<PAGE>
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 16, 2000
REGISTRATION NO. 333-94337
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
PARTSBASE.COM, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
TEXAS 7379 76-0604158
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
------------------------
7171 N. FEDERAL HIGHWAY, SUITE 100
BOCA RATON, FL 33487
(561) 443-3302
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------------
ROBERT A. HAMMOND, JR.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
PARTSBASE.COM, INC.
7171 N. FEDERAL HIGHWAY, SUITE 100
BOCA RATON, FL 33487
(561) 443-3302
(Name and address, including zip code, and telephone number, including area
code, of agent for service)
------------------------------
Copies to:
<TABLE>
<S> <C>
ROBERT M. STEINBERG, ESQ. JEFFREY R. HOULE, ESQ.
JEFFER, MANGELS, BUTLER & MARMARO LLP DANIEL S. BERGER, ESQ.
2121 AVENUE OF THE STARS, 10TH FLOOR GREENBERG TRAURIG, LLP
LOS ANGELES, CALIFORNIA 90067 1750 TYSONS BOULEVARD, SUITE 1200
(310) 203-8080 MCLEAN, VA 22102
FAX (310) 203-0567 (703) 749-1300
FAX (703) 749-1301
</TABLE>
------------------------------
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,
check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. /X/
Pursuant to Rule 416, there are also being registered hereby such additional
indeterminate number of shares of such Common Stock as may become issuable by
reason of stock splits, stock dividends and similar adjustments as set forth in
the provisions of the Representative's Warrant. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C>
5,623,750 shares Common Stock, no par value (2)............. $73,108,750 $19,300.72
1 Representatives' Warrant.................................. $50.00
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
(2) Consists of (i) 3,500,000 shares to be offered by the Registrant,
(ii) 525,000 shares subject to the underwriters' over-allotment option,
(iii) 262,500 shares issuable upon exercise of the Representatives' Warrant,
and (iv) 1,336,250 shares issuable upon conversion of outstanding
convertible promissory notes and Series A convertible preferred stock which
are being registered on behalf of the holders thereof but which are not
being underwritten.
------------------------------
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 THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SECTION 8(a), MAY DETERMINE.
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<PAGE>
EXPLANATORY NOTE
This registration statement contains two prospectuses.
The first prospectus forming a part of this Registration Statement is to be
used in connection with the underwritten initial public offering of 4,025,000
shares of the Registrant's common stock (including 525,000 shares of common
stock subject to the underwriters' over-allotment option), and immediately
follows this page.
The second prospectus forming a part of this Registration Statement is to be
used in connection with the sale from time to time by certain stockholders of
(i) 481,250 shares of common stock issuable upon the automatic conversion of
convertible promissory notes, and (ii) 855,000 shares of common stock issuable
upon the automatic conversion of Series A convertible preferred stock.
The second prospectus will consist of (i) pages SS-1 and SS-2 (the front
cover page and inside front cover page of the second prospectus), (ii) pages 3
through 48 of the first prospectus (other than the sections entitled "Use of
Proceeds" and "Underwriting") and pages F-1 through F-18 of the first
prospectus, (iii) page SS-5 (which will appear in place of the section entitled
"Underwriting"), (iv) pages SS-3 and SS-4, and (v) page SS-6 (which is the back
cover page of the second prospectus).
<PAGE>
THE INFORMATION IN THIS PRELIMINARY 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 IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
SUBJECT TO COMPLETION, DATED MARCH , 2000
PROSPECTUS
PARTSBASE.COM [LOGO]
3,500,000 SHARES OF COMMON STOCK
$ PER SHARE INITIAL PUBLIC OFFERING PRICE
PartsBase.com, Inc. is offering 3,500,000 shares of its common stock in an
initial public offering. Prior to this initial public offering, there has been
no public market for our common stock. We expect our initial public offering
price to be between $11.00 and $13.00 per share. [Our common stock has been
approved for listing on the Nasdaq National Market under the symbol "PRTS."]
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING
ON PAGE 7 FOR RISKS THAT YOU SHOULD CONSIDER BEFORE INVESTING IN THE SHARES OF
OUR COMMON STOCK.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY
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.
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- --------
<S> <C> <C>
Initial public offering price............................... $ $
Underwriting discounts and commissions...................... $ $
Proceeds, before expenses, to PartsBase.com................. $ $
</TABLE>
We have granted the underwriters a 45-day option to purchase up to an
additional 525,000 shares of common stock to cover over-allotments. The
underwriters expect to deliver shares of common stock to purchasers on or about
, 2000.
ROTH CAPITAL PARTNERS, INC.[LOGO] PENNSYLVANIA MERCHANT GROUP [LOGO]
The date of this prospectus is , 2000.
<PAGE>
The inside front cover includes:
THE E-COMMERCE MARKETPLACE FOR THE AVIATION INDUSTRY.
[A PICTURE OF THE PARTSBASE.COM WEB SITE'S HOME PAGE]
[A PICTURE OF THE PARTSBASE.COM WEB SITE'S PARTS SEARCH PAGE]
with the following text to the right of the picture:
THE PARTS YOU NEED @ YOUR FINGERTIPS!
- 24 hour global services
- Multiple search options
- Remote inventory management
[A PICTURE OF THE PARTSBASE.COM WEB SITE'S PARTS SEARCH RESULTS PAGE]
The inside back cover includes:
[A PICTURE OF THE PARTSBASE.COM WEB SITE'S AUCTION PAGE]
with the following text to the left of the picture:
XCHANGEBASE
- Auction off excess inventory
- Purchase at the lowest available price
[A PICTURE OF THE PARTSBASE.COM WEB SITE'S JOB SEARCH PAGE]
with the following text to the right of the picture:
JOBSBASE
- Find a job in the aviation industry
- Find the right employee
[A PICTURE OF THE PARTSBASE.COM WEB SITE'S AIRCRAFT SEARCH PAGE]
with the following text to the left of the picture:
AIRCRAFTSALESBASE
- Buy, sell and trade aircraft
At the bottom center of the inside back cover is the following text:
http://www.partsbase.com/
<PAGE>
TABLE OF CONTENTS
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<S> <C>
Prospectus Summary.......................................... 3
Risk Factors................................................ 7
Use of Proceeds............................................. 15
Dividend Policy............................................. 15
Capitalization.............................................. 16
Dilution.................................................... 17
Selected Financial Data..................................... 18
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 19
Business.................................................... 22
Management.................................................. 32
Certain Relationships and Related Transactions.............. 39
Principal Stockholders...................................... 40
Description of Capital Stock................................ 42
Shares Eligible for Future Sale............................. 45
Plan of Distribution........................................ 46
Legal Matters............................................... 48
Experts..................................................... 48
Where You Can Find More Information......................... 48
Index to Financial Statements............................... F-1
</TABLE>
"PARTSBASE" is a registered trademark of PartsBase. We have applied for
federal trademark registration for "PARTSBASE.COM". All other trademarks or
service marks appearing in this prospectus are the property of their respective
holders.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROSPECTUS
AND MAY NOT CONTAIN ALL THE INFORMATION THAT IS IMPORTANT TO YOU. TO UNDERSTAND
OUR BUSINESS AND THIS OFFERING FULLY, YOU SHOULD READ THIS ENTIRE PROSPECTUS
CAREFULLY, INCLUDING THE FINANCIAL STATEMENTS AND THE RELATED NOTES BEGINNING ON
PAGE F-1. YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS.
WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM
THAT CONTAINED IN THIS PROSPECTUS.
OUR BUSINESS
PartsBase.com is an online provider of Internet business-to-business
e-commerce services for the aviation industry. Our global e-commerce
marketplace, sometimes referred to as our "e-marketplace" or our "solution,"
provides a means for our over 13,000 members in more than 115 countries to buy
and sell new, used and overhauled aviation parts and products in an efficient,
competitive and cost-effective manner. We estimate that our e-marketplace
utilizes a database of approximately 1,200 suppliers, which we believe
constitutes one of the largest independent databases of inventory and
information in the aviation industry. Current members of our e-commerce
marketplace include Boeing, Honeywell, Federal Express, Pratt & Whitney,
Northrup Grumman Aviation and United Parcel Service.
The worldwide market for aviation parts and products is highly fragmented
and includes many types of suppliers, such as airlines, original equipment
manufacturers, also known as OEMs, numerous independent distributors, on-site
airport maintenance providers, also known as fixed base operators, Federal
Aviation Administration certified facilities, traders and brokers. Aerospace
Industries Association estimates that total exports and imports of aircraft
parts and products were approximately $29 billion in 1999. Furthermore, in
recent years, the airline industry has experienced rapid growth in business and
leisure travel. As a result, the world fleet of aircraft is projected to
increase from 12,600 aircraft in 1998 to 28,400 aircraft in 2018, according to
Boeing's 1999 Current Market Outlook. The increase in travel and the number of
aircraft have likely contributed to demand for aviation parts and products as
aircraft must be serviced at scheduled intervals. In addition, management
believes that as the age of the world fleet of aircraft increases, demand for
new, used and overhauled parts and products may increase. Forrester Research
estimates that the business-to-business e-commerce market will grow from
$43 billion in 1998 to $1.3 trillion by 2003.
Our goal is to solidify a position as a leading aviation industry e-commerce
marketplace in order to capitalize on the continued expansion of the market for
aviation parts and products. Our solution takes advantage of the growth,
pervasiveness, low costs and community building nature of the Internet as a
basis for e-commerce for the broad, highly fragmented aviation industry. We
believe that the value of our e-marketplace grows substantially as each new
member brings additional parts, products, information and buying power to our
community.
OUR SOLUTION
Our solution is designed to streamline the procurement cycle for our members
by enabling them to source, bid parts and products, and eventually manage their
order payment online. Our target members are primarily the businesses that buy
and sell aviation parts, supplies and components in the global marketplace, and
our current members vary from small businesses to Fortune 500 companies such as
General Electric, Honeywell, AMR and Boeing. We have designed our e-marketplace
to meet the needs of these customers and their industry. With a standard
Internet connection, a Web browser and a PartsBase.com membership, each of our
e-marketplace members can immediately participate as both a buyer and a seller.
Our e-marketplace is designed to provide advantages over traditional
procurement processes, including:
- reduced procurement costs;
3
<PAGE>
- more efficient pricing and improved access to sellers for buyers;
- ability to locate the most geographically desirable parts;
- expanded distribution opportunities for sellers; and
- ease of use and better access to information.
Our current Web site features include:
- online buying and selling utilizing advanced parts search features,
inventory listings, and requests for quotations, also known as RFQs,
member access to detailed information regarding current transactions;
- online auctions for aviation parts and products;
- procurement controls providing members with the ability to monitor
corporate purchasing; and
- community-building information such as industry job and aircraft sales
listings, as well as links to members and other industry Web sites.
In addition, we have recently signed an agreement with Tradex
Technologies, Inc., a subsidiary of Ariba, Inc., to install and implement
customized software that will allow for seamless online transactions. We have
also contracted with Trading Dynamics, Inc., another subsidiary of Ariba, Inc.,
to provide software for our auction platform. We expect that this transaction
software will further enable online negotiating, pricing and bidding, as well as
allow us to act as a clearing house for products, and to allow our members to
complete their transactions online.
We have a limited operating history, have limited revenues and have never
been profitable. In 1999, we generated revenues of $362,224 and incurred a net
loss attributable to holders of common stock of $7,815,409.
OUR BUSINESS STRATEGY
Our objective is to establish our e-marketplace as the preferred aviation
industry business-to-business e-commerce solution. The key elements of our
strategy include:
- Achieving growth through transaction fees and other sources of
revenues;
- Strengthening the PartsBase.com brand;
- Increasing membership and market penetration;
- Establishing and expanding strategic sales and marketing relationships;
- Expanding our international presence; and
- Attracting and retaining members with new content, features and
services.
The successful implementation of our strategy will be subject to many risks
and will depend on many factors, including but not limited to the continued
growth and acceptance of e-commerce in the aviation industry as a whole, and the
acceptance of our business model in particular. We may be adversely affected by
a variety of risks and difficulties. For a detailed description of these risks,
please refer to the "Risk Factors" section contained in this prospectus.
OUR HISTORY
We began operations in April 1996 under the name Aviation Parts Base, a
division of Aviation Laboratories, Inc. While our Web site was operational in
1996, we did not begin charging subscription fees until November 1998. In
April 1999, the assets of the division were conveyed to Robert A. Hammond, Jr.
in connection with the sale of Mr. Hammond's equity interest in Aviation
Laboratories, Inc. On April 27, 1999, Mr. Hammond transferred the assets of the
division into and incorporated PartsBase.com, Inc. as a Texas corporation. Our
headquarters are located at 7171 N. Federal Highway, Boca Raton, Florida 33487
and our telephone number is (561) 443-3302. Our Web site address is
WWW.PARTSBASE.COM. The information contained on our Web site is not a part of
this prospectus.
4
<PAGE>
THE OFFERING
Unless otherwise indicated, the following information assumes that the
underwriters do not exercise the over-allotment option to purchase up to 525,000
additional shares in the offering and reflects the automatic conversion of all
outstanding shares of preferred stock and all outstanding convertible notes into
shares of our common stock upon completion of this offering.
<TABLE>
<S> <C>
COMMON STOCK OFFERED BY US................... 3,500,000 shares
COMMON STOCK OUTSTANDING AFTER THIS 14,087,500 shares (1)
OFFERING...................................
USE OF PROCEEDS.............................. We intend to use substantially all the
proceeds of this offering for general
corporate purposes, including working
capital, information technology, expansion of
sales and marketing activities and possible
acquisitions. We may also use a portion of
the net proceeds for the development of
business-to-business e-commerce solutions for
other industries.
SHARES BEING REGISTERED FOR THE ACCOUNT OF
EXISTING STOCKHOLDERS...................... An additional 1,336,250 shares are being
registered pursuant to the registration
statement of which this prospectus is a part
on behalf of the existing stockholders
identified in the registration statement.
These shares may not be sold, transferred or
assigned without the consent of the
underwriters during the 180 day period
following the effective date of this
offering. These shares are not being
underwritten by the underwriters and we will
not receive any of the proceeds from their
sale.
</TABLE>
- ------------------------
(1) Excludes:
- 175,000 shares issuable upon exercise of outstanding stock purchase
warrants;
- 2,000,000 shares reserved for issuance under our stock option plan, under
which options to acquire 987,875 shares are outstanding as of the date of
this prospectus; and
- 262,500 shares of common stock issuable upon exercise of a stock purchase
warrant to be issued to Roth Capital Partners, Inc. and Pennsylvania
Merchant Group, the representatives of the underwriters, upon completion
of the offering at an exercise price equal to 165% of the initial public
offering price.
5
<PAGE>
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 1, 1996
(INCEPTION)
TO YEAR ENDED DECEMBER 31,
DECEMBER 31, ------------------------------------------
1996 1997 1998 1999
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenue............................................ $ -- $ 2,861 $ 3,504 $ 362,224
Cost of revenue........................................ 16,842 104,041 43,462 1,412,532
Noncash compensation expense........................... -- -- -- 1,799,139
---------- ---------- ---------- -----------
Total cost of revenue.................................. 16,842 104,041 43,462 3,211,671
---------- ---------- ---------- -----------
Gross loss............................................. (16,842) (101,180) (39,958) (2,849,447)
Operating expenses
General and administrative........................... 55,064 90,452 108,163 1,293,091
Noncash compensation expense......................... 899,821
---------- ---------- ---------- -----------
Total operating expenses........................... 55,064 90,452 108,163 2,192,912
---------- ---------- ---------- -----------
Operating loss..................................... (71,906) (191,632) (148,121) (5,042,359)
Other income (expense)
Interest expense..................................... -- -- -- (881,652)
Interest income...................................... -- -- -- 10,977
-----------
Total other income (expense)....................... -- -- -- (870,675)
---------- ---------- ---------- -----------
Net loss (1)....................................... (71,906) (191,632) (148,121) (5,913,034)
Value of preferred stock beneficial conversion
feature.......................................... -- -- -- (1,902,375)
---------- ---------- ---------- -----------
Net loss applicable to common stockholders......... $ (71,906) $ (191,632) $ (148,121) $(7,815,409)
========== ========== ========== ===========
Net loss per common share--basic and diluted (1)....... $ (0.84)
Weighted average common shares outstanding--basic and
diluted.............................................. 9,251,250
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
-------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
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<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 735,276 $ 735,276 $37,995,276
Working capital (deficit)................................... (687,172) (687,172) 36,572,828
Total assets................................................ 4,729,295 2,955,517 40,215,517
Convertible notes payable................................... 962,500 -- --
Total stockholders' equity.................................. 1,541,916 730,638 38,953,138
</TABLE>
The pro forma balance sheet data gives effect to the mandatory conversion of
all outstanding convertible notes into common stock under the terms of the
June 9, 1999 private placement, the mandatory conversion of the convertible
notes issued on November 10, 1999, and the issuance and mandatory conversion of
outstanding convertible preferred stock into common stock. Additionally, the pro
forma as adjusted balance sheet data gives effect to the sale of 3,500,000
shares of our common stock at an assumed initial public offering price of $12.00
per share after deducting underwriters discounts and commissions and estimated
offering expenses.
- ------------------------
(1) Since we have incurred net losses since inception, we would not have
incurred any income tax liabilities during the periods prior to
incorporation on April 27, 1999, and any deferred tax assets would have had
a corresponding valuation allowance and therefore pro forma presentation is
not required.
6
<PAGE>
RISK FACTORS
You should carefully consider the following risks, in addition to the other
information contained in this prospectus, before making any investment decision.
As a result of any of the risks we encounter, our business, financial condition
and results of operations could be materially adversely affected. In addition,
any of these adverse effects could cause the trading price of our common stock
to decline and you may correspondingly lose all or some portion of your
investment.
RISKS RELATED TO OUR BUSINESS
WE CANNOT PREDICT OUR SUCCESS BECAUSE OUR BUSINESS MODEL IS UNPROVEN AND WE HAVE
OPERATED OUR BUSINESS FOR ONLY A SHORT PERIOD OF TIME.
Our business model is new to the aviation industry and our ability to
generate revenues or profits is unproven. We have a limited operating history,
which will make it difficult for you to evaluate our performance. Our prospects
will be dependent upon our ability to effectively implement our business model
and adapt to changes in the business-to-business e-commerce market. If our
business model is not viable or if we are unable to identify and address changes
in our markets, we will not be able to grow our business, compete effectively or
achieve profitability. These factors could cause our stock price to fall
significantly.
WE PRIMARILY RELY ON REVENUE FROM SUBSCRIPTIONS AND WE MAY NOT BE ABLE TO
SUCCESSFULLY EXPAND OUR MEMBERSHIP BASE OR ESTABLISH ADDITIONAL REVENUE SOURCES.
We currently generate revenues from e-commerce customers in the aviation
industry who subscribe to our service. Our success will be dependent on our
ability to expand our membership base within the aviation industry. While we
have experienced increases in our subscriber base, there can be no assurance
that our recent growth in subscriber base can be continued. In addition, our
success will depend on our ability to generate additional revenues through the
introduction of a transaction-based model and/or the expansion into new markets
and industries. We cannot assure you that we will be successful in any efforts
to generate additional revenues.
WE HAVE NEVER BEEN PROFITABLE, ANTICIPATE CONTINUED LOSSES AND CANNOT GUARANTEE
PROFITABILITY IN THE FUTURE, AND THEREFORE YOUR INVESTMENT CANNOT BE VALUED ON
THE BASIS OF OUR EARNINGS.
We have never been profitable and expect to continue to incur operating
losses on both a quarterly and annual basis for the foreseeable future. We may
be unable to ever achieve profitability in the future. We have incurred net
losses in each accounting period since we began operations in April 1996,
including a net loss attributable to holders of common stock of $7,815,409 for
the year ended December 31, 1999. We expect to continue to make significant
expenditures for sales and marketing, information technology and general and
administrative functions. As a result, we will need to generate significant
revenues to achieve profitability. There can be no assurance that our revenues
will grow in the future or that we will achieve sufficient revenues for
profitability. If our revenues grow more slowly than we anticipate, or if our
operating expenses exceed our expectations, our business would be severely
harmed.
WE RECEIVE SUBSTANTIALLY ALL OF OUR REVENUE FROM PARTICIPANTS IN THE AVIATION
INDUSTRY, SO A DOWNTURN IN THE AVIATION INDUSTRY COULD DAMAGE OUR BUSINESS.
We receive substantially all of our revenue from members associated with the
aviation industry, and we expect these revenues will account for substantially
all of our revenues for the foreseeable future. Our dependence on members
associated with the aviation industry makes us vulnerable to downturns in that
industry. A downturn could lead our members to reduce their level of activity on
our e-marketplace and cause some to cancel their subscription.
7
<PAGE>
INTENSE COMPETITIVE PRESSURES IN THE BUSINESS-TO-BUSINESS E-COMMERCE MARKET MAY
IMPEDE OUR ABILITY TO ESTABLISH A SUBSTANTIAL MARKET SHARE THAT WOULD ALLOW US
TO BE PROFITABLE.
The business-to-business e-commerce market is new, rapidly evolving, and
intensely competitive, and we expect competition to further intensify in the
future. Barriers to entry are minimal, and competitors may develop and offer
services similar to ours in the future. We expect that additional companies will
offer competing e-commerce solutions in the future, and our business could be
severely harmed if we are not able to compete successfully against current or
future competitors. In addition, our members and partners may become competitors
in the future.
Increased competition is likely to result in price reductions, reduced gross
margins and/or loss of market share, any of which could harm our business. Our
actual and potential competitors vary in size and in the scope and breadth of
the services they offer.
IF WE FAIL TO EFFECTIVELY MANAGE OUR RAPIDLY EXPANDING OPERATIONS AND THE
INCREASING USE OF OUR SERVICES, WE MAY LOSE MEMBERS OR INCUR SIGNIFICANT
EXPENSES.
Our success depends on effective planning and growth management. We will
need to continue to improve our financial and managerial controls, reporting
systems, and procedures, and we will need to continue to expand, train and
manage our workforce. We continue to increase the scope of our operations and we
have grown our workforce substantially. Our rapid growth has placed, and will
continue to place, a significant strain on our management and operational
systems and resources. If we do not successfully implement and integrate these
new systems or if we fail to scale these systems to our growth, the performance
of our Web site may suffer which would cause us to lose members. In addition,
any failure could make us unable to operate with adequate, accurate and timely
financial and operational information which could result in us incurring
unnecessary and possibly damaging expenses.
FUTURE GROWTH OF OUR OPERATIONS MAY MAKE ADDITIONAL CAPITAL OR FINANCING
NECESSARY, SO YOU MAY BECOME SUBJECT TO DILUTION OF YOUR INVESTMENT AND YOUR
RIGHTS AS A STOCKHOLDER MAY BE SUBORDINATED TO OTHER INVESTORS.
We anticipate that the proceeds of this offering, cash on hand and cash
equivalents will be adequate to meet our working capital needs for at least the
next 12 months. However, beyond that period, we may need to raise additional
funds in order to:
- finance unanticipated working capital requirements;
- develop or enhance existing services or products;
- fund costs associated with strategic marketing alliances;
- respond to competitive pressures; and
- acquire complementary businesses, technologies, content or products.
We cannot be certain that we will be able to obtain needed funds on
favorable terms, if at all. If we decide to raise funds by issuing additional
equity securities, purchasers in this offering may experience additional
dilution. Issuance of additional equity securities may also involve granting
preferences or privileges ranking senior to those purchasers in this offering.
WE MAY BE UNABLE TO OBTAIN SUFFICIENT FUNDS TO EFFECTIVELY OPERATE OUR BUSINESS
WHICH COULD DAMAGE OUR COMPETITIVE POSITION.
In the rapidly evolving and highly competitive e-commerce industry, our
future prospects will depend heavily on our ability to take advantage of new
business opportunities and respond to technological developments. There can be
no assurances that we will have sufficient capital resources to
8
<PAGE>
respond to business opportunities, technological advancements and competitive
pressures. A lack of capital resources could seriously damage our competitive
position and prospects.
BECAUSE OUR REVENUE IS DERIVED FROM PROVIDING E-MARKETPLACE ACCESS TO
SUBSCRIBERS FOR AN ANNUAL SUBSCRIPTION FEE, THE CANCELLATION OR NON-RENEWAL OF
THESE SUBSCRIPTIONS WOULD HURT OUR BUSINESS.
We have generated substantially all of our revenues to date through member
subscription fees for access to our e-marketplace. Generally, our subscription
fees are paid on an annual basis, and these subscriptions may be terminated on
short-term notice. We have expended significant financial and personnel
resources and have expanded our operations on the assumption that our
subscribers will renew these annual subscriptions. We do not have a sufficiently
long history of operations to be able to predict renewal rates of our members.
If our members fail to continuously renew, or if they terminate, their
subscriptions, our revenues would be significantly reduced and our business
could suffer dramatically.
THERE IS A FINITE NUMBER OF POTENTIAL SUBSCRIBERS AND WE MAY BE UNABLE TO
DEVELOP OTHER MEANS OF GENERATING REVENUE, SO OUR GROWTH MAY BE LIMITED.
A major element of our growth strategy is the expansion of our subscriber
base. Our potential subscriber base is limited by the number of participants in
the aviation market. Additionally, the barriers to entry which exist in the
aviation market may limit the entry of additional subscribers into our
e-marketplace. Accordingly, the number of potential subscribers to our
e-marketplace is likely finite, in which case our revenues may be similarly
limited if we cannot generate revenue through other means.
IF OUR SELLERS DO NOT PROVIDE TIMELY, PROFESSIONAL AND LAWFUL DELIVERY OF
PRODUCTS TO OUR BUYERS, OUR MEMBERSHIP MAY DECREASE AND WE MAY HAVE LIABILITY.
We rely on our sellers to deliver purchased parts and products to our buyers
in a professional, safe and timely manner. If our sellers do not deliver the
parts and products to our buyers in a professional, safe and timely manner, then
our service will not meet customer expectations and our reputation and brand
will be damaged. In addition, deliveries that are nonconforming, late or are not
accompanied by information required by applicable laws or regulations, could
expose us to liability or result in decreased adoption and use of our solution,
which could have a negative effect on our business, results of operations and
financial condition.
WE CANNOT GUARD AGAINST HARM TO OUR BUSINESS FROM THE FRAUDULENT ACTIVITIES OF
THIRD PARTIES ON OUR WEB SITE.
Our future success will depend largely upon sellers reliably delivering and
accurately representing their listed products and buyers paying the agreed
purchase price. We do not take responsibility for the delivery of payment or
goods to any member. We have received in the past, and anticipate that we will
receive in the future, communications from members who did not receive the
purchase price or the products that were to be exchanged. While we can suspend
the privileges of members who fail to fulfill their delivery or payment
obligations, we do not currently have the ability to require sellers to deliver
products or buyers to make payments. We do not compensate members who believe
they have been defrauded by other members. Any negative publicity generated as a
result of fraudulent or deceptive conduct by members of our e-marketplace could
damage our reputation and diminish the value of our brand name. We may in the
future receive requests from members for reimbursement or threats of legal
action against us if no reimbursement is made. Any resulting litigation could be
costly for us, divert management attention, result in increased costs of doing
business, lead to adverse judgments, or otherwise harm our business.
9
<PAGE>
IF WE ARE UNABLE TO IMPLEMENT ADEQUATE MEASURES TO MAINTAIN THE VALUE OF OUR
INTELLECTUAL PROPERTY AND INTERNET DOMAIN NAME, OUR ABILITY TO COMPETE MAY BE
SEVERELY HARMED.
As an Internet company, our current and future copyrights, service marks,
trademarks, patents, trade secrets, domain name and similar intellectual
property, if any, are especially vital to our success. Despite our precautions,
unauthorized third parties may infringe or misappropriate our intellectual
property, copy portions of our services or reverse engineer or obtain and use
information that we regard as proprietary. Any infringement or misappropriation
of our intellectual property or proprietary information could make it difficult
for us to compete.
In addition, we currently hold various Internet Web addresses relating to
our network, including the domain name "PARTSBASE.COM." If we are not able to
prevent third parties from acquiring Web addresses that are similar to our
addresses, third parties could acquire similar domain names which could create
confusion that diverts traffic away from our e-marketplace to other competing
Web sites.
OTHER PARTIES MAY ASSERT CLAIMS AGAINST US THAT WE ARE INFRINGING UPON THEIR
INTELLECTUAL PROPERTY RIGHTS, WHICH COULD HARM OUR FINANCIAL CONDITION AND
ABILITY TO COMPETE.
We cannot be certain that our services do not infringe upon the intellectual
property rights of others. Because patent applications in the United States are
not publicly disclosed until the patent is issued, applications may have been
filed which relate to services similar to those offered by us. We may be subject
to legal proceedings and claims from time to time in the ordinary course of our
business, including claims of alleged infringement of the trademarks and other
intellectual property rights of third parties. If our services violate
third-party proprietary rights, we cannot assure you that we would be able to
obtain licenses to continue offering such services on commercially reasonable
terms, or at all. Any claims against us relating to the infringement of
third-party proprietary rights, even if not meritorious, could result in the
expenditure of significant financial and managerial resources and for
injunctions preventing us from distributing these services. Such claims could
severely harm our financial condition and ability to compete.
IF WE ARE UNABLE TO LICENSE THIRD-PARTY TECHNOLOGIES OR EFFECTIVELY INTEGRATE
THEM, WE MAY EXPERIENCE DELAYS IN DEVELOPMENT OR EXPANSION OF OUR BUSINESS.
The e-commerce market is rapidly evolving and we have and will depend on
third-party software and other technology for the effective operation of our Web
site and business. We may not be able to license or renew the license for these
technologies on terms favorable to us or at all. Our inability to obtain
necessary third-party licenses could delay the continued development of our
business and services which could result in a loss of members, slow our growth
and severely harm our business. In addition, even if we are able to license
needed technology, we may not be able to successfully integrate such technology
into our operations which could also result in a loss of members, slow our
growth and severely harm our business.
RISKS RELATED TO THE INTERNET AND E-COMMERCE INDUSTRIES
OUR GROWTH MAY BE IMPAIRED IF THE INTERNET IS UNABLE TO ACCOMMODATE GROWTH IN
E-COMMERCE.
Our success depends on the widespread use of and growth in the use of the
Internet for retrieving, sharing and transferring information among buyers and
sellers in the aviation parts market. If the Internet cannot accommodate growth
in e-commerce or experiences periods of poor performance, the growth of our
business may suffer. Our ability to sustain and improve our services is limited,
in part, by the speed and reliability of the networks operated by third parties.
Consequently, the emergence and growth of the market for our services is
dependent on improvements being made to the Internet infrastructure to alleviate
overloading and congestion. Additionally, the possible slow adoption of the
Internet as a means of commerce by businesses may harm our prospects.
10
<PAGE>
Even if the Internet is widely adopted as a means of commerce, the adoption
of our network for procurement, particularly by companies that have relied on
traditional means of procurement, will require broad acceptance of e-commerce
and online purchasing. In addition, companies that have already invested
substantial resources in traditional methods of procurement, or in-house
e-commerce solutions, may be reluctant to adopt our e-commerce solution, thus
impairing the growth of our member base and revenue potential.
THE SECURITY RISKS RELATED TO E-COMMERCE MAY CAUSE MEMBERS TO REDUCE THE USE OF
OUR SERVICES, AND ATTEMPTING TO GUARD AGAINST THESE RISKS MAY CAUSE US TO INCUR
SIGNIFICANT COSTS AND EXPENSES.
A fundamental requirement to conduct business-to-business e-commerce is the
secure transmission of information over public networks. If our members are not
confident in the security of e-commerce, they may not effect transactions on our
e-marketplace or renew their subscriptions, which would severely harm our
business. There can be no guarantee that advances in computer capabilities, new
discoveries in the field of cryptography, or other developments will not result
in the compromise or breach of the algorithms that we use to protect content and
transactions on our e-marketplace or proprietary information in our databases.
We may be required to incur significant costs to protect against security
breaches or to alleviate problems caused by breaches. Further, a well-publicized
compromise of security could deter people from using the Internet to conduct
transactions that involve transmitting confidential information. Our failure to
prevent security breaches, or well-publicized security breaches affecting the
Internet in general, could adversely affect the willingness of our members to
use our services.
IF OUR SELLERS FAIL TO PROVIDE TIMELY AND ACCURATE INFORMATION, OUR MEMBERSHIP
BASE AND POTENTIAL REVENUE MAY DECLINE.
Our members use our service in large part because of the comprehensive
breadth and accuracy of our databases. It is our responsibility to load seller
product information into our database and categorize the information for search
purposes. However, we are dependent on our sellers to provide us in a timely
manner with accurate, complete, and current information regarding inventory. If
our timely loading of this information is impaired, this could result in member
dissatisfaction and a loss of members.
WE MAY NOT BE ABLE TO KEEP UP WITH TECHNOLOGICAL ADVANCEMENTS, WHICH COULD
RESULT IN A LOSS OF MEMBERS AND HARM OUR ABILITY TO COMPETE.
The market for Internet commerce is characterized by rapid change, evolving
industry standards and the frequent introduction of new technological products
and services. The introduction of new technology, products, services or
standards may prove to be too difficult, costly or simply impossible to
integrate into our existing systems. Moreover, innovations could render obsolete
our existing or any future products and services. Our ability to remain
competitive will also depend heavily upon our ability to maintain and upgrade
our technology products and services. We must continue to add hardware and
enhance software to accommodate any increased content and use of our Web site.
If we are unable to increase the data storage and processing capacity of our
systems at least in pace with the growth in demand, our Web site may fail to
operate at an optimal level for unknown periods of time. As a relatively small
company in the market for Internet commerce, we will be in a position of
responding to technological changes rather than establishing them. Any
difficulty keeping pace with technological advancements could hurt our ability
to retain members and effectively compete.
11
<PAGE>
BECAUSE WE DO NOT MAINTAIN A REDUNDANT SYSTEM, ANY SYSTEM FAILURE COULD DELAY OR
INTERRUPT OUR SERVICE WHICH COULD SEVERELY HARM OUR BUSINESS AND RESULT IN A
LOSS OF MEMBERS.
Our ability to successfully maintain an e-commerce marketplace and provide
acceptable levels of customer service depends largely on the efficient and
uninterrupted operation of our computer and communications hardware and network
systems. Any interruptions could severely harm our business and result in a loss
of members. Our computer and communications systems are located in Boca Raton,
Florida. Although we periodically back up our databases to tapes and store the
backup tapes offsite, we have not maintained a redundant site. As a result, our
systems and operations are particularly vulnerable to damage or interruption
from human error, sabotage, fire, flood, hurricane, power loss,
telecommunications or equipment failure, and similar events. We cannot assure
you that we will not experience system failures in the future. Moreover, we have
experienced delays and interruptions in our telephone and Internet access which
have prevented members from accessing our e-marketplace and customer service
department. Furthermore, we do not have a formal disaster recovery plan and do
not carry sufficient business interruption insurance to compensate us for losses
that may occur as a result of any system failure, and therefore the occurrence
of any system failure or similar event could harm our business dramatically.
DEFECTS IN THE COMPLEX SOFTWARE ON WHICH OUR SERVICES DEPEND COULD CAUSE SERVICE
INTERRUPTIONS THAT COULD DAMAGE OUR REPUTATION AND HARM OUR BUSINESS.
Unlike many traditional suppliers and distributors of aviation parts, we are
wholly dependent on the error-free functioning of our Web site and its
associated software. Our e-marketplace depends on complex software developed
internally and by third parties. Moreover, we are relying on third-party
software to implement our transaction-based model, which software has not yet
been integrated into our system. Software often contains defects, particularly
when first introduced or when new versions are released. Our testing procedures
may not discover software defects that affect our new or current services or
enhancements until after they are deployed. These defects could cause service
interruptions, which could damage our reputation or increase our service costs,
cause us to lose revenue, delay market acceptance, or divert our development
resources, any of which could severely harm our business, financial condition,
and results of operations.
WE COULD FACE LIABILITY FOR INFORMATION RETRIEVED FROM OR TRANSMITTED OVER THE
INTERNET AND LIABILITY FOR AIRCRAFT PRODUCTS SOLD OVER THE INTERNET.
We could be exposed to liability with respect to third-party information
that may be accessible through our Web site. If any third-party content
information provided on our Web site contains errors, consumers potentially
could make claims against us for losses incurred in reliance on that
information. In addition, because defective aviation products can result in
substantial losses of property or life, we have a relatively greater risk of
being exposed to product liability claims arising out of or relating to aviation
parts and products sold through our Web site, which could result in us incurring
substantial defense costs and, if successful, liability, either of which could
severely harm our business. We currently carry no policies which would insure us
against product liability claims.
RISKS RELATED TO THIS OFFERING
VOTING CONTROL BY INSIDERS COULD ADVERSELY AFFECT THE TRADING PRICE OF OUR
STOCK.
We anticipate that our executive officers, directors and principal
stockholders will, in the aggregate, beneficially own approximately 66.1% of our
outstanding common stock following the completion of this offering, or 63.8% if
the underwriters' over-allotment option is exercised in full. These stockholders
will be able to exercise substantial influence over all matters requiring
approval by our stockholders, including the election of directors and approval
of significant corporate transactions. This concentration
12
<PAGE>
of ownership may have the effect of delaying or preventing a change in control
of PartsBase.com, which could impair our attractiveness as an acquisition target
and, as a result, adversely affect the trading price of our stock.
