, liability, and
expenses, including reasonable attorneys' fees, sustained in connection with,
and Customer shall defend any suit and dispose of any claims or other
proceedings based on, an allegation that any product or service supplied by
Customer hereunder violates or infringes on any patent, copyright, trademark,
service mark, or other intellectual property right(s), whether such right(s) be
registered or unregistered.
7.3 Indemnification by Intira. Intira will defend, indemnify and hold
-------------------------
Customer harmless from and against all claims, liabilities, costs (including
reasonable attorneys' fees) and/or damages to or suffered
Initra Proprietary and Confidential
Page 4 of 10
<PAGE>
or incurred by Customer arising out of any material breach by Intira of this
Agreement or arising out of any gross negligence or wanton and willful
misconduct of Intira in connection with Intira's provision of Netsourcing
Services hereunder. Further, Intira shall indemnify Customer for any loss,
damage, costs, liability, and expenses, including reasonable attorneys' fees,
sustained in connection with, and Intira shall defend any suit and dispose of
any claims or other proceedings based on, any allegation that any product or
service supplied solely by Intira hereunder violates or infringes on any patent,
copyright, trademark, service mark, or other intellectual property right(s),
whether such right(s) be registered or unregistered. Intira's liability under
this Section shall be subject to and limited by the limitations on Intira's
liability imposed under Section 7.1 of this Agreement.
7.4 Force Majeure. Intira shall not be liable for any delay or failure to
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carry out the Netsourcing Services provided hereunder if such delay or failure
is due to any cause beyond the control of Intira, including without limitation,
restrictions of law, regulations, order or other governmental directives, labor
disputes, acts of God, explosions, fiber optic cable cuts, extreme storm, acts
of third party vendors or suppliers (to the extent not hired by or engaged by
Intira), or other similar events. If such Force Majeure event continues for
more than ten (10) consecutive days, Customer may terminate this Agreement for
Cause upon notice to Intira.
SECTION 8 - GENERAL
8.1 Governing Law Jurisdiction and Venue. This Agreement shall be governed
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in all respects by, and shall be construed and enforced in accordance with, the
laws of the State of New York, without regard to any rules governing conflicts
of laws. Any and all legal proceedings arising out of or relating to the subject
matter of this Agreement shall be brought and maintained only in the courts of
the State of New York or in the United States District Court for the Southern
District of New York, which courts shall have exclusive jurisdiction of such
proceedings, and the parties hereto hereby submit to the personal jurisdiction
of such courts with respect to all such proceedings.
8.2 Miscellaneous Provisions. This Agreement and each term hereof may only be
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amended in a writing signed by all the parties. No failure or delay on the part
of either party in exercising any right hereunder and no course of dealing
between the parties shall operate as a waiver of any provision hereof. In
conjunction with this Agreement, each party shall at all times comply with all
applicable federal, state, and local statutes, laws and orders of any commission
or other government body. This Agreement shall be governed by the laws of the
State of New York. This Agreement and its exhibits, attachments, and documents
incorporated herein comprise the complete and exclusive statement of the
agreement of the parties concerning the subject matter hereof, and supersede all
previous statements, representations, and agreements concerning the subject
matter hereof. If any part of this Agreement shall be invalid or unenforceable
under applicable law, said part shall be ineffective only to the extent of such
invalidity, without in any way affecting the remaining parts of said provision
or the remaining provisions of this Agreement, and the Customer and Intira agree
to negotiate with respect to any such invalid or unenforceable part to the
extent necessary to render such part valid and enforceable. Sections 7 and 8
shall survive the termination or expiration of this Agreement.
8.3 Notices. All notices given under this Agreement must be in writing and
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will be deemed effective when delivered in person or by a reputable next-day
courier, by facsimile or three (3) business days after being mailed via
certified mail, return receipt requested, to the appropriate address shown
below.
8.4 Successors and Assigns. This Agreement may not be assigned by either
----------------------
party without the prior consent of the non-assigning party, such consent not to
be unreasonably withheld. Notwithstanding the foregoing, either party shall
have the right to assign its rights and obligations under this Agreement without
obtaining the consent of the nonassigning party to an assignee who acquires all
or substantially all of the assets or capital stock of such party; provided,
however, Customer's right to so assign shall only apply if (a) Customer is not
in arrears with respect to any payment hereunder, and (b) such assignee of
Customer is not a competitor of or in a business substantially similar to the
business of Intira. This Agreement and all Exhibits thereto shall be binding
upon and shall insure to the benefit of the parties hereto and their respective
heirs, successors and permitted assigns.