YOU WILL EXPERIENCE IMMEDIATE DILUTION WITH RESPECT TO YOUR SHARES AND
ADDITIONAL DILUTION IF WE NEED MORE CAPITAL OR IF PERSONS HOLDING OPTIONS TO
PURCHASE OUR STOCK EXERCISE THEIR OPTIONS.
You will incur immediate and substantial dilution of $9.33 per share in the
net tangible book value of your shares as a result of this offering. In
addition, if we raise additional funds through future financings or to the
extent that options or warrants to purchase common stock are exercised, you may
experience further dilution.
BECAUSE WE HAVE LIMITED ASSETS, NO HISTORY OF PROFITABILITY AND WILL HAVE A
RELATIVELY SMALL MARKET CAPITALIZATION, YOU MAY EXPERIENCE SIGNIFICANT
VOLATILITY IN THE MARKET VALUE OF YOUR SHARES AND MAY BE UNABLE TO SELL OUR
STOCK ON TERMS FAVORABLE TO YOU.
Because we have limited tangible or other assets and no history of
profitability, it will be difficult for investors in the public market to
determine the intrinsic value of our shares. In addition, our initial market
capitalization and public float will be small relative to other public companies
in the business-to-business e-commerce or other sectors. As a result, the price
at which our common stock will trade after this offering is likely to be more
volatile than those of other public companies and, as a result, it may be more
difficult for you to sell our stock on terms favorable to you. In addition, any
significant volatility in the market price of our common stock could result in
the initiation of securities class action litigation which could divert our
management and financial resources from more productive uses.
SHARES ELIGIBLE FOR FUTURE SALE BY OUR EXISTING STOCKHOLDERS MAY ADVERSELY
AFFECT OUR STOCK PRICE.
After this offering, 14,087,500 shares of common stock will be outstanding.
Of these shares, the 3,500,000 shares sold in this offering will be freely
tradable without restrictions under the Securities Act of 1933, except for any
shares purchased by our "affiliates," as defined in Rule 144 under the
Securities Act. The number of shares of common stock outstanding would increase
to 14,612,500 and the number of freely tradable shares would increase to
4,025,000 if the underwriters exercise their over-allotment option in full. The
market price of our common stock could drop due to the sales of a large number
of shares of our common stock or the perception that sales could occur. These
factors could also make it more difficult to raise funds through future
offerings of common stock, which could in turn harm our business if additional
funds become necessary. See "Shares Eligible for Future Sale" for a more
detailed discussion.
ANTI-TAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS, INDEMNIFICATION AGREEMENTS,
AND TEXAS BUSINESS CORPORATION LAW COULD DELAY OR PREVENT A POSSIBLE TAKEOVER,
EVEN IF A CHANGE IN CONTROL WOULD BE BENEFICIAL TO SOME STOCKHOLDERS.
Our articles of incorporation and bylaws contain provisions that could
discourage potential acquisition proposals or proxy contests and might delay or
prevent a change in control. These provisions, our indemnification agreements
with our directors and executive officers and also some provisions of Texas
Business Corporation Law could make us less attractive to potential acquirers.
These provisions could also result in our stockholders being denied a premium
for, or receiving less for, their shares than they otherwise might have been
able to obtain in a takeover attempt.
OUR STOCKHOLDERS MAY HAVE DIFFICULTY IN RECOVERING MONETARY DAMAGES FROM OUR
DIRECTORS.
Our articles of incorporation contain a provision which eliminates the
personal liability of our directors for monetary damages to be paid to us and
our stockholders for some breaches of fiduciary
13
<PAGE>
duties. In addition, we have entered into indemnification agreements with each
of our directors and executive officers regarding claims that may be asserted
against directors or officers by reason of their status as directors or
officers. As a result of this charter provision and the indemnification
agreements, our stockholders may be unable to recover monetary damages against
our directors for their actions that constitute breaches of fiduciary duties,
negligence or gross negligence. Inclusion of this provision in our charter may
also reduce the likelihood of derivative litigation against our directors and
may discourage lawsuits against our directors for breach of their duty of care
even though some stockholder claims might have been successful and benefited
stockholders.
WARNING REGARDING OUR USE OF FORWARD-LOOKING STATEMENTS.
This prospectus contains forward-looking statements which relate to possible
future events, our future performance and our future operations. In some cases,
you can identify forward-looking statements by our use of words such as "may,"
"will," "should," "anticipates," "believes," "expects," "plans," "future,"
"intends," "could," "estimate," "predict," "potential" or "continue," as well as
the negatives of these terms or other similar expressions. These forward-looking
statements are only our predictions. Our actual results could and likely will
differ materially from these forward-looking statements for many reasons,
including the risks described above and appearing elsewhere in this prospectus.
We cannot guarantee future results, levels of activity, performance or
achievements.
14
<PAGE>
USE OF PROCEEDS
Assuming a public offering price of $12.00 per share, the net proceeds to us
from the sale of 3,500,000 shares of common stock in this offering are
approximately $37,260,000, or $43,119,000 million if the underwriters'
over-allotment option is exercised in full, after deducting underwriting
discounts and commissions and estimated offering expenses.
We intend to use the net proceeds of the offering for the following
purposes, in roughly the listed amounts, subject to change at the discretion of
our management:
- expansion of our sales and marketing efforts: $7,000,000
- system upgrades, including hardware, software and equipment: $5,000,000
- working capital for general corporate purposes, including the funding of
operating losses: $25,260,000
The amounts actually expended for each of the purposes listed above may vary
significantly depending on a number of factors, including the growth of our
membership base, capital spending requirements and developments in the aviation
parts and business-to-business e-commerce markets. Accordingly, our management
will have broad discretion over the use of the net proceeds of this offering.
We may use a portion of the net proceeds of this offering for the
development of business-to-business e-commerce solutions for other industries or
to acquire or invest in businesses, products, services or technologies
complementary to our current business through mergers, acquisitions, joint
ventures or otherwise. However, we have no specific agreements or commitments
and are not currently engaged in any negotiations with respect to any
transaction of this type. We have not yet established criteria for evaluating
acquisitions or investments. We intend to invest the net proceeds of this
offering in short-term, interest bearing, investment grade securities or
guaranteed obligations of the U.S. government pending the above uses.
DIVIDEND POLICY
We have never declared or paid dividends on our capital stock and do not
anticipate declaring or paying any dividends in the foreseeable future. We
currently intend to retain any future earnings for the expansion of our
business.
15
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of PartsBase.com as of
December 31, 1999:
- on an actual basis;
- on a pro forma basis after giving effect to the mandatory conversion of
all outstanding convertible notes and all outstanding Series A convertible
preferred stock under the terms of which they were issued; and
- on a pro forma basis as adjusted to reflect our receipt of the net
proceeds from the sale of the 3,500,000 shares of common stock in this
offering at an assumed initial public offering price of $12.00 per share,
after deducting underwriting discounts and commissions and estimated
offering expenses.
You should read the capitalization table together with the sections of this
prospectus entitled "Selected Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and our financial
statements, including the notes thereto, included elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
-------------------------------------------------
ACTUAL PRO FORMA PRO FORMA AS ADJUSTED
----------- ----------- ---------------------
<S> <C> <C> <C>
Convertible notes payable.............................. $ 962,500 $ -- $ --
Stockholders' equity (deficit):
Series A convertible preferred stock, 2,000,000 shares
authorized, 855,000 issued and outstanding; pro
forma--2,000,000 shares authorized, none issued and
outstanding; pro forma as adjusted--2,000,000 shares
authorized, none issued and outstanding, liquidation
preference........................................... 1,902,375 -- --
Common stock, no par value; 30,000,000 shares
authorized, 9,251,250 shares issued and outstanding;
pro forma--30,000,000 shares authorized, 10,587,500
shares issued and outstanding; pro forma as
adjusted--30,000,000 shares authorized,
14,087,500 shares issued and outstanding(1).......... -- -- --
Additional paid-in capital............................. 15,178,497 16,269,594 53,529,594
Accumulated deficit.................................... (7,762,678) (7,762,678) (7,762,678)
Unearned compensation.................................. (7,776,278) (7,776,278) (7,776,278)
----------- ----------- -----------
Total stockholders' equity............................. 1,541,916 730,638 37,990,638
----------- ----------- -----------
Total capitalization................................... $ 2,504,416 $ 730,638 $37,990,638
=========== =========== ===========
</TABLE>
- --------------------------
(1) The number of shares of common stock to be outstanding after this offering
is based on the number of shares outstanding as of December 31, 1999, and
does not include the following:
- 175,000 shares issuable upon exercise of an outstanding stock purchase
warrants;
- 2,000,000 shares reserved for issuance under our stock option plan, under
which options to acquire 987,875 shares are outstanding as of the date of
this prospectus; and
- 262,500 shares of common stock issuable upon exercise of stock purchase
warrants to be issued to Roth Capital Partners, Inc., the representative
of the underwriters, upon completion of the offering at an exercise price
equal to 165% of the initial public offering price.
16
<PAGE>
DILUTION
Purchasers of the common stock in this offering will experience immediate
and substantial dilution in the net tangible book value of the common stock from
the initial public offering price. Net tangible book value per share represents
the amount of our total tangible assets reduced by the amount of our total
liabilities, divided by the number of shares of common stock outstanding.
As of December 31, 1999, our pro forma net tangible book value was $346,557,
or $0.03 per share of common stock after giving effect to the issuance and
conversion of all outstanding Series A convertible preferred stock and
convertible notes into shares of common stock.
As of December 31, 1999, our pro forma net tangible book value as adjusted
for the sale of the 3,500,000 shares offered in this offering and application of
the net proceeds of $37,260,000, calculated at an assumed initial public
offering price of $12.00 per share and after deducting the underwriting
discounts and commissions and estimated offering expenses, would have been
approximately $2.67 per share.
This represents an immediate increase of $2.64 per share to existing
stockholders and an immediate and substantial dilution of $9.33 per share to new
investors purchasing common stock in this offering. The following table
illustrates this per share dilution:
<TABLE>
<CAPTION>
PER SHARE OF
COMMON
STOCK
--------------
<S> <C> <C>
Assumed initial public offering price....................... $12.00
Pro forma net tangible book value as of December 31,
1999.................................................... $0.03
Increase attributable to new investors.................... 2.64
Pro forma net tangible book value after the offering........ 2.67
------
Dilution to new investors................................... $ 9.33
======
</TABLE>
The following table summarizes, on a pro forma basis as of December 31,
1999, the differences between the total consideration paid and the average price
per share paid by the existing stockholders, including the conversion of
convertible notes and Series A convertible preferred stock into common stock,
and the new investors with respect to the number of shares of common stock
purchased from us based on the assumed initial public offering price of $12.00
per share and before deducting the underwriting discounts and commissions and
our estimated offering expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ---------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- -------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders....... 10,587,500 75.2% $ 3,100,000 6.9% $ 0.29
New investors............... 3,500,000 24.8% 42,000,000 93.1 $12.00
---------- ----- ----------- -----
Totals.................... 14,087,500 100.0% $45,100,000 100.0%
========== ===== =========== =====
</TABLE>
The above discussion and tables exclude:
- 175,000 shares issuable upon exercise of an outstanding stock purchase
warrants;
- 2,000,000 shares reserved for issuance under our stock option plan, under
which options to acquire 987,875 shares are outstanding as of the date of
this prospectus; and
- 262,500 shares of common stock issuable upon exercise of stock purchase
warrants to be issued to Roth Capital Partners, Inc. and Pennsylvania
Merchant Group, the representatives of the underwriters, upon completion
of the offering at an exercise price equal to 165% of the initial public
offering price.
17
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with the
financial statements and the related notes thereto and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" appearing
elsewhere in this prospectus. The statement of operations data for the period
from April 1, 1996, our date of inception, to December 31, 1996 and the years
ended December 31, 1997, 1998 and 1999, and the balance sheet data at
December 31, 1996, 1997, 1998 and 1999 has been derived from the audited
financial statements of PartsBase.com. The results of operations of prior
periods are not necessarily indicative of results that may be expected for any
other period. Our predecessor was founded in April 1996 under the name Aviation
Parts Base, a division of Aviation Laboratories, Inc., and began accepting
members to the database at that time. In April 1999, the assets of the division
were conveyed to Mr. Robert A. Hammond, Jr. in consideration for, among other
things, Mr. Hammond's equity interest in Aviation Laboratories, Inc. On
April 27, 1999, Mr. Hammond transferred the assets of the division into and
incorporated PartsBase.com as a Texas corporation. The accounting for the
contribution of the division into PartsBase.com has been reported in the
accompanying financial statements as a reorganization of entities under common
control in a manner similar to a pooling of interests.
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 1, 1996
(INCEPTION) TO YEAR ENDED DECEMBER 31,
DECEMBER 31, ------------------------------------------
1996 1997 1998 1999
-------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenue............................................ $ -- $ 2,861 $ 3,504 $ 362,224
Cost of revenue........................................ 16,842 104,041 43,462 1,412,532
Noncash compensation expense........................... -- -- -- 1,799,139
---------- ---------- ---------- -----------
Total cost of revenue.................................. 16,842 104,041 43,462 3,211,671
---------- ---------- ---------- -----------
Gross loss............................................. (16,842) (101,180) (39,958) (2,849,447)
Operating expenses
General and administrative........................... 55,064 90,452 108,163 1,293,091
Noncash compensation expense......................... 899,821
---------- ---------- ---------- -----------
Total operating expenses........................... 55,064 90,452 108,163 2,192,912
---------- ---------- ---------- -----------
Operating loss..................................... (71,906) (191,632) (148,121) (5,042,359)
Other income (expense)
Interest expense..................................... -- -- -- (881,652)
Interest income...................................... -- -- -- 10,977
---------- ---------- ---------- -----------
Total other income (expense)....................... -- -- -- (870,675)
---------- ---------- ---------- -----------
Net loss (1)....................................... (71,906) (191,632) (148,121) (5,913,034)
Value of preferred stock beneficial conversion
feature.......................................... -- -- -- (1,902,375)
---------- ---------- ---------- -----------
Net loss applicable to common stockholders......... $ (71,906) $ (191,632) $ (148,121) $(7,815,409)
========== ========== ========== ===========
Net loss per common share--basic and diluted (1)....... $ (0.84)
Weighted average common shares outstanding--basic and
diluted.............................................. 9,251,250
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------------------------------------------------
1996 1997 1998 1999
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........... $ -- $ -- $ -- $ 735,276
Working capital deficit............. (2,043) (1,709) (25,128) (687,172)
Total assets........................ 1,767 7,848 6,084 4,729,295
Convertible notes payable........... -- -- -- 962,500
Total stockholders' equity
(deficit)......................... (276) 6,139 (19,044) 1,541,916
</TABLE>
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(1) Since we have incurred net losses since inception, we would not have
incurred any income tax liabilities during the periods prior to
incorporation on April 27, 1999, and any deferred tax assets would have had
a corresponding valuation allowance and therefore pro forma presentation is
not required.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of
operations should be read together with the consolidated financial statements
and the related notes included elsewhere in this prospectus and which are deemed
to be incorporated into this section. The following discussion contains
forward-looking statements that reflect our plans, estimates and beliefs. Our
actual results may differ materially from those anticipated in these
forward-looking statements as a result of a number of factors, including but not
limited to those set forth under "Risk Factors" and included elsewhere in this
prospectus.
OVERVIEW
PartsBase.com is an online provider of Internet business-to-business
e-commerce services for the aviation industry. Our e-commerce marketplace
provides a means for our members to buy and sell aviation parts and products in
an efficient, competitive and cost-effective manner. Our target members are
primarily the businesses that buy and sell aviation parts, supplies and
components in the global marketplace. We have designed our e-marketplace to meet
the needs of these customers and their industry.
We began operations in April 1996 as a division of Aviation
Laboratories, Inc. In April 1999, we incorporated PartsBase.com and acquired all
of the assets from Robert A. Hammond, Jr. In September 1999, we relocated the
company to Boca Raton, Florida. From April 1996 to October 1998, when we began
charging for our services, we were engaged in the development of our database
and developing our e-marketplace software and network infrastructure.
To date, substantially all of our revenue has come from annual subscription
fees for access to our e-marketplace. Most of our members are companies that
sell products and services to the aviation industry. Generally, our
subscriptions are entered into on an annual basis. Although we have executed a
few subscriptions of a longer duration, generally these contracts may be
terminated at any time.
In the future, we plan to derive revenue from sources other than
subscription fees within our e-marketplace, including transaction fees. In
addition, we intend to generate transaction fee revenue from transactions
consummated by our members with value added merchandise and service providers.
Also, we believe we will generate advertising fees from banner and classified
advertisements. We cannot assure you that we will be successful in generating
any of these additional revenue and fees.
Since we began operations in April 1996, we have incurred significant net
losses. For the years ended December 31, 1997, 1998 and 1999, our net losses
attributable to holders of common stock were $191,632, $148,121 and $7,815,409,
respectively.
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1999
NET REVENUE. Our revenue consists of subscription fees charged to our
subscribers and, to a lesser extent, banner advertising revenue. Our net revenue
for the year ended December 31, 1998 was $3,504, which consisted of $800 in
banner advertising revenue and $2,704 in subscription revenue, compared to net
revenue of $362,224 for the year ended December 31, 1999, which consisted of
$357,724 of subscription revenue and $4,500 of banner advertising revenue. We
did not begin charging subscription fees until November 1998.
COST OF REVENUE. Our cost of revenue consists of compensation for our sales
and marketing personnel, telephone expenses, Web site development, a proportion
of rent and office expenses and, to a lesser extent, bank and credit card
processing charges. Our cost of revenue increased from $43,462 for the year
ended December 31, 1998, to $3,211,671 for the year ended December 31, 1999,
including noncash compensation expense of $1,799,139 related to the issuance of
our restricted stock. This
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increase is attributable to an increase in the size of our sales force from 1 at
December 31, 1998 to 51 at December 31, 1999. We plan to continue to increase
the size of our sales force. We expect that our sales and marketing expenditures
will increase significantly, both in absolute dollars and as a percentage of net
revenue, as we increase our marketing efforts and incur additional sales
commissions.
Our gross loss increased from $39,958 for the year ended December 31, 1998
to $2,894,447 for the year ended December 31, 1999 as a result of the factors
described above.
GENERAL AND ADMINISTRATIVE EXPENSES. Our general and administrative
expenses increased from $108,163 for the year ended December 31, 1998, to
$1,293,091 for the year ended December 31, 1999. Our general and administrative
expenses for the year ended December 31, 1998 consisted of personnel costs of
$65,458, costs allocated from our former parent of $39,153, and other costs
totalling $1,100, while expenses for the year ended December 31, 1999 consisted
of personnel costs of $455,268, amortization of deferred financing costs of
$364,925, advertising costs of $151,193 and other costs totaling $321,705
consisting of professional fees, rent, utilities, supplies and other related
administrative costs. The increase in personnel costs is attributable to the
increase in the number of our executive and administrative staff from one at
December 31, 1998 to 16 at December 31, 1999. The amortization of deferred
financing costs relates to our private placement of convertible notes which
began in June 1999. We did not begin incurring advertising costs until after
December 31, 1998. Our costs increased for the year ended December 31, 1999 over
the same period in 1998 due to our expansion of a fully operational office in
1999. During 1998 we were allocated costs incurred by our former parent. The
overall increase in costs corresponds to the increase in our revenues and
marketing efforts. We expect that our general and administrative expenses will
increase in absolute dollars as we continue to expand our operations but
decrease as a percentage of net revenues.
In connection with the issuance of our restricted stock, we recognized
noncash compensation expense of $899,821 which has been classified as a
component of operating expenses for the year ended December 31, 1999. We did not
have any noncash compensation expense for the same period of 1998.
INTEREST EXPENSE. Interest expense relates to the issuance of convertible
notes as part of our private placement from June 1999 through November 1999. Our
interest expense increased from $0 for the year ended December 31, 1998, to
$881,652 for the year ended December 31, 1999 including $850,000, representing
the beneficial conversion feature applicable to such convertible notes. Prior to
June 30, 1999, we did not have any debt.
YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1998
NET REVENUE. Net revenue increased from $2,861 for 1997, which represented
banner advertising revenue, to $3,504 for 1998, which consisted of $800 in
banner advertising revenue and $2,704 in subscription revenue. We did not begin
charging subscription fees until November 1998.
COST OF REVENUE. Our cost of revenue decreased from $104,041 for the year
ended December 31, 1997, to $43,462 for the year ended December 31, 1998. Our
cost of revenue consisted of Web site development costs and communication
expenses. In 1998, we continued to upgrade our network capacity and
functionality. However, our development costs and communication expenses were
lower in 1997 than in 1998.
GENERAL AND ADMINISTRATIVE EXPENSES. Our general and administrative
expenses increased from $90,452 for 1997 to $108,163 for 1998. Expenses
consisted of general and administrative personnel costs and an allocation of
costs from our former parent. The increase was attributable to more costs being
allocated from our former parent in 1998 than in 1997.
LIQUIDITY AND CAPITAL RESOURCES
We have had significant negative cash flows from our operations. For the
years ended December 31, 1997, 1998 and 1999, we used $168,373, $83,096 and
$596,498 of cash, respectively, in
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our operating activities. Cash used in operating activities in each period
resulted from net losses in those periods. For the year ended December 31, 1999,
our cash used in operating activities included increases in our trade accounts
receivable of $297,884. This reflects our efforts to expand the subscription
base by allowing for payment terms up to 60 days. For the years ended
December 31, 1997, 1998 and 1999, we used $8,476, $688 and $1,238,124,
respectively, of cash for investing activities which have consisted of
expenditures for computer hardware and software, furniture and fixtures,
communication equipment and leasehold improvements as well as deposits on
various equipment leases.
Since inception, we have financed our operations from the collection of
subscription fees, proceeds of $962,500 from issuance of convertible
subordinated notes and proceeds of $1,902,375 from issuance of convertible
preferred stock. Robert A. Hammond, Jr., our principal stockholder and Chief
Executive Officer, loaned us $80,900 which was repaid prior to December 31,
1999.
As of December 31, 1999, our principal source of liquidity was approximately
$735,276 of cash and cash equivalents. As of December 31, 1999, we had no
material commitments for capital expenditures.
We believe that we have sufficient cash and cash equivalents to fund our
operating and investing activities for at least the next 12 months. Our future
long-term capital needs will depend significantly on the rate of growth of our
business, the timing of extended service offerings and the success of these
services once they are launched. Any projections of future long-term cash needs
and cash flows are subject to substantial uncertainty. We may need to raise
additional funds in future periods through public or private financings, or
other arrangements. Any additional financings, if needed, might not be available
on reasonable terms or at all. Failure to raise capital when needed could harm
our business, financial condition and results of operations. In addition, such a
failure to raise needed capital could impair our future plans to expand our
e-marketplace, attract new members, and provide new and upgrade current services
to our members. If additional funds are raised through the issuance of equity
securities, additional dilution could result. In addition, any equity securities
issued might have rights, preferences or privileges senior to our common stock.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our convertible notes payable have a fixed rate and, therefore, do not
expose us to risk of earnings loss due to changes in market interest rates. The
market value of the convertible notes payable was $5,793,641 based on the market
value of the underlying common stock on December 31, 1999 plus unpaid interest
as of December 31, 1999.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities," which establishes accounting and reporting standards for
derivative instruments, including derivative instruments embedded in other
contracts, and for hedging activities. SFAS No. 133, as amended by SFAS
No. 137, is effective for all fiscal quarters of fiscal years beginning after
June 15, 2000. We currently do not engage in, nor expect to engage in,
derivative or hedging activities, and therefore we anticipate there will be no
impact to our consolidated financial statements.
In March 1998, the American Institute of Certified Public Accountants, or
the AICPA, issued SOP 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use. SOP 98-1 requires that entities
capitalize costs related to internal use software once criteria designated in
SOP 98-1 have been met. We adopted SOP 98-1 for the year ending December 31,
1999. Adoption of SOP 98-1 did not have a material impact on our financial
condition, results of operations or cash flows.
In April 1998, the AICPA issued SOP No. 98-5, Reporting on the Costs of
Start-Up Activities. SOP 98-5 requires that all start-up costs related to new
operations must be expensed as incurred. In addition, all start-up costs that
were capitalized in the past must be written off when SOP 98-5 is adopted. We
adopted SOP 98-5 on January 1, 1999. The adoption of SOP 98-5 did not have a
material impact on our financial position, results of operations or cash flows.
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BUSINESS
INDUSTRY BACKGROUND
GROWTH OF E-COMMERCE. The growth of the Internet and related technologies
has resulted in drastic changes in the way businesses and consumers communicate,
share information and conduct business. As Internet usage has increased, the
Internet has expanded from a medium primarily for publishing information to one
that enables more complex business-to-business communications and commerce. At
the same time, in response to increasing competitive pressures to lower costs,
decrease inventories and improve sales and marketing productivity, businesses
are increasingly replacing paper-based transactions with more efficient Internet
e-commerce solutions. Forrester Research estimates that the business-to-business
e-commerce market will grow from $43 billion in 1998 to $1.3 trillion by 2003.
AVIATION PARTS INDUSTRY. The worldwide market for aviation parts and
products is highly fragmented and parts are supplied by many types of suppliers,
including airlines, OEMs, numerous distributors, on-site airport maintenance
providers, also known as fixed base operators, FAA certified facilities, traders
and brokers. Aerospace Industries Association estimates that total exports and
imports of aircraft parts and products were approximately $29 billion in 1999.
Furthermore, in recent years, the airline industry has experienced rapid growth
in business and leisure travel. As a result, the world fleet of aircraft is
projected to increase from 12,600 aircraft in 1998 to 28,400 aircraft in 2018,
according to the Boeing Report. The increase in travel and the number of
aircraft have likely contributed to demand for aircraft parts and products as
aircraft must be serviced at scheduled intervals. In addition, management
believes that as the age of the world fleet of aircraft increases, demand for
new, used and overhauled aircraft parts and products may increase.
Historically, airlines have controlled the majority of the aviation parts
and products inventory. Management believes airlines are beginning to reduce the
size of their parts inventories in an effort to reduce inventory carrying costs.
These inventory reductions have increased reliance by airlines on suppliers of
new, used and overhauled parts and products, many of which may be difficult to
obtain from manufacturers on a timely basis, if at all. If airlines demand time
responsive inventory procurement processes, responsibility for inventory storage
and handling may shift to suppliers.
Suppliers of aviation parts and products are geographically disperse and
because of the specialized and complex nature of aviation parts and products,
the particular part or product desired by a buyer may not be easily accessible.
Buyers often search for a specific part or product to meet the parameters for a
specific aircraft at a particular location. Buyers may spend several hours
examining multiple paper catalogs and other information from different suppliers
to identify the most appropriate part or product. After locating the desired
part or product, buyers place orders by telephone, fax, or e-mail and typically
must place orders with multiple suppliers in order to obtain parts or products
related to a single aircraft. Orders for aviation parts or products are
typically handled through internal, paper-based processes that require manual
preparation, written approval by purchasing managers and manual order tracking,
and billing and reporting across multiple departments within an organization. We
view current paper-based procurement processes as complex, cumbersome and
time-consuming. Paper-based orders also tend to be costly for buyers and sellers
to track and bill, and the decentralized order process does not facilitate the
collection of data that is necessary for efficient pricing and delivery.
OPPORTUNITY FOR BUSINESS-TO-BUSINESS E-COMMERCE SOLUTION. We believe the
fragmentation and complexities of the aviation industry and the current
paper-based purchasing processes create the need for a business-to-business
e-commerce solution that seamlessly brings together buyers and sellers of
aviation parts and products. To effectively address the needs of buyers and
sellers, it is important that the solution offers a neutral and fair marketplace
with accurate catalog descriptions of parts and products and this information
must also be fairly and accurately presented to buyers. In addition, the
solution should offer sellers an opportunity for incremental sales and the
ability to offer buyer-specific pricing.
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Traditional purchasing methods also present a number of challenges to
sellers trying to reach buyers of aviation parts and products. Due to the high
cost of printing and distributing paper catalogs, sellers cannot
cost-effectively manage frequent updates and distribution of time-sensitive
information. We view these catalogs as cumbersome to search and limited in their
ability to provide depth of product and seller content. Sellers who are small in
size may have limited resources available to support the growing challenge of
marketing and selling to the highly fragmented worldwide market for aviation
parts and products. As a result, we believe traditional procurement and sales
methods are inefficient in many respects for both buyers and sellers.
TRADITIONAL ELECTRONIC PURCHASING. We believe the current methods which use
information technology to reduce inefficiencies in corporate purchasing have
limitations that prevent widespread adoption. Two methods currently used by some
of our competitors in the aviation parts industry are conventional Electronic
Data Interchange, also known as EDI, and Enterprise Purchasing Software Systems.
EDI systems allow computers to exchange information in uniform formats across
private networks without human intervention. Because EDI systems rely on the
execution of repetitive identical transactions, we believe they are generally
not well suited for dynamic procurement environments involving many buyers and
sellers of a wide variety of goods and services. By contrast, some vendors have
developed Enterprise Purchasing Software Systems designed to improve the
coordination of the purchasing function across large enterprises. However, both
EDI systems and Enterprise Purchasing Software Systems can be expensive to
license and/or install and may require users to pay ongoing maintenance and/or
transaction fees. Due to the expense and complexity of these systems, they are
generally unsuitable for all but the largest organizations. Furthermore, we
believe that neither EDI nor Enterprise Purchasing Software Systems offer a full
spectrum of online procurement functions.
THE PARTSBASE.COM ADVANTAGE
The Internet provides a cost-effective medium for businesses, regardless of
size, to link directly to their communities of customers and other business
partners. Our solution takes advantage of the low costs and community building
nature of the Internet to support our business-to-business e-commerce
marketplace. Our e-marketplace offers targeted content and services to meet the
specific needs of our members. With a standard Internet connection, a Web
browser and a PartsBase.com membership, each of our e-marketplace members can
immediately participate as both a buyer and a seller.
Our solution is comprised of an e-marketplace where our members can buy and
sell a wide range of aviation parts and products over the Internet in an
efficient and cost-effective manner. We estimate that our e-marketplace utilizes
a database of approximately 1,200 suppliers, which we believe constitutes one of
the largest independent databases of inventory and information in the aviation
industry. In addition, our advanced search functions enable users to quickly and
easily identify and locate the parts and products they need. We have designed
our e-marketplace to attract professionals responsible for selecting and
purchasing aviation parts and products. We believe our service enables our
members to quickly realize the benefits of increased efficiency, faster
turnaround and more timely information. Our solution is designed to provide the
following benefits to our members:
REDUCED PROCUREMENT COSTS. By eliminating many costly and time-consuming
functions of the traditional procurement process, we believe our e-marketplace
allows our members to reduce operating costs and shorten cycle times in the
buying and selling processes. Rather than searching through several paper-based
catalogs, buyers can identify and locate products through a single electronic
database. Our solution currently enables buyers to rapidly prepare and broadly
distribute bid requests and allows sellers to respond to these bid requests in a
timely and efficient manner. Moreover, our solution allows buyers and sellers to
immediately access our e-marketplace without incurring the cost of additional
software and system maintenance.
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MORE EFFICIENT PRICING AND BROADER PRODUCT CHOICES FOR BUYERS. By
automating the search and bid request process, our solution allows buyers to
identify sellers with desired inventory in our e-marketplace and to send out bid
requests efficiently. In addition, our e-marketplace allows buyers to expand the
number of sellers from which they request bids. Our database provides buyers
with the online ability to compare various products from an individual supplier
or multiple suppliers. As a result of increased access to sellers, product
availability and pricing information, we believe many of our members have
realized reductions in the cost of the parts and products they have purchased in
our e-marketplace.
ABILITY TO LOCATE THE MOST GEOGRAPHICALLY DESIRABLE PARTS. By providing
buyers access to a global e-marketplace for aircraft parts, we believe our
solution enables buyers to avoid the delays and costs associated with
traditional sourcing methods, which often require buyers to spend significant
time and resources searching for parts on a piecemeal basis via phone or fax
communication to regional suppliers. As a result, we believe that buyers are
often unable to quickly locate and receive needed parts at the best available
price. With our solution, we believe our members can locate and source needed
parts and products in a timely and cost-effective manner, regardless of where
the buyer is located.
EXPANDED DISTRIBUTION OPPORTUNITIES FOR SELLERS. We believe that our
e-marketplace enables sellers to receive requests for quotations from buyers to
whom they might not otherwise have access. Sellers in our e-marketplace,
regardless of their size and marketing resources, can receive requests for
quotations from buyers throughout the world. Sellers whose size would prohibit
them from actively participating in a traditional marketplace thus have access
to expanded distribution channels. We also believe that our solution enables
many of our sellers to offer, for the first time, their goods and services for
sale over the Internet. In addition, we offer sellers the capability to update
product information and introduce new products without being limited by specific
catalog publication cycles. As a result, we believe our e-marketplace is an
effective tool for sellers to achieve broader marketing and sales exposure in
their primary markets and to enter new geographic markets on a cost-effective
basis.
EASE OF USE AND BETTER ACCESS TO INFORMATION. With a standard Internet
connection and Web browser, our members are provided quick and easy access to
our e-marketplace from anywhere in the world. Our e-marketplace solution allows
sellers to control pricing and descriptive information about the aviation parts
and products they offer, helping to ensure that potential buyers obtain accurate
information on a 24-hour, 7-day a week basis. Moreover, our solution encourages
sellers to update their inventory regularly by displaying the most recent
inventory entries at the top of a list of those sellers with a particular part
in stock.
OUR SOLUTION
We currently offer a variety of services to our members. The following
summarizes some of the current services and features of our e-marketplace:
ONLINE BUYING AND SELLING. Our global e-marketplace enables our members
worldwide to interact as buyers and sellers, streamlining their purchase and
sale process over the Internet. In addition to searching by part number, our
members are able to utilize advanced search functions, such as Wildcard search,
Smart search and Keyword search, each of which allow members to use either a
description or a partial part number to locate the desired part. Also, members
using our e-marketplace's posting function can send a request for quotation,
including requests for line item price quotes, to sellers who respond
electronically with pricing and availability information.
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The request for quotation process begins with suppliers submitting their
inventories to us by e-mail or disk, which we then upload on to our Web site.
Using the search methods described above, buyers are then able to use our Web
site to identify where and from whom needed parts can be purchased. The buyers
may then elect to transmit a pre-formatted request for quotation via e-mail to
selected suppliers, or they might choose to print out a hard copy of the request
for quotation and fax it to the suppliers, at which point the buyers will
receive quotes from interested suppliers and can begin to make their purchase
decisions.
TRANSACTION INFORMATION. Our e-marketplace will allow members to update
their inventory database information. After sellers respond with bids, buyers
can analyze the responses and select one seller's bid or to select items from
specific sellers. We intend to design our solution so that after a bid is
accepted, our e-marketplace will allow buyers to complete the purchase by
creating and sending electronic purchase orders and finalizing the payment and
delivery instructions. In addition, sellers will be able to electronically
disseminate accurate information in a timely and cost efficient manner.
ONLINE AUCTIONS. Our e-marketplace will allow us to host and administrate
various types of online auctions for aircraft parts and products. We believe
these auctions will provide buyers and sellers an efficient means to purchase
and sell aircraft parts and products.
PROCUREMENT CONTROLS. A client password file is checked at each member
login and whenever members access the database. In the future, we intend to
implement controls which will allow members to limit their employees' access to
selected sellers, specific items, quantities and service features. Through
protocols like these, control over corporate purchasing will be significantly
enhanced without the installation of expensive enterprise purchasing software
systems. Members will also be able to monitor employee requests for proposals
and purchase orders. We will also maintain records of procurement activity by
our members that can be used to verify or validate transactions.
COMMUNITY. In addition to providing community-building information such as
industry job and aircraft sales listings, as well as links to members and other
industry Web sites, we will continue to expand our services to help foster
interaction among our members. We plan to introduce additional features such as
industry trade news, discussion forums, chat rooms and bulletin boards, all of
which foster active community participation among our members. We expect to
continue to add features, content and services that enhance the benefits of
membership in our e-marketplace.
FUTURE SERVICES. In addition to the foregoing, we have recently contracted
with Tradex Technologies, Inc., a multi-party e-commerce transaction software
developer and subsidiary of Ariba, Inc., for the installation and implementation
of software that will allow for online transactions among our members. We have
also contracted with Trading Dynamics, Inc., another subsidiary of Ariba, Inc.,
to provide software for our auction platform. These additional services are
expected to enable us to offer competitive online negotiation, pricing and
bidding for products, and will allow us to act as a virtual clearing house for
products. In addition, once implemented, the transaction software will enable
our members to retrieve and review their purchase and sale activity through
keyword, date, seller or purchase order number searches. This will enable buyers
and sellers to utilize historical transaction data in making future pricing and
procurement decisions. In addition, our solution will automatically generate
inquiry and transaction records facilitating improved documentation and
auditing.
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OUR BUSINESS STRATEGY
Our objective is to establish our e-marketplace as the preferred aviation
industry business-to-business solution. The key elements of our strategy
include:
ACHIEVING GROWTH THROUGH TRANSACTION FEES AND OTHER SOURCES OF
REVENUE. Substantially all of our current revenue is derived from subscription
fees from our paying members. In order to expand our potential revenue base, we
are in the process of installing and implementing customized software that will
allow for online transactions among our members. We expect that this software
will enable competitive online negotiating, pricing, and bidding for products,
and will allow us to act as a virtual clearing house for parts and products. We
believe that these features will allow us to generate additional revenue through
transaction fees charged to our members. We may also generate additional revenue
through the sale of banner advertisements, classified advertisements and other
electronic promotions, as well as from fees for value-added services.
STRENGTHENING THE PARTSBASE.COM BRAND. We believe that the breadth of
features that we offer, the number of members in our e-marketplace and the goods
and services offered by these members provide us with an essential foundation
for a comprehensive e-commerce solution for the aviation industry. We plan to
expand and enhance our marketing initiatives to increase our brand awareness and
identity. These initiatives will include traditional and Internet-based
advertising targeted at selected audiences, interviews, articles in business
media and trade publications and direct sales and telemarketing.
INCREASING MEMBERSHIP AND MARKET PENETRATION. Since we began operations in
1996, we have grown our membership to over 13,000 by focusing on buyers and
sellers in all facets of the aviation industry. In order to continue our
membership growth and increase our worldwide market penetration, we intend to
expand our sales and marketing efforts through our multilingual internal sales
force, indirect sales channels and by making use of the community offered by our
network of existing members.
ESTABLISHING AND EXPANDING STRATEGIC SALES AND MARKETING RELATIONSHIPS. We
intend to pursue strategic sales and marketing relationships to expand our
membership, extend our marketing reach, and further develop our e-marketplace in
a rapid and cost-effective manner. These expanded relationships, if successful,
will increase the breadth of information, goods and services available to our
members, thereby enabling us to attract and retain additional members.
EXPANDING OUR INTERNATIONAL PRESENCE. Our goal is to become the leading
e-marketplace for the aviation parts industry. We believe the international
scope of the Internet, the global reach of many of our customers and the
worldwide demand for aviation parts and products present opportunities to
further expand our e-marketplace internationally. Presently, we estimate that
approximately 25% of our members are based internationally or have international
operations. We plan to take advantage of our technology, expertise, and existing
member relationships to further expand our e-marketplace in other parts of the
world.
ATTRACTING AND RETAINING MEMBERS WITH NEW CONTENT, FEATURES AND
SERVICES. We intend to continue increasing the number of members in our
e-marketplace by introducing additional services and features, such as our
online auction service, that appeal to the specific needs of our members. In
addition, we intend to offer e-commerce transaction services such as online
order payment processing.
Our success as a business will depend in large part on our ability to build
a critical mass of parts, products and sellers. If we are unable to increase the
number of sellers and draw more buyers to our e-marketplace, we will not be able
to benefit from any network effect, where the value to each member in our
e-marketplace increases with the addition of each new member.
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OUR REVENUE SOURCES
To date, our primary source of revenue has been subscription fees from our
paying members. In general, annual subscription fees are paid in advance by
credit card or other form of immediate payment. In lieu of immediate payment,
clients may submit a verified purchase order and receive payment terms of up to
60 days from the date of the initial order. In order to build our base of
e-marketplace members, we have and will continue to provide free trial
memberships. During the free trial membership period, the length of which is
determined by us on a customer-by-customer basis, our sales people attempt to
convert these trial memberships into paying memberships. In the event that a
trial member is unwilling to become a paying member, we will generally terminate
such membership. While we do not currently limit the features that our trial
members can access, we expect that as we broaden the scope of available
features, only paying members will have access to all available features.
We believe our revenue base will expand as a result of our agreements with
Tradex Technologies, Inc. and Trading Dynamics, Inc. for the installation and
implementation of transaction software that will allow us to implement an
auction feature whereby our members will be able to buy and sell aircraft parts
and products by engaging in competitive online negotiating, pricing and bidding.
This transaction software is designed to allow us to act as a virtual clearing
house for aviation parts and products sold in our e-marketplace. If these
auctions are successfully developed and implemented, we believe we will be able
to charge a negotiated fee that will vary based on the size, scope and price of
the offered parts and products, thereby generating additional revenues.
We also plan to expand our revenue sources over time to include fees for
classified advertising as well as increased revenue from banner advertisements.
In addition, we believe our sources of revenue will increase as we expand the
scope of our value-added services.
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OUR E-MARKETPLACE MEMBERS
Our target members are primarily the businesses that buy and sell aircraft
parts and products in the global marketplace. We have over 13,000 members
representing over 115 countries. Our members vary from small businesses and
individual aircraft owners to Fortune 500 companies. Some of our members
include:
A. J. Walter Aviation
Aero Group
AGES Group
Airborne Express
Air New Zealand
Alaska Airlines
Allied Signal
American Aircarriers Support
Amway Corp.
Arca Airlines
Atlantic Airlines, Inc.
Aviation Spares Ltd.
Avjet Trading
Banyan Air Service
Bell Helicopter
Bermuda Air Service
BF Goodrich Aerospace
Big Island Air
Boeing
Bombardier
British Aerospace
BAX Global
BWIA
California Propeller
Canadian Airlines
CASA
Chrysler Pentestar
Commander Aero Inc
Copenhagen Avionics A/S
Curtiss-Wright Accessory
Services
D & D Aircraft Supply
Dallas Aerospace
Dee Electronics
Del Monte Aviation
Dyn Corp (NASA Houston)
ELECTROSONICS
Embraer
Executive Air Taxi
Flight Safety international
Florida Jet Center
Galaxy Aerospace
Garrett Aviation Services
GE Engine Services Wales
Grimes Aviation
Hamilton Sundstrand
Hawker Pacific
Honeywell
Icelandair
Itapemirim Airlines
Jet Aviation
Kellstrom Industries
Keyson Airways
King Aerospace
KLM
KRN Aviation
Learjet, Inc.
Lider Taxi Aero
Lockheed Martin Services
Lone Star Mooney
Lord Corporation
Lufthansa
Luton Aerospace
Maine Aviation Group
Maritime Helicopters, Inc.
Marsh Aviation
Meggitt Safety Systems
Memphis Group
Messier Services
Middle River Aircraft Services
Million Air
Mitchell Aviation
Mobile Aerospace Engineering
Moog Aircraft Group
Norco
Ohio State University Airport
Omni Air Support
Pensacola Aviation Center
Pilatus Aircraft
Pilkington Aerospace
Raytheon Aircraft Services
Rockwell Collins
Rolls Royce
Saab
Sabreliner Corporation
Seneca Flight
Sentry Aerospace Corporation
Sikorsky
SkyBolt Aeromotive Corp.
Susquehanna Precision
Textron
Tinker Air Force Base
Toronto Sky
TPI Aviation
TRW
Turbine Controls
Tyler Jet Aviation
Ultra Electronics
United Airlines
United Parcel Service
Universal Jet Aviation
U.S. Coast Guard--Hawaii
U.S.A. Jet Airlines
Varig
VASP
Virgin Atlantic
Volvo Aero Corp.
28
<PAGE>
SALES AND MARKETING
We market our solution through our direct internal sales force. Since our
potential members fall within a defined market segment, we are able to identify
and target the purchasing decision-makers and potential users who will influence
the decision to adopt our e-commerce solution.
Our sales and marketing approach is designed to help buyers and sellers
understand both the business and technical benefits of our e-marketplace, and to
promote adoption through one-on-one education and training. We intend to
continue to expand our direct sales force through the establishment of multiple
sales shifts per day, allowing us to reach geographically diverse markets.
However, competition for sales personnel is intense, and we may not be able to
attract, assimilate or retain additional qualified personnel in the future.
Our sales and marketing programs are designed to educate our target market,
create awareness and attract members to our e-marketplace. To achieve these
goals, we intend to take advantage of the community offered by our existing
membership base and engage in marketing activities such as trade shows, speaking
engagements and Web site marketing. Our targeted industry segment advertising
activities include on-line business media and print advertisements in industry
trade publications such as Avionics, Aviation Maintenance, Overhaul &
Maintenance, and Technology and Aviation Week.
We provide member service support from 6:00 am to 12:00 am, Eastern Standard
Time, Monday through Friday. Our customer support department is responsible for
day-to-day contact with members and responds to questions from members through
e-mail and a toll-free number. This department is responsible for retaining and
increasing use by existing members and is an important aspect of member
satisfaction. Our customer support and service personnel handle general member
inquiries and technical questions. We have automated some of the tools used by
our customer support and service staff, such as tracking screens that let our
support staff track a transaction through a variety of information sources.
Our worldwide sales and marketing group consisted of approximately 51
individuals as of December 31, 1999, all of whom are located at our Boca Raton,
Florida headquarters.
TECHNOLOGY AND OPERATIONS
Our e-marketplace technology serves as our enabling platform. Our Web site
technology resides on our server located in Boca Raton, Florida. Members access
our service using a standard Web browser.
Our Web site architecture is designed to allow us to accommodate membership
growth. This scalability permits us to quickly add new members to our
e-marketplace without those members incurring infrastructure costs.
Our Internet service providers currently maintain three high speed T3
Internet connections. The client connections are load balanced over our
presentation layer servers. Database servers are configured to be fault-tolerant
and their hard drives can be swapped while the system is operating. These
databases are replicated on additional back-up servers for quick access.
Our software makes significant use of standard software programming
languages, interfaces and protocols. The use of ODBC, or Open Database
Connectivity, compliant databases and plug-in technologies allows integration
with enterprise accounting and management systems such as Oracle and other ODBC
compliant systems. Many standard data transfer protocols are also supported.
We utilize firewalls and other restrictions and physical or electronic
separations to prevent harm to the service. Our servers add, update, and
retrieve data through procedures designed to prevent improper access to data.
Additionally, our staff has restricted access to our e-marketplace data and
network. Our servers are equipped with virus detection and removal software.
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<PAGE>
In addition to the redundant database servers, all member data is backed-up
to tape on a daily basis.
We have designed our system to enable each member to maintain their
information on our databases so that other users can access the most current
data. In addition, by using custom interfaces, members can automate the process
of maintaining their data.
COMPETITION
The market for business-to-business e-commerce and Internet ordering and
purchasing is new and rapidly evolving, and competition is intense and is
expected to increase significantly in the future. We believe that companies in
our Internet business-to-business e-marketplace compete on the basis of:
- ease of use of technology;
- breadth and depth of product and service offerings;
- pricing of products and services;
- quality and reliability of the Internet purchasing solution; and
- quality and scope of customer service and support.
We currently compete almost solely in the market for aviation parts and
products, and we face competition from two main areas within this market: other
businesses with e-commerce offerings and traditional suppliers and distributors
of aviation parts. Because of the rapidly evolving nature of e-commerce, it is
difficult to objectively estimate the number of companies that compete directly
against us. However, we believe companies that primarily focus on creating
Internet purchasing solutions for the aviation parts industry include Inventory
Locator Service, a subsidiary of Aviall, Inc., and AVsupport, each of which
offers parts locating functions to customers. Traditional suppliers and
distributors, including the AGES Group and Boeing, currently sell aviation parts
through paper catalogs and Web sites.
Many of our current and potential competitors may have longer operating
histories, larger customer bases and greater brand recognition in business and
Internet markets and significantly greater financial, marketing, technical and
other resources than we do. In addition, other e-commerce service providers may
be acquired by, receive investments from or enter into other commercial or
strategic relationships with larger, well established and well-financed
companies as use of Internet and other online services increases. For example,
companies that control access to Internet service provider services that are
used to connect to our network could promote our competitors or charge our
clients substantial fees for Internet access. Therefore, current and potential
competitors may be able to devote significantly greater resources to marketing
and promotional campaigns, may adopt more aggressive pricing policies or may try
to attract users by offering services for free and devote substantially more
resources to product development than us.
Increased competition may result in reduced operating margins, loss of
market share and diminished value in our brand, any of which could materially
and adversely affect our business, financial condition and results of
operations. New technologies and the expansion of existing technologies may
increase the competitive pressures on us by enabling our competitors to offer a
similar but lower-cost service. We cannot assure you that we will be able to
compete successfully against current and potential competitors. Further, as a
strategic response to changes in the competitive environment or otherwise, we
may, from time to time, make pricing, service or marketing decisions or
acquisitions that could materially and adversely affect our business, financial
condition and results of operations.
30
<PAGE>
INTELLECTUAL PROPERTY
We rely on a combination of trademark and copyright law, trade secret
protection and confidentiality and/or license agreements with our employees,
customers and business partners to protect our proprietary rights in products,
services, know-how and information. We have a federal trademark registration for
"PARTSBASE" and we have applied for federal trademark protection for
"PARTSBASE.COM." We may seek additional trademarks in the future. Furthermore,
we may seek copyrights and patents in the future. Our means of protecting our
proprietary rights in the United States or abroad may not be adequate and
competitors may independently develop similar technology. We cannot be certain
that our services do not infringe patents or other intellectual property rights
that may relate to our services. Like other technology and Internet-based
businesses, we face the risk that we will be unable to protect our intellectual
property and other proprietary rights, and the risk that we will be found to
have infringed the proprietary rights of others.
GOVERNMENT REGULATION
Both domestic and foreign entities regulate the parts and products sold on
our Web site. The FAA is charged with regulating the manufacture, repair and
operation of all aircraft and aircraft equipment operated in the United States.
The FAA monitors safety by promulgating regulations regarding proper maintenance
of aircraft and aircraft equipment. Similar regulations exist in foreign
countries. Regulatory agencies specify maintenance, repair and inspection
procedures for aircraft and aircraft equipment. These procedures must be
performed by certified technicians in approved repair facilities on set
schedules. All parts must conform to prescribed regulations and be certified
prior to installation on any aircraft. Although we are not currently subject to
any governmental regulation regarding the parts and products sold on our Web
site, we may in the future become subject to FAA or other regulatory
requirements.
EMPLOYEES
As of December 31, 1999, we had 67 full time employees. Of these, 51 were in
sales and marketing, seven were in programming, technical and customer support
and operations and nine were in administration, including finance. None of our
employees is represented by a labor union. We have not experienced any work
stoppages, and we consider our relations with our employees to be good.
FACILITIES
Our corporate headquarters are located at 7171 N. Federal Highway, Suite
100, Boca Raton, Florida 33487, where we lease approximately 4,600 square feet
of office space for a monthly rental fee of approximately $6,500 under a lease
that expires May 31, 2001, with an option to renew for a two year period. This
facility houses all of our operations, including the executive staff,
e-marketplace operations, customer support and programming and development. We
maintain our Web site in Boca Raton, Florida.
LEGAL PROCEEDINGS
In the ordinary course of business, we may be subject to claims and legal
proceedings. We are not currently a party to any material legal proceedings.
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<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of PartsBase.com and their ages as of
December 31, 1999, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- --------
<S> <C> <C>
Robert A. Hammond, Jr.(1)............ 45 President, Chief Executive Officer and Chairman
Steven R. Spencer.................... 45 Chief Operating Officer and Director
Michael W. Siegel.................... 37 Chief Financial Officer
Yves C. Duplan....................... 38 Chief Technology Officer
Kevin J. Steil....................... 28 Chief Information Officer
Louis W. Storms IV................... 25 Director
Thomas C. Van Hare(1)(2)............. 38 Director
David G. Fessler(1)(2)............... 32 Director Nominee
Pierre A. Narath(1)(2)............... 36 Director Nominee
</TABLE>
- ------------------------
(1) Member of the compensation committee of the board of directors effective
upon completion of this offering.
(2) Member of the audit committee of the board of directors effective upon
completion of this offering.
ROBERT A. HAMMOND, JR. Mr. Hammond has served as our President, Chief
Executive Officer and Chairman since our incorporation in April 1999. In
April 1996, Mr. Hammond founded our predecessor as a division of Aviation
Laboratories, Inc., a company for which he also served as Chief Executive
Officer from its inception in August 1985. From August 1985 until June 1999,
Mr. Hammond was the Chief Executive Officer and Chairman of Great Pines Water
Company, a publicly traded bottled water company that he sold to Suntory Bottled
Water Group in June 1999. Mr. Hammond received his Bachelor of Science degree in
Marketing from Syracuse University.
STEVEN R. SPENCER. Mr. Spencer joined us as Chief Operating Officer in
May 1999 and was elected to the board of directors in June 1999. Prior to
joining us, Mr. Spencer was a partner in Meridian Capital Group, Inc., where he
served as the Executive Vice President from December 1994 to March 1999.
Mr. Spencer left Meridian at the time it was purchased by E*Offering, an
Internet investment banking firm partially owned by E*Trade.
MICHAEL W. SIEGEL. Mr. Siegel joined us as Chief Financial Officer in
January 2000. From August 1997 through December 1999, Mr. Siegel served as
Director of Finance/Controller of Curtiss-Wright Flight Systems, Inc., a
subsidiary of Curtiss-Wright, Inc., a NYSE listed designer, manufacturer and
overhauler of precision components and systems and a provider of highly
engineered services to the aerospace and other industries. In addition, from
May 1997 through October 1999, Mr. Siegel served as a founder and vice president
of Mail Call, Inc., a developmental stage e-commerce company. From April 1995
through August 1997, Mr. Siegel served as the Chief Financial Officer of The
Protective Group, a manufacturer of protective products such as bulletproof
vests, armoring for automobiles and helicopters, and firefighter gear. From
March 1994 through April 1995, Mr. Siegel served as the Chief Financial Officer
of Universal Heights, Inc., a publicly traded manufacturer and distributor of
licensed sports and entertainment novelty products. Mr. Siegel is a Certified
Public Accountant and received a Bachelor of Science in economics from the
Wharton School, University of Pennsylvania, and a Master of Business
Administration from the University of Miami.
YVES C. DUPLAN. Mr. Duplan joined us in September 1999 as our Chief
Technology Officer, and has over 15 years of experience as a software developer
and project manager. From March 1996 to
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<PAGE>
September 1999, he was a Senior Software Developer with Office Depot Corporation
where he was a member of a core development team responsible for the design,
evaluation, and implementation of new technologies for backroom applications
running in Office Depot stores. From May 1990 to March 1996, Mr. Duplan was a
Software Engineer/Project Leader for Analyst International Corp, a consulting
company, where he managed a team of software developers. Mr. Duplan holds a
Bachelor of Science in Computer Engineering from Nova University.
KEVIN J. STEIL. Mr. Steil joined us in August 1999 as Chief Information
Officer. From February 1996 to August 1998, Mr. Steil was a developer for the
AGES Group, a division of Volvo that sells parts and ground support equipment to
the aviation industry. Mr. Steil was responsible for the design and
implementation of the AGES transactional Web site, as well as maintaining their
enterprise network. From May 1994 to January 1997, Mr. Steil served as internet
consultant for Infrastructure Inc. Mr. Steil received his Bachelor of Science in
marine biology from Florida Atlantic University in 1994 and Associates Degree in
computer science from Panama Canal College in 1991.
LOUIS W. STORMS IV. Mr. Storms was elected to our board of directors in
June 1999. Mr. Storms has served as a consultant to us since February 1999 and
in that capacity served as our interim Director of Technology until
August 1999. Mr. Storms is an author and expert in developing multi-tiered
distributed applications using Microsoft Windows DNA. His book, MICROSOFT
WINDOWS DNA EXPOSED, was published in April 1999 by a subsidiary of Macmillan
Computer Publishing. Mr. Storms is a founder and partner in Plan Three
Solutions, L.L.C., a software development company. From April 1998 to
September 1998 Mr. Storms acted as a consultant for Deloitte and Touche LLP, and
from June 1996 to March 1998, he served as a consultant in business valuations
and as a software consultant for Arthur Andersen LLP. In 1996, Mr. Storms
received a Bachelor of Business Administration from the University of Texas, at
Austin.
THOMAS C. VAN HARE. Mr. Van Hare was appointed to our board of directors in
November 1999 and has extensive experience in commercial design and Internet
marketing. Mr. Van Hare is the President and Chief Executive Officer of Capstone
Internet Services, Inc., a graphic design and marketing company which he founded
in early 1994. Mr. Van Hare is a commercial pilot with multi-engine and
instrument ratings and has over three years of search and rescue experience.
DAVID G. FESSLER. Mr. Fessler has been appointed as a member of our board
of directors effective upon completion of this offering. Since September 1999,
Mr. Fessler has served as the President and owner of ADGrant Systems and
Networking Corporation, a networking integration services company that currently
services the AGES Group and the University of Connecticut. Since January 1999,
he has served as the Vice President of Novus Holding Corporation, a holding
company for interests in Magellan Aircraft Sales and Leasing Corp. and
Fairdinkum Construction Company. In addition, since May 1999, Mr. Fessler has
served as a board member of QODE.COM, an Internet bar coding company. From
May 1990 to August 1999, Mr. Fessler served as the Vice President of Technology
for the Information Systems Group of the AGES Group where he was responsible for
worldwide network and computer operations support.
PIERRE A. NARATH. Mr. Narath has been appointed as a member of our board of
directors effective upon completion of this offering. Since January 1999,
Mr. Narath has served as the Chairman, Chief Executive Officer and President of
Touchstone Software Corp., an OTC Bulletin Board listed developer and publisher
of utility software used to set up, maintain, and manage personal computers and
networks. From May 1997 to November 1998, Mr. Narath served as Vice President of
Award Software International, Inc., a developer and marketer of system enabling
and management software for the global computing market that was acquired by
Phoenix Techologies, Inc., in 1998, and as President of Unicore Software, Inc.,
a software company acquired by Touchtone Software Corp. in 1999. From
February 1990 to May 1997, Mr. Narath founded and served as President of Unicore
Software, Inc.
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<PAGE>
BOARD COMMITTEES
We have established an audit committee and a compensation committee. The
audit committee recommends to the board of directors the independent certified
public accountants to be selected to audit our annual financial statements and
approves any special assignments given to those accountants. The audit committee
also reviews the planned scope of the annual audit and the independent
accountants' letter of comments and management's response thereto, any major
accounting changes made or contemplated and the effectiveness and efficiency of
our internal accounting staff. The compensation committee makes recommendations
to the board of directors regarding the compensation payable to our executive
officers, reviews general policies relating to the compensation and benefits of
our employees and administers the PartsBase.com, Inc. 1999 stock option plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The compensation committee will be responsible for determining salaries,
incentives and other forms of compensation for our directors, officers and other
employees and administering various incentive compensation and benefit plans. We
did not have a compensation committee during 1999. Our board of directors was
responsible for these matters for that year. Upon completion of the offering,
our compensation committee will consist of Thomas Van Hare, David G. Fessler and
Robert A. Hammond, Jr. Mr. Hammond participates in all discussions and decisions
regarding salaries and incentive compensation for all employees and consultants
of PartsBase.com, except that he is excluded from discussions regarding his own
salary and incentive compensation. Other than Mr. Hammond, no member of the
compensation committee has at any time been an officer or employee of
PartsBase.com. No interlocking relationship exists between any member of our
compensation committee and any member of any other company's board of directors
or compensation committee. No interlocking relationship existed between any
member of our board of directors and any member of any other company's board of
directors or compensation committee in 1999.
See "Certain Relationships and Related Transactions" for a description of
certain transactions between us and members of our board of directors.
DIRECTOR COMPENSATION
Directors previously have received no cash compensation for serving on the
board of directors. Beginning upon completion of the offering, we will pay each
non-employee member of our board of directors a fee of $1,000 per board or
committee meeting attended, plus all out-of-pocket expenses incurred in
connection with attending board meetings. Mr. Storms received an option to
acquire 37,500 shares of our common stock at an exercise price of $0.63 per
share in November 1999. In addition, Mr. Van Hare received an option to acquire
10,000 shares of our common stock at an exercise price of $0.63 per share upon
his election to the board of directors in November 1999. With respect to
Mr. Fessler, Mr. Narath, or any future independent non-employee directors, upon
the effective date of their appointment to the board of directors, the directors
will be entitled to receive an option to purchase an aggregate of 10,000 shares
of our common stock. The exercise price of these options shall be the initial
public offering price with respect to Mr. Fessler and Mr. Narath and the fair
market value of our common stock on the grant date with respect to any future
non-employee directors. Mr. Storms' options vested 21,875 at the time of grant
with the remainder vesting in five equal monthly installments following the
grant date. Mr. Van Hare's, Mr. Narath's and Mr. Fessler's options, as well as
any future independent non-employee director's options, shall become exercisable
as to one-third of the shares on the six-month anniversary of the grant date,
one-third on the first anniversary of the grant date, and the remaining
one-third on the second anniversary of the grant date; provided, however, that
Mr. Van Hare's option shall accelerate and become exercisable in full if he is
not elected to the Board of Directors or otherwise involuntarily ceases to serve
as a director. The options will expire on the earlier of ten years from the date
of grant or three months after the optionee ceases to be a director. In
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<PAGE>
addition, each of our non-employee directors will be eligible to receive
additional stock option grants in the future at the discretion of the board of
directors.
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation
during our fiscal year ended December 31, 1999 for our Chief Executive Officer.
No other executive officer received salary and bonus in excess of $100,000
during fiscal 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------------------
OTHER ANNUAL
SALARY BONUS COMPENSATION
NAME AND POSITION YEAR ($) ($) ($)
- ----------------- -------- -------- -------- ------------
<S> <C> <C> <C> <C>
Robert A. Hammond, Jr.
Chief Executive Officer
and President......................... 1999 81,250(1) -- --(2)
</TABLE>
- ------------------------
(1) Represents salary paid from June 1, 1999 through December 31, 1999. Mr.
Hammond's annual salary during that period was $150,000.
(2) Perquisites did not exceed the lesser of $50,000 or 10% of Mr. Hammond's
base salary in 1999.
STOCK OPTIONS
No stock options for our common stock were granted to Mr. Hammond during
fiscal 1999. However, certain of our executive officers were granted incentive
stock options in fiscal 1999. See "--Employee Benefit Plans" below.
EMPLOYMENT AGREEMENTS
In November 1999, we entered into employment agreements with each of our
executive officers other than Mr. Siegel, whose agreement is dated December 31,
1999. The employment contracts have an initial term of two years but shall be
renewed for successive two year terms unless earlier terminated. The agreements
may be terminated by us or the employee with or without cause upon 30 days prior
written notice.
The employment contracts of the executive officers provide for the following
annual base salaries both prior and subsequent to completion of this offering:
<TABLE>
<CAPTION>
POST-OFFERING PRE-OFFERING
BASE SALARY BASE SALARY
------------- ------------
<S> <C> <C>
Robert A. Hammond, Jr................................ $250,000 $150,000
Steven R. Spencer.................................... $125,000 $ 84,000
Michael W. Siegel.................................... $141,000 $141,000(1)
Yves C. Duplan....................................... $ 95,000 $ 95,000
Kevin J. Steil....................................... $ 80,000 $ 80,000
</TABLE>
- ------------------------
(1) Excludes a $30,000 signing bonus.
The base salaries of each executive officer may be increased in the
discretion of the board of directors or the compensation committee of the board
of directors. In addition to the base salaries described above, each of the
executive officers is entitled to three weeks vacation, reimbursement of
business expenses and may, at our expense, participate along with his spouse and
dependents in any medical or other insurance plan maintained by us for salaried
employees. In addition, Mr. Hammond,
35
<PAGE>
Mr. Spencer and Mr. Siegel receive automobile allowances of $1,000, $750, and
$750 per month, respectively.
Each of the employment agreements contain non-compete covenants that
prohibit the employee from directly or indirectly participating in businesses in
competition with us following termination of his employment for a period of two
years.
Pursuant to the terms of his employment agreement, Mr. Siegel is entitled to
receive a severance payment equal to six months' salary in the event of a
termination of his employment for any reason other than cause, as defined in his
employment agreement.
KEY MAN INSURANCE
Prior to completion of this offering, we intend to acquire key man insurance
covering the life of Mr. Hammond in the amount of at least $2,000,000 and naming
PartsBase.com as beneficiary.
EMPLOYEE BENEFIT PLANS
STOCK OPTION PLAN
In November 1999, we adopted the PartsBase.com, Inc. 1999 stock option plan
for the purpose of promoting our long-term growth and profitability by providing
key people with incentives to improve stockholder value and contribute to our
growth and financial success.
The stock option plan provides for the award to eligible participants,
including employees, officers, directors and consultants, of stock options
including non-qualified options and incentive stock options under Section 422 of
the Internal Revenue Code. Under the stock option plan, 2,000,000 shares of
common stock are reserved for issuance. The stock option plan will terminate on
September 30, 2008 unless extended by our board of directors and, to the extent
required under applicable law, our stockholders. The stock option plan may be
amended or terminated by our board at any time provided that any significant
amendments must be approved by our stockholders.
Subsequent to this offering, the stock option plan will be administered by
our board of directors or the compensation committee of our board of directors.
The board or the compensation committee, as the case may be, will select the
participants and establish the terms and conditions of each option or other
rights granted under the stock option plan, including the exercise price, the
number of shares subject to options or other equity rights and the time at which
the options become exercisable. The exercise price of all "incentive stock
options" within the meaning of Section 422 of the Internal Revenue Code, granted
under the stock option plan must be at least equal to 100% of the fair market
value of the option shares on the date of grant. The term of any incentive stock
option granted under the stock option plan may not exceed ten years; however,
where the eligible stock option plan participant owns over 10% of the total
combined voting power of all classes of our stock, the exercise price must be at
least equal to 110% of the fair market value of the option shares on the date of
grant and the term cannot exceed five years.
To the extent required to comply with Rule 16b-3 under the Exchange Act, if
applicable, and in any event in the case of an incentive stock option, no award
granted under the stock option plan shall be transferable by a grantee otherwise
than by will or by the laws of descent and distribution. Other terms and
conditions of each award are set forth in the grant agreement governing that
award and determined by the board of directors or the compensation committee as
administrators of the stock option plan.
As of the date of this prospectus, non-qualified options to purchase a total
of 987,875 shares of common stock were outstanding under our stock option plan
at an exercise price of $0.63 per share and no options had been exercised. The
following of our executive officers and outside directors
36
<PAGE>
received non-qualified stock option grants in November 1999 except for
Mr. Siegel, whose grant was made in January 2000.
<TABLE>
<CAPTION>
NAME NO. OF SHARES OPTION PRICE VESTING
- ---- ------------- ------------ -------
<S> <C> <C> <C>
Michael Siegel.... 75,000 shares $0.63 24 equal monthly installments
Yves C. Duplan.... 35,000 shares $0.63 833 upon grant, remainder in 22 monthly
installments of approximately 1,458 shares
followed by 2 monthly installments of
approximately 1,045 shares
Kevin Steil....... 10,000 shares $0.63 1,875 upon grant; remainder in 9 monthly
installments of 625 shares followed by 12
monthly installments of approximately 208
shares
</TABLE>
In addition, each of our non-employee directors has received a non-qualified
stock option grant upon his appointment to the board of directors. See
"--Director Compensation" above.
RESTRICTED STOCK BONUS PLAN
In May 1999, we adopted the PartsBase.com, Inc. restricted stock bonus plan.
The stock bonus plan authorized us to award or grant to employees, consultants,
officers and directors (except persons serving as directors only) shares of our
common stock subject to a substantial risk of forfeiture. Our board of directors
had the sole authority to select participants, to establish the terms and
conditions of the stock and to grant the stock.
Employees, including officers, directors who are not employees, and outside
consultants selected by our board of directors, were eligible to receive stock
under the stock bonus plan. The maximum number of shares of common stock which
could have been granted under the stock bonus plan was 1,200,000 shares. The
vesting schedule of stock granted under the stock bonus plan was determined by
our board of directors.
Stock grants under the stock bonus plan vest in accordance with a schedule
established by our board of directors with respect to each individual grant. In
the event a stock grant recipient is terminated, any unvested portion of the
shares that were subject to the stock grant shall be canceled. Each recipient
has all the rights of a shareholder with respect to stock received pursuant to
the stock bonus plan, including the right to vote these shares and receive all
dividends and other distributions.
We terminated the stock bonus plan in November 1999. Prior to termination,
stock grants totaling 1,108,500 shares were granted to an aggregate of 42
persons. Effective November 17, 1999, we entered into restricted stock
cancellation agreements with substantially all of the recipients who received
stock pursuant to the stock bonus plan. The agreement calls for cancellation of
any stock received by the recipient and termination of the restricted stock
agreement between the employee and us. An aggregate of 251,250 shares of
restricted stock remain outstanding under the stock bonus plan. Such stock is
held by a total of four persons, including 250,000 shares held by Steven
Spencer, a director and executive officer. Mr. Spencer's stock grant vested with
respect to 50,000 shares upon commencement of employment. The remaining 200,000
shares vest in 24 equal monthly installments; provided, however, that vesting
shall accelerate with respect to 100,000 shares upon completion of this
offering.
In connection with the cancellation of the stock grants under our stock
bonus plan, we issued an option to purchase one share of common stock for each
cancelled share of stock bonus plan stock. The replacement options were granted
pursuant to our 1999 stock option plan.
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<PAGE>
LIMITATIONS ON LIABILITY OF DIRECTORS AND INDEMNIFICATION OF DIRECTORS AND
OFFICERS
As permitted by the Texas Business Corporation Act, we have included in our
articles of incorporation, as amended, a provision to eliminate the personal
liability of our directors for monetary damages for breach or alleged breach of
their fiduciary duties as directors, subject to exceptions. In addition, both
our articles of incorporation, as amended, and our bylaws provide that we are
required to indemnify our officers and directors, and we are required to pay
for, and may advance, expenses for our officers and directors as incurred in
connection with proceedings against them for which they may be indemnified. We
have entered into indemnification agreements with our officers and directors
containing provisions that are in some respects broader than the specific
indemnification provisions contained in the Texas Business Corporation Act. The
indemnification agreements require us, among other things, to indemnify our
officers and directors against liabilities that may arise by reason of their
status or service as officers and directors, other than liabilities arising from
willful misconduct of a culpable nature, to pay for their expenses incurred as a
result of any proceeding against them as to which they could be indemnified, and
to obtain directors' and officers' insurance if available on reasonable terms.
We have also obtained directors' and officers' liability insurance.
At present, we are not aware of any pending or threatened litigation or
proceeding involving a director, officer, employee or agent of ours in which
indemnification would be required or permitted. We are not aware of any
threatened litigation or proceeding that might result in a claim for
indemnification. We believe that our charter provisions and indemnification
agreements are necessary to attract and retain qualified persons as directors
and officers.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with our incorporation in April 1999, Robert Hammond, our
President and Chief Executive Officer, contributed assets to us in exchange for
shares of our common stock. See "Summary--Our History" for a brief description
of this transaction.
From time to time, Mr. Hammond has made advances to us for expenses and
short-term working capital needs. As of December 31, 1999, these advances
totaled $80,900, all of which was repaid in full prior to December 31, 1999.
Metro Investments, LLC, a company controlled by Mr. Narath, one of our
director nominees, acquired 40,000 shares of Series A convertible preferred
stock at $2.50 per share in connection with our November 1999 private placement.
In addition, Touchstone Software Corp., a publicly traded company of which
Mr. Narath is an officer, director and significant stockholder, acquired an
additional 260,000 shares of Series A convertible preferred stock in our
November 1999 private placement. A description of the terms of the private
placement is contained in "Description of Capital Stock--Private Placements."
In May through October 1999, we made stock grants to some of our employees,
most of which were cancelled in November 1999. A summary of these grants is
contained in "Management--Employee Benefit Plans."
Plan Three Solutions, LLC, a company owned and operated by Louis Storms, one
of our directors, provided significant services designing and maintaining our
Web site. We pay this company for its continued services. During the year ended
December 31, 1999, we made total payments of $260,000 for Web site maintenance
services. An additional $33,550 was owed to this company as of December 31,
1999. We believe the terms of our contract wtih Plan Three Solutions, LLC, are
at least as fair as those we could have obtained from unrelated third parties in
arms-length negotiations.
Capstone Internet Services, Inc., a graphic design and marketing company
founded and operated by Thomas Van Hare, one of our directors, provided services
in connection with the design of our advertising brochures and other marketing
materials. During the year ended December 31,1999 we made total payments of
$53,263 for those services. We believe the terms of our engagement of Capstone
Internet Services, Inc. are at least as fair as those that we could have
obtained from unrelated third parties in arms-length negotiations.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding shares of our common
stock beneficially owned as of February 29, 2000, and as adjusted to reflect the
offering, by:
- Each person or group known to us that beneficially owns more than five
percent of our outstanding common stock.
- Our directors and our Chief Executive Officer.
- All of our executive officers and directors as a group.
Beneficial ownership is calculated in accordance with Rule 13d-3(d) under
the Securities Exchange Act of 1934. Shares of common stock subject to options
and warrants that are currently exercisable or are exercisable within 60 days of
February 29, 2000, are deemed outstanding with respect to the person holding
those options but are not deemed outstanding for purposes of computing the
percentage ownership of any other person. Unless otherwise indicated, each
person possesses sole voting and investment power with respect to the shares
identified as beneficially owned. Except as otherwise indicated in the table,
the address of the stockholders listed below is that of our principal executive
office. Directors not included in the table below do not hold our securities.
Shares beneficially owned prior to the offering are as adjusted to reflect and
include the automatic conversion upon the completion of the offering of:
- All outstanding Series A convertible preferred stock into an aggregate
of 855,000 shares of common stock.
- All outstanding convertible notes into an aggregate of 481,250 shares
of common stock.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED PRIOR TO THE SHARES BENEFICIALLY
OFFERING OWNED AFTER THE OFFERING
------------------------- --------------------------
NAME AND ADDRESS(1) NUMBER PERCENT(2) NUMBER PERCENT(2)
- ------------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Robert A. Hammond, Jr............................. 9,000,000(3) 85.00 9,000,000(3) 63.89
Steven R. Spencer................................. 250,000(4) 2.34 250,000(4) 1.77
Louis W. Storms IV(5)............................. 37,500(6) * 37,500(6) *
Thomas Van Hare(7)................................ -- -- -- --
David G. Fessler(8)............................... -- -- -- --
Pierre A. Narath(9)............................... 40,000(10) * 40,000(10) *
All directors and executive officers as a group
(9 persons)(11)................................. 9,372,500 87.84 9,372,500 66.14
</TABLE>
- ------------------------
* Represents less than 1% of the outstanding common stock.