IN WITNESS WHEREOF, the Parties set their hands to this Netsourcing
Services Agreement the date and year first above written.
digital broadcast network corporation
d/b/a INTIRA CORPORATION: PARTMINER, INC.:
By: /s/ Bernard Schneider By: /s/ Michael R. Manley
---------------------------------- ---------------------------------
Name: Bernard Schneider Name: Michael R. Manley
-------------------------------- -------------------------------
Title: President/CEO Title: Vice President
------------------------------- ------------------------------
977 Charter Commons 12/th/ Floor
Chesterfield, MO 63017 432 Park Avenue
ATTN: Controller New York, NY 10016
Telephone: (636) 733-3100 Telephone: (212) 725-8884
Fax: (636) 733-3199 Fax: (212) 592-5833
Intira Proprietary and Confidential
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<PAGE>
Exhibit B
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Intira Corporation
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SERVICE LEVEL AGREEMENT
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This is Exhibit B to the Netsourcing Services Agreement between the parties
and is incorporated by reference to such document.
Intira is committed to providing a scalable and highly available
netsourcing solution for PartMiner's mission-critical e-business application,
which is why Intira offers the following quality of service guarantees:
SITE AVAILABILITY GUARANTEE:
Intira guarantees that the PartMiner "Free Trade Zone" website will
function (excluding disruptions beyond Intira's control attributable to
PartMiner's Content), and will be available and accessible to the point
where it leaves Intira's network for 99.5% of the time within a given
calendar month and, as within a given calendar month. As set forth below,
Intira will credit PartMiner's account if Intira fails to meet this Site
Availability Guarantee. Each calendar month, Intira will calculate the
exact time that the PartMiner "Free Trade Zone" website is unavailable to
PartMiner's website visitors ("End Users"). The site shall be considered
"unavailable" for that period of time consisting of the number of minutes
that the site was not available to PartMiner's End Users, but will not
include unavailability resulting from (a) scheduled Intira network or
server maintenance (described in Section 2.1(a) of the Netsourcing Services
Agreement to which this Exhibit is attached and in which this Exhibit is
incorporated) (b) any PartMiner-owned or-ordered telephone company
circuits, (c) PartMiner's application(s), equipment, or facilities, (d)
acts or omissions of PartMiner or any authorized users, agents or
employees, (e) reasons of Force Majeure (as defined in the applicable
service agreement), (f) any network access or related problems beyond
Intira's reasonable control, or (g) any equipment owned or licensed by
PartMiner and collocated with Intira, the maintenance, monitoring, and
support for which Intira is not responsible, in whole or in part, including
but not limited to those certain DEC Alpha servers to be collocated in
Intira's New York Data Center facility under separate agreement. For each
cumulative fifteen (15) minute period in excess of such 99.5% average that
the PartMiner site is not available in a given calendar month during the
hours of 9:00 a.m. through 8:00 p.m. Eastern Standard Time (the "North
American Business Day"), PartMiner's account shall be credited for two days
(2/30/th/) of the Monthly Service Fee (as defined in Exhibit C to the
Netsourcing Services Agreement) for such month. For each cumulative
fifteen (15) minute period in excess of the 99.5% average that the
PartMiner site is not available in a given calendar month outside of the
hours of the North American Business Day, PartMiner's account shall be
credited for one day (1/30/th/) of the Monthly Service Fee for such month
(as defined in Exhibit C to the Netsourcing Services Agreement)
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NETWORK SERVICES
LATENCY GUARANTEE:
Intira guarantees to have an average round-trip transmission of 85
milliseconds or less between Intira-designated transit backbone routers
("Hub Routers") in the contiguous U.S. Latency shall be measured by Intira
by averaging five (5) minute sample measurements taken during a 12 hour
period beginning at 6:00 a.m. - 6:00 p.m. and 6:00 p.m. - 6:00 a.m. between
Hub Routers. Each month's network performance statistics relating to the
Latency Guarantee shall be posted on Intira's webpage or provided to
PartMiner upon request.
If Intira fails to meet this Latency Guarantee in two consecutive calendar
months, PartMiner's account shall be credited for the part of the Monthly
Services Fee applicable to PartMiner's network access services for that
month and any month thereafter in which the Latency Guarantee is not met.
Intira shall credit PartMiner for such portion of the Monthly Service Fee
(as defined in Exhibit C to the Netsourcing Services Agreement) for the
network access services provided by Intira for the service with respect to
which this Latency Guarantee has not been met. No credits will be made if
failure to meet the Latency Guarantee is attributable to (a) scheduled
Intira Network maintenance, (b) any PartMiner-owned or -ordered telephone
company circuits, (c) PartMiner's application(s), equipment, or facilities,
(d) acts or omissions of PartMiner, or any authorized PartMiner user, agent
or employee, (e) reasons of Force Majeure (as defined in the Netsourcing
Services Agreement), or (g) any equipment owned or licensed by PartMiner
and collocated with Intira, the maintenance, monitoring, and support for
which Intira is not responsible, in whole or in part, including but not
limited to those certain DEC Alpha servers to be collocated in Intira's New
York Data Center facility under separate agreement.
PROVISIONING GUARANTEE:
BACKBONE
Intira guarantees to maintain backbone provisioning guidelines to ensure
that Intira properly plans for backbone growth by scaling the backbone
network inter-switched trunk facilities once a sustained utilization of 40%
for a continuous three (3) day period is reached. Backbone provisioning
shall be measured by taking each individual point-to-point trunk on
Intira's backbone and averaging five (5) minute sample measurements taken
during a calendar month from each such backbone point to point trunk.
Intira will aggregate and average all of the sample measurements to
determine an average sustained usage rate of Intira's backbone network.
When the average sustained usage rate exceeds 40% and confirmation that no
extraordinary traffic traversed the backbone network during the sample test
period, Intira shall order additional service to scale Intira's backbone
network to the next level. Currently, Intira's network consists of DS3 and
OC3 - level circuitry, and is fully scalable by Intira.
INTERNET DRAINS
Intira guarantees to properly maintain peering points with Internet
providers (hereinafter "Internet drains"), and provisioning guidelines with
respect therewith, to ensure that Intira plans for Internet drain growth by
scaling the Internet drain network at a 40% average sustained usage rate of all
available Intira Internet drains. Intira's Internet drain provisioning shall be
measured by taking each individual carrier's Internet drain port on Intira's
backbone and averaging five (5) minute sample measurements taken during a
calendar month from each such port. Intira will aggregate and average all of the
carriers' sample measurements to determine the
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average aggregate sustained usage rate of Intira's Internet drains. When this
average sustained usage rate exceeds 40% of all available Intira Internet
drains, Intira shall order additional service to scale Intira's network to the
next level.
RECOVERY SERVICES GUARANTEE:
Intira guarantees to begin the restoration of any file systems or data that
are deleted utilizing Intira back-up and recovery services within thirty
(30) minutes after a properly identified and confirmed restoration inquiry
is received from PartMiner or its duly-authorized representative. Intira
will credit PartMiner's account if Intira fails to meet this Recovery
Service Guarantee. Intira will calculate the time within a given calendar
month that Intira has failed to begin to restore the lost data within such
thirty (30) minute period, not including unavailability resulting from (a)
scheduled Intira Network or server maintenance, (b) any PartMiner-owned or
-ordered telephone company circuits, (c) PartMiner's application(s),
equipment, or facilities, (d) acts or omissions of PartMiner, or any (e)
data that has been deleted for 30 days or greater, or (f)authorized
PartMiner user, agent or employee, or (g) reasons of Force Majeure (as
defined in the applicable service agreement). For each thirty (30) minutes
in excess of the thirty (30) minute period that Intira failed to begin to
restore the data, in any calendar month, PartMiner's account shall be
credited for the pro-rated charges equal to one day (1/30/th/) of the
Intira monthly back-up fee (as defined in the applicable service
agreement).
GENERAL SERVICES
REPORTING GUARANTEE:
Intira guarantees to notify PartMiner within fifteen (15) minutes
after Intira's determination that PartMiner's Network Service is
unavailable. Intira's standard procedure is to ping PartMiner's router
or Intira-managed server every five (5) minutes and system response
verification test as appropriate and if PartMiner's router does not
respond after two consecutive five-minute ping cycles, Intira will
deem the service unavailable and will contact PartMiner's designated
point of contact by a method mutually agreed to by the parties. This
Reporting Guarantee is applicable only if PartMiner provides all
PartMiner information and contact forms to Intira reasonably requested
by Intira. PartMiner is solely responsible for providing Intira
accurate and current contact information for PartMiner's designated
points of contact. Intira will be relieved of its obligations under
this Reporting Guarantee if Intira's contact information for PartMiner
is out of date or inaccurate due to PartMiner's action or omission or
if Intira's failure is due to reasons of Force Majeure (as defined in
the Netsourcing Services Agreement); provided, however, the parties
acknowledge that PartMiner's notice under this Netsourcing Service
Level Agreement shall be sufficient to satisfy PartMiner's requirement
to provide up-to-date contact information. For each instance in a
given calendar month that Intira fails to meet this Reporting
Guarantee, PartMiner's account shall be credited the pro-rated charges
for two (2) days of the Intira monthly fee for the service with
respect to which this Guarantee has not been met; provided that
PartMiner may obtain no more than one (1) credit per day, irrespective
of how often in that day Intira failed to meet the Reporting
Guarantee.