(1) Except as otherwise indicated, the business address of each person listed is
c/o PartsBase.com, 7171 N. Federal Highway, Suite 100, Boca Raton, Florida
33487.
(2) Percentages based on 10,587,500 shares outstanding prior to the offering and
14,087,500 shares outstanding immediately after the offering.
(3) Includes 4,500,000 shares owned by Mr. Hammond individually and 4,500,000
shares owned by R. Hammond, L.P., a limited partnership of which Mr. Hammond
is the sole general partner and of which a trust established for the benefit
of Mr. Hammond's children is a 99% limited partner.
(4) Consists of 250,000 shares issued to Mr. Spencer pursuant to the terms of
our restricted stock bonus plan but which are subject to the vesting and
forfeiture provisions of the plan.
(5) Mr. Storms' address is 777 Dunlavy #9205, Houston, Texas 77019.
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(6) Consists of shares subject to stock options that are currently exercisable
or will become exercisable within 60 days following February 29, 2000.
(7) Mr. Van Hare's address is c/o Capstone Studio, 200 West Palmetto Park Rd.
Ste. 201, Boca Raton, Florida 33432.
(8) Mr. Fessler's address is 18350 Long Lake Drive, Boca Raton, Florida 33496.
(9) Mr. Narath's address is 1538 Turnpike Street, North Andover, Massachusetts
01845.
(10) Consists of shares of Series A convertible preferred stock owned by Metro
Investments, LLC, a company controlled by Mr. Narath, which convert into
40,000 shares of our common stock upon completion of this offering. Excludes
10,000 shares that are the subject of stock options that are not currently
exercisable and 260,000 shares of Series A convertible preferred stock owned
by Touchstone Software Corp., a company of which Mr. Narath is an officer,
director and significant stockholder.
(11) Includes 82,500 shares subject to options that are currently exerciseable
or will become exerciseable within 60 days following February 29, 2000.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
In our articles of incorporation, as revised, we are authorized to issue up
to 30,000,000 shares of common stock, no par value, and 2,000,000 shares of
preferred stock, no par value. Prior to this offering, 9,251,250 shares of
common stock were issued and outstanding and an additional 1,336,250 shares were
reserved for issuance upon conversion of 855,000 shares of outstanding Series A
convertible preferred stock and convertible notes. An additional 1,162,875
shares are reserved for issuance under the terms of outstanding options and
warrants. As of February 29, 2000, there were six record holders of our common
stock.
The following description of our capital stock is a summary and is qualified
in its entirety by the provisions of our articles of incorporation, bylaws and
applicable law. These documents have been filed as exhibits to the registration
statement, of which this prospectus is a part.
COMMON STOCK
The holders of common stock are entitled to one vote per share on all
matters submitted to a vote of the stockholders. Holders of common stock are
entitled to share in any and all dividends that our board of directors, in its
discretion, declares from funds legally available for that purpose. In the event
of any liquidation or dissolution of PartsBase.com, the holders of common stock
are entitled to participate in and share pro rata in the assets available for
distribution to stockholders. Any distribution would be subsequent to payment of
our liabilities and may be subject to any preferential rights of any preferred
stock or other senior security then outstanding. The holders of common stock
have no cumulative voting, preemptive or other subscription rights, and there
are no conversion rights or redemption or sinking fund provisions with respect
to the common stock. The rights, preferences and privileges of the holders of
common stock are subject to, and may be adversely affected by, the rights of the
holders of any shares of preferred stock or senior securities which we may
designate in the future.
PREFERRED STOCK
Our board of directors is authorized, subject to any limitations prescribed
by Texas law, but without further action by our shareholders, to provide for the
issuance of up to 2,000,000 shares of preferred stock in one or more series, to
establish from time to time the number of shares to be included in each series
and any qualifications, limitations, or restrictions thereof, and to increase or
decrease the number of shares of any series, but not below the number of shares
of the series then outstanding, without any further vote or action by the
stockholders. The board of directors may authorize and issue preferred stock
with voting or conversion rights that could adversely affect the voting power or
other rights of common stockholders.
Simultaneously with the consummation of the offering, all 855,000 shares of
our outstanding Series A convertible preferred stock will be converted into
855,000 shares of common stock and no shares of our preferred stock will remain
outstanding.
PRIVATE PLACEMENTS
In June 1999, we completed a private placement of $900,000 in 8% convertible
secured subordinated notes due 2001. GunnAllen Financial, Inc. acted as the
placement agent with respect to the placement and, as a result, received
commissions equal to 10% of the gross proceeds, a non-accountable expense
allowance of 3% of the gross proceeds, and a warrant to purchase up to 175,000
shares of our common stock at an exercise price of $2.00 per share.
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<PAGE>
In November 1999, we issued to two investors an aggregate of $62,500 of
notes having substantially identical terms to the notes issued in connection
with the June placement, including $50,000 sold to the father of Mr. Duplan, one
of our executive officers.
The notes issued in connection with the June placement bear interest at an
annual rate of 8% and are secured by substantially all of our assets. Interest
is payable in quarterly installments commencing September 30, 1999 with all
principal and interest due and payable on December 31, 2001 unless prepaid by us
or converted into our common stock. Both the notes issued in connection with the
June placement and the notes issued in November will automatically convert into
shares of our common stock at a conversion rate of $2.00 upon closing of this
offering. An aggregate of 481,250 shares will be issued in connection with the
conversion of said notes. Subject to a lock-up restriction pursuant to which
holders will not be permitted to sell or transfer shares for a period of
180 days following the effective date of this offering, each holder of notes was
granted piggy-back registration rights to register for resale the shares of
common stock issuable upon conversion of the notes.
In November 1999, we raised an additional $2,137,500 through a private
placement of 855,000 shares of Series A convertible preferred stock at $2.50 per
share. In connection with such private placement, we paid a total placement fee
of $235,125 to three broker-dealers. The shares of Series A preferred stock will
automatically convert into an aggregate of 855,000 shares of common stock upon
completion of the offering. Subject to a lock-up restriction pursuant to which
holders will not be permitted to sell or transfer shares for a period of
180 days following the effective date of this offering, each holder of Series A
preferred stock was granted piggy-back registration rights to register for
resale in connection with this offering the shares of common stock issuable upon
conversion of the shares.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF OUR ARTICLES OF INCORPORATION, BYLAWS AND
TEXAS LAW
Our articles of incorporation and bylaws contain provisions that under the
Texas Business Corporation Act, as amended, may be deemed to be "anti-takeover"
in nature that will be immediately applicable. These provisions are:
- the requirement that we indemnify our directors and officers to the
fullest extent permitted by Texas law;
- the power of the board of directors to authorize the issuance of up to
2,000,000 shares of preferred stock and to determine the designations,
preferences, limitations and relative rights, including voting rights,
of those shares without further vote or action by the stockholders; and
- the elimination of preemptive rights to common stock.
Upon completion of this offering, we will be subject to Part Thirteen of the
Texas Business Corporation Act. Subject to exceptions, Part Thirteen generally
prohibits a publicly held Texas corporation from engaging in any business
combination with any affiliated shareholder for a period of three years
following the date that the shareholder became an affiliated shareholder, unless
prior to that date, the corporation's board of directors approved either the
business combination or the transaction that resulted in the shareholder
becoming an affiliated shareholder, or the business combination is approved by
at least two-thirds of the outstanding voting shares that are not beneficially
owned by the affiliated shareholder or an affiliate or associate of the
affiliated shareholder at a meeting of shareholders called not less than six
months after the affiliated shareholder's share acquisition date.
In general, Part Thirteen defines an affiliated shareholder as any entity or
person beneficially owning 20% or more of the outstanding voting stock of the
issuing public corporation and any entity or person affiliated with or
controlling or controlled by that entity or person. Part Thirteen defines a
business combination to include, among other similar types of transactions, any
merger, share exchange, or conversion of an issuing public corporation involving
an affiliated shareholder. Part Thirteen may
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<PAGE>
have the effect of inhibiting a non-negotiated merger or other business
combination that we may be involved in.
Our amended and restated articles of incorporation limit the liability of
our directors for monetary damages for an act or omission in the director's
capacity as a director, except to the extent otherwise required by the Texas
Business Corporation Act. This limitation of liability does not affect the
availability of equitable remedies such as injunctive relief or rescission. Our
amended and restated articles of incorporation permit us to indemnify our
directors and officers to the fullest extent permitted by Texas law, including
in circumstances in which indemnification is otherwise discretionary under Texas
law.
Under Texas law, a corporation may indemnify a director or officer or other
person who was, is, or is threatened to be made a named defendant or respondent
in a proceeding because the person is or was a director, officer, employee or
agent of the corporation, if it is determined the person:
- conducted himself or herself in good faith;
- reasonably believed, in the case of conduct in his or her official
capacity as a director or officer of the corporation, that his or her
conduct was in the corporation's best interests, and, in all other
cases, that his or her conduct was at least not opposed to the
corporation's best interests; and
- in the case of any criminal proceeding, had no reasonable cause to
believe that his or her conduct was unlawful.
Any person meeting the standards set forth above may be indemnified against
judgments, penalties, including excise and similar taxes, fines, settlements and
reasonable expenses actually incurred by the person in connection with the
proceeding. If the person is found liable to the corporation or is found liable
on the basis that personal benefit was improperly received by the person, the
indemnification is limited to reasonable expenses actually incurred by the
person in connection with the proceeding, and must not be made in respect of any
proceeding in which the person is found liable for willful or intentional
misconduct in the performance of his or her duty to the corporation.
Insofar as indemnification for liabilities under the Securities Act may be
permitted to directors, officers or persons controlling us pursuant to the
foregoing provisions, we have been informed that, in the opinion of the SEC,
this type of indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable. We have entered into
indemnification agreements with each of our directors that provide for
indemnification and expense advancement in addition to the indemnification
provided by the amended and restated articles and bylaws. We believe that these
provisions and agreements are necessary to attract and retain qualified
directors.
The shares of preferred stock and the elimination of preemptive rights to
common stock were authorized for the purpose of providing the board of directors
with as much flexibility as possible to issue additional shares, without further
stockholder approval for proper corporate purposes, including financing,
acquisitions, stock dividends, stock splits, employee incentive plans and other
similar purposes. However, these additional shares may also be used by the board
of directors, if consistent with its fiduciary responsibilities, to deter future
attempts to gain control over PartsBase.com.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is U.S. Stock Transfer
Corporation.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have outstanding 14,087,500 shares
of common stock. Of these shares, the 3,500,000 shares of common stock sold in
this offering will be freely tradable in the public market without restrictions
under the Securities Act. Any shares purchased in this offering by our
affiliates, as defined in Rule 144 under the Securities Act, may only be sold in
compliance with the applicable provisions of Rule 144 discussed below.
In general, under Rule 144, a person who has complied with the requirements
set forth below and has beneficially owned "restricted securities" for at least
one year, including a person who may be deemed an affiliate of us, is entitled
to sell, within any three-month period, the number of shares of common stock
that does not exceed the greater of:
- one percent of the then outstanding shares of our common stock; 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 on Form 144 with the SEC.
Sales under Rule 144 are subject to restrictions relating to manner of sale,
notice obligations and the requirements as to the availability of current public
information about us. Generally, a person who is not an affiliate of ours at any
time during the 90 days preceding a Rule 144 sale and who has beneficially owned
the shares for at least two years can sell without complying with the manner of
sale, notice, and volume requirements. As of December 31, 1999, the one-year
holding period had not expired with respect to any shares of our common stock.
Stockholders holding 10,587,500 shares, representing all of our outstanding
shares immediately prior to the offering, have entered into lock-up agreements
pursuant to which they agreed not to sell, pledge, assign, or otherwise
transfer, or agree to sell, pledge, assign or otherwise transfer their shares
without the prior written consent of the representatives of the underwriters for
a period of 180 days following the date of the final prospectus. Giving effect
to these lock-up agreements and applicable legal restrictions, the number of
shares of common stock and the dates when these shares will become freely
tradeable or saleable in the market, subject to volume limitations and other
requirements of Rule 144 applicable to affiliates and certain other
stockholders, is as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES DATE
- --------------------- ----
<C> <S>
3,500,000 At the date of this prospectus
10,587,500 180 days following the date of this prospectus
</TABLE>
Simultaneously with this offering, we have registered on behalf of selling
stockholders who participated in our private placements in June or November
1999, an aggregate of 1,336,250 shares of our common stock. Upon expiration of
the 180-day lock-up period, the shares registered on behalf of private placement
stockholders may be sold in the market pursuant to a selling stockholder
prospectus in the form accompanying the registration statement of which this
prospectus is a part. Shares subject to the 180-day lock-up period, other than
those that are registered on behalf of the private placement stockholders, may
be sold into the public market without registration under the Securities Act in
compliance with the volume limitations and other applicable restrictions of
Rule 144 under the Securities Act. These shares must be held for a period of at
least one year before they are eligible for resale in the public market pursuant
to Rule 144.
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<PAGE>
PLAN OF DISTRIBUTION
GENERAL
Subject to the terms and conditions of our underwriting agreement, the
underwriters named below, for whom Roth Capital Partners, Inc. and Pennsylvania
Merchant Group are acting as representatives, agreed to purchase from us, and we
have agreed to sell to the underwriters, the respective number of shares of
common stock set forth opposite each underwriter's name below:
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
- ------------ ----------------
<S> <C>
Roth Capital Partners, Inc..................................
Pennsylvania Merchant Group.................................
Total................................................. 3,500,000
=========
</TABLE>
Our underwriting agreement provides that the obligations of the underwriters
are subject to certain conditions precedent, including the absence of any
material adverse change in our business and the receipt of certificates,
opinions and letters from our counsel and independent public accountants. The
nature of the underwriters' obligation commits them to purchase and pay for all
the shares of common stock if any are purchased.
We have been advised by the representative that the underwriters propose to
offer the shares of common stock directly to the public on the terms set forth
on the cover page of this prospectus. The underwriters may allow selected
dealers a concession of not more than $. per share, and the underwriters may
allow, and the selected dealers may reallow, a concession of not more than $.
per share, to other dealers. After the initial public offering of the shares,
the public offering price and other selling terms may be changed by the
representatives. No change in the terms shall change the amount of proceeds to
be received by us as set forth on the cover page of this prospectus.
We have granted an option to the underwriters, exercisable for a period of
45 days after the date of this prospectus to purchase up to an additional
525,000 shares of common stock at the same price per share as the initial shares
to be purchased by the underwriters to cover overallotments, if any. To the
extent that the underwriters exercise this option, each of the underwriters will
be committed, subject to customary conditions to closing, to purchase the
additional shares of common stock in approximately the same proportion as set
forth in the above table.
UNDERWRITERS' COMPENSATION
The representatives of the underwriters have advised us that they do not
expect any sales of the shares of common stock offered hereby to be made to
discretionary accounts controlled by the underwriters.
We have agreed to pay the representatives a nonaccountable expense allowance
equal to 2% of the aggregate price of the shares of common stock offered hereby,
including with respect to shares of common stock underlying the overallotment
option, if and to the extent it is exercised, set forth on the front cover of
this prospectus. The representatives' expenses in excess of the nonaccountable
expense allowance, including legal expenses, will be borne by the
representatives.
We have agreed to issue to the representatives at the closing of the
offering a warrant to purchase up to 262,500 shares of common stock at an
exercise price per share equal to 165% of the initial public offering price. The
representatives' warrant is exercisable for a period of four years beginning one
year from the date of this prospectus.
The holder of the representatives' warrant will have no voting, dividends or
other shareholder rights until the representatives' warrant is exercised. The
terms of the representatives' warrant were established as the result of
negotiations between the representatives and us. If the representatives' warrant
is exercised, the representatives may realize additional compensation. By its
terms, the representatives' warrant will be restricted from sale, transfer,
assignment or hypothecation, except to persons that are officers or partners of
any NASD member participating in the offering. The number of
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<PAGE>
shares covered by the representatives' warrant and the exercise price are
subject to adjustment to prevent dilution. In addition, we have granted both
demand and piggy-back registration rights to the holder of the representatives'
warrant to register the representatives' warrant and the common stock underlying
the representatives' warrant under the Securities Act.
Total compensation to the representatives and the underwriters is as
follows:
- Commissions--$. per share of common stock sold;
- Nonaccountable expense allowance--$. per share of common stock sold; and
- Warrants to purchase up to 262,500 shares of common stock at 165% of the
per share offering price
LOCK-UP AGREEMENTS
Our directors and officers and our shareholders have entered into lock-up
agreements which provide that they will not, directly or indirectly, offer,
sell, contract to sell, pledge, hypothecate or otherwise dispose of any of their
shares or securities convertible into or exercisable or exchangeable for, or any
rights to purchase or acquire common stock of the beneficial ownership, thereof
for an initial period of 180 days after the date of this prospectus without the
prior written consent of the representatives, on behalf of the underwriters. The
representatives have no present intention to release the locked-up shares prior
to expiration of the lock-up period although they may release the locked-up
shares prior to the expiration of the 180 day period. The granting of any
release would be conditioned, in the judgment of the representatives, on the
applicable sale not materially adversely impacting the prevailing trading market
for the common stock on the Nasdaq National Market System. Specifically, factors
such as average trading volume, recent price trends, and the need for additional
public float in the market for the common stock would be considered in
evaluating a request to sell.
DETERMINATION OF OFFERING PRICE
Prior to the offering, there has been no established trading market for the
common stock. Consequently, the initial public offering price for the common
stock offered hereby has been determined by negotiations between the
representatives and us. Among the factors considered in the negotiations were
the preliminary demand for the common stock, the prevailing market and economic
conditions, our results of operations, estimates of our business potential and
prospects, the present state of our business operations, an assessment of our
management, the consideration of these factors in relation to the market
valuation of comparable companies in related businesses, the current condition
of the markets in which we operate, and other factors deemed relevant. There can
be no assurance that an active trading market will develop for the common stock
or that the common stock will trade in the public market after the offering at
or above the initial public offering price.
MARKET STABILIZATION
The representatives have advised us that, pursuant to Regulation M under the
Securities Act, some persons participating in the offering may engage in
transactions, including stabilizing bids, syndicate covering transactions or the
imposition of penalty bids, that may have the effect of stabilizing or
maintaining the market price of the shares of common stock at a level above that
which might otherwise prevail in the open market. A "stabilizing bid" is a bid
for or the purchase of shares of common stock on behalf of the underwriters for
the purpose of fixing or maintaining the price of the common stock. A "syndicate
covering transaction" is the bid for or purchase of common stock on behalf of
the underwriters to reduce a short position incurred by the underwriters in
connection with the offering. A "penalty bid" is an arrangement permitting the
representatives to reclaim the selling concession otherwise accruing to an
underwriter or syndicate member in connection with the offering if the common
stock originally sold by the underwriter or syndicate member purchased by the
representatives in a syndicate covering transaction and has therefore not been
effectively placed by the underwriter or syndicate member. The representatives
have advised us that these transactions may be
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<PAGE>
effected on the Nasdaq National Market System or otherwise and, if commenced,
may be discontinued at any time.
The underwriting agreement provides that we will indemnify the underwriters
and their controlling persons against liabilities under the Securities Act or
will contribute to payments the underwriters and their controlling persons may
be required to make in respect thereof.
DIRECTED SHARE PROGRAM
At our request, the underwriters have reserved up to 15 percent of the
shares offered by this prospectus for sale at the initial public offering price
to our employees, officers, directors and other individuals associated with us
and members of their families. The number of shares available for sale to the
general public will be reduced to the extent these individuals purchase or
confirm for purchase, orally or in writing, such reserved shares. Any reserved
shares not purchased or confirmed for purchase will be offered by the
underwriters to the general public on the same basis as the other shares offered
by this prospectus.
LEGAL MATTERS
The legality of the securities in this offering has been passed upon for
PartsBase.com by Jeffer, Mangels, Butler & Marmaro LLP, Los Angeles, California.
Agreed upon legal matters will be passed upon for the underwriters by Greenberg
Traurig, LLP, McLean, Virginia.
EXPERTS
The financial statements as of December 31, 1999 and 1998 and for each of
the three years in the period ended December 31, 1999 included in this
prospectus have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report appearing herein, and have been so included in reliance
upon the report of Deloitte & Touche, LLP, given upon their authority as experts
in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the
Securities Act with respect to the shares of common stock offered by this
prospectus. This prospectus does not contain all of the information set forth in
the registration statement, as some information is omitted in accordance with
the rules and regulations of the SEC. For further information with respect to us
and this offering, reference is made to the registration statement, including
the exhibits filed therewith, copies of which may be obtained at prescribed
rates from the SEC at the public reference facilities maintained by the SEC at
Judiciary Plaza Building, 450 Fifth Street, NW, Washington, D.C. 20549 and at
the SEC's regional offices located at Seven World Trade Center, Suite 1300, New
York, NY 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, IL 60661. The SEC maintains a Web site on the Internet that will
contain all future reports, proxy and information statements and other
information that we are required to file electronically with the SEC. The
address of the SEC's Web site is HTTP://WWW.SEC.GOV. Further information
regarding the SEC's public reference facilities may be obtained by calling the
SEC at 1-800-SEC-0330.
This prospectus includes statistical data regarding Internet usage and
business-to-business e-commerce which were obtained from industry publications,
including reports generated by Forrester Research Inc., Boeing Corp. and
Aerospace Industries Association. These industry publications generally indicate
that they have obtained information from sources believed to be reliable, but do
not guarantee the accuracy and completeness of that information. While we
believe those industry publications to be reliable, we have not independently
verified the data included in the reports. We also have not sought, in all
instances, the consent of these organizations to refer to their reports in this
prospectus.
We will furnish our stockholders annual reports and make available unaudited
quarterly reports for the first three quarters of each fiscal year. Annual
reports will include audited consolidated financial statements prepared in
accordance with generally accepted accounting principles. The financial
statements included in the annual reports will be examined and reported upon,
with an opinion expressed, by our independent auditors.
48
<PAGE>
PARTSBASE.COM, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report................................ F-2
Balance Sheets.............................................. F-3
Statements of Operations.................................... F-4
Statements of Stockholders' Equity (Deficit)................ F-5
Statements of Cash Flows.................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of PartsBase.com, Inc.
Boca Raton, Florida
We have audited the accompanying balance sheets of PartsBase.com (the
"Company") as of December 31, 1998 and 1999 and the related statements of
operations, stockholders' equity (deficit), and cash flows for each of the three
years in the period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1998 and 1999
and the results of its operations and its cash flows for each of the three years
in the period ended December 31, 1999 in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Certified Public Accountants
January 28, 2000
Miami, Florida
F-2
<PAGE>
PARTSBASE.COM, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
AS OF DECEMBER 31, EQUITY AT
----------------------- DECEMBER 31, 1999
1998 1999 (NOTE 2)
--------- ----------- ------------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.......................... $ -- $ 735,276
Notes and accounts receivables..................... -- 297,884
Prepaids and other current assets.................. -- 504,547
-----------
Total current assets............................. -- 1,537,707
Property, Plant and Equipment........................ 12,660 1,034,123
Accumulated depreciation........................... (6,576) (24,646)
--------- -----------
Net property, plant and equipment................ 6,084 1,009,477
Deferred financing costs, net of amortization........ -- 1,937,677
Web site development costs, net of amortization...... -- 188,152
Other assets......................................... -- 56,282
--------- -----------
Total assets......................................... $ 6,084 $ 4,729,295
========= ===========
LIABILITIES
Current Liabilities:
Accounts payable................................... $ 2,469 $ 718,523
Other accrued liabilities.......................... -- 233,270
Deferred revenue................................... 22,659 1,263,978
Accounts payable--related party.................... -- 9,108
--------- -----------
Total current liabilities........................ 25,128 2,224,879
Convertible notes payable............................ -- 962,500
--------- -----------
Total liabilities.................................... 25,128 3,187,379
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock, no par value; 2,000,000 shares
authorized, issued and outstanding December 31,
1999--855,000 shares, December 31, 1998--none,
liquidation preference........................... 1,902,375
Common stock, no par value; 30,000,000 shares
authorized, issued and outstanding December 31,
1999,--9,251,250 shares, December 31,
1998--none.......................................
Additional paid-in capital......................... 392,615 15,178,497 $16,269,594
Accumulated deficit................................ (411,659) (7,762,678) (7,762,678)
Unearned compensation.............................. -- (7,776,278) (7,776,278)
--------- ----------- -----------
Total stockholders' equity (deficit)................. (19,044) 1,541,916 $ 730,638
--------- ----------- ===========
Total liabilities & stockholders' equity (deficit)... $ 6,084 $ 4,729,295
========= ===========
</TABLE>
F-3
<PAGE>
PARTSBASE.COM, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1997 1998 1999
--------- --------- -----------
<S> <C> <C> <C>
Net revenue............................................... $ 2,861 $ 3,504 $ 362,224
Cost of revenue........................................... 104,041 43,462 1,412,532
Noncash compensation expense.............................. -- -- 1,799,139
--------- --------- -----------
Total cost of revenue................................... 104,041 43,462 3,211,671
Gross loss................................................ (101,180) (39,958) (2,849,447)
Operating expenses:
General and administrative.............................. 90,452 108,163 1,293,091
Noncash compensation expense............................ -- -- 899,821
--------- --------- -----------
Total operating expenses.............................. 90,452 108,163 2,192,912
--------- --------- -----------
Operating loss........................................ (191,632) (148,121) (5,042,359)
Other income (expense):
Interest expense........................................ -- -- (881,652)
Interest income......................................... -- -- 10,977
--------- --------- -----------
Total other income (expense).......................... -- -- (870,675)
--------- --------- -----------
Net loss.............................................. (191,632) (148,121) (5,913,034)
Value of preferred stock beneficial conversion
feature............................................. -- -- (1,902,375)
--------- --------- -----------
Net loss applicable to common stockholders............ $(191,632) $(148,121) $(7,815,409)
========= ========= ===========
Net loss per common share--basic and diluted.............. $ (0.84)
===========
Weighted average common shares outstanding--basic
and diluted............................................. 9,251,250
===========
</TABLE>
F-4
<PAGE>
PARTSBASE.COM, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
--------------------- ----------------------- ADDITIONAL UNEARNED ACCUMULATED
SHARES AMOUNT SHARES AMOUNT PAID-IN-CAPITAL COMPENSATION DEFICIT
-------- ---------- --------- ----------- --------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996...... $ 71,630
Contribution from parent........ 198,047
Net loss........................
-----------
Balance, December 31, 1997...... 269,677
Contribution from parent........ 122,938
Net loss......................
-----------
Balance, December 31, 1998...... 392,615
Net loss (January 1--April 26,
1999).........................
Contribution from parent........ 22,659
Reorganization.................. (464,390)
Common stock issued............. 9,000,000
Restricted stock issued......... 1,075,250 5,859,383 $(5,859,383)
Preferred stock issued.......... 855,000 $1,902,375 1,902,375 $(1,902,375)
Exchange of restricted stock for
stock options................. (824,000) 3,531,441 (3,531,441)
Unearned compensation related to
stock options................. 1,084,414 (1,084,414)
Recognition of unearned
compensation.................. 2,698,960
Beneficial conversion feature of
convertible notes............. 850,000
Warrants issued................. 2,000,000
Net loss
(April 27--December 31,
1999)......................... (5,860,303)
-------- ---------- --------- ----------- ------------ -----------
Balance, December 31, 1999...... 855,000 $1,902,375 9,251,250 $15,178,497 $(7,776,278) $(7,762,678)
======== ========== ========= =========== ============ ===========
<CAPTION>
TOTAL
DIVISIONAL STOCKHOLDERS'
EQUITY EQUITY
(DEFICIT) (DEFICIT)
---------- -------------
<S> <C> <C>
Balance, December 31, 1996...... $ (71,906) $ (276)
Contribution from parent........ 198,047
Net loss........................ (191,632) (191,632)
--------- -----------
Balance, December 31, 1997...... (263,538) 6,139
Contribution from parent........ 122,938
Net loss...................... (148,121) (148,121)
--------- -----------
Balance, December 31, 1998...... (411,659) (19,044)
Net loss (January 1--April 26,
1999)......................... (52,731) (52,731)
Contribution from parent........ 22,659
Reorganization.................. 464,390
Common stock issued.............
Restricted stock issued.........
Preferred stock issued.......... 1,902,375
Exchange of restricted stock for
stock options.................
Unearned compensation related to
stock options.................
Recognition of unearned
compensation.................. 2,698,960
Beneficial conversion feature of
convertible notes............. 850,000
Warrants issued................. 2,000,000
Net loss
(April 27--December 31,
1999)......................... (5,860,303)
--------- -----------
Balance, December 31, 1999...... -- $ 1,541,916
========= ===========
</TABLE>
F-5
<PAGE>
PARTSBASE.COM, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1997 1998 1999
--------- --------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss................................................ $(191,632) $(148,121) $(5,913,034)
Adjustments to reconcile net loss to cash used in
operating activities:
Depreciation and amortization........................... 2,395 2,453 410,918
Loss on property disposals.............................. -- -- 583
Recognition of unearned compensation.................... -- -- 2,698,960
Noncash interest on convertible notes................... -- -- 850,000
Noncash costs allocated from former parent.............. 21,198 39,153 15,037
Changes in assets & liabilities:
Accounts receivable--trade, net....................... -- -- (297,884)
Prepaids and other current assets..................... -- -- (504,547)
Deferred charges & other assets....................... -- -- (56,282)
Accounts payable...................................... (334) 760 716,054
Other accrued liabilities............................. -- -- 233,270
Deferred revenue...................................... -- 22,659 1,241,319
Accounts payable--related party....................... -- -- 9,108
--------- --------- -----------
Net cash used in operating activities............... (168,373) (83,096) (596,498)
--------- --------- -----------
Cash flow from investing activities:
Capital expenditures.................................... (8,476) (688) (1,022,049)
Web site development costs.............................. -- -- (216,075)
--------- --------- -----------
Net cash used in investing activities............... (8,476) (688) (1,238,124)
--------- --------- -----------
Cash flow from financing activities:
Issuance of convertible notes........................... -- -- 962,500
Debt issue costs........................................ -- -- (138,700)
Issuance of Preferred stock............................. -- -- 1,902,375
Deferred offering costs................................. -- -- (163,899)
Paid-in-capital....................................... 176,849 83,784 7,622
--------- --------- -----------
Net cash provided by financing activities........... 176,849 83,784 2,569,898
--------- --------- -----------
Net increase in cash and cash equivalents................. -- -- 735,276
Cash and cash equivalents at beginning of period.......... -- -- --
--------- --------- -----------
Cash and cash equivalents at end of period................ $ -- $ -- $ 735,276
========= ========= ===========
Noncash financing activities--
Warrants issued in connection with issuance of the
convertible notes....................................... -- -- $ 2,000,000
===========
</TABLE>
F-6
<PAGE>
PARTSBASE.COM, INC.
NOTES TO FINANCIAL STATEMENTS
1. BACKGROUND AND ORGANIZATION
PartsBase.com, Inc. (the "Company") is a provider of an e-commerce
Business-to-Business solution to the aviation parts industry. The Company
enables global aviation parts buyers and sellers to efficiently buy and sell
aviation parts and products worldwide through the Partsbase.com Web site, an
Internet based procurement solution.
The Company was incorporated in Texas on April 27, 1999 and prior to such
date operated as a division (the "Division") of Aviation Laboratories, Inc.
("Aviation Labs"). During this period, the Division did not have significant
sales and operating activities except for expenditures related primarily to the
design and development of its online database and Web site and the establishment
of relationships with industry buyers and sellers of aviation parts. In April
1999, the assets of the Division were conveyed to Mr. Robert A. Hammond, Jr. in
consideration for, among other things, Mr. Hammond's equity interest in Aviation
Labs. On April 27, 1999, Mr. Hammond transferred the assets of the Division into
the Company. The Company has incurred operating losses to date and had an
accumulated deficit of $7,762,678 at December 31, 1999. The Company's activities
have been primarily financed through private placements of convertible
subordinated debt and convertible preferred stock. The Company is no longer in
the development stage.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accounting for the contribution of the Division into the Company has
been reported in the accompanying financial statements as a reorganization of
entities under common control in a manner similar to a pooling of interests. As
the Company has, in effect, reorganized from an S corporation to a C
corporation, additional paid-in capital has been reduced by the amount of the
accumulated deficit as of April 26, 1999 of $464,390.
CASH AND CASH EQUIVALENTS
Cash equivalents consist of investments in bank certificates of deposit and
other interest bearing instruments with initial maturities of three months or
less. Such investments are carried at cost, which approximates fair value. At
December 31, 1998 and 1999, the Company did not have any cash equivalents.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to credit risk
consist primarily of uninsured cash and cash equivalents. Cash and cash
equivalents are deposited with a federally insured commercial bank in the United
States. At December 31, 1999 the Company had all of its cash and cash
equivalents in one financial institution of which the excess over $100,000 is
not covered by FDIC insurance and which, therefore, did not limit the Company's
amount of credit exposure. The Company believes it is not exposed to any
significant credit risk on cash and cash equivalents.
The Company sells primarily to aviation related companies and performs
ongoing credit evaluations of its customers but does not require collateral. The
Company analyzes the need for reserves for potential credit losses and records
reserves when necessary. The Company has not had significant write-offs of bad
debt. No reserves were recorded as of December 31, 1998 and 1999.
F-7
<PAGE>
PARTSBASE.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company has members in more than 115 countries. Revenues from domestic
and foreign customers were $325,227 and $36,997, respectively, for the year
ended December 31, 1999. The Company did not derive more than 10% of its revenue
from any single foreign country during 1999. Prior to 1999, all of the Company's
revenue was derived from domestic customers.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Costs incurred for additions,
improvements and betterments are capitalized as incurred. Costs for maintenance
and repairs are charged to expense as incurred. Gains or losses on dispositions
of property and equipment are included in the determination of income.
Depreciation and amortization are computed using the straight-line method over
the following estimated service lives of the related assets:
<TABLE>
<S> <C>
Computer software........................................... 3 years
Computer equipment.......................................... 5 years
Communication equipment..................................... 7 years
Furniture and fixtures...................................... 7 years
</TABLE>
DEFERRED FINANCING COSTS
Issue costs associated with obtaining debt through the Company's Private
Placement, including the excess of the fair value over exercise price of
warrants issued to the underwriters of the debt, and the Initial Public Offering
("IPO") of its common stock, $2,302,602, are recorded as a deferred charge. All
fees and issue costs associated with the Private Placement are amortized over
the term of the related debt utilizing the straight-line method. Amortization of
financing costs related to the Private Placement amounted to $364,925 for the
year ended December 31, 1999.
WEB SITE DEVELOPMENT COSTS
The Company follows the provisions of SOP 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use" ("SOP 98-1").
SOP 98-1 requires that entities capitalize certain costs related to internal use
software once certain criteria have been met.
Web site development costs which are enhancements intended to extend and or
improve significantly the marketability of the original product are capitalized,
all other costs are expensed as incurred and classified as cost of revenues. Web
site development costs of $216,075 were capitalized during the year ended
December 31, 1999. No Web site development costs were capitalized in prior
periods. As of December 31, 1999, capitalized Web site development costs, net of
amortization, was $188,152.
Amortization is computed on an enhancement-by-enhancement basis utilizing
the straight-line method over the estimated economic life of the enhancement,
which at December 31, 1999 is estimated to be 24 months.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments, including cash and cash equivalents,
accounts receivable and accounts payable are carried at cost, which approximates
their fair value because of the short-term
F-8
<PAGE>
PARTSBASE.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
maturity of these instruments. The Company's convertible notes payable are
carried at cost and have a fair value of $5,793,641 based on the market value of
the underlying common stock on December 31, 1999 plus unpaid interest as of
December 31, 1999.
PRO FORMA PRESENTATION
The unaudited pro forma presentation of shareholders' equity at
December 31, 1999 gives effect to the mandatory conversion of all outstanding
convertible notes under the terms of the private placement agreement into common
stock (see Note 5) and the mandatory conversion of the convertible preferred
stock issued on November 22, 1999 into common stock (see Note 6) .
Since the Company has incurred net losses since inception, it would not have
incurred any income tax liabilities during the period prior to incorporation on
April 27, 1999, and any deferred tax assets would have had a corresponding
valuation allowance therefore pro forma presentation on net loss per share is
not required.
REVENUE RECOGNITION
Revenues are recognized, net of discounts, over the period services are
provided to subscribers. The Company does not charge initial sign-up fees to new
subscribers.
ACCOUNTING FOR STOCK-BASED COMPENSATION PLAN
The Company accounts for stock-based compensation arrangements in accordance
with the provisions of Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," and complies with the disclosure
provisions of Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation." Under APB No. 25, compensation
expense is based on the difference, if any, on the date of the grant, between
the fair value of the Company's stock and the exercise price.
INCOME TAXES
The Company accounts for income taxes according to SFAS No. 109, "Accounting
for Income Taxes." Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount to be recovered.
Prior to April 27, 1999, the date of incorporation, the Company, with the
consent of its stockholders, elected to be taxed under Section 1362 of the
Internal Revenue Code (the "Code") as an S corporation, which provides that, in
lieu of corporate income taxes, the stockholders account for the pro rata share
of the Company's items of income, deductions, losses, and credits. In connection
with the incorporation of the Company (see Note 1), the Company, with the
consent of its stockholders, elected to be taxed under the provisions of
Subchapter C of the Code.
F-9
<PAGE>
PARTSBASE.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EARNINGS (LOSS) PER SHARE
The Company follows the provisions of SFAS No. 128, "Earnings Per Share." In
accordance with SFAS No. 128, basic earnings per share ("EPS") is computed by
dividing net loss applicable to common stock by the weighted average common
shares outstanding during the period. Shares of common stock, options, warrants
or other common stock equivalents are considered outstanding for all periods
presented in the computation of basic and diluted EPS if issued for nominal
consideration. For the year ended December 31, 1999, the weighted average common
shares outstanding used to compute basic and diluted EPS includes the effect of
restricted common stock issued to employees.
The EPS computation excludes warrants to purchase 200,000 shares of common
stock at an exercise price of $2.00 per share that were issued in August 1999
and outstanding as of December 31, 1999 because such warrants were issued at
fair market value and were antidilutive. The EPS computation also excludes
919,375 options to purchase shares of common stock at an exercise price of $0.63
per share issued in November 1999 and outstanding as of December 31, 1999
because such options were antidilutive.
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 reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards
for the reporting and display of comprehensive income and its components in a
full set of general purpose financial statements and is effective for fiscal
years beginning after December 15, 1997. The Company adopted SFAS No. 130 in the
year ended December 31, 1998. The Company had no comprehensive income items to
report for all periods presented.
SEGMENT INFORMATION
The Company follows the provisions of SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS No.131 changes the way
companies report selected segment information in annual financial statements and
requires companies to report selected segment information in interim financial
reports to stockholders. The Company operates solely in one operating segment,
the development and marketing of an online marketplace for the purchasing and
distribution of products.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities," which establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives), and for hedging
activities. SFAS No. 133, as amended by SFAS No. 137, is effective for all
fiscal quarters of fiscal years beginning after June 15, 2000. The Company
currently does not engage in, nor does it
F-10
<PAGE>
PARTSBASE.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
expect to engage in, derivative or hedging activities, and therefore, the
Company anticipates there will be no impact to its consolidated financial
statements.
In April 1998, the American Institute of Certified Public Accountants
("AICPA") issued SOP No. 98-5, "Reporting on the Costs of Start-Up Activities"
("SOP 98-5"). SOP 98-5 requires that all start-up costs related to new
operations must be expensed as incurred. In addition, all start-up costs that
were capitalized in the past must be written off when SOP 98-5 is adopted. The
Company implemented SOP 98-5 on January 1, 1999. The adoption of SOP 98-5 did
not have a material impact on the Company's financial position or results of
operations.
3. PROPERTY AND EQUIPMENT
Property and equipment, consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1998 1999
-------- ----------
<S> <C> <C>
Computer equipment..................................... $12,660 $ 298,345
Computer software...................................... -- 675,000
Telephone equipment.................................... -- 42,379
Furniture and Fixtures................................. -- 18,399
------- ----------
12,660 1,034,123
Accumulated depreciation............................... (6,576) (24,646)
------- ----------
$ 6,084 $1,009,477
======= ==========
</TABLE>
Depreciation expense for the years ended December 31, 1997, 1998 and 1999
amounted to $2,395, $2,452, $18,070, respectively.
4. ADVANCES FROM STOCKHOLDER
In May and June 1999, The Company's principal stockholder and Chief
Executive Officer (the "Principal Stockholder") provided funds to finance
development of the Company's product. The advances were non interest bearing and
did not have a stated maturity date. The advances were repaid in November 1999.
5. CONVERTIBLE NOTES PAYABLE
For the period from June 9, 1999 to August 31, 1999, the Company, through a
Private Placement, sold and issued 8% Convertible Secured Subordinated Notes due
and payable December 31, 2001 totaling $900,000 (the "Convertible Notes") to
several investors. Terms of the Convertible Notes provide for interest at 8%
payable quarterly. All principal and unpaid interest is due and payable
December 31, 2001, if there is no conversion. Each note is convertible at any
time into common stock at a conversion price of $2.00 per share at the holder's
option. The Convertible Notes automatically convert upon the filing and closing
of an initial public offering of the Company's common stock with gross proceeds
of $5 million or more or upon certain mergers and consolidations of the Company.
Accrued interest payable on such notes at December 31, 1999 aggregated $18,641.
The Convertible Notes have a beneficial conversion feature totaling $787,500,
measured as the difference between the
F-11
<PAGE>
PARTSBASE.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. CONVERTIBLE NOTES PAYABLE (CONTINUED)
conversion price of $2.00 per share and the fair value of the underlying common
stock at the time of issuance limited to the amount of proceeds received. The
beneficial conversion feature has been recorded as a charge to interest expense
with a corresponding credit to additional paid-in capital. The value of the
beneficial conversion feature was recognized immediately because the Convertible
Notes are immediately convertible at the option of the holder. The Convertible
Notes are secured by substantially all of the Company's assets.
In November 1999, the Company issued an additional $62,500 of notes having
substantially identical terms to the Convertible Notes to an aggregate of two
investors, including $50,000 sold to the father of one of the Company's
executive officers. The Convertible Notes have a beneficial conversion feature
of $62,500 measured as the difference between the conversion price of $2.00 per
share and the fair value of the underlying stock at time of issuance, limited to
the amount of proceeds. At the time of issuance, the beneficial conversion
feature was recorded as a charge to interest expense and with a corresponding
credit to additional paid-in capital. The value of the beneficial conversion
feature was recognized immediately because the Convertible Notes are immediately
convertible at the option of the holder.
6. STOCKHOLDERS' EQUITY
CAPITAL STOCK
The Company has authorized the issuance of 30,000,000 shares of common
stock, without par value, and 2,000,000 shares of preferred stock, without par
value. The Board of Directors have authority to establish series of unissued
shares of any class by fixing and determining the designations, preferences,
limitations and relative rights, including voting rights, of the shares of any
series. The Board of Directors shall have the authority to increase or decrease
the number of shares of such series to the fullest extent of the law. The number
of common and preferred shares outstanding, including restricted stock, at
December 31, 1999, is 9,251,250 and 855,000, respectively.
PREFERRED STOCK
Between November 1, 1999 and November 17, 1999, the Company sold 855,000
shares of its Series A Convertible Preferred Stock ("Convertible Preferred
Stock") at $2.50 per share for aggregate net proceeds of $1,902,375 after
commissions of $235,125. All of the shares are convertible at any time into
855,000 shares of the Company's common stock. Such shares are convertible upon
the completion of the Company's IPO or at the discretion of the shareholder if
an IPO is not completed. The Convertible Preferred Stock has a beneficial
conversion feature totaling $1,902,375, measured as the difference between the
conversion price of $2.50 per share and the fair value of the underlying common
stock at the time of issuance, limited to the amount of the proceeds received
and was treated as a Preferred dividend which was a reduction to income
applicable to common shareholders at issuance.
WARRANTS
In connection with the closing of the 8% Convertible Secured Subordinated
Notes private placement in August 1999, the underwriters were granted warrants
to purchase 200,000 shares of common stock of the Company at an exercise price
equal to $2.00 per share until the expiration date of
F-12
<PAGE>
PARTSBASE.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. STOCKHOLDERS' EQUITY (CONTINUED)
September 1, 2002. The warrants had a fair market value upon issuance of
approximately $2,400,000. As of December 31, 1999, no warrants had been
exercised. Subsequent to December 31, 1999, an agreement was reached with the
underwriters that reduced the number of warrants from 200,000 to 175,000.
In the event of certain consolidations or sales affecting the Company, the
Company is required to call the warrants for cash at a price based on the
greater of the trading price of the Company's common stock or the value paid by
a purchaser of the Company's common stock.
1999 STOCK OPTION PLAN
On November 2, 1999 the Board of Directors adopted the PartsBase.com, Inc.
1999 Stock Option Plan. The plan is a qualified stock option plan in accordance
with Section 422 of the Internal Revenue Code and provides for the issuance of
both incentive and non-qualified stock options. The maximum number of shares of
common stock that may be issued upon the exercise of all options shall not
exceed 2,000,000 shares of common stock. The per share option price of the
common stock shall be determined by the Board. The per share price with respect
to any incentive stock options shall not be less than the fair market value of
the common stock on the date of grant. Each option granted vests in accordance
with a vesting schedule established by the Board of Directors or a Committee of
the Board of Directors. Absent a specific determination of vesting, options
granted shall vest over a twenty-four month period and the period of exercise of
each option shall not exceed ten (10) years from date of grant. On November 16,
1999, the Company granted 95,375 nonqualified stock options in addition to the
824,000 options exchanged for the terminated stock grants for a total issuance
of 919,375 nonqualified stock options at an exercise price of $0.63 per share
including options to acquire 35,000 and 10,000 shares of common stock at an
exercise price of $.63 per share to two executives of the Company, respectively.
One executive became vested in 833 options upon grant with the remainder vesting
in 22 monthly installments of approximately 1,458 options followed by 2 monthly
installments of approximately 1,045 options. The other executive became vested
in 1,875 options upon grant with the remainder vesting in 9 equal monthly
installments of 625 options followed by 12 monthly installments of approximately
208 options. Unearned compensation of $511,650 was charged to stockholders'
equity in November 1999 based on the market value of the Company's common stock
at the date of the award. Compensation expense of approximately $54,000 was
recognized in November and December 1999 related to these options. On
December 31, 1999, the Company entered into an employment agreement with an
executive of the Company that provides for the grant on January 19, 2000 of
options to acquire 75,000 shares of common stock at an exercise price of $0.63
per share. The options will vest over 24 equal monthly installments beginning on
the date of grant. Assuming the market value of the Company's stock on the date
of grant is equal to the market value on December 31, 1999, unearned
compensation of $852,750 will be charged to stockholders' equity in January
2000.
F-13
<PAGE>
PARTSBASE.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. STOCKHOLDERS' EQUITY (CONTINUED)
A summary of the status of the Company's stock option activity, and related
information for the year ended December 31, 1999 is presented below:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
-------- ----------------
<S> <C> <C>
Outstanding January 1, 1999......................... --
Granted............................................. 919,375 $ 0.63
Exercised........................................... --
Forfeited........................................... --
------- ------
Outstanding December 31, 1999....................... 919,375 $ 0.63
======= ======
Options exercisable at December 31, 1999............ 235,792 $ 0.63
Weighted-average fair value of options granted
during the year................................... $11.47
</TABLE>
The following table summarizes information about stock options outstanding
as of December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------------------------------------- OPTIONS EXERCISABLE
WEIGHTED ------------------------------
NUMBER AVERAGE REMAINING WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE
RANGE OF PRICE OUTSTANDING CONTRACT LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- -------------- ----------- ----------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$0.63.................... 919,375 9.98 $0.63 235,792 $0.63
</TABLE>
The Company applies the provisions of APB No. 25 and its related
interpretations in accounting for its stock option plans. Accordingly,
compensation expense recognized was different than what would have been
otherwise recognized under the fair value based method defined in SFAS No. 123.
Had the Company accounted for these plans under SFAS No. 123, the Company's net
loss applicable to common stock and loss per share would have been reduced to
the following pro forma amounts:
<TABLE>
<S> <C>
Net loss
As reported............................................... $(5,913,304)
===========
Proforma.................................................. $(6,004,972)
===========
Basic and diluted loss per share
As reported............................................... $ (0.64)
===========
Proforma.................................................. $ (0.65)
===========
</TABLE>
Pro forma information regarding net loss and net loss per share is required
by SFAS 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method provided for in SFAS 123. The
fair value of options was estimated at the date of grant using a
F-14
<PAGE>
PARTSBASE.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. STOCKHOLDERS' EQUITY (CONTINUED)
minimum value option pricing model with the following weighted-average
assumptions for options granted during the year ended December 31, 1999:
<TABLE>
<S> <C>
Risk-free interest rate..................................... 5.88%
Expected life (in years).................................... 3
Volatility.................................................. 0%
Dividend yield.............................................. 0%
</TABLE>
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the vesting period of the options using a
graded vesting method. The effects of applying SFAS 123 for pro forma
disclosures are not likely to be representative of the effects on reported net
loss for future years.
The option valuation models were developed for use in estimating the fair
value of traded options, which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions, including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
RESTRICTED STOCK BONUS PLAN
In May 1999, the Company adopted the PartsBase.com, Inc. Restricted Stock
Bonus Plan ("Stock Bonus Plan"). Under the Stock Bonus Plan, the Company was
authorized to award or grant to employees, consultants, officers and directors
(except persons serving as directors only) shares of common stock subject to a
substantial risk of forfeiture. The Board of Directors had the sole authority to
select participants, to establish the terms and conditions of the stock,
including vesting provisions, and to grant the stock. The maximum number of
shares of common stock which could have been granted under the Stock Bonus Plan
was 1,200,000 shares. In the event a stock grant recipient was terminated, any
unvested portion of the shares that were subject to the stock grant was
canceled. Each stock grant recipient has all the rights of a shareholder with
respect to stock received pursuant to the Stock Bonus Plan, including the right
to vote such shares and receive all dividends and other distributions.
On November 17, 1999 the Company entered into an agreement with all of the
employees who received restricted stock awards. The agreement calls for the
employee to return all shares received and the termination of the Restricted
Stock Agreement between the employee and the Company as it relates to the
restricted stock award. As part of the terminated restricted stock award each
employee participating in the restricted stock grant plan received one
(1) nonqualified option to purchase one (1) share of common stock for each
restricted stock terminated. The options granted are part of the
PartsBase.Com, Inc. 1999 Stock Option Plan and vest over a twenty-four month
period and the period of exercise shall not exceed ten (10) years from date of
the grant. The options were granted at $0.63 per share. The number of options
granted as part of this agreement totaled 824,000. As a result of the
termination of the restricted stock and issuance of the nonqualified stock
options, additional unearned compensation of approximately $3,500,000 was
charged to stockholders' equity in November 1999. The additional unearned
compensation was determined as the amount by which the intrinsic value of the
F-15
<PAGE>
PARTSBASE.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. STOCKHOLDERS' EQUITY (CONTINUED)
options issued exceeded the amount of unearned compensation recorded prior to
the termination of the restricted stock based on the market value of the
Company's common stock at the date of grant. Prior to termination, stock grants
totaling 1,075,250 were outstanding. An aggregate of 251,250 shares of
restricted stock remain outstanding under the Stock Bonus Plan. Such stock is
held by a total of four persons, including 250,000 shares held by Steven
Spencer, a director and executive officer. Mr. Spencer's stock grant vested with
respect to 50,000 shares upon commencement of employment. The remaining 200,000
shares vest in 24 equal monthly installments; provided, however, that vesting
shall accelerate with respect to 100,000 shares upon completion of an initial
public offering. The remaining 100,000 shares vest in equal monthly installments
over the two year period beginning with the commencement of Mr. Spencer's
employment.
The Company applies the provisions of APB No. 25 and its related
interpretations in accounting for its employee stock grant plan. As the stock
grants were recorded at their fair value at the date of grant, compensation
expense recognized was no different than what would have been otherwise
recognized under the fair value based method defined in SFAS No. 123.
UNEARNED COMPENSATION
Unearned compensation of $10,475,238 was charged to stockholders' equity in
1999 in connection with the issuance of stock options and restricted stock
grants based on the market value of the Company's common stock at the date of
grant. Compensation expense of $2,698,960 was recognized during 1999 related to
these options and grants.
7. INCOME TAXES
The Company did not record any provision (benefit) for income taxes for the
year ended December 31, 1999, because it experienced a net loss and generated a
net operating loss of approximately $2,464,000 since incorporation on April 27,
1999, which expires in 2019. The Company's utilization of its net operating loss
carryforward will be limited pursuant to Internal Revenue Code Section 382 due
to cumulative changes in ownership in excess of 50% within a three-year period.
Prior to April 27, 1999, the Company was not subject to Federal income taxes.
A reconciliation of income tax benefit provided at the Federal statutory
rate (34%) to income tax benefit is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1999
-------------------------
<S> <C> <C>
Net loss............................................. $(5,913,034)
Income tax benefit at statutory rate................. (2,010,432) (34.00%)
Loss attributable to operations prior to inception... 19,774 0.33%
Permanent difference relating to stock
compensation....................................... (266,137) (4.5%)
State income taxes................................... (206,956) (3.50%)
Change in valuation allowance........................ 2,463,662 41.67%
Other................................................ 89 0.00%
----------- ------
$ -- 0.00%
=========== ======
</TABLE>
F-16
<PAGE>
PARTSBASE.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES (CONTINUED)
The major tax effected components of the Company's net deferred tax
liability are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1999
-------------
<S> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $ 2,472,090
Valuation allowance....................................... (2,471,292)
-----------
798
Deferred tax liabilities--
Differences between book and tax basis of property........ (798)
-----------
Total net deferred taxes.................................... $ --
===========
</TABLE>
8. RELATED PARTY TRANSACTIONS
CONTRACT SERVICES
A company owned and operated by one of the Company's directors and minority
stockholders provided significant services designing and maintaining the
Company's Web site. The Company pays this company for its continued services.
Services performed totaling $0 and approximately $260,000 of which approximately
$220,000 has been capitalized as Web site development costs and approximately
$43,000 has been expensed as cost of revenue for the years ended December 31,
1998 and 1999, respectively. There was $37,350 owed to this company as of
December 31, 1999 which is included in accounts payables in the accompanying
balance sheets.
In addition, a company owned and operated by another of the Company's
directors provided services in connection with the design of the Company's
advertising brochures and other marketing materials. Total payments of
approximately $0 and $56,000 were made by the Company for such services for the
years ended December 31, 1998 and 1999, respectively.
DUE TO/FROM OTHER COMPANIES
The company in which PartsBase.Com, Inc. had previously operated as a
division until April 26, 1999, collected sales revenues and paid certain costs
on its behalf. The other company then billed PartsBase.Com, Inc. for net amounts
owed. At December 31, 1999, the Company owed a net amount aggregating $9,108. At
December 31, 1998, there were no amounts due to the other company.
ALLOCATION OF COSTS INCURRED BY FORMER PARENT
The financial statements include costs incurred by Aviation Labs on the
Company's behalf. Such costs include administrative salaries, related payroll
taxes and benefits, utilities, office supplies and rent. These costs aggregated
$21,198, $39,153 and $15,037 the years ended December 31, 1997, 1998 and 1999,
respectively. The Company used a proportional cost allocation methodology based
on the ratio of the number of employees dedicated to the operations of the
Company to the total number of employees of Aviation Labs. Management believes
such allocation to be reasonable.
F-17
<PAGE>
PARTSBASE.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company is party to several non-cancelable lease agreements for certain
equipment as well as its principal administrative offices. Rent expense under
non-cancelable operating leases totaled $0, $0 and $48,943 for the years ended
December 31, 1997, 1998 and 1999, respectively. Minimum future lease obligations
under non-cancelable operating leases in effect at December 31, 1999, are as
follows:
<TABLE>
<S> <C>
2000........................................................ $ 73,596
2001........................................................ 49,064
2002........................................................ 0
2003........................................................ 0
2004........................................................ 0
--------
Total..................................................... $122,660
========
</TABLE>
10. INVESTMENT BANKING AGREEMENT
On October 7, 1999, the Company had entered into an agreement with an
investment banking group (the "Group") whereby such Group would act as the
exclusive financial advisor to the Company. Such services to be performed by the
Group would be in connection with the exploration of potential financing and
strategic transactions, including the private placement of debt or equity
capital, strategic mergers and acquisitions and or a public equity offering.
Immediately upon signing of the agreement the Group commenced work as the
Company's lead managing underwriter in a proposed public offering (the
"Offering") of the Company's common stock. In addition, the Group assisted the
Company, on a best efforts basis, in completing the private placement of the
Convertible Preferred stock.
The Company paid fees for services in connection with this agreement which
included a non-refundable initial cash fee of $35,000 which was intended to
offset non-accountable expenses related to the private capital offering, plus a
commission of $125,125 relating to the proceeds raised in the private placement
of equity and debt which is convertible into equity.
On or about December 3, 1999, this agreement was terminated. The Company is
currently working with a new investment banking firm in connection with a public
equity offering.
F-18
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNTIL , 2000, ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
[LOGO]
3,500,000 SHARES OF COMMON STOCK
-------------
PROSPECTUS
-------------
ROTH CAPITAL PARTNERS, INC. PENNSYLVANIA MERCHANT GROUP
- --------------------------------------------------------------------------------
YOU MAY RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE INFORMATION DIFFERENT FROM THAT CONTAINED IN
THIS PROSPECTUS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR THE SALE OF COMMON
STOCK MEANS THAT INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT AFTER THE
DATE OF THIS PROSPECTUS. THIS PROSPECTUS IS NOT AN OFFER TO SELL OR SOLICITATION
OF AN OFFER TO BUY THE SHARES OF COMMON STOCK IN ANY CIRCUMSTANCES UNDER WHICH
THE OFFER OR SOLICITATION IS UNLAWFUL.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT IS
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS
IS NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY
THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SS-1
<PAGE>
SUBJECT TO COMPLETION DATED MARCH , 2000
PROSPECTUS
PARTSBASE.COM, INC.
1,336,250 Shares of Common Stock
---------------------
This prospectus relates to the registration by PartsBase.com, Inc., at our
expense, for the account of certain selling stockholders of 1,336,250 shares of
our common stock. Prior to this offering, there has been no public market for
the Common Stock. [Our common stock has been approved for listing on the Nasdaq
National Market under the symbol "PRTS."]
The shares are not being underwritten in this offering and we will not
receive any proceeds from the sale of shares by the selling stockholders.
Subject to restrictions imposed on the selling stockholders by the managing
underwriter of our initial public offering, the shares may be sold by the
selling stockholders, or their respective transferees, beginning on the date of
this prospectus.
------------------------
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
BEGINNING ON PAGE 7 FOR RISKS THAT YOU SHOULD CONSIDER BEFORE INVESTING IN THE
SHARES OF OUR COMMON STOCK.
---------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY 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.
THE DATE OF THIS PROSPECTUS IS , 2000
SS-2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Prospectus Summary.......................................... 3
Risk Factors................................................ 7
Use of Proceeds............................................. 15
Dividend Policy............................................. 15
Capitalization.............................................. 16
Dilution.................................................... 17
Selected Financial Data..................................... 18
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 19
Business.................................................... 22
Management.................................................. 32
Certain Relationships and Related Transactions.............. 39
Principal Stockholders...................................... 40
Description of Capital Stock................................ 42
Shares Eligible for Future Sale............................. 45
Plan of Distribution........................................ 46
Legal Matters............................................... 48
Experts..................................................... 48
Where You Can Find More Information......................... 48
Index to Financial Statements............................... F-1
</TABLE>
SS-2
<PAGE>
SELLING STOCKHOLDERS
The following table provides information regarding the ownership of shares
of common stock by the selling stockholders as of the date of this prospectus
and as adjusted to reflect the sale of all of their respective shares. The
shares listed below represent shares of common stock issuable upon the mandatory
conversion of convertible promissory notes and/or Series A convertible preferred
stock. The conversion occurred simultaneously with the effective date of the
registration statement of which this prospectus is a part.
Except as disclosed in footnote (5) to the table below, no selling
stockholder has had any position, office or other material relationship with us
within the past three years. The selling stockholders are participating in this
offering as a result of registration rights of commitments given to them in
connection with the private placement of convertible promissory notes and/or
Series A convertible preferred stock. In connection with those private
placements, we agreed to file and maintain the effectiveness of the registration
statement of which this prospectus is a part, and to pay all fees and expenses
arising out of the registration of this offering, including all registration and
filing fees, all fees and expenses of complying with state securities laws, all
costs of preparation of the registration statement and fees and disbursements of
our counsel and independent public accountants.
<TABLE>
<CAPTION>
AMOUNT OF PERCENTAGE OF AMOUNT OF
SHARES OWNED SHARES OWNED AMOUNT OF SHARES OWNED
NAMES OF SELLING BEFORE BEFORE SHARES BEING AFTER
STOCKHOLDER(1) OFFERING OFFERING(2) REGISTERED OFFERING(3)
- -------------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
Jeff London................................ 12,500 * 12,500 0
Justina O. Kaduru.......................... 12,500 * 12,500 0
Blaize Kaduru.............................. 25,000 * 25,000 0
Jesse Greenfield IRA, Delaware Chart
Guarantee and Trust TTEE................. 100,000 * 100,000 0
Doublas L. Flaute.......................... 25,000 * 25,000 0
Boris L. Miles............................. 12,500 * 12,500 0
James M. Terrell........................... 12,500 * 12,500 0
Steven J. Schwartz and Traci Schwartz...... 12,500 * 12,500 0
Michael Turnamian.......................... 12,500 * 12,500 0
Richard Turnamian and Sonia Turnamian...... 6,250 * 6,250 0
Alex P. Macar, Trustee for the LeGreff
Trust.................................... 12,500 * 12,500 0
Phillip Walker............................. 6,250 * 6,250 0
William Metzger and Katharine Metzger...... 12,500 * 12,500 0
William H. Metzger MD, Inc Retirement
Trust.................................... 12,500 * 12,500 0
Duni Hebron................................ 22,500 * 22,500 0
Patrick E. Aneji........................... 12,500 * 12,500 0
Fred Goldin................................ 6,250 * 6,250 0
Nick A. Baki............................... 12,500 * 12,500 0
Kevin J. Walls............................. 75,000 * 75,000 0
Alvin Galuten (4).......................... 25,000 * 25,000 0
John T. Echols............................. 6,250 * 6,250 0
Richard S. Greene.......................... 12,500 * 12,500 0
Phillip Ward............................... 6,250 * 6,250 0
Harbor Consulting, Inc..................... 6,250 * 6,250 0
Moliere Duplan............................. 25,000 * 25,000 0
Scott R. and Deborah M. Dingle............. 6,250 * 6,250 0
Greenfield Children's Partnership.......... 100,000 * 100,000 0
Justin Wilber.............................. 5,000 * 5,000 0
Paul Bratsos............................... 5,000 * 5,000 0
</TABLE>
SS-3
<PAGE>
<TABLE>
<CAPTION>
AMOUNT OF PERCENTAGE OF AMOUNT OF
SHARES OWNED SHARES OWNED AMOUNT OF SHARES OWNED
NAMES OF SELLING BEFORE BEFORE SHARES BEING AFTER
STOCKHOLDER(1) OFFERING OFFERING(2) REGISTERED OFFERING(3)
- -------------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
Nick Gogas................................. 10,000 * 10,000 0
Executive Financial Associates, Inc........ 10,000 * 10,000 0
Tim Tellios................................ 5,000 * 5,000 0
Louis Freedlander.......................... 10,000 * 10,000 0
John Lovell................................ 5,000 * 5,000 0
Tech Coast Ventures, LLC................... 100,000 * 100,000 0
Metro Investments, LLC (5)................. 40,000 * 40,000 0
Touchstone Software Corp.(5)............... 260,000 2.46 260,000 0
Mark Kokowsky.............................. 120,000 1.13 120,000 0
NMR Enterprises, Inc....................... 60,000 * 60,000 0
Johnson Advisory Group, Inc................ 30,000 * 30,000 0
Richard Sandfer............................ 10,000 * 10,000 0
Steve S. McKeag............................ 20,000 * 20,000 0
Steve R. Dingle............................ 5,000 * 5,000 0
Spiro Gogas................................ 10,000 * 10,000 0
Jim Donnan................................. 10,000 * 10,000 0
Pierce Lieberman........................... 30,000 * 30,000 0
</TABLE>
- ------------------------
* Represents less than 1% of the outstanding common stock.
(1) Information set forth in the table regarding the selling stockholder shares
is provided to the best of our knowledge based on information furnished to
us by the selling stockholders and/or available to us through its stock
ledgers.
(2) Percentages based on 10,587,500 shares of common stock outstanding
immediately prior to the offering, assuming that all outstanding convertible
notes and Series A convertible preferred stock have been converted into an
aggregate of 1,336,250 shares of common stock.
(3) Assumes that each selling stockholder sells all of the shares held by the
selling stockholder.
(4) Includes 12,500 shares owned by Alvin Galuten IRA.
(5) Metro Investments, LLC is controlled by Pierre Narath, who has been
appointed as a member of our board of directors effective upon completion of
our initial public offering. Mr. Narath is an officer, director and
significant stockholder of Touchstone Software Corporation.
SS-4
<PAGE>
PLAN OF DISTRIBUTION
TRANSACTIONS. The selling stockholders may offer and sell the common stock
in one or more of the following transactions, which may incur block
transactions:
- in the over-the-counter market,
- in negotiated transactions, or
- in a combination of any of these transactions.
PRICES. The selling stockholders may sell their shares at any of the
following prices:
- fixed prices that may be changed,
- market prices prevailing at the time of sale,
- prices related to prevailing market prices, or
- negotiated prices.
DIRECT SALES; AGENTS, DEALERS AND UNDERWRITERS. The selling stockholders
may effect transactions by selling shares in any of the following ways:
- directly to purchasers, or
- to or through agents, dealers or underwriters designated from time to
time.
Agents, dealers or underwriters may receive compensation in the form of
underwriting discounts, concessions or commissions from the selling stockholders
and/or the purchasers of shares for whom they act as agent or to whom they sell
as principals, or both. The selling stockholders and any agents, dealers or
underwriters that act in connection with the sale of shares might be deemed to
be "underwriters" within the meaning of Section 2(11) of the Securities Act, and
any discount, concession or commission received by them and any profit on the
resale of shares as principal might be deemed to be underwriting discounts or
commissions under the Securities Act. The maximum commission or discount to be
received by any NASD member or independent broker-dealer will not be greater
than eight percent for the sale of any shares of our common stock by selling
stockholders.
LOCK-UP AGREEMENTS. Each of the selling stockholders has entered into a
Lock-Up Agreement with the representatives of the underwriters pursuant to which
the selling stockholder has agreed not to sell, pledge, assign or otherwise
transfer, or agree to sell, pledge, assign or otherwise transfer any of their
shares for an initial period of 180 days after the date of this prospectus
without the prior written consent of the representatives of the underwriters.
The representatives have no present intention to release the locked-up shares
prior to expiration of the lock-up period although they may release the
locked-up shares prior to the expiration of that date. The granting of any
release would be conditioned, in the judgment of the representatives, on the
applicable sale not materially adversely impacting the prevailing trading market
for the common stock on the Nasdaq National Market System. Specifically, factors
such as average trading volume, recent price trends, and the need for additional
public float in the market for the common stock would be considered in
evaluating a request to sell.
STATE SECURITIES LAW. Under the securities laws of some states, the selling
stockholders may only sell the shares in those states through registered or
licensed brokers or dealers. In addition, in some states, the selling
stockholders may not sell shares unless they have been registered or qualified
for sale in that state or an exemption from registration or qualification is
available and satisfied.
EXPENSES. We will not receive any of the proceeds from the sale of the
common stock sold by the selling stockholders hereunder and will bear all
expenses related to the registration of this offering but will not pay for any
underwriting or brokerage commissions, fees or discounts, if any.
SS-5
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
YOU MAY RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE INFORMATION DIFFERENT FROM THAT CONTAINED IN
THIS PROSPECTUS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR THE SALE OF COMMON
STOCK MEANS THAT INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT AFTER THE
DATE OF THIS PROSPECTUS. THIS PROSPECTUS IS NOT AN OFFER TO SELL OR SOLICITATION
OF AN OFFER TO BUY THESE SHARES IN ANY CIRCUMSTANCES UNDER WHICH THE OFFER OR
SOLICITATION IS UNLAWFUL.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
PROSPECTUS SUMMARY............................. 3
RISK FACTORS................................... 7
USE OF PROCEEDS................................ 15
DIVIDEND POLICY................................ 15
CAPITALIZATION................................. 16
DILUTION....................................... 17
SELECTED FINANCIAL DATA........................ 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS................................... 19
BUSINESS....................................... 22
MANAGEMENT..................................... 32
CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS................................. 39
PRINCIPAL STOCKHOLDERS......................... 40
DESCRIPTION OF CAPITAL STOCK................... 42
SHARES ELIGIBLE FOR FUTURE SALE................ 45
PLAN OF DISTRIBUTION........................... 46
LEGAL MATTERS.................................. 48
EXPERTS........................................ 48
WHERE YOU CAN FIND MORE INFORMATION............ 48
INDEX TO FINANCIAL STATEMENTS.................. F-1
</TABLE>
[LOGO]
1,336,250 SHARES OF
COMMON STOCK
---------------------
PROSPECTUS
---------------------
, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SS-6
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table indicates the expenses to be incurred in connection with
the offering described in this registration statement, all of which will be paid
by us. All amounts are estimates, other than the Securities and Exchange
Commission registration fee, the National Association of Securities
Dealers, Inc. fee and the Nasdaq listing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $19,300.72
National Association of Securities Dealers, Inc. fee........ $ 30,500
Nasdaq listing fee.......................................... $ 90,500
Representative's non-accountable expense allowance.......... $ 840,000
Accounting fees and expenses................................ $ 150,000
Legal fees and expenses..................................... $ 160,000
Director and officer insurance expenses..................... $ 125,000
Printing and engraving expenses............................. $ 100,000
Transfer agent and registrar fees and expenses.............. $ 15,000
Blue Sky fees and expenses (including counsel fees)......... $ 20,000
Miscellaneous expenses...................................... $ 249,699
Total................................................. $1,800,000
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article 2.02A of the Texas Business Corporation Act, or TBCA, provides, in
relevant part, as follows:
"Subject to the provisions of Section B and C of this Article, each
corporation shall have the power:
(16) To indemnify directors, officers, employees, and agents of the
corporation, and to purchase and maintain liability insurance for those
persons."
As permitted by Section G of Article 2.02-1 of the TBCA or any successor
statute, the Company's articles of incorporation and bylaws (a) makes mandatory
the indemnification permitted under Section B of Article 2.02 as contemplated by
Section G thereof; (b) makes mandatory the payment or reimbursement of the
reasonable expenses incurred by a former or present director who was, is, or is
threatened to be made a named defendant or respondent in a proceeding upon such
director's compliance with the requirements of Section K of Article 2.02; and
(c) extends the mandatory indemnification referred to in Section (a) above and
the mandatory payment or reimbursement of expenses referred to in Section (b)
above (i) to all former or present officers of the Company and (ii) to all
persons who are or were serving at the request of the Company as a director,
officer, agent, employee, partner, member or trustee of another corporation,
partnership, limited liability corporation, joint venture, trust or other
enterprise, to the same extent that the Company is obligated to indemnify and
pay or reimburse expenses to directors.
Pursuant to policies of Directors and Officers Liability and Company
Reimbursement insurance with total limits of $5 million, the directors and
officers of the Company are insured, subject to the limits, retention,
exceptions and other terms and conditions of such policies, against liability
for any actual or alleged error or misstatement or misleading statement or act
or omission or neglect or breach of duty while acting in their capacities as
directors or officers of the Company.
II-1
<PAGE>
The Company has entered into indemnity agreements with its directors and
certain officers pursuant to which the Company generally is obligated to
indemnify its directors and such officers to the full extent permitted by the
TBCA, as described above.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In April 1999, the Company issued an aggregate of 9,000,000 shares of common
stock to Robert Hammond, Jr., the Company's CEO and President, and a limited
partnership controlled by Mr. Hammond is the sole general partner, in connection
with the formation of the Company. The consideration for such shares was the
contribution of the initial operating assets of the Company. The issuance of
such shares was exempt from the registration requirements of the Securities Act
of 1933, as amended, pursuant to Section 4(2) thereof.
In June 1999, the Company issued 250,000 shares of common stock to one
officer and director of the Company as a stock grant pursuant to the Company's
restricted stock bonus plan. The issuance of such shares was exempt from the
registration requirements of the Securities Act pursuant to Section 4(2)
thereof.
In August and September 1999, the Company issued an aggregate of 1,250
shares of common stock to three employees as a stock grant pursuant to the
Company's restricted stock bonus plan. The issuance of such shares was exempt
from the registration requirements of the Securities Act pursuant to Rule 701
thereof.
In November 1999 through January 2000, the Company issued options to
purchase an aggregate of 994,375 shares of common stock at an exercise price of
$0.63 per share. Such options were issued to an aggregate of 55 employees in
accordance with the Company's stock option plan. Such options were issued in
reliance on the exemption afforded by Rule 701 of the Securities Act.
In a private placement completed in August 1999, the Company raised $900,000
through the sale of convertible promissory notes to approximately 24 accredited
investors. Such promissory notes will be converted into an aggregate of 450,000
shares of the Company's common stock upon the closing of this offering. The
issuance of the promissory notes was exempt from the registration requirements
of the Securities Act pursuant to Rule 506 of Regulation D promulgated
thereunder.
In August 1999, in connection with the private placement of convertible
promissory notes described above, the Company issued a warrant to purchase up to
175,000 shares of its common stock at an exercise price of $2.00 to the
broker-dealer through which the private placement was conducted. The issuance of
such warrant was exempt from the registration requirements of the Securities Act
pursuant to Rule 506 of Regulation D promulgated thereunder.
In November 1999, the Company raised $62,500 through the sale of convertible
promissory notes to two accredited investors. Such promissory notes will be
converted into an aggregate of 31,250 shares of the Company's common stock upon
the closing of this offering. The issuance of these promissory notes was exempt
from the registration requirements of the Securities Act pursuant to
Section 4(2) thereof.