Intira Proprietary and Confidential
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<PAGE>
ON-TIME INSTALLATION GUARANTEE:
Intira guarantees to have installation of all infrastructure including,
without limitation, hardware, operating software, Intira installed
software, firewalls, applications, routers, and network circuits completed
on or before FEBRUARY 28, 2000 ("Installation Date"). This ON-TIME
INSTALLATION GUARANTEE is not available for PartMiner telephone company
circuits, or if installation delay is attributable to such circuits,
PartMiner equipment (PartMiner owned gear), PartMiner's facility, acts or
omissions of PartMiner, its employees or agents, or reasons of Force
Majeure (as defined in the applicable service agreement). If Intira
fails to meet this ON-TIME INSTALLATION GUARANTEE, PartMiner's account
shall be credited in the amount of $Ten Thousand Dollars ($10,000) per day
for each calendar day beginning the day after the Installation Date until
such time as Intira has completed its installation obligations under this
Agreement. To the extent possible, such amounts shall first be credited
against any amounts owed by PartMiner under this Netsourcing Services
Agreement. This On-Time Installation Guaranty shall become effective on
the date upon which the Netsourcing Services Agreement becomes executed by
all the parties, regardless of whether the Netsourcing Services Term has
commenced and notwithstanding any restriction imposed under the Netsourcing
Services Agreement or this Service Level Agreement with regard to the
"Stabilization Period". Notwithstanding anything to the contrary, Intira
shall not be considered in violation of this On-time Installation Guaranty
if Intira's failure to install the hardware, operating software, Intira
installed software, firewalls, applications, routers, and network circuits
on or before the Installation Date is the result of PartMiner's failure to
properly install or maintain any equipment collocated by PartMiner with
Intira, the maintenance, monitoring, and support for which Intira is not
responsible, in whole or in part, including without limitation the certain
DEC Alpha servers to be so collocated. Further, Intira shall not be
considered to have violated this On-time Installation Guaranty if Intira's
failure to meet the Installation Date is the result of changes to the
Netsourcing configuration instituted or requested by PartMiner.
MAXIMUM CREDIT AVAILABLE:
Except with respect to the On-Time Installation Guaranty, notwithstanding
anything to the contrary, the maximum amount of any credit in any calendar
month under this SLA and under any service agreement, shall not exceed the
monthly fee and/or installation charge which, absent the credit, would have
been charged for Intira service that month ("Maximum Intira Fees"). This
-------------------
SLA sets forth PartMiner's sole remedies for any claim relating to the
service or the Intira network, except as otherwise specifically agreed to
in writing by an authorized officer of Intira or as otherwise set forth in
the Netsourcing Services Agreement.
CREDIT CLAIM PROCEDURE:
Any disputed credits issued under this SLA must be submitted by PartMiner
to Intira within sixty (60) days of the end of the month in which the
disputed credits are attributable. The claim must include sufficient
detailed information describing Intira's failure to properly credit
PartMiner's account under this SLA. Intira will acknowledge all claims
within 10 business days of receipt of such claim by PartMiner and Intira
will notify PartMiner at such time whether such claim includes sufficient
detail or whether, in Intira's reasonable view, more detail is needed
before Intira can evaluate such claim. If Intira notifies PartMiner that
more detail is needed, PartMiner shall have thirty (30) days after such
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<PAGE>
notice to provide such detail. PartMiner will be informed in writing
whether any adjustment to the credit will be given.
EFFECTIVE DATE:
This SLA is effective as of March 3, 2000, and shall only become applicable
to the Netsourcing Services upon completion of the Stabilization Period,
which shall be a period of sixty (60) days beginning on such effective
date.
Intira Proprietary and Confidential
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<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Amendment No. 1 to the Registration
Statement on Form S-1 of our report dated February 16, 2000, except for
paragraph 1 of Note 15 for which the date is April 4, 2000, relating to the
consolidated financial statements and financial statement schedules of
PartMiner, Inc., which appear in such Registration Statement. We also consent
to the references to us under the heading "Experts" in such Registration
Statement.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
New York, New York
April 4, 2000
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Amendment No. 1 to the Registration
Statement on Form S-1 of our report dated November 12, 1999, relating to the
combined financial statements of Accurate Components Inc. and Affiliate, which
appear in such Registration Statement. We also consent to the references to us
under the heading "Experts" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
New York, New York
April 4, 2000
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Amendment No. 1 to the Registration
Statement on Form S-1 of our report dated January 14, 2000, relating to the
combined financial statements of IQXpert Holdings Inc. and Affiliate, which
appear in such Registration Statement. We also consent to the references to us
under the heading "Experts" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
New York, New York
April 4, 2000