In November 1999, the Company raised $2,137,500 through a private placement
of an aggregate of 855,000 shares of its Series A convertible preferred stock to
approximately 21 accredited investors. Such shares of preferred stock will be
converted into an aggregate of 855,000 shares of the Company's common stock upon
the closing of this offering. The issuance of the Series A preferred stock was
exempt from the registration requirements of the Securities Act pursuant to
Rule 506 of Regulation D promulgated thereunder.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<C> <S>
1.1 Form of Underwriting Agreement
3.1 Form of Amended and Restated Articles of Incorporation
3.2 Form of Amended and Restated Bylaws
4.1 Form of Common Stock Certificate
4.2 Form of Representative's Warrant
4.3 Form of Warrant Agreement, dated as of August 31, 1999, in
favor of Gunn Allen**
4.4 Form of Subscription Document for August 1999 Private
Placement**
4.5 Form of Subscription Document for November 1999 Private
Placement**
4.6 Form of Convertible Promissory Note**
5.1 Opinion of Jeffer, Mangels, Butler & Marmaro LLP
10.1 PartsBase.com, Inc. Amended Restricted Stock Bonus Plan**
10.2 PartsBase.com, Inc. Stock Option Plan**
10.3 Lease Agreement with respect to office space in Boca Raton,
Florida**
10.4 Form of Indemnification Agreement
10.5 Employment Agreement of Robert Hammond, Jr.**
10.6 Employment Agreement of Steven Spencer**
10.7 Employment Agreement of Kevin Steil**
10.8 Employment Agreement of Michael Siegel**
10.9 Employment Agreement of Yves Duplan**
10.10 Consulting Agreement with Plan Three Solutions, L.L.C.**
10.11 Software License Agreement with Tradex Technologies, Inc.**
10.12 Software License Agreement with Trading Dynamics, Inc.**
23.1 Consent of Jeffer, Mangels, Butler & Marmaro LLP (included
in Exhibit 5.1)
23.2 Consent of Deloitte & Touche LLP
23.3 Consent of Pierre A. Narath as Director Nominee**
23.4 Consent of David G. Fessler as Director Nominee**
24.1 Power of Attorney (included in Part II--Signatures of this
Registration Statement)**
27.1 Financial Data Schedule**
</TABLE>
- ------------------------
** Filed previously
II-3
<PAGE>
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the registration statement).
Notwithstanding the forgoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b)
if, in the aggregate, the changes in volume and price represent
no more than a 20% change in the maximum aggregate offering
price set forth in "Calculation of Registration Fee" table in
the effective registration statement: and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) 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.
(c) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(d) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained
in 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, 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-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 2 to registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Boca
Raton, State of Florida, on March 15, 2000.
<TABLE>
<S> <C> <C>
PARTSBASE.COM, INC.
By: /s/ ROBERT A. HAMMOND, JR.
-----------------------------------------
Robert A. Hammond, Jr.,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons on behalf
of PartsBase.com, Inc. in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ ROBERT A. HAMMOND, JR.
------------------------------------------- Director, Chief Executive March 15, 2000
Robert A. Hammond, Jr. Officer and President
/s/ STEVEN R. SPENCER
------------------------------------------- Director, Chief Operating March 15, 2000
Steven R. Spencer Officer
/s/ MICHAEL SIEGEL Chief Financial Officer
------------------------------------------- (Principal Accounting March 15, 2000
Michael Siegel Officer)
/s/ THOMAS VAN HARE*
------------------------------------------- Director March 15, 2000
Thomas Van Hare
/s/ LOUIS W. STORMS IV*
------------------------------------------- Director March 15, 2000
Louis W. Storms IV
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ STEVEN R. SPENCER
--------------------------------------
Steven R. Spencer
AS ATTORNEY-IN-FACT
</TABLE>
II-5
<PAGE>
EXHIBIT 1.1
PARTSBASE.COM, INC.
3,500,000 SHARES
COMMON STOCK
UNDERWRITING AGREEMENT
March __, 2000
ROTH CAPITAL PARTNERS, INC.
- and -
PENNSYLVANIA MERCHANT GROUP
as Representatives of the several Underwriters
The undersigned, PARTSBASE.COM, INC., a Texas corporation (the
"Company"), hereby addresses you as the representatives (the "Representatives")
of each of the persons, firms and corporations listed on Schedule I hereto
(collectively, the "Underwriters") and hereby confirms its Underwriting
Agreement (the "Agreement") with the several Underwriters as follows:
1. DESCRIPTION OF SHARES. The Company proposes to issue and sell to
the Underwriters an aggregate of 3,500,000 shares of the Company's Common Stock,
no par value (the "Company Shares"). Solely for the purpose of covering
over-allotments in the sale of the Company Shares, the Company further proposes
to grant to the Underwriters the right to purchase up to an additional 525,000
shares of its Common Stock (the "Option Shares"), as provided in Section 3 of
this Agreement. The Company Shares and the Option Shares are herein sometimes
referred to as the "Shares" and are more fully described in the Prospectus
hereinafter defined.
2. PURCHASE, SALE AND DELIVERY OF COMPANY SHARES. On the basis of
the representations, warranties and agreements herein contained, but subject to
the terms and conditions herein set forth, the Company agrees to sell to the
Underwriters the Company Shares, and each such Underwriter agrees, severally and
not jointly, (i) to purchase from the Company, at a purchase price of $___ per
share, the number of Company Shares set forth opposite the name of such
Underwriter in Schedule I hereto and (ii) to purchase from the Company any
additional number of Option Shares which such Underwriter may become obligated
to purchase pursuant to Section 3 hereof.
The Shares to be purchased by each Underwriter hereunder, in definitive
form, and in such authorized denominations and registered in such names as Roth
Capital Partners, Inc.
<PAGE>
("Roth"), as one of the Representatives, may request upon at least forty-eight
hours' prior notice to the Company shall be delivered by or on behalf of the
Company to Roth, through the facilities of the Depository Trust Company ("DTC"),
for the account of such Underwriter, against payment by or on behalf of such
Underwriter of the purchase price therefor by wire transfer of Clearinghouse
(next-day) funds to the account specified by the Company to Roth at least
forty-eight hours in advance. The Company will cause the certificates
representing the Shares to be made available for checking and packaging at least
twenty-four hours prior to the Time of Delivery (as defined below) with respect
thereto at the office of DTC or its designated custodian (the "Designated
Office"). The time and date of such delivery and payment shall be, with respect
to the Company Shares, 9:30 a.m., Eastern Standard Time, on _________ ___, 2000
or such other time and date as Roth and the Company may agree upon in writing,
and, with respect to the Option Shares, 9:30 a.m., Eastern Standard Time, on the
date specified by Roth in the written notice given by Roth of the Underwriters'
election to purchase such Option shares, or such other time and date as Roth and
the Company may agree upon in writing. Such time and date for delivery of the
Company Shares is herein called the "First Time of Delivery," such time and date
for delivery of the Option Shares, if not the First Time of Delivery, is herein
called the "Second Time of Delivery," and each such time and date for delivery
is herein called a "Time of Delivery."
The documents to be delivered at each Time of Delivery by or on behalf
of the parties hereto pursuant to Section 6 hereof, including the cross receipt
for the Shares, will be delivered at the offices of Greenberg Traurig, LLP, 1750
Tysons Boulevard, Suite 1200, McLean, VA 22102 (the "Closing Location"), and the
Shares will be delivered at the Designated Office, all at such Time of Delivery.
A meeting will be held at the Closing Location at 3:00 p.m., Eastern Standard
Time, on the Business Day next preceding such Time of Delivery, at which meeting
the final drafts of the documents to be delivered pursuant to the preceding
sentence will be available for review by the parties hereto. For the purposes of
this Section 2, "Business Day" shall mean each Monday, Tuesday, Wednesday,
Thursday and Friday which is not a day on which banking institutions in New York
are generally authorized or obligated by law or executive order to close.
3. PURCHASE, SALE AND DELIVERY OF THE OPTION SHARES. The Company
hereby grants an option to the Underwriters to purchase from it up to 15% of the
Company Shares sold to the public by the Company as Option Shares on the same
terms and conditions as the Company Shares; provided, however, that such option
may be exercised only for the purpose of covering any over-allotments which may
be made by the Underwriters in the sale of the Company Shares. No Option Shares
shall be sold or delivered unless all of the Company Shares previously have
been, or simultaneously are, sold and delivered.
The option is exercisable on behalf of the several Underwriters by Roth,
as one of the Representatives, at any time, and from time to time, before the
expiration of 45 days from the date of this Agreement, for the purchase of all
or part of the Option Shares covered thereby, by notice given by Roth to the
Company in the manner provided in Section 13 hereof (the "Option Notice"),
setting forth the number of Option Shares as to which the Underwriters are
exercising the option, and the date of delivery of said Option Shares, which
date shall not be less than two business days after such Option Notice unless
otherwise agreed to by the parties. Roth may
2
<PAGE>
terminate the option at any time, as to any unexercised portion thereof, by
giving written notice to the Company to such effect.
You, as Representatives, shall make such allocation of the Option Shares
among the Underwriters as may be required to eliminate purchases of fractional
Shares.
4. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY.
(a) The Company represents and warrants to and agrees with
each Underwriter that:
(i) The Company meets the requirements for use of
Form S-1 under the Securities Act of 1933, as amended (the "Act"). A
registration statement on Form S-1 (Registration No. 333-94337) in respect to
the Shares, including a preliminary prospectus, and such amendments to such
registration statement as may have been required to the date of this Agreement,
have been prepared by the Company pursuant to and in conformity with the
requirements of the Act, and the rules and regulations (the "Rules and
Regulations") of the Securities and Exchange Commission (the "Commission")
promulgated thereunder and has been filed with the Commission under the Act.
Copies of such registration statement, including any amendments thereto, each
related preliminary prospectus (meeting the requirements of Rule 430 or 430A of
the Rules and Regulations) contained therein, the exhibits, financial statements
and schedules have heretofore been delivered by the Company to Roth. If such
registration statement has not become effective under the Act, a further
amendment to such registration statement, including a form of final prospectus,
necessary to permit such registration statement to become effective will be
filed promptly by the Company with the Commission. If such registration
statement has become effective under the Act, a final prospectus containing
information permitted to be omitted at the time of effectiveness by Rule 430A of
the Rules and Regulations will be filed promptly by the Company with the
Commission in accordance with Rule 424(b) of the Rules and Regulations. The term
"Registration Statement" as used herein means the registration statement as
amended at the time it becomes or became effective under the Act (the "Effective
Date") and, in the event any post-effective amendment thereto becomes effective
prior to the First Time of Delivery, the registration statement as so amended,
including financial statements and all exhibits and all documents incorporated
by reference therein and, if applicable, the information deemed to be included
by Rule 430A of the Rules and Regulations. The term Prospectus as used herein
means the prospectus as first filed with the Commission pursuant to Rule 424(b)
of the Rules and Regulations or, if no such filing is required, the form of
final prospectus included in the Registration Statement at the Effective Date,
except that if the prospectus provided to the Underwriters by the Company for
use in connection with the offering of Shares differs from the Prospectus on
file with the Commission at the time the Registration Statement becomes
effective (whether or not the Company is required to file with the Commission
such revised Prospectus pursuant to Rule 424(b) of the Rules and Regulations),
the term Prospectus shall refer to such revised Prospectus from and after the
time it is first provided to the Underwriters for such use. The term Preliminary
Prospectus as used herein shall mean a preliminary prospectus as contemplated by
Rule 430 or 430A of the Rules and Regulations
3
<PAGE>
included at any time in the Registration Statement. All references in this
Agreement to financial statements and schedules and other information which is
contained, included, stated or described in the Registration Statement,
Preliminary Prospectus or the Prospectus shall be deemed to mean and include all
such financial statements and schedules and other information which is
incorporated by reference in, or deemed to be a part of, the Registration
Statement, Preliminary Prospectus or Prospectus, as the case may be.
(ii) The Commission has not issued, and is not to the
best knowledge of the Company threatening to issue, an order preventing or
suspending the use of any Preliminary Prospectus or the Prospectus nor
instituted proceedings for that purpose. Each Preliminary Prospectus at its date
of issue, the Registration Statement and the Prospectus and any amendments or
supplements thereto contain or will contain, as the case may be, all statements
which are required to be stated therein by, and in all material respects conform
or will conform, as the case may be, to the requirements of, the Act and the
Rules and Regulations. Neither the Registration Statement nor any amendment
thereto, as of the applicable effective date, contains or will contain, as the
case may be, any untrue statement of a material fact or omits or will omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading, and neither the Prospectus nor any supplement
thereto contains or will contain, as the case may be, any untrue statement of a
material fact or omits or will omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided, however,
that the Company makes no representation, warranty or agreement as to
information contained in or omitted from the Registration Statement, the
Preliminary Prospectus or the Prospectus, or any such amendment or supplement,
in reliance upon, and in conformity with, written information furnished to the
Company by or on behalf of the Underwriters specifically for use in the
preparation of: (i) the statements therein regarding over-allotment,
stabilization or passive market making by the Underwriters, or (ii) the section
thereof under the caption Plan of Distribution.
(iii) The Company has been duly incorporated and is
validly existing as a corporation in good standing under the laws of the State
of Texas, with full corporate power and authority to own, lease and operate its
properties and conduct its business as described in the Registration Statement;
the Company is duly qualified to transact business as a foreign corporation in
good standing in each state or other jurisdiction in which its ownership or
leasing of property or conduct of business requires such qualification, except
where the failure to be so qualified would not, individually or in the
aggregate, have a material adverse effect on the business, properties, financial
condition or results of operations of the Company (a "Material Adverse Effect").
The Company does not own or control, directly or indirectly, any corporation,
association or other entity. The Company has no subsidiaries (as defined in Rule
405 of the Rules and Regulations).
(iv) The Company has full right and corporate power
and authority to enter into this Agreement and to perform the transactions
contemplated hereby. The filing of the Registration Statement and the execution
and delivery of this Agreement have been duly authorized by the Board of
Directors of the Company. This Agreement constitutes a valid and legally binding
obligation of the Company enforceable in accordance with its terms (except to
4
<PAGE>
the extent the enforceability of the indemnification, exculpation and
contribution provisions of Section 7 hereof may be limited by applicable law,
and except as enforceability of this Agreement may be limited by bankruptcy,
insolvency, reorganization, fraudulent conveyance, moratorium and other laws
affecting creditors' rights generally and by general principles of equity,
regardless of whether such enforceability is considered in a proceeding in
equity or at law). The issuance and sale of the Shares by the Company and the
performance of this Agreement by the Company and the consummation of the
transactions herein contemplated will not result in a violation of the Company's
articles of incorporation or bylaws or result in a breach or violation of any of
the terms and provisions of, or constitute a default under, or result in the
creation or imposition of any lien, charge or encumbrance upon any properties or
assets of the Company under, any statute which is applicable to it, or under any
indenture, mortgage, deed of trust, note, loan agreement, sale and leaseback
arrangement or other agreement or instrument to which the Company is a party or
by which they are bound or to which any of the properties or assets of the
Company is subject, or any order, rule or regulation applicable to the Company
of any court or public, regulatory or governmental agency or body having
jurisdiction over the Company or its properties, other than any such breach,
violation, default, lien, charge or encumbrance, as the case may be, which does
not individually or in the aggregate would have a Material Adverse Effect. No
consent, approval, authorization, order, registration or qualification of or
with any court or public, regulatory or governmental agency or body is required
for the consummation of the transactions herein contemplated, except such as may
be required by the National Association of Securities Dealers, Inc. (the "NASD")
or under the Act or the Rules and Regulations or any state securities laws.
(v) Except as described in the Prospectus, the
Company has not sustained since the date of the latest audited financial
statements included in the Prospectus any material loss or interference with its
business from fire, explosion, flood or other calamity, whether or not covered
by insurance, or from any labor dispute or court or governmental action, order
or decree. Except as contemplated in the Prospectus, subsequent to the
respective dates as of which information is given in the Registration Statement
and the Prospectus, the Company has not incurred any material liabilities or
material obligations, direct or contingent, other than in the ordinary course of
business, or entered into any material transactions not in the ordinary course
of business, and there has not been any material change in the capital stock or
long-term debt of the Company or any Material Adverse Effect. The Company has
filed all necessary federal, state and foreign income and franchise tax returns
and paid all taxes shown as due thereon, except as are being contested by the
Company in good faith. All tax liabilities, including those being contested by
the Company, are adequately provided for on the books of the Company. The
Company has made all necessary payroll tax payments and is current and
up-to-date as of the date of this Agreement to the extent necessary to avoid a
Material Adverse Effect. The Company has no knowledge of any tax proceeding or
action pending or threatened against the Company.
(vi) Except as described in the Prospectus, there is
no action, suit, arbitration, investigation or governmental proceeding, domestic
or foreign, pending or, to the best of the Company's knowledge, threatened or
involving the properties or business of the Company which challenges the
validity of this Agreement or any action taken or required to be taken by the
Company pursuant to or in connection with this Agreement or which could
5
<PAGE>
reasonably be expected to have a Material Adverse Effect. The Company is not a
party and is not subject to the provisions of any injunction, judgment, decree
or order of any court or any public, regulatory or governmental agency or body.
There are no contracts or documents to which the Company is a party which would
be required to be filed as exhibits to the Registration Statement by the Act or
by the Rules and Regulations which have not been filed as exhibits to the
Registration Statement; the contracts and documents to which the Company is a
party which are so described in the Registration Statement are in full force and
effect on the date hereof; and the Company does not have notice that any other
party is in breach of or default under any of such contracts to a material
extent.
(vii) The Company has duly and validly authorized
capital stock as described in the Prospectus. Except as disclosed in or
contemplated by the Prospectus, the Company does not have outstanding any
options to purchase or any preemptive rights or other rights to subscribe or to
purchase, any securities or obligations convertible into, or any contracts or
commitments to issue or sell, shares of its capital stock or any such options,
rights, convertible securities or obligations. The description of outstanding
warrants to purchase Common Stock and the Company's stock option plans and the
options or other rights granted and exercised thereunder set forth in the
Prospectus accurately presents in all material respects the information required
to be shown with respect to such warrants, plans, options and rights. All
outstanding shares of Common Stock of the Company conform, and the Shares when
issued will conform, in all material respects to the description thereof in the
Registration Statement and the Prospectus and have been, or, when issued and
paid for will be, duly authorized, validly issued, fully paid and nonassessable,
issued in material compliance with all applicable Federal and state securities
laws and not issued in violation of or subject to any preemptive rights or other
rights to purchase or subscribe for securities of the Company. Except for the
holders of the Company's Series A Preferred Stock and convertible promissory
notes immediately prior to the effectiveness of the Registration Statement (the
"selling shareholders"), which holders are identified in the Registration
Statement, no shareholder of the Company has any right to require the Company to
register the sales of any shares or other securities owned by such shareholder
under the Act in the public offering contemplated by this Agreement. Upon
delivery of the Company Shares and full payment therefor pursuant to this
Agreement, good and valid title to such Shares, free and clear of all liens,
encumbrances, security interests, restrictions on transfer, equities or claims
whatsoever (other than any created directly by the Underwriters), will pass to
the Underwriters.
(viii) The Company owns no real property and the
Company has good and marketable title to personal property owned by it, subject
to no lien, charge, defect or encumbrances of any kind except as are described
in the Prospectus, and which do not materially interfere with the use made and
proposed to be made of such property by the Company. Except as disclosed in the
Prospectus, the Company owns or leases all such assets as are materially
necessary to its operations as now conducted.
(ix) Deloitte & Touche, LLP, the accounting firm
which has certified the financial statements filed with the Commission as a part
of the Registration Statement, is an independent public accounting firm within
the meaning of the Act and the Rules and Regulations.
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(x) The financial statements and schedules of the
Company, including the notes thereto, filed with and as a part of the
Registration Statement, are accurate in all material respects and present fairly
the financial position of the Company as of the respective dates thereof and the
results of operations and statements of cash flow for the respective periods
covered thereby, all in conformity with generally accepted accounting principles
applied on a consistent basis throughout the periods involved except as
otherwise disclosed in the Prospectus. The selected financial data included in
the Registration Statement and Prospectus present fairly the information shown
therein and have been compiled on a basis consistent with that of the audited
financial statements included in the Registration Statement and Prospectus.
(xi) The Company is not in default with respect to
any contract or agreement to which it is a party; provided that this
representation shall not apply to defaults which in the aggregate could
reasonably be expected to have a Material Adverse Effect.
(xii) The Company is not in breach or violation of any
provision of its articles of incorporation or bylaws or any laws, ordinances or
governmental rules or regulations to which it is subject, and the Company has
not failed to obtain, maintain or comply with the terms of any of the licenses,
certificates, permits, franchises, easements, consents, or other governmental
authorizations necessary to the ownership, leasing and operation of its
properties or to the conduct of its business, which breach, violation or failure
could reasonably expected to have a Material Adverse Effect.
(xiii) Except as described in the Prospectus, the
Company has sufficient interests in all patents, trademarks, service marks,
trade names, domain names, copyrights, trade secrets, information, proprietary
rights and processes ("Intellectual Property") necessary for the conduct of the
business now conducted by it as described in the Prospectus, and, to the
Company's knowledge necessary in connection with the products and services under
development, without, to the Company's knowledge, any infringement of or the
interests of others, and has taken all steps reasonably necessary to secure
interests in such Intellectual Property from its contractors; except as set
forth in the Prospectus, the Company is not aware of outstanding options,
licenses or agreements of any kind relating to the Intellectual Property of the
Company which are required to be set forth in the Prospectus, and, except as set
forth in the Prospectus, the Company is not a party to or bound by any options,
licenses or agreements with respect to the Intellectual Property of any other
person or entity which are required to be set forth in the Prospectus; none of
the technology employed by the Company has been obtained or is being used by the
Company in violation of any contractual or fiduciary obligation binding on the
Company or to the knowledge of the Company any of its directors, officers or
employees or otherwise in violation of the rights of any persons; except as
disclosed in the Prospectus, the Company has not received any written or, to the
Company's knowledge, oral communications alleging that the Company has violated,
infringed or conflicted with, or by conducting its business as set forth in the
Prospectus, would violate, infringe or conflict with any of the Intellectual
Property of any other person or entity; and the Company has taken and will
maintain reasonable measures to prevent the unauthorized dissemination or
publication of its confidential information and, to the extent contractually
required to do so, the confidential information of third parties in its
possession.
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(xiv) The Company maintains insurance of the types and
in the amounts generally deemed adequate for its business, including, but not
limited to, general liability insurance, business interruption insurance and
insurance covering personal property owned or leased by the Company against
theft, damage, destruction, acts of vandalism and all other risks customarily
insured against, all of which insurance is in full force and effect.
(xv) The Company has not taken and will not take,
directly or indirectly, any action designed to or which might reasonably be
expected to cause or result in stabilization or manipulation of the price of the
Company's Common Stock, and the Company is not aware of any such action taken or
to be taken by any director, officer, employee, consultant, or shareholder of
the Company.
(xvi) The Company is not and, after giving effect to
the offering and sale of the Shares, will not be an "investment company" within
the meaning of the Investment Company Act of 1940, as amended.
(xvii) The Common Stock of the Company is registered
pursuant to Section 12(g) of the Securities Exchange Act of 1934, as amended,
and is approved for trading on the National Association of Securities Dealers
National Market System ("NASDNMS") under the symbol "PRTS." The Company has
taken no action that was designed to terminate, or that is likely to have the
affect of terminating, trading of its Common Stock on NASDNMS, nor has the
Company received any notification that the Commission or the NASDNMS is
contemplating terminating such trading.
(xviii) [Reserved].
(xix) Except as disclosed in the Registration
Statement and the Prospectus, no officer, director or beneficial owner of the
Company's capital stock is, directly or indirectly, associated with a NASD
member broker-dealer. The Company has no management or financial consulting
agreement with any third party.
(xx) No person is entitled, directly or indirectly,
to compensation from the Company for services as a finder in connection with the
transactions contemplated by this Agreement.
(xxi) [Reserved].
(xxii) Neither the Company nor any shareholder of the
Company whose shares are being registered in the public offering has engaged in
any discussions, formal or informal, in which you or persons associated with you
have participated regarding the potential for any arrangement to sell any of the
selling shareholders' shares. The Company understands and agrees that neither
you nor any of your direct or indirect affiliates will enter into, facilitate,
or otherwise participate in any type of payment transaction, sale, transfer,
assignment, or hypothecation with respect to the selling shareholders' shares.
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5. ADDITIONAL COVENANTS. The Company covenants and agrees with the
several Underwriters that:
(a) If the Registration Statement is not effective under the
Act, the Company will use its best efforts to cause the Registration Statement
to become effective as promptly as possible, and it will notify Roth, as one of
the Representatives, promptly after it shall receive notice thereof, of the time
when the Registration Statement has become effective. The Company (i) will
prepare and timely file with the Commission under Rule 424(b) of the Rules and
Regulations, if required, a Prospectus containing information previously omitted
at the time of effectiveness of the Registration Statement in reliance on Rule
430A of the Rules and Regulations or otherwise; (ii) will not file any amendment
to the Registration Statement or supplement to the Prospectus of which the
Underwriters shall not previously have been advised and furnished with a copy or
to which the Underwriters shall have reasonably objected in writing or which is
not in compliance in all material respects with the Rules and Regulations; and
(iii) will promptly notify Roth after it shall have received notice thereof of
the time when any amendment to the Registration Statement becomes effective or
when any supplement to the Prospectus has been filed.
(b) The Company will advise the Underwriters promptly, after
it has received notice or obtained knowledge thereof, of any comments of the
Commission with respect to the Registration Statement, of any request of the
Commission for amendment of the Registration Statement or for supplement to the
Prospectus or for any additional information, or of the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement or the use of the Prospectus or of the institution or threat of any
proceedings for that purpose, and the Company will use its best efforts to
prevent the issuance of any such stop order preventing or suspending the use of
the Prospectus and to obtain as soon as possible the lifting thereof, if issued.
(c) The Company will cooperate with the Underwriters and
their counsel in endeavoring to qualify the Shares for sale under (or obtain
exemptions from the application of) the securities laws of such jurisdictions as
they may have designated and will make such applications, file such documents,
and furnish such information as may be reasonably necessary so as to permit the
continuance of sales and dealings therein for so long as may be necessary to
complete the distribution of the Shares, provided the Company shall not be
required to qualify as a foreign corporation or to file a general consent to
service of process in any jurisdiction where it is not now so qualified. The
Company will advise Roth promptly of the suspension of the qualification or
registration of (or any such exemption relating to) the Shares for offering,
sale or trading in any jurisdiction or any initiation or threat of any
proceeding for any such purpose, and in the event of the issuance of any order
suspending such qualification, registration or exemption, the Company, with your
cooperation, will use its best efforts to obtain the withdrawal thereof.
(d) The Company will deliver to, or upon the order of, the
Underwriters, without charge from time to time, as many copies of any
Preliminary Prospectus (including all documents incorporated by reference
therein) as they may reasonably request. The Company will deliver to, or upon
the order of, the Underwriters without charge as many copies of the
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Prospectus (including all documents incorporated by reference therein), or as it
thereafter may be amended or supplemented, as they may from time to time
reasonably request. The Company consents to the use of such Prospectus by the
Underwriters and by all dealers to whom the Shares may be sold, in connection
with the offering or sale of the Shares and for such period of time thereafter
as the Prospectus is required by law to be delivered in connection therewith.
The Company will deliver to Roth at or before the First Time of Delivery two
signed copies of the Registration Statement and all amendments thereto,
including all exhibits filed therewith or incorporated by reference therein, and
all documents incorporated by reference in the Prospectus, and will deliver to
the Underwriters such number of copies of the Registration Statement, without
exhibits, and of all amendments thereto, as they may reasonably request.
(e) If, during the period in which a prospectus is required
by law to be delivered by an Underwriter or dealer, any event shall occur as a
result of which, in the reasonable judgment of the Company or in your reasonable
judgment or in the written opinion of counsel for the Underwriters, it becomes
necessary to amend or supplement the Prospectus in order to make the statements
therein, in light of the circumstances existing at the time the Prospectus is
delivered to a purchaser, not misleading, or, if it is necessary at any time to
amend or supplement the Prospectus to comply with any law, the Company promptly
will prepare and file with the Commission an appropriate amendment to the
Registration Statement or supplement to the Prospectus so that the Prospectus as
so amended or supplemented will not, in the light of the circumstances when it
is so delivered, be misleading, or so that the Prospectus will comply with
applicable law.
(f) The Company will make generally available to its
shareholders, as soon as it is practicable to do so, but in any event not later
than 15 months after the effective date of the Registration Statement (the
"Effective Date"), an earnings statement in reasonable detail, covering a period
of at least 12 consecutive months beginning after the effective date of the
Registration Statement, which earnings statement shall satisfy the requirements
of Section 11(a) of the Act and Rule 158 of the Rules and Regulations and will
advise the Underwriters in writing when such statement has been so made
available.
(g) The Company will, for a period of five years from the
Effective Date, deliver to the Underwriters at their principal executive offices
a reasonable number of copies of annual reports, quarterly reports, current
reports and copies of all other documents, reports and information furnished by
the Company to its shareholders or filed with any securities exchange or
national securities market pursuant to the requirements of such exchange or
market or with the Commission pursuant to the Act or the Securities Exchange Act
of 1934 (the "1934 Act"). Any report, document or other information required to
be furnished under this subsection (g) shall be furnished as soon as practicable
after such report, document or information becomes available.
(h) The Company will apply the proceeds from the sale of the
Shares as set forth in the description under the caption "Use of Proceeds" in
the Prospectus. Without limiting the generality of the foregoing, none of the
net proceeds of the public offering (through the repayment of debt or otherwise)
will be paid, in the aggregate, to NASD members, affiliates, associated persons,
or related persons. The Company will promptly advise Roth, and provide
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full particulars, if any 5% or greater shareholder of the Company is or becomes
an affiliate or associated person of an NASD member participating in the public
offering. Under no circumstances will Ferris, Baker Watts, Incorporated,
GunnAllen Financial, Inc., or AM Razo & Company participate in the public
offering in any capacity.
(i) The Company will supply Roth with copies of all
correspondence to and from, and all documents issued to and by, the Commission
in connection with the registration of the Shares under the Act.
(j) Prior to each Time of Delivery, the Company will furnish
to Roth, as soon as they have been prepared, copies of any unaudited interim
consolidated financial statements of the Company for any periods subsequent to
the periods covered by the financial statements appearing in the Registration
Statement and the Prospectus.
(k) Prior to the 30th day after the last Time of Delivery,
the Company will not issue any press releases or other communications directly
or indirectly and will hold no press conferences with respect to the Company,
the financial condition, results of operations, business, properties, assets or
liabilities of the Company, or the offering of the Shares, without Roth's prior
written consent except as otherwise required by law.
(l) The Company will use its best efforts to obtain approval
for, and maintain the listing of the Shares on, the NASDNMS.
(m) For a period of 180 days from the Effective Date, the
Company will not, and will cause its directors, officers and pre-Effective Date
securityholders (including, without limitation, holders of options, warrants or
other rights to acquire securities of the Company) to not (i) offer, pledge,
sell, hypothecate, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, lend or otherwise transfer or dispose of, directly or indirectly, any
shares of Common Stock or (ii) enter into any hedge, swap or other arrangement
that transfers to another, in whole or in part, any of the economic consequences
of ownership of the Common Stock, whether any such transaction described in
clause (i) or (ii) above is be settled by delivery of Common Stock or such other
securities, in cash or otherwise, without Roth's prior written consent, except
for the Shares sold hereunder and except for sales by the Company of shares of
Common Stock to the Company's employees pursuant to the exercise of options
under the Company's stock option plan as described in the Prospectus. The
foregoing sentence shall not apply to the sale of any Shares to the Underwriters
pursuant to this Agreement.
(n) The Company will file with the Commission such
information on Form 10-Q or Form 10-K as may be required by Rule 463 under the
Act.
(o) The Company will maintain and keep accurate books and
records reflecting its assets and will maintain internal accounting controls
which provide reasonable assurance that (i) transactions are executed in
accordance with management's authorization, (ii) transactions are recorded as
necessary to permit the preparation of the Company's consolidated financial
statements and to maintain accountability for the assets of the Company, (iii)
access to
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the assets of the Company is permitted only in accordance with management's
authorization, and (iv) the recorded accounts of the assets of the Company are
compared with existing assets at reasonable intervals.
(p) Prior to the Closing Date, the Company shall have issued
to the transfer agent for the Common Stock (the "Transfer Agent") a "stop
transfer" instruction with respect to all the shares of Common Stock issued and
outstanding immediately prior to the Effective Date (the "Pre-offering Shares"),
instructing the Transfer Agent to not honor any requests to transfer any
Pre-offering Shares prior to the expiration of the 180-day period described in
Section 5(m) of this Agreement without the Roth's prior written consent, and
such stop transfer instruction shall be in full force and effect at each Time of
Delivery.
(q) The Company will make available its stock transfer
records to the Representatives upon the Roth's request during the 12-month
period following the Effective Date.
(r) The Company will not, without the prior written consent
of Roth, directly or indirectly grant any options, warrants or rights to
purchase or acquire Common Stock for a price below the market price for the
Common Stock on the date of grant, for a period of 180 days commencing on the
Effective Date.
(s) The Company shall have become listed, within twenty
days after the Effective Date, and shall use its best efforts to maintain
such listing, for at least five years after the Effective Date in Standard
and Poor's Corporation Records Service and/or Moody's OTC Guide.
6. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The several obligations
of the Underwriters to purchase and pay for the Shares being sold hereunder by
the Company to the Underwriters shall be subject to the accuracy in all material
respects, as of the date hereof and as of each Time of Delivery of the
representations and warranties of the Company contained herein, to the
performance in all material respects by the Company of its covenants and
obligations hereunder, and to the additional conditions set forth in this
Section 6.
(a) If the Company and the Underwriters have determined not
to proceed pursuant to Rule 430A, the Registration Statement shall have become
effective not later than 10:00 a.m., Eastern Standard Time, on the day following
the date of this Agreement or such later date as may be consented to in writing
by Roth. If the Company and the Underwriters have determined to proceed pursuant
to Rule 430A, all filings required by Rule 424 and Rule 430A of the Rules and
Regulations shall have been made. No stop order suspending the effectiveness of
the Registration Statement, as amended from time to time, shall have been issued
and no proceeding for that purpose shall have been initiated or, to the
knowledge of the Company or any Underwriter, threatened or contemplated by the
Commission, and any request of the Commission for additional information (to be
included in the Registration Statement or the Prospectus or otherwise) shall
have been complied with to the reasonable satisfaction of the Underwriters.
(b) No person or entity shall have disclosed in writing to
the Company or the Underwriters on or prior to the relevant Time of Delivery,
that the Registration Statement or
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Prospectus or any amendment or supplement thereto contains an untrue statement
of fact which, in the opinion of counsel to the Underwriters, is material, or
omits to state a fact which, in the opinion of such counsel, is material and is
required to be stated therein or is necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
(c) You shall have received an opinion of Jeffer, Mangles,
Butler & Marmaro, LLP, counsel for the Company, addressed to you, as
Representatives of the several Underwriters, and dated such Time of Delivery to
the effect that:
(i) The Company has been duly incorporated and is a
validly existing corporation in good standing under the laws of the State of
Texas with corporate power and authority to own, lease and operate its
properties and conduct its business as described in the Registration Statement.
(ii) The Company's authorized capital stock is as set
forth under the caption "Capitalization" in the Prospectus. The Common Stock of
the Company conforms in all material respects to the description thereof in the
Prospectus under the caption "Description of Capital Stock," and the statements
in the Prospectus under such caption fairly summarize in all material respects
the provisions referred to in the Company's articles of incorporation, bylaws
and the law of the State of Texas. The form of certificate used to evidence the
Common Stock filed as an exhibit to the Registration Statement has been approved
by the Company's Board of Directors, and complies as to form with the
requirements of such law. The outstanding shares of Common Stock have been duly
authorized and are validly issued, fully paid and non-assessable, were issued in
compliance with all applicable Federal and state securities laws and the laws of
the State of Texas, and were not issued in violation of or subject to any
preemptive rights or other rights to purchase or subscribe for securities of the
Company. The Shares have been duly authorized and, when delivered and fully paid
for in accordance with this Agreement, will be validly issued, fully paid and
non-assessable, and the shareholders of the Company have no preemptive rights
with respect to the Shares. The Representatives' Warrant to be issued by the
Company under the Warrant Agreement has been duly authorized and, when issued
for the consideration set forth in such Warrant Agreement, will be validly
issued. The shares of Common Stock to be sold by the Company upon the exercise
of the Representatives' Warrant have been duly authorized and, when delivered
and fully paid for in accordance with this Agreement, will be validly issued,
fully paid and non-assessable. To such counsel's knowledge, except as disclosed
or contemplated in the Prospectus, there are no outstanding options, warrants,
or other rights calling for the issuance of any shares of capital stock of the
Company or any security convertible into or exchangeable for capital stock of
the Company. Upon delivery of the Shares being sold by the Company and full
payment therefor pursuant to this Agreement and registration of the ownership of
such Shares by the transfer agent for such Shares, good and valid title to such
Shares free and clear of all liens, encumbrances, security interests,
restrictions on transfer, equities or claims whatsoever other than any created
or granted by this Agreement or by the Underwriters, will pass to the
Underwriters.
(iii) Such counsel has been advised by the staff of
the Commission that the Registration Statement has become effective under the
Act and, to the best knowledge of
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such counsel, no stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
instituted or are pending or contemplated under the Act; any required filing of
the Prospectus and any supplement thereto pursuant to Rule 424(b) of the Rules
and Regulations has been made in the manner and within the time period required
by such Rule 424(b).
(iv) The Registration Statement and the Prospectus,
and each amendment or supplement thereto, as of their respective effective or
issue dates, comply as to form in all material respects with the requirements of
Form S-1 under the Act and the applicable Rules and Regulations (except that
such counsel need express no opinion or belief as to numerical, financial and
statistical data, financial statements and notes and related schedules thereto).
(v) The descriptions in the Registration Statement
and Prospectus of contracts and other documents filed as exhibits to the
Registration Statement are accurate in all material respects.
(vi) No authorization, approval, consent, order,
registration or qualification of or with any court or public, regulatory or
governmental body, authority or agency is required with respect to the Company
in connection with the transactions contemplated by this Agreement, except such
as may be required under the Act, the Rules and Regulations or the 1934 Act or
by the NASD, the Nasdaq-Amex Market Group or under state securities laws in
connection with the purchase and distribution of the Shares by the Underwriters.
(vii) The Company has the corporate power and
authority to enter into this Agreement and to sell and deliver the Shares to be
sold by it to the several Underwriters. The filing of the Registration Statement
with the Commission has been duly authorized by the Board of Directors of the
Company. This Agreement has been duly authorized, executed and delivered by the
Company, and is a valid and legally binding obligation of the Company
enforceable in accordance with its terms (except to the extent the
enforceability of the indemnification, exculpation and contribution provisions
of Section 7 hereof may be limited by applicable law and except as
enforceability of this Agreement may be limited by bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other laws affecting
creditors' rights generally and by general principles of equity, regardless of
whether such enforceability is considered in a proceeding in equity or at law).
The making and performance of this Agreement by the Company and the consummation
of the transactions herein contemplated will not result in a violation of the
Company's articles of incorporation or bylaws or to the best knowledge of such
counsel result in a breach or violation of any of the terms and provisions of,
or constitute a default under, or result in the creation or imposition of any
lien, charge or encumbrance upon any properties or assets of the Company under,
any applicable Federal or state statute, or under any indenture, mortgage, deed
of trust, note, loan agreement, lease, franchise, license, permit or any other
agreement or instrument to which the Company is a party or by which it is bound
or to which any of the properties or assets of the Company is subject, or any
order, rule or regulation known to such counsel of any court or public,
regulatory or governmental agency, authority or body having jurisdiction over
the Company or its properties,
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except, in the case of any such violation, breach, default, creation or
imposition, to such extent as does not, individually or in the aggregate, have a
Material Adverse Effect.
(viii) To the best knowledge of such counsel, (i) there
are no legal, governmental or regulatory proceedings pending or threatened to
which the Company is a party or of which the business or properties of the
Company is the subject which (individually or in the aggregate) could reasonably
expected to have a Material Adverse Effect or on the ability of the Company to
consummate the transactions contemplated herein, and which are not disclosed in
the Registration Statement and Prospectus; (ii) there are no contracts or
documents of a character required to be described in the Registration Statement
or the Prospectus or to be filed as an exhibit to the Registration Statement
which are not described therein or filed as required; and (iii) the Company is
not a party or subject to the provisions of any injunction, judgment, decree or
order of any court or any public, regulatory or governmental agency, authority
or body which could reasonably expected to have a Material Adverse Effect or on
the ability of the Company to consummate the transactions contemplated herein.
(ix) To the best knowledge of such counsel, the
Company holds all licenses, certificates, permits, franchises, consents,
authorizations and approvals from all state and federal regulatory authorities
that are required for the Company to conduct its business as described in the
Prospectus, except in the case of any such license, certificate, permit,
franchise, consent, authorization or approval the loss of which or failure to
maintain could reasonably expected to have a Material Adverse Effect.
(x) The Company is not in violation of its articles
of incorporation and bylaws. To the best of counsel's knowledge, the Company is
not in breach of, or in default with respect to, any provisions of any
agreement, mortgage, deed of trust, lease, note, agreement, franchise, license,
indenture, permit or other instrument known to such counsel to which the Company
is a party or by which the Company or any of the properties thereof may be bound
or affected, which breach or default could reasonably expected to have a
Material Adverse Effect or on the Company's ability to consummate the
transactions contemplated herein, and the Company is in compliance with all
judgments, decrees and orders of any court to which the Company is subject,
except where noncompliance could reasonably expected to have a Material Adverse
Effect.
(xi) The Company is not an "investment company"
within the meaning of the Investment Company Act of 1940, as amended.
(xii) No holders of securities of the Company have
preemptive rights or, to the best knowledge of such counsel, other rights to
purchase or subscribe for shares of Common Stock or other securities of the
Company, nor any rights to require the Company to register any securities under
the Act in connection with the transactions contemplated hereby.
Such counsel shall confirm that during the preparation of the
Registration Statement and Prospectus, such counsel participated in conferences
with officers and other representatives of the Company, representatives of the
independent certified public accountants for the Company and Representatives of
the Underwriters and their counsel, at which time the contents of the
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Registration Statement and Prospectus and related matters were discussed and
although such counsel is not opining with respect to and does not assume any
responsibility for the accuracy, truthfulness, completeness or fairness of
the statements contained in the Registration Statement or Prospectus, such
counsel confirms that no facts have come to their attention which have caused
them to believe that either (i) the Prospectus or any supplement thereto as
of its date (other than numerical, financial or statistical data, the
financial statements and notes or any related schedules thereto, as to which
such counsel need express no opinion or belief) contains any untrue statement
of a material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading or (ii) the
Registration Statement or any amendment thereto at the time it became
effective (other than numerical, financial or statistical data, the financial
statements and notes or any related schedules thereto, as to which such
counsel need express no opinion or belief) contains any untrue statement of a
material fact or omits to state a material fact required to be stated therein
or necessary to make the statements therein not misleading. In rendering such
opinion, such counsel shall be entitled to set forth qualifications and
limitations reasonably acceptable to the Representatives and their counsel
and to rely on the opinion of qualified Texas counsel with respect to any
matters relating specifically to the laws of the State of Texas.
(d) You shall have received on such Time of Delivery, from
Greenberg Traurig, LLP, counsel to the Underwriters, such opinion or opinions,
dated such Time of Delivery with respect to corporate existence and good
standing of the Company, the validity of the Shares, the Registration Statement,
the Prospectus and other related matters as you may reasonably require; the
Company shall have furnished to such counsel such documents as they reasonably
request for the purpose of enabling them to opine with respect to such matters.
(e) On the date of the Prospectus and on each Time of
Delivery, you shall have received from Deloitte & Touche, LLP, a letter or
letters, dated the date of the Prospectus and Time of Delivery, respectively, in
form and substance reasonably satisfactory to you, providing confirmation that
they are independent public accountants with respect to the Company within the
meaning of the Act and the published Rules and Regulations, and the answer to
Item 509 of Regulation S-K set forth in the Registration Statement is correct
insofar as it relates to them, and providing a statement similar in substance to
the one set forth in Schedule II hereto.
(f) Except as contemplated in the Prospectus, (i) the
Company shall not have sustained since the date of the latest audited financial
statements included in the Prospectus any loss or interference with its business
from fire, explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental action, order or
decree; and (ii) subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, the Company shall not
have incurred any liability or obligation, direct or contingent, or entered into
transactions, and there shall not have been any change in the capital stock or
long-term debt of the Company or any change in the financial condition, net
worth, business, management, or results of operations of the Company, the effect
of which, in any such case described in clause (i) or (ii), is in your
reasonable judgment so material or materially adverse as to make it
impracticable to proceed with the public offering or the delivery
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of the Shares being delivered on such Time of Delivery on the terms and in the
manner contemplated in the Prospectus.
(g) There shall not have occurred any of the following: (i)
a suspension or material limitation in trading in securities generally on the
New York Stock Exchange or the American Stock Exchange or Nasdaq or establishing
on such exchanges or Nasdaq by the Commission or by such exchanges or Nasdaq of
minimum or maximum prices which are not in force and effect on the date hereof;
(ii) a general moratorium on commercial banking activities declared by either
federal or state authorities; or (iii) the outbreak or escalation of hostilities
involving the United States or the declaration by the United States of a
national emergency or war, any calamity or crisis, material change in national,
international or world affairs, natural disaster, material change in the
international or domestic markets, or material change in the existing financial,
political or economic conditions in the United States or elsewhere, or the
enactment, publication, decree, or other promulgation of any federal or state
statute, regulation, rule, or order of any court or other governmental
authority, or the taking of any action by any federal, state or local government
or agency in respect of fiscal or monetary affairs, if the effect of any such
event specified in this clause (iii) is in your reasonable judgment so material
or materially adverse as to make it impracticable to proceed with the public
offering or the delivery of the Shares on the terms and in the manner
contemplated in the Prospectus.
(h) As a condition precedent to the several obligations of
the Underwriters to purchase and pay for the Shares being sold hereunder, you
shall have received a certificate or certificates, dated the Time of Delivery
and signed on behalf of the Company by the President and Chief Executive Officer
and the Chief Financial Officer of the Company stating that: (A) such party has
carefully examined the Registration Statement and the Prospectus as amended or
supplemented and all documents incorporated by reference therein and nothing has
come to such party's attention that would lead him to believe that either the
Registration Statement or the Prospectus, or any amendment or supplement thereto
or any documents incorporated by reference therein as of their respective
effective, issue or filing dates, contained, and the Prospectus as amended or
supplemented and all documents incorporated by reference therein and when read
together with the documents incorporated by reference therein, at such Time of
Delivery, contains any untrue statement of a material fact, or omits to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading; provided, however, that such party makes no representation,
warranty or agreement as to information contained in or omitted from the
Registration Statement, the Preliminary Prospectus or the Prospectus, or any
such amendment or supplement thereto, in reliance upon, and in conformity with,
written information furnished to the Company by or on behalf of the Underwriters
specifically for use in the preparation of (i) the statements therein regarding
over-allotment, stabilization or passive market making by the Underwriters, or
(ii) the section thereof under the caption "Plan of Distribution"; (B) all
representations and warranties made herein by the Company are true and correct
in all material respects at such Time of Delivery, with the same effect as if
made on and as of such Time of Delivery, and all agreements herein required to
be performed by the Company on or prior to such Time of Delivery have been duly
performed in all material respects; and (C) such other matters as you may
reasonably request.
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(i) As a condition precedent to the several obligations of
the Underwriters to purchase and pay for the Shares being sold hereunder, the
Company shall not have failed, refused, or been unable, on or by such Time of
Delivery to have performed in all material respects any agreement on its part
required to be performed by it or any of the conditions herein contained and
required to be performed or satisfied by it on or by such Time of Delivery.
(j) The Shares shall have been approved for trading or
quotation upon official notice of issuance on the NASDNMS under the symbol
"PRTS," and on the Time of Delivery the Shares shall be trading or quoted under
such symbol.
(k) As a condition precedent to the several obligations of
the Underwriters to purchase and pay for the shares being sold hereunder, you
shall have received, at or prior to the first Time of Delivery:
(i) from each officer and each director of the
Company and each record holder of shares of Common Stock outstanding immediately
prior to the first Time of Delivery, an executed "lock-up" agreement
substantially in the form of Exhibit A hereto or an assignment by the Company of
the benefit of a substantially similar agreement previously executed; and
(ii) from the Transfer Agent an acknowledgment of the
Company's instruction's described in Section 5(p) of this Agreement.
All such opinions, certificates, letters and documents will be in
compliance with the provisions hereof only if they are reasonably satisfactory
to you and to Greenberg Traurig, LLP, counsel for the several Underwriters. The
Company will furnish you with such conformed copies of such opinions,
certificates, letters and documents as you may reasonably request.
(l) On the Closing Date, the Company will grant, issue, and
assign to the Representatives or their designees, and the Representatives or its
designees shall accept, the Representative's Warrant to purchase up to 262,500
shares of Common Stock (or up to 301,875 shares of Common Stock if the
over-allotment option is exercised). The Representative's Warrant will be in the
form of, and in accordance with, the provisions of the Representative's Warrant
attached to a Warrant Agreement as an exhibit to the Registration Statement. Any
payment for the Representative's Warrant will be made to the Company by check or
checks payable to its order on the Closing Date against delivery of the
certificates representing the Representative's Warrant. The certificates
representing the Representative's Warrant will be in such denominations and in
such names as Roth may request at least two business days prior to the Closing
Date.
If any of the conditions specified above in this Section 6 shall not
have been satisfied at or prior to the Time of Delivery or waived by you in
writing, this Agreement may be terminated by Roth, as Representative of the
Underwriters, on written notice to the Company.
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7. INDEMNIFICATION.
(a) The Company shall indemnify and hold harmless each
Underwriter and its officers and directors and each person, if any, who controls
any Underwriter within the meaning of the Act or the 1934 Act, against any
losses, claims, damages or liabilities, joint or several, to which such
Underwriter, officer, director or controlling person may become subject, under
the Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon an untrue statement
or alleged untrue statement of a material fact contained in the Registration
Statement, in any Preliminary Prospectus, in the Prospectus, or in any amendment
or supplement thereto, or in any Blue Sky application or other document executed
by the Company or based on any information furnished in writing by the Company
and filed in any jurisdiction in order to qualify any or all of the Shares under
(or obtain exemption from) the securities laws thereof (Blue Sky Application),
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading; and will reimburse each Underwriter and each such officer,
director and controlling person for any legal or other expenses reasonably
incurred by such Underwriter, officer, director or controlling person in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company shall not be liable in
any such case to the extent, but only to the extent, that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission that is: (i) contained
in the Registration Statement, such Preliminary Prospectus, the Prospectus, or
any such amendment or supplement thereto, or in such Blue Sky Application or
such other document and (ii) both relates to and was made in reliance upon and
in conformity with written information furnished to the Company by you or by any
Underwriter through you, specifically for use in the preparation of: (a) the
last paragraph of the cover page of the form of prospectus included in the
Registration Statement, such Preliminary Prospectus or the Prospectus, or any
such amendment or supplement thereto or (b) the statements therein regarding
over-allotment, stabilization or passive market making by the Underwriters or
(c) the section thereof under the caption Underwriting; and provided, further,
that if any Preliminary Prospectus or the Prospectus contained any alleged
untrue statement or allegedly omitted to state therein a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading and such statement
or omission shall have been corrected in a revised Preliminary Prospectus or in
the Prospectus or in an amended or supplemented Prospectus, the Company shall
not be liable to any Underwriter, officer, director or controlling person under
this subsection (a) with respect to such alleged untrue statement or alleged
omission to the extent that any such loss, claim, damage or liability of such
Underwriter, officer, director or controlling person results from the fact that
such Underwriter sold Shares to a person or entity to whom there was not sent or
given, at or prior to the written confirmation of such sale, such revised
Preliminary Prospectus or Prospectus or amended or supplemented Prospectus.
(b) Each Underwriter will indemnify and hold harmless the
Company, each of its directors, each of its officers who have signed the
Registration Statement, and each person, if any, who controls the Company within
the meaning of the Act, against any losses, claims,
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<PAGE>
damages or liabilities, joint or several, to which the Company or any such
director, officer, controlling person may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Registration Statement,
any Preliminary Prospectus, the Prospectus, any amendment or supplement thereto,
or any Blue Sky Application or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, in each case to the
extent, but only to the extent, that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission that is: (i) contained in the Registration
Statement, such Preliminary Prospectus, the Prospectus, or any such amendment or
supplement thereto, or in such Blue Sky Application or such other document and
(ii) both relates to and was made in reliance upon and in conformity with
written information furnished to the Company by you or by any Underwriter
through you, specifically for use in the preparation of: (a) the last paragraph
of the cover page of the form of prospectus included in the Registration
Statement, such Preliminary Prospectus or the Prospectus, or any such amendment
or supplement thereto or (b) the statements therein regarding over-allotment,
stabilization or passive market making by the Underwriters or (c) the section
thereof under the caption "Plan of Distribution"; and each Underwriter will
reimburse the Company and each such director, officer and controlling person for
any legal or other expenses reasonably incurred by the Company or any such
director, officer or controlling person in connection with investigating or
defending any such loss, claim, damage, liability or action.
(c) Any party which proposes to assert the right to be
indemnified under this Section 7 shall, within ten days after receipt of notice
of commencement of any action, suit or proceeding against such party in respect
of which a claim is to be made against an indemnifying party under this Section
7 notify each such indemnifying party of the commencement of such action, suit
or proceeding, enclosing a copy of all papers served, but the omission so to
notify such indemnifying party of any such action, suit or proceeding shall not
relieve such indemnifying party from any liability which it may have to any
indemnified party otherwise than under this Section 7. In case any such action,
suit or proceeding shall be brought against any indemnified party and it shall
notify the indemnifying party of the commencement thereof, the indemnifying
party shall be entitled to participate in, and, to the extent that it shall
wish, jointly with any other indemnifying party, similarly notified, to assume
the defense thereof, with counsel reasonably satisfactory to such indemnified
party, and after notice from the indemnifying party to such indemnified party of
its election so to assume the defense thereof, the indemnifying party shall not
be liable to such indemnified party for any legal or other expenses subsequently
incurred by such indemnified party in connection with the defense thereof. The
indemnified party shall have the right to employ its own counsel in any such
action, but the fees and expenses of such counsel shall be solely at the expense
of such indemnified party unless (i) the employment of counsel by such
indemnified party at the expense of the indemnifying party has been authorized
in writing by the indemnifying party, (ii) the indemnified party shall have been
advised by such counsel in a written opinion that there may be a conflict of
interest between the indemnifying party and the indemnified party in the conduct
of the defense, or certain aspects of the defense, of such action (in which case
the indemnifying party shall not have the right to direct
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<PAGE>
the defense of such action with respect to those matters or aspects of the
defense on which a conflict exists or may exist on behalf of the indemnified
party) or (iii) the indemnifying party shall not in fact have employed counsel
to assume the defense of such action, in any of which events the reasonable fees
and expenses of such party to the extent applicable shall be borne by the
indemnifying party. An indemnifying party shall not be liable for any settlement
of any action or claim effected without its prior written consent. Each
indemnified party, as a condition of such indemnity, shall furnish such
information concerning itself or the claim in question as an indemnifying party
may reasonably request in connection with the defense of such claim and shall
cooperate in good faith with the indemnifying party in the defense of any such
action or claim.
(d) If the indemnification provided for in this Section 7 is
for any reason, other than pursuant to the terms hereof, judicially determined
(by the entry of a final judgment or decree by a court of competent jurisdiction
and upon the expiration of time to appeal or the denial of the last right to
appeal) to be unavailable to an indemnified party under paragraphs (a), (b) or
(c) above in respect of any losses, claims, damages or liabilities (or actions
in respect thereof) referred to therein, then each indemnifying party shall, in
lieu of indemnifying such indemnified party, contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages or
liabilities (or actions in respect thereof) in such proportion as is appropriate
to reflect the relative benefits received by the parties from the offering of
the Shares. If, however, the allocation provided by the immediately preceding
sentence is not permitted by applicable law, then each indemnifying party shall
contribute to such amount paid or payable by such indemnified party in such
proportion as is appropriate to reflect not only such relative benefits but also
the relative fault, as applicable, of the Company and the Underwriters in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities (or actions in respect thereof), as well as other
relevant equitable considerations. The relative benefits received by, as
applicable, the parties shall be deemed to be in the same proportion as the
total net proceeds from the offering (before deducting expenses) received by the
Company or the Selling Shareholders bear to the total underwriting discounts and
commissions received by the Underwriters, in each case as set forth in the table
on the cover page of the Prospectus. The relative fault shall be determined by
reference to, among other things, whether the untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the parties and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The parties agree that it would not be just and equitable if
contributions pursuant to this paragraph 4 were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Subsection.
The amount paid or payable by an indemnified party as a result of the
losses, claims, damages or liabilities (or actions in respect thereof) referred
to above in this paragraph (d) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this paragraph (d), no Underwriter shall be required to contribute
any amount in excess of the aggregate underwriting discounts and commissions
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<PAGE>
applicable to the Shares purchased by such Underwriter. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations in this paragraph
(d) to contribute are several in proportion to their respective underwriting
obligations and not joint.
8. REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY. All
representations, warranties, and agreements of the Company contained in Sections
4, 5, 7, and 11, herein or in certificates delivered pursuant hereto, and the
agreements of the Underwriters contained in Sections 7 and 11 hereof, and the
liability of a defaulting Underwriter, if any, pursuant to Section 9 hereof,
shall remain operative and in full force and effect regardless of any
termination or cancellation of this Agreement or any investigation made by or on
behalf of any Underwriter or any controlling person thereof, the Company or any
of its officers, directors or any controlling person thereof, and shall survive
delivery of the Shares to the Underwriters hereunder.
9. SUBSTITUTION OF UNDERWRITERS.
(a) If any Underwriter shall default in its obligation to
purchase the Shares which it has agreed to purchase hereunder, in your
discretion you, or either of you, may purchase, or you may arrange for another
party or other parties reasonably satisfactory to the Company to purchase, such
Shares on the terms contained herein. If within thirty-six hours after such
default by any Underwriter you do not purchase or arrange for the purchase of
such Shares, then the Company shall be entitled to a further period of
thirty-six hours within which to procure another party or parties reasonably
satisfactory to you to purchase such Shares on such terms. In the event that,
within the respective prescribed periods, you notify the Company that you have
so purchased or arranged for the purchase of such Shares, or the Company
notifies you that it has so arranged for the purchase of such Shares, you or the
Company shall have the right to postpone the Time of Delivery for a period of
not more than seven days, in order to effect whatever changes may thereby be
made necessary in the Registration Statement or the Prospectus, or in any other
documents or arrangements, and the Company agrees to file promptly any
amendments to the Registration Statement or the Prospectus which in the written
opinion of your counsel may thereby be made necessary. The term Underwriter as
used in this Agreement shall include any persons substituted under this Section
9 with like effect as if such person had originally been a party to this
Agreement with respect to such Shares and any such substituted person shall be
entitled to all of the benefits conferred hereby and shall be subject to all of
the obligations of an Underwriter hereunder as if such person had originally
been a party to this Agreement.
(b) If, after giving effect to any arrangements for the
purchase of the Shares of a defaulting Underwriter or Underwriters made by you
or the Company as provided in subsection (a) above, the aggregate number of
Shares which remains unpurchased does not exceed one tenth of the total Shares
to be sold on the Time of Delivery, then the Company shall have the right to
require each non-defaulting Underwriter to purchase the Shares which such
Underwriter agreed to purchase hereunder and, in addition, to require each
non-defaulting Underwriter to purchase its pro rata share (based on the number
of Shares which such Underwriter agreed to purchase
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<PAGE>
hereunder) of the Shares of such defaulting Underwriter or Underwriters for
which such arrangements have not been made; but nothing herein shall relieve a
defaulting Underwriter from liability for its default.
(c) If, after giving effect to any arrangements for the
purchase of the Shares of a defaulting Underwriter or Underwriters made by you
or the Company as provided in subsection (a) above, the number of Shares which
remains unpurchased exceeds one tenth of the total Shares to be sold on the Time
of Delivery, or if the Company shall not exercise the right described in
subsection (b) above to require the non-defaulting Underwriters to purchase the
unpurchased Shares of the defaulting Underwriter or Underwriters, then this
Agreement shall thereupon terminate, without liability on the part of any
non-defaulting Underwriter or the Company, except for the expenses to be borne
by the Company and the Underwriters as provided in Section 11 hereof and the
indemnity and contribution agreements in Section 7 hereof; but nothing herein
shall relieve a defaulting Underwriter from liability for its default.
10. EFFECTIVE DATE AND TERMINATION. This Agreement shall become
effective at 9 a.m., Eastern Standard Time, on the first business day following
the Effective Date of the Registration Statement, or at such earlier time after
the Effective Date of the Registration Statement as you in your discretion shall
first release the Shares for offering to the public; provided, however, that the
provisions of Section 7 and Section 11 shall at all times be effective. For the
purposes of this Section 10(a), the Shares shall be deemed to have been released
to the public upon release by you of the publication of a newspaper
advertisement relating to the Shares or upon release of telegrams, facsimile
transmissions or letters offering the Shares for sale to securities dealers,
whichever shall first occur.
(b) This Agreement may be terminated by Roth, as one of the
Representatives, at any time before it becomes effective in accordance with
Section 10(a) by notice to the Company; provided, however, that the provisions
of this Section 10(a) and of Section 7 and Section 11 hereof shall at all times
be effective. In the event of any termination of this Agreement pursuant to
Section 10(a) or this Section 10(b) hereof, the Company shall not then be under
any liability to any Underwriter except as provided in Section 7 or Section 11
hereof.
(c) This Agreement may be terminated by Roth, as one of the
Representatives, at any time at or prior to the First Time of Delivery by notice
to the Company if any condition specified in Section 6 hereof required to be
satisfied by the Company shall not have been satisfied by the Company in all
material respects on or prior to the First Time of Delivery. Any such
termination shall be without liability of any party to any other party except as
provided in Sections 7 and Section 11 hereof.
(d) This Agreement also may be terminated by Roth, as one of
the Representatives, by notice to the Company, as to any obligation of the
Underwriters to purchase the Option Shares, if any condition specified in
Section 6 hereof shall not have been satisfied by the Company in all material
respects at or prior to the Second Time of Delivery or as provided in Section 9
of this Agreement.
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If Roth terminate this Agreement as provided in Sections 10(b), 10(c) or
10(d), Roth shall notify the Company in writing or by telephone or telegram,
confirmed by letter.
11. COSTS AND EXPENSES. The Company will bear and pay the costs,
fees and expenses incident to the registration of the Shares and public offering
thereof, including, without limitation, (a) the fees and expenses of the
Company's accountants and the fees and expenses of counsel for the Company, (b)
the preparation, printing, filing, delivery and shipping of the Registration
Statement, each Preliminary Prospectus, the Prospectus and any amendments or
supplements thereto and the printing, delivery and shipping of this Agreement,
the Agreement Among Underwriters, the Selected Dealer Agreement, Underwriters'
Questionnaires and Powers of Attorney and any Blue Sky Memoranda, to the
Underwriters, (c) the furnishing of copies of such documents, (d) the
registration or qualification (or obtaining exemption therefrom) of the Shares
for offering and sale under the securities laws of the various states, including
the reasonable fees and disbursements of Underwriters' counsel relating thereto,
(e) the fees payable to the NASD and the Commission in connection with their
review of the proposed offering of the Shares, (f) all printing and engraving
costs related to preparation of the certificates for the Shares, including
transfer agent and registrar fees, (g) all initial transfer taxes, if any, (h)
all fees and expenses relating to the authorization of the Shares for trading on
the NASDNMS, (i) all travel expenses, including air fare and accommodation
expenses, of representatives of the Company in connection with the offering of
the Shares, (j) the cost of "tombstone" advertisements, (k) the cost of bound
volumes for the Representatives and their counsel and (l) all of the other costs
and expenses incident to the performance by the Company of the registration and
offering of the Shares; provided, however, that the Underwriters will bear and
pay all of the fees and expenses of the Underwriters' counsel (other than fees
and disbursements relating to the registration or qualification of the Shares
for offering and sale under the securities laws of the various states), the
Underwriters' out-of-pocket expenses, and any advertising costs and expenses
incurred by the Underwriters incident to the public offering of the Shares.
In addition to the Company's payment of the foregoing expenses, upon the
consummation of the Public Offering herein contemplated, the Company shall pay
to the Representatives a non-accountable expense allowance equal to 2% of the
gross proceeds of the offering, including in the computation of such amount the
proceeds from any sale of Option Shares, of which $50,000 was paid by the
Company to you. The balance of the non-accountable expense allowance due shall
be paid on the First Time of Delivery and on the Second Time of Delivery, as
applicable.
If this Agreement is terminated by Roth in accordance with the
provisions of Section 10(c), the Company shall reimburse the Underwriters only
for all of their out-of-pocket expenses, including the reasonable fees and
disbursements of counsel to the Underwriters.
12. NOTICES. All notices or communications hereunder, except as
herein otherwise specifically provided, shall be in writing and if sent to the
Underwriters shall be mailed, delivered, sent by facsimile transmission, or
telegraphed and confirmed c/o:
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Roth Capital Partners, Inc.
24 Corporate Plaza
Newport Beach, California 92660
Attention: Syndicate Department
Facsimile: (949) 720-7223
With a copy to:
Greenberg Traurig, LLP
170 Tysons Boulevard, Suite 1200
McLean, Virginia 22102
Attention: Jeffrey R. Houle, Esq.
Facsmile: (703) 749-1301
or if sent to the Company shall be mailed, delivered, sent by facsimile
transmission, or telegraphed and confirmed to the Company at:
PartsBase.com, Inc.
7171 N. Federal Highway, Suite 100
Boca Raton, Florida 33487
Attention: Robert A. Hammond, Jr.
Facsimile: (561) 443-7092
With a copy to:
Jeffer, Mangels, Butler & Marmaro, LLP
2121 Avenue of the Stars, 10th Floor
Los Angeles, CA 90067
Attention: Robert Steinberg, Esq.
Facsimile: (310) 203-0567
Notice to any Underwriter pursuant to Section 7 shall be mailed,
delivered, sent by facsimile transmission, or telegraphed and confirmed to such
Underwriter's address as it appears in any Underwriters' Questionnaire furnished
in connection with the offering of the Shares or as otherwise furnished to the
Company. Any party hereto may change such address or facsimile number for
notices by sending to the other parties to this Agreement written notice of a
new address or facsimile number for such purpose.
13. PARTIES. This Agreement shall inure to the benefit of and be
binding upon the Company, the Underwriters and their respective successors and
assigns. Nothing expressed or mentioned in this Agreement is intended or shall
be construed to give any person, corporation, partnership or other entity, other
than the parties hereto and their respective successors and assigns and the
controlling persons, officers and directors referred to in Section 7, any legal
or
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equitable right, remedy or claim under or in respect of this Agreement or any
provision herein contained; this Agreement and all conditions and provisions
hereof being intended to be and being for the sole and exclusive benefit of the
parties hereto and their respective successors and assigns and said controlling
persons and said officers and directors, and for the benefit of no other person,
corporation, partnership or other entity. No purchaser of any of the Shares from
any Underwriter shall be construed a successor or assign hereunder by reason
merely of such purchase.
In all dealings with the Company under this Agreement Roth shall act on
behalf of each of the several Underwriters, and the Company shall be entitled to
act and rely upon any statement, instruction, demand, request, notice or
agreement on behalf of the Underwriters, made or given by Roth on behalf of the
Underwriters, as if the same shall have been made or given in writing by all of
the Underwriters.
14. COUNTERPARTS. This Agreement may be executed by any one or more
of the parties hereto in any number of counterparts, each of which shall be
deemed to be an original, but all such counterparts shall together constitute
one and the same instrument.
15. PRONOUNS. Whenever a pronoun of any gender or number is used
herein, it shall, where appropriate, be deemed to include any other gender and
number.
16. PARTIAL UNENFORCEABILITY. The invalidity or unenforceability of
any section, paragraph or provision of this Agreement shall not affect the
validity or enforceability of any other section, paragraph or provision hereof.
17. GENERAL. This Agreement constitutes the entire agreement of the
parties to this Agreement and supersedes all prior written and oral agreements
and all contemporaneous oral agreements, undertakings and negotiations with
respect to the subject matter hereof. The section headings in this Agreement are
for the convenience of the parties only and will not affect the construction or
interpretation of this Agreement. This Agreement may be amended or modified, and
the observance of any term of this Agreement may be waived, only by a writing
signed by the Company, and by you or, in the case of a waiver, by the party
waiving compliance.
18. APPLICABLE LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California without giving
effect to the provisions thereof regarding the choice of law.
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If the foregoing is in accordance with your understanding, please so
indicate in the space provided below for such purpose, whereupon this letter
shall constitute a binding agreement among the Company and the Underwriters.
PartsBase.com, Inc.
By: ________________________________
Name: _____________________________
Title: _____________________________
Accepted in Newport Beach, California, as
of the date first above written, on behalf of
ourselves and each of the several
Underwriters named in Schedule I hereto.
ROTH CAPITAL PARTNERS, INC.,
as one of the Representatives for the Several Underwriters
By: ________________________________
Name: _____________________________
Title: _____________________________
PENNSYLVANIA MERCHANT GROUP,
as one of the Representatives for the Several Underwriters
By: ________________________________
Name: _____________________________
Title: _____________________________
27
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SCHEDULE I
NAME NUMBER OF SHARES
---- ----------------
Roth Capital Partners, Inc.
Pennsylvania Merchant Group
-------------------------------
Total 3,500,000
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SCHEDULE II
Pursuant to Section 6(e) of the Underwriting Agreement, the accountants
shall furnish letters to the Underwriters to the effect that:
19. They are independent certified public accountants with respect
to the Company within the meaning of the Act and the applicable Rules and
Regulations thereunder.
20. In their opinion, the financial statements and any supplementary
financial information and schedules (and, if applicable, prospective financial
statements and/or pro forma financial information) examined by them and included
in the Prospectus or the Registration Statement comply as to form with the
applicable accounting requirements of the Act and the Rules and Regulations with
respect to registration statements on Form S-1; and, if applicable, they have
made a review in accordance with standards established by the American Institute
of Certified Public Accountants of the interim financial statements, selected
financial data, pro forma financial information, prospective financial
statements and/or condensed financial statements derived from audited financial
statements of the Company for the periods specified in such letter, as indicated
in their reports thereon, copies of which have been furnished to the
Representatives of the Underwriters (the "Representatives").
21. The unaudited selected financial information with respect to the
consolidated results of operations and financial position of the Company for the
fiscal years included in the Prospectus agrees with the corresponding amounts
(after restatements where applicable) in the audited consolidated financial
statements for such years which were included in the Prospectus.
22. They have compared the information in the Prospectus under
selected captions with the disclosure requirements of Regulation S-K and on the
basis of limited procedures specified in such letter nothing came to their
attention as a result of the foregoing procedures that cause them to believe
that this information does not conform in all material respects with the
disclosure requirements of Items 301, 302, 402 and 503(d), respectively, of
Regulation S-K
23. On the basis of a reading of the unaudited financial statements,
pro forma financial statements, if any, and other information contained in the
Prospectus, a reading of the latest available interim financial statements of
the Company, inspection of the minute books of the Company since the date of the
latest audited financial statements included in the Prospectus, inquiries of
officials of the Company responsible for financial and accounting matters and
such other inquiries and procedures as may be specified in such letter, nothing
came to their attention that caused them to believe that:
(a) any of the above unaudited financial statements or other
information contained in the Prospectus do not comply as to form with the
accounting requirements of the Rules and Regulations or that such unaudited
financial statements are not fairly presented in conformity with generally
accepted accounting principles applied on a basis substantially consistent with
the audited financial statements;
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(b) as of a specified date not more than two days prior to
the date of such letter, there have been any changes in the capital stock or any
increase in the indebtedness of the Company, or any increases or decreases in
net current assets or net assets or any changes in any other items specified by
the Representatives, in each case as compared with amounts shown in the latest
balance sheet included in the Prospectus, except in each case for changes,
increases or decreases which the Prospectus discloses have occurred or may occur
or which are described in such letter; or
(c) for the period from the date of the latest financial
statements included in the Prospectus to the specified date referred to in
clause (B) above there were any decreases in revenues or the total or per share
amounts of net income, or any other changes in any items specified by the
Representatives, in each case as compared with the comparable period of the
preceding year and with any other period of corresponding length specified by
the Representatives, except in each case for changes or decreases which the
Prospectus discloses have occurred or may occur or which are described in such
letter.
In addition to the audit referred to in their report(s) included in the
Prospectus and the limited procedures, inspection of minute books, inquiries and
other procedures referred to in Section 23 above, they have carried out certain
specified procedures, not constituting an audit in accordance with generally
accepted auditing standards, with respect to certain amounts, percentages and
financial information specified by the Representatives, which are derived from
the general accounting records of the Company for the periods covered by their
reports and any interim or other periods since the latest period covered by
their reports, which appear in the Prospectus, or in Part II of, or in exhibits
and schedules to, the Registration Statement specified by the Representatives,
and have compared certain of such amounts, percentages and financial information
with the accounting records of the Company and have found them to be in
agreement.
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EXHIBIT A
Form of Lock-up Agreement
March ___, 2000
Roth Capital Partners, Inc.
- and -
Pennsylvania Merchant Group,
as Representatives of the Several Underwriters
Re: Lock-up Agreement Affecting Stock of PartsBase.com, Inc.
Ladies and Gentlemen:
The undersigned officer, director, and/or shareholder (the
"Shareholder") of PartsBase.com, Inc., a Texas corporation (the "Company"),
wishes to facilitate the initial public offering (the "Offering") of shares of
common stock of the Company. The Shareholder recognizes that the Offering will
be of benefit to the Company and the Shareholder.
To induce you, as the representatives (the "Representatives") of the
underwriters (the "Underwriters") of the Offering, to enter into an underwriting
agreement with the Company (the "Underwriting Agreement") relating to the
Offering and to induce you and the Underwriters to complete the purchase of the
shares of common stock pursuant to such Underwriting Agreement, the Shareholder
hereby agrees with the Underwriters as follows:
1. During the term of this Agreement, as specified in paragraph
3 of the Underwriting Agreement, the Shareholder will not, directly or
indirectly, offer, sell, contract to sell, pledge, hypothecate or otherwise
dispose of any shares of the Company's common stock or any securities
convertible into or exercisable or exchangeable for, or any rights to
purchase or acquire, shares of the Company's common stock or the beneficial
ownership thereof, whether now owned or hereinafter acquired other than
shares acquired in the public market on or after the date of the Company's
initial public offering (collectively the "Subject Securities"), without your
prior written consent as Representatives of the Underwriters. Without
limiting the generality of the foregoing, the Shareholder has engaged in no
discussions, formal or informal, in which the Representatives or persons
associated with the Representatives have participated regarding the potential
for any arrangement to sell any of the Shareholder's shares being registered
in the Offering, and the Shareholder understands and agrees that neither the
Representatives nor any of the Representatives' direct or indirect affiliates
will enter into, facilitate, or otherwise participate in any type of payment
transaction, sale, transfer, assignment, or hypothecation with respect to the
Shareholder's shares being registered in the Offering.
2. Any purported transfer of any Subject Securities in violation of
paragraph 1 hereof (an "Unauthorized Transfer") will be null and void. The
Company will not be required to register, recognize or give effect to any
Unauthorized Transfer and the purported transferee of any Subject Securities or
any interest therein pursuant to an Unauthorized Transfer will not acquire any
rights in such Subject Securities during the term of this Agreement as specified
in
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paragraph 3 hereof. The Company may issue stop transfer or similar instructions
to the transfer agent for its common stock covering all Subject Securities, but
shall not be required to do so.
3. This Agreement shall become effective upon the execution hereof
by the Shareholder. This Agreement shall terminate without any prior notice upon
the earlier of (i) the date which is one hundred and eighty (180) days after the
Effective Date of the Registration Statement filed by the Company with the
Securities and Exchange Commission (SEC Registration No. 333-94337) in
connection with the Offering, or (ii) the termination or cancellation of the
Underwriting Agreement for any reason prior to the sale of the common stock to
the Underwriters. Notwithstanding the foregoing, this Agreement shall terminate
immediately upon the abandonment of the Registration Statement.
4. This Agreement shall be construed and enforced in accordance
with the laws of the State of California. The Underwriters shall be entitled to
all legal and equitable remedies in enforcing this Agreement, including without
limitation an injunction against any sale of shares of the common stock in
contravention of this Agreement. If at any time subsequent to the date of this
Agreement any provision hereof shall be held by any court of competent
jurisdiction to be illegal, void or unenforceable, such provision shall be of no
force and effect, but the illegality or unenforceability of such provision shall
have no effect upon, and shall not impair the legality or enforceability of, any
other provision of this Agreement.
5. This Agreement may be executed in one or more counterparts, each
of which shall be an original, but all of which taken together shall constitute
one and the same instrument.
6. All of the terms and provisions of this Agreement shall inure to
the benefit of and be binding upon the respective heirs, successors, personal
representatives and permitted assigns of the parties hereto.
If the foregoing correctly sets forth the agreement between the
undersigned and the Underwriters, please indicate your acceptance in the space
provided below for that purpose.
Very truly yours,
________________________________
(Signature)
Print Name: ____________________
Date: __________________________
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Accepted in Newport Beach, California, as
of the date first above written, on behalf of
ourselves and each of the several
Underwriters named in the Underwriting
Agreement
ROTH CAPITAL PARTNERS, INC.,
as one of the Representatives for the Several Underwriters
By: ________________________________
Name: _____________________________
Title: _____________________________
PENNSYLVANIA MERCHANT GROUP,
as one of the Representatives for the Several Underwriters
By: ________________________________
Name: _____________________________
Title: _____________________________
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EXHIBIT 3.1
ARTICLES OF INCORPORATION, AS AMENDED,
OF
PARTSBASE.COM, INC.
I, the undersigned person, being over the age of twenty-one (21) years and
a citizen of the State of Texas, acting as the incorporator of a corporation
under the Texas Business Corporation Act, hereby adopt the following Articles of
Incorporation for such corporation:
ARTICLE ONE
The name of the corporation is PartsBase.com, Inc.
ARTICLE TWO
The corporation shall have perpetual existence.
ARTICLE THREE
The purposes for which the corporation is organized are transaction of all
lawful business for which corporations may be incorporated under the Texas
Business Corporation Act.
ARTICLE FOUR
The corporation may issue two classes of shares, designated preferred and
common. The corporation may issue a total of thirty-two million (32,000,000)
shares. The authorized number of common shares is thirty million (30,000,000)
shares and the shares are without par value. The authorized number of preferred
shares is two million (2,000,000) shares and the shares are without par value.
The Board of Directors shall have authority to establish series of unissued
shares of any class by fixing and determining the designations, preferences,
limitations and relative rights, including voting rights, of the shares of any
series so established to the same extent that such designations, preferences,
limitations could be set forth in the articles of incorporation. The Board of
Directors shall have the authority to increase or decrease the number of shares
of such series to the fullest extent permitted by law.
ARTICLE FIVE
The corporation shall not commence business until it shall have received
for the issuance of its shares consideration of the value of One Thousand
Dollars ($1,000.00) consisting of money, labor done or property actually
received, which sum is not less that One Thousand Dollars ($1,000.00).
<PAGE>
ARTICLE SIX
The corporation may enter into contracts or transact business with one or
more of its directors, officers or stockholders, or with any firm of which one
or more of its directors, officers or stockholders are members, or with any
corporation, limited liability company, partnership, association, trust company,
organization or entity in which any one or more of its directors, officers or
stockholders are directors, officers, managers, members, partners, trustees,
shareholders or beneficiaries, or are otherwise interested, and in the absence
of fraud such contract or transaction shall not be invalidated or in anyway
affected by the fact that such directors, officers or stockholders of the
corporation have or may have interests which are or might be adverse to the
interests of the corporation, even though the vote or action of the directors,
officers or stockholders having such adverse interests may have been necessary
to obligate the corporation upon such contract or transaction.
At any meeting of the Board of Directors of the corporation (or any duly
authorized committee thereof) which shall authorize or ratify any such contract
or transaction, any such director or directors may vote or act thereat with like
force and effect as if he or she had not such adverse interest, provided that in
such case such interest shall be disclosed or shall have been known to the Board
of Directors or a majority thereof. No director or officer shall be disqualified
from holding office as director or officer of the corporation by reason of any
such adverse interest. In the absence of fraud, no director, officer or
stockholder having such adverse interest shall be liable to the corporation or
to any stockholder or creditor thereof, or to any other person, for any loss
incurred by it under or by reason of such contract or transaction, nor shall any
such director, officer or stockholder be accountable for any gains or profits
realized thereon. Cumulative voting of shares in the election of directors is
prohibited.
A director of the corporation is not liable to the corporation or its
shareholders for monetary damages for an act or omission in the director's
capacity as a director, except that this article does not eliminate or limit the
liability of a director for:
(1) breach of a director's duty of loyalty to the corporation or its
shareholders;
(2) an act or omission not in good faith or that involves intentional
misconduct or a knowing violation of the law;
(3) a transaction from which a director received an improper benefit,
whether or not the benefit resulted from an action taken within the
scope of the director's office;
(4) an act or omission for which the liability of a director is expressly
provided for by statute; or
(5) an act related to an unlawful payment of a dividend.
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If the Texas Miscellaneous Corporation Laws Act or any other statute is
amended subsequently to the filing of these Articles of Incorporation to
authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director of the corporation
shall be eliminated or limited to the full extent permitted by such statute, as
so amended.
Any repeal or modification of the foregoing paragraph by the corporation
shall not adversely affect any right or protection of a director of the
corporation existing at the time of such repeal or modification.
ARTICLE SEVEN
The corporation may purchase or reacquire its own shares and may reissue
same as provided by law. No holder of shares of any class of the corporation
shall have any preemptive right to subscribe for or acquire additional shares of
the corporation of the same or any other class, whether such shares shall be
hereby or hereafter authorized, and no holder of shares of any class of the
corporation shall have any right to acquire any shares which may be held in the
treasury of the corporation; all such additional or treasury shares may be sold
for such consideration, at such time, and to such person or persons, as the
Board of Directors may from time to time determine.
Any action that, under any provisions of the Texas Business Corporation
Act, may be taken at a meeting of the shareholders, may be taken without a
meeting, without prior notice, and without a vote, by a writing or writings
signed by the holder or holders of shares having no less than the minimum number
of votes that would be necessary to take such action at a meeting. The written
consent or consents must include the date of signing with each signature. No
such consents are valid unless all necessary consents are delivered to the
corporation, in accordance with the requirements of Texas Business Corporation
Act Article 9.10, within sixty (60) days after the earliest delivered consent.
Delivery must be made to the corporation's registered office, registered agent,
principal place of business, transfer agent, registrar, exchange agent or an
officer or agent of the corporation having custody of the books in which
proceedings of meetings of shareholders are recorded. Delivery shall be by hand
or certified or registered mail, return receipt requested. Delivery to the
corporation's principal place of business shall be addressed to the president or
principal executive officer of the corporation. Prompt notice of any action
taken by less than unanimous written consent must be given to shareholders not
submitting such consents.
ARTICLE EIGHT
The post office address of the registered office of the corporation is 909
Fannin, Suite 1400, Houston, Texas 77010-1006, and the name of its registered
agent at such address is Stephen A. Lee.
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ARTICLE NINE
Articles 2.02 and 2.02-1 of the Texas Business Corporation Act permit the
corporation to indemnify its present and former officers, employees, agents, or
directors (within the broad definition of director under Article 2.02-1(2) of
the Texas Business Corporation Act) of the corporation to the extent and under
the circumstances set forth therein. The corporation hereby elects to and does
hereby indemnify all present and former officers, employees, agents or directors
to the fullest extent permitted or required by the Texas Business Corporation
Act promptly upon request of any such persons making the request for indemnity
hereunder. The corporation's indemnity obligation set forth herein shall
include, to the maximum extent permitted under applicable law, the payment or
reimbursement of all damages and settlements, whether actual or consequential
and all related attorney fees and other costs. The obligation to so indemnify
and to so make all necessary determinations may be specifically enforced by
resort to any Court of competent jurisdiction. Further, the corporation shall
pay or reimburse the reasonable expenses of such present and former officers,
employees, agents or directors covered hereby in advance of the final
disposition of any proceeding to the fullest extent permitted by the Texas
Business Corporation Act and subject to the conditions thereof. In all events,
the indemnification described in this Article Nine shall be limited to the
assets of the corporation and proceeds of any applicable insurance.
ARTICLE TEN
The number of directors shall be as fixed by the Bylaws of the corporation,
and until changed by the Bylaws the number shall be no more than three (3); and
the name and address of the person constituting the first Board of Directors, to
serve until the first annual meeting of shareholders or until their successors
are duly elected and qualified, is:
Robert A. Hammond, Jr. 5401 Mitchelldale, Suite B6
Houston, Texas 77092
ARTICLE ELEVEN
The name and address of the incorporator is Stephen A. Lee, Crady,
Jewett & McCulley, L.L.P., 909 Fannin, Suite 1400, Houston, Texas 77010-1006.
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EXHIBIT 3.2
BYLAWS
ARTICLE I
SHAREHOLDERS
1.1 ANNUAL MEETINGS. The annual meeting of the shareholders of the
corporation shall be held at the principal office of the corporation or
elsewhere after the end of the fiscal year of the corporation at such date and
time as may reasonably be designated by the President of the corporation, for
the purpose of electing directors and for the transaction of any other business
which may be brought before the meeting.
1.2 SPECIAL MEETINGS. Special meetings of the shareholders may be held
at the principal office of the corporation or elsewhere, and such meetings may
be called at any time by the President of the corporation, or by the Board of
Directors, or by the holders of at least one-tenth of the voting stock of the
corporation. The Secretary, or in the case of a meeting called by the holder or
holders of at least one-tenth of the voting stock of the corporation entitled to
vote, the designee of such holders, shall arrange for such notice as is required
in SECTIONS 1.3 AND 1.4 to be given to the shareholders of record entitled to
vote at such meeting.
1.3 TIME OF NOTICE. Notice of any meeting of shareholders shall be sent
to each shareholder entitled thereto not less than ten or more than fifty days
before the meeting, except in the case of a meeting for the purpose of approving
a merger or consolidation agreement, in which case the notice must be given not
less than twenty days prior to the date of the meeting.
1.4 CONTENTS OF NOTICE. Notice of any meeting of shareholders shall
specify the place, date, and hour of the meeting. The notice shall also specify
the purpose of the meeting if it is a special meeting, or if it is an annual
meeting and one of its purposes will be to consider a proposed amendment of the
Articles of Incorporation, a proposed reduction of stated capital without
amendment, a proposed merger or consolidation, a voluntary dissolution or the
revocation of a voluntary dissolution by act of the corporation, or a proposed
disposition of all, or substantially all, of the assets of the corporation
outside of the ordinary course of business.
1.5 VOTING LIST. The officer or agent having charge of the stock
transfer books for shares of the corporation shall make, at least ten days
before each meeting of shareholders, a complete list of the shareholders
entitled to vote at such meeting or any adjournment thereof, arranged in
alphabetical order, with the address of and the number of shares held by each,
which list, for a period of ten days prior to such meeting, shall be kept on
file at the registered office of the corporation and shall be subject to
inspection by any shareholder at any time during usual business hours.
1.6 QUORUM. At any meeting of the shareholders duly convened and held,
the holders of in excess of fifty percent (50%) of the voting capital stock of
the corporation issued and outstanding and then entitled to vote, present in
person or represented by proxy, shall constitute a quorum of the
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shareholders for all purposes except in those instances where a larger number
shall be required by law, and in that case the representation in person or by
proxy of the number so required by law shall constitute a quorum. If at any
meeting a quorum of the shareholders, as herein provided, be not present, such
meeting may be adjourned by those present at the meeting for any day not
exceeding thirty days thereafter, and no further call or notice of such
adjourned meeting shall be necessary, and such adjourned meeting shall be
regarded as a continuation of the meeting from which the adjournment was made.
1.7 VOTING. At all meetings of the shareholders, each shareholder of
voting stock shall be entitled to cast one vote for each share of voting stock
standing in his or her name as shown by the records of the corporation at the
time the meeting is called to order, and each such shareholder shall be entitled
to vote in person or by proxy appointed by instrument in writing subscribed by
such shareholder or his or her duly authorized attorney and delivered to the
Secretary of the corporation prior to the start of the meeting. No proxy shall
be valid after eleven months from the date of its execution unless otherwise
provided in the proxy. The affirmative vote of the holders of in excess of fifty
percent (50%) of the stock issued and outstanding and then entitled to vote
thereon, represented in person or by proxy, shall decide any question brought
before such meeting, unless the provisions of the controlling corporate statutes
or the Articles of Incorporation shall provide otherwise.
By way of example and not by limitation, assume there are one hundred
(100) shares of voting stock issued and outstanding at the time of a vote. At
least fifty-one (51) shares must be represented in person or by proxy in order
for there to be a quorum under Section 1.6. Assuming sixty-one (61) shares are
represented in person or by proxy at a meeting then a quorum exists, and at
least fifty-one (51) shares will be required in order for a vote to be
successful.
1.8 WRITTEN CONSENT. Any action that, under any provisions of the Texas
Business Corporation Act, may be taken at a meeting of the shareholders, may be
taken without a meeting, without prior notice, and without a vote, by a writing
or writings signed by the holder or holders of shares having no less than the
minimum number of votes that would be necessary to take such action at a
meeting. The written consent or consents must include the date of signing with
each signature. No such consents are valid unless all necessary consents are
delivered to the corporation, in accordance with the requirements of Business
Corporation Act Article 9.10, within sixty (60) days after the earliest
delivered consent. Delivery must be made to the corporation's registered office,
registered agent, principal place of business, transfer agent, registrar,
exchange agent or an officer or agent of the corporation having custody of the
books in which proceedings of meetings of shareholders are recorded. Delivery
shall be by hand or certified or registered mail, return receipt requested.
Delivery to the corporation's principal place of business shall be addressed to
the president or principal executive officer of the corporation. Prompt notice
of any action taken by less than unanimous written consent must be given to
shareholders not submitting such consents.
1.9 TELEPHONE MEETINGS. Pursuant to proper notice, any regular or
special meeting of the shareholders may be held by conference telephone or
similar communications equipment by means
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of which all persons participating in the meeting can hear each other and
participation in such a meeting shall constitute presence in person at such
meeting, except where a person participates in the meeting for the express
purpose of objecting to the transaction of any business on the ground that the
meeting is not lawfully called or convened.
ARTICLE II
BOARD OF DIRECTORS
2.1 ELECTION AND TERM OF OFFICE. The business of the corporation shall
be managed and controlled by a Board of Directors consisting of such number as
the directors or shareholders shall from time to time determine and who shall be
elected by the shareholders. They shall hold office for the ensuing year and
until their successors have been elected and have qualified. The Directors need
not be shareholders or residents of Texas.
2.2 VACANCIES. Whenever any vacancy shall have occurred in the Board of
Directors by death, resignation, removal or otherwise, the remaining directors,
if there be a majority of the Board of Directors then remaining, by a vote of
the majority thereof, may elect a successor to hold office for the unexpired
portion of the term of the director whose office is vacant and until a successor
shall be elected and have qualified. If by reason of vacancies occurring on the
Board of Directors, there should not be a majority remaining, then such
vacancies shall be filled at a special meeting of the shareholders called for
that purpose. At any regular meeting or special meeting called expressly for
that purpose, any director or the entire Board of Directors may be removed with
or without cause and a successor or successors appointed by vote of the holders
of a in excess of fifty percent (50%) of the shares then issued and outstanding
and entitled to vote at an election of directors.
2.3 DIRECTORS MEETINGS. A regular meeting of the Board of Directors
shall be held annually immediately following the annual meeting of the
shareholders. Notice of such annual meeting shall be given at the same time and
in the same manner as that for the annual meeting of shareholders. Special
meetings of the Board of Directors shall be held at the principal office of the
corporation or elsewhere whenever called by the President of the corporation, or
by any two members of the Board of Directors. Unless notice is waived, the
Secretary shall give notice in writing of each special meeting by mailing a
notice at least five days before the meeting, addressed to each director. The
purpose of the meeting need not be stated in any such notice. Whenever all the
directors shall meet in person at any time or place and unanimously agree upon
any action of the corporation or of the Board of Directors, or whenever without
a meeting they shall evidence their unanimous consent to any action of the
corporation or the Board of Directors, such action shall be as valid as if
authorized by formal resolution duly adopted at a special meeting duly convened
and held for the purpose of considering such action. Following proper notice,
any regular or special meeting of the Board of Directors may be held by
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and participation in
such meeting shall constitute presence in person at such meeting, except where a
person participates in the meeting for the express purpose of objecting to the
transaction of any
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business on the ground that the meeting is not lawfully called or convened.
Minutes of each meeting of the Board of Directors shall be recorded and retained
in the records of the corporation.
2.4 QUORUM. A majority of the Board of Directors shall constitute a
quorum for the transaction of business at any special or regular meeting. The
affirmative vote of a majority Directors of the directors present at a meeting
at which a quorum is present shall be necessary for the passage of any
resolution. Each director shall have one vote at all meetings of the Board of
Directors.
2.5 VOTING OF SHARES IN OTHER CORPORATIONS. Shares of other companies
owned by the corporation shall be voted by the President of the corporation in
the manner directed by the Board of Directors of the corporation.
2.6 COMPENSATION. The Directors may receive such compensation, if any,
for their services, and such reimbursement for expenses, as may be fixed or
determined by resolution of the Board of Directors.
2.7 TELEPHONE MEETINGS. Members of the Board of Directors may
participate in or hold a meeting by use of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other. Participation in a meeting pursuant to this Section
shall constitute presence in person at such meeting, except where a person
participates in the meeting for the express purpose of objecting to the
transaction of any business on the grounds that the meeting is not lawfully
called or convened.
2.8 ACTION WITHOUT MEETING. Any action required or permitted to be taken
at a meeting of the Board of Directors may be taken without a meeting if a
consent in writing, setting forth the action so taken, is signed by all the
members of the committee, and such consent shall have the same force and effect
as a unanimous vote at a meeting.
ARTICLE III
COMMITTEES
3.1 MEMBERSHIP AND AUTHORITIES. The Board of Directors, by resolution
adopted by a majority of the full Board of Directors, may designate from among
its members including any advisory directors (a) one (1) or more committees,
each of which shall have and may exercise all of the authority of the Board of
Directors in the business and affairs of the corporation, except in those cases
where the authority of the Board of Directors is specifically denied to such
committee or committees by the Texas Business Corporation Act, the Articles of
Incorporation or these Bylaws and (b) one (1) or more Directors including any
advisory directors as members of any such committee. The designation of any
committee and the delegation thereto of authority shall not operate to relieve
the Board of Directors, or any member thereof, of any responsibility imposed
upon
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it or him by law. The members of each such committee shall serve at the pleasure
of the Board of Directors.
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3.2 MINUTES AND RULES OF PROCEDURE. Each committee designated by the
Board of Directors shall keep regular minutes of its proceedings and report the
same to the Board of Directors when required. Subject to the provisions of these
Bylaws, the members of any committee may fix such committee's own rules of
procedure.
3.3 VACANCIES. The Board of Directors shall have the power at any time
to fill vacancies in, to change the membership of, or to dissolve, any
committee.
3.4 TELEPHONE MEETINGS. Members of any committee designated by the Board
of Directors may participate in or hold a meeting by use of conference telephone
or similar communications equipment by means of which all persons participating
in the meeting can hear each other. Participation in a meeting pursuant to this
Section shall constitute presence in person at such meeting, except where a
person participates in the meeting for the express purpose of objecting to the
transaction of any business on the grounds that the meeting is not lawfully
called or convened.
3.5 ACTION WITHOUT MEETING. Any action required or permitted to be taken
at a meeting of any committee designated by the Board of Directors may be taken
without a meeting if a consent in writing, setting forth the action so taken, is
signed by all the members of the committee, and such consent shall have the same
force and effect as a unanimous vote at a meeting.
ARTICLE IV
OFFICERS
4.1 ELECTION AND TERM OF OFFICE. The officers of the corporation shall
consist of a President and Chief Executive Officer, one or more Vice Presidents,
a Secretary and a Treasurer, and an Assistant Secretary and an Assistant
Treasurer if deemed necessary by the Board of Directors, all of whom shall hold
office during the pleasure of the Board of Directors, and shall perform such
duties as may be prescribed by the Board of Directors. Any two or more offices
may be held by one person.
4.2 POWERS AND DUTIES OF THE PRESIDENT. The President shall preside at
all meetings of the shareholders and of the Board of Directors. Subject to
direction by the Board of Directors, he or she shall have general charge of the
business of the corporation. He or she shall keep the Board of Directors fully
informed and shall freely consult with them concerning the business of the
corporation in his or her charge. He or she may sign and execute in the name of
the corporation all bonds, contracts or other obligations authorized by the
Board of Directors and, with the Secretary, he or she shall sign all
certificates of the shares of the capital stock of the corporation. He or she
shall have power to employ and discharge such employees as may be required for
the conduct of business, and to buy or authorize the purchase of such
merchandise, equipment, and supplies as may be deemed essential to the conduct
of the business of the corporation. The President shall perform such other
duties as from time to time may be assigned to him by the Board of Directors.
6
<PAGE>
4.3 POWERS AND DUTIES OF THE VICE PRESIDENT. The Vice President of the
Corporation, in the absence of the President, shall preside at all meetings of
the shareholders and of the Board of Directors, and, in the absence of the
President, shall have such powers and perform such duties as are vested in the
President. The Vice President shall at all times assist the President in the
management of the business of the corporation and shall have such other powers
and perform such duties as may be assigned to him by the Board of Directors.
4.4 POWERS AND DUTIES OF THE SECRETARY. The Secretary of the corporation
shall keep the minutes of all meetings of the shareholders and of the Board of
Directors, and he or she shall attend to the giving and serving of all notices,
and shall have the custody and keeping of the common seal of the corporation; he
or she may sign with the President in the name of the corporation all contracts
authorized by the Board of Directors, and when it is required by law and when
authorized by the Board of Directors, he or she shall affix the seal of the
corporation to any such contracts, deeds or other instruments executed by the
corporation; he or she shall have charge of the certificate books, transfer
books, and stock ledgers, and such other books and papers as the Board of
Directors may direct, all of which shall be open at all reasonable times to
examination by any director upon application at the office of the corporation
during business hours; he or she shall, with the President, execute certificates
of stock issued by the corporation; and he or she shall in general perform all
the duties incident to the office of Secretary, subject to the control of the
Board of Directors.
4.5 POWERS AND DUTIES OF THE ASSISTANT SECRETARY. At the request of the
Secretary, or in the Secretary's absence or disability, the Assistant Secretary,
shall perform all the duties of the Secretary, and when so acting, the Assistant
Secretary shall have all the powers of, and be subject to all the restrictions
on, the Secretary. The Assistant Secretary shall perform such other duties as
from time to time may be assigned to him or her by the Board of Directors of the
Secretary.
4.6 POWERS AND DUTIES OF THE TREASURER. The Treasurer shall have custody
of all funds and securities of the corporation which may come into his or her
hands. On behalf of the corporation he or she shall endorse or cause to be
endorsed for collection, checks, notes and other obligations and shall deposit
the same or cause them to be deposited to the credit of the corporation in such
bank, or banks or depository as the Board of Directors may designate; he or she
shall sign all receipts and vouchers for payments made to the corporation; he or
she shall be authorized to sign checks made by the corporation and pay out and
disburse funds of the corporation under the direction and upon the authority of
the Board of Directors; he or she shall enter or cause to be entered regularly
in the books of the corporation, to be kept by him or under his or her
discretion for that purpose, full and accurate accounts of all moneys received
and paid on account of the corporation; he or she shall at all reasonable times
exhibit the books and accounts to any directors of the corporation upon
application at the office of the corporation during business hours; when
required by the Board of Directors, he or she shall render a statement of his or
her cash account and an account of the financial condition of the corporation;
and he or she shall perform all acts incident to the position of Treasurer,
subject to the control of the Board of Directors.
7
<PAGE>
4.7 COMPENSATION. The President shall receive such compensation as set
by the Board of Directors. The President shall set the compensation for all
other officers and employees.
ARTICLE V
CAPITAL STOCK - DIVIDENDS
5.1 CAPITAL STOCK. Certificates of the capital stock of the corporation
shall be signed by the President and attested by the Secretary or Assistant
Secretary. Anyone subscribing for shares of the capital stock of the corporation
shall pay for same at such time and in such manner as may be required by the
Board of Directors. All shares of stock are non-assessable and any action of the
corporation to the contrary is expressly prohibited. Neither shares nor
certificates representing such shares may be issued by the corporation until the
full amount of the consideration therefor has been paid. When such consideration
has been paid to the corporation, the shares shall be deemed to have been issued
and the certificate representing such shares shall be issued to the shareholder.
The consideration paid for the issuance of shares of the corporation shall
consist of money paid, labor done, promissory note or property actually received
or contracts for services to be performed.
5.2 PRE-EMPTIVE RIGHTS. No shareholder, by reason of his or her
ownership of shares of stock of the corporation, shall have a pre-emptive or
other right to subscribe for, purchase, or receive any proportionate or other
part of any shares of stock of any class, whether now or hereafter authorized,
or any bonds, debentures, or other securities convertible into or carrying
options or warrants to purchase stock of the corporation of any class issued,
optioned, sold or disposed of by it after its incorporation; all such stock and
other securities may at any time be lawfully issued, sold or disposed of by the
corporation, pursuant to resolution of the Board of Directors, to such persons
and upon such terms as the Board of Directors may deem proper without first
offering such securities or any part thereof to the existing shareholders.
5.3 CUMULATIVE VOTING. Cumulative voting of shares of the corporation
shall not be allowed for any purpose.
5.4 TRANSFER OF SHARES. The transfer of shares of the capital stock of
the corporation shall be made only by endorsement and delivery of the
certificates by the shareholder or his or her duly authorized attorney-in-fact
or personal representative and upon surrender and cancellation of the
certificates evidencing such shares subject to the transfer restrictions
applicable thereto. The Board of Directors shall have the power and authority to
make all such lawful rules and regulations as it may deem expedient concerning
the issue and transfer of the shares of the capital stock of this corporation.
5.5 TRANSFER OF LOST OR DESTROYED CERTIFICATES. Where a share
certificate has been lost, apparently destroyed, or wrongfully taken and the
owner fails to notify the corporation of that fact within a reasonable time
after he has notice of it, and the corporation registers a transfer of the
shares represented by the certificate before receiving such a notification, the
owner is precluded from
8
<PAGE>
asserting against the corporation any claim for registering the transfer or any
claim to a new certificate.
5.6 REPLACEMENT OF LOST OR DESTROYED CERTIFICATES. No new certificates
shall be issued until the former certificate for the shares represented thereby
shall have been surrendered and canceled, except in the case of lost or
destroyed certificates for which the Board of Directors may order new
certificates to be issued upon such terms, conditions, and guarantees as the
Board of Directors may see fit to impose, including the filing of sufficient
indemnity.
5.7 DIVIDENDS. The Board of Directors from time to time may declare and
order paid from funds of the corporation such dividends as may be authorized by
law and as, in the judgment of the directors, may be deemed expedient.
ARTICLE VI
INDEMNIFICATION - INSURANCE
6.1 PERSONS. The corporation shall indemnify, to the maximum extent
hereinafter provided:
(1) Any person who is or was a director (within the broad definition
of director under Article 2.01- 1(2) of the Texas Business
Corporation Act), officer, agent or employee of the corporation,
and
(2) Any person who serves or served at the corporation's request as
a director, officer, agent, employee, partner, member or trustee
of another corporation or of a partnership, limited liability
corporation, joint venture, trust or other enterprise
(collectively "Persons").
6.2 INDEMNIFICATION. Article 2.01 of the Texas Business Corporation Act
permits the Corporation to indemnify the Persons described in Article V, Section
5.1 above to the extent and under the circumstances set forth therein. The
Corporation hereby elects to and does hereby indemnify all such Persons to the
fullest extent permitted or required by the Texas Business Corporation Act
promptly upon request of any such Persons making the request for indemnity
hereunder. The corporation's indemnity obligation set forth herein shall
include, to the maximum extent permitted under applicable law, the payment or
reimbursement of all damages and settlements, whether actual or consequential
and all related attorney fees and other costs. The obligation to so indemnify
and to so make all necessary determinations may be specifically enforced by
resort to any Court of competent jurisdiction. Further, the Corporation shall
pay or reimburse the reasonable expenses of such Persons covered hereby in
advance of the final disposition of any proceeding to the fullest extent
permitted by the Texas Business Corporation Act and subject to the
9
<PAGE>
conditions thereof. In all events, the indemnification described in this Article
VI, Section 6.2 shall be limited to the assets of the Corporation and proceeds
of any applicable insurance.
6.3 ADVANCE PAYMENT. The corporation may pay in advance any expenses
(including attorneys' fees) which may become subject to indemnification
hereunder if the board of directors authorizes the specific payment.
6.4 NONEXCLUSIVE. The indemnification provided hereunder shall not be
exclusive of any other rights to which a person may be entitled by law, bylaw,
agreement, vote of shareholders or otherwise.
6.5 CONTINUATION. The provisions hereof shall continue as to a person
who has ceased to hold a position named in Section 4.1 of Article IV and shall
inure to his or her heirs and personal representatives.
6.6 INSURANCE. The corporation may purchase and maintain insurance on
behalf of any person who holds or who has held any position named in Section 4.1
of Article IV, against any liability incurred by him in any such position, or
arising out of his or her status as such, whether or not the corporation would
have power to indemnify him against such liability under the provisions hereof.
ARTICLE VII
WAIVERS
Whenever under the provisions of the Articles of Incorporation, the
bylaws or any amendment thereof, or any law, the shareholders, directors or any
committees are authorized to hold any meeting after notice, or after the lapse
of any prescribed period of time, or at any particular location, such meeting
may be held without notice or without such lapse of time or in a different
location, upon the written waiver of such notice or of such lapse of time or
requirement as to location of the meeting.
ARTICLE VIII
AMENDMENTS
Bylaws of the corporation may be adopted, amended or repealed by the
directors, provided, however, such bylaws may be altered, changed or amended by
a majority vote of the shareholders at any regular meeting or special meeting
called for that purpose, and any bylaws so adopted or amended by the
shareholders may be amended or repealed only by action of the shareholders taken
in the same way.
10
<PAGE>
11
<PAGE>
I N D E X
<TABLE>
<S> <C> <C>
ARTICLE I SHAREHOLDERS.....................................................................1
------------
1.1 ANNUAL MEETINGS. ..............................................1
---------------
1.2 SPECIAL MEETINGS. .............................................1
----------------
1.3 TIME OF NOTICE. ...............................................1
--------------
1.4 CONTENTS OF NOTICE. ...........................................1
------------------
1.5 VOTING LIST. ..................................................1
-----------
1.6 QUORUM. .......................................................1
------
1.7 VOTING. .......................................................2
------
1.8 WRITTEN CONSENT. ..............................................2
---------------
1.9 TELEPHONE MEETINGS. ...........................................2
------------------
ARTICLE II BOARD OF DIRECTORS..............................................................3
------------------
2.1 ELECTION AND TERM OF OFFICE. ..................................3
---------------------------
2.2 VACANCIES. ....................................................3
---------
2.3 DIRECTORS MEETINGS. ...........................................3
------------------
2.4 QUORUM..........................................................4
------
2.5 VOTING OF SHARES IN OTHER CORPORATIONS. .......................4
--------------------------------------
2.6 COMPENSATION. .................................................4
------------
2.7 TELEPHONE MEETINGS..............................................4
------------------
2.8 ACTION WITHOUT MEETING..........................................4
----------------------
ARTICLE III COMMITTEES....................................................................4
----------
3.1 MEMBERSHIP AND AUTHORITIES......................................4
--------------------------
3.2 MINUTES AND RULES OF PROCEDURE..................................5
------------------------------
3.3 VACANCIES.......................................................5
---------
3.4 TELEPHONE MEETINGS..............................................5
------------------
3.5 ACTION WITHOUT MEETING..........................................5
----------------------
ARTICLE IV OFFICERS.......................................................................5
--------
4.1 ELECTION AND TERM OF OFFICE. ..................................5
---------------------------
4.2 POWERS AND DUTIES OF THE PRESIDENT..............................5
----------------------------------
4.3 POWERS AND DUTIES OF THE VICE PRESIDENT. ......................6
---------------------------------------
4.4 POWERS AND DUTIES OF THE SECRETARY. ...........................6
----------------------------------
4.5 POWERS AND DUTIES OF THE ASSISTANT SECRETARY....................6
--------------------------------------------
4.6 POWERS AND DUTIES OF THE TREASURER. ...........................6
----------------------------------
4.7 COMPENSATION. .................................................6
------------
ARTICLE V CAPITAL STOCK - DIVIDENDS..............................................7
5.1 CAPITAL STOCK. ................................................7
5.2 PRE-EMPTIVE RIGHTS..............................................7
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
5.3 CUMULATIVE VOTING. ...........................................7
-----------------
5.4 TRANSFER OF SHARES. ..........................................7
------------------
5.5 TRANSFER OF LOST OR DESTROYED CERTIFICATES. ..................7
------------------------------------------
5.6 REPLACEMENT OF LOST OR DESTROYED CERTIFICATES. ...............8
---------------------------------------------
5.7 DIVIDENDS. ...................................................8
---------
ARTICLE VI INDEMNIFICATION - INSURANCE...................................................8
---------------------------
6.1 PERSONS. .....................................................8
-------
6.2 INDEMNIFICATION. .............................................8
---------------
6.3 ADVANCE PAYMENT................................................8
---------------
6.4 NONEXCLUSIVE. ................................................9
------------
6.5 CONTINUATION. ................................................9
------------
6.6 INSURANCE. ...................................................9
---------
ARTICLE VII WAIVERS......................................................................9
ARTICLE VIII AMENDMENTS..................................................................9
</TABLE>
ii
<PAGE>
BYLAWS, AS AMENDED,
OF
PARTSBASE.COM, INC.
<PAGE>
<TABLE>
<S><C>
===========================================================================================
- ------------------- -------------------
NUMBER SHARES
- ------------------- [LOGO] PartsBase.com -------------------
PBC
- ------------------- -------------------
COMMON STOCK INCORPORATED UNDER THE LAWS OF THE STATE OF TEXAS SEE REVERSE FOR
CERTAIN DEFINITIONS
CUSIP 70214P 10 9
- -------------------------------------------------------------------------------------------
THIS CERTIFIES that
is the owner of
- -------------------------------------------------------------------------------------------
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, NO PAR VALUE, OF
--------------------------------- ---------------------------------
- ----------------------------------- PartsBase.com, Inc. -----------------------------------
--------------------------------- ---------------------------------
transferable on the books of the Corporation by the holder hereof in person or by
authorized attorney upon surrender of this certificate properly endorsed.
This certificate and the shares represented hereby are subject to all the terms,
conditions and limitations of the Articles of Incorporation and Bylaws of the Corporation
and all amendments thereto.
This certificate is not valid until countersigned and registered by the Transfer Agent
and Registrar.
Witness the facsimile signatures of the Corporation's duly authorized officers.
DATED:
/s/ Michael W. Siegel /s/ Robert A. Hammond
CHIEF FINANCIAL OFFICER PRESIDENT AND CHIEF EXECUTIVE OFFICER
Countersigned and Registered:
U.S. STOCK TRANSFER CORPORATION
(GLENDALE, CA)
Transfer Agent
and Registrar
By
Authorized Signature
- ----------------------------------- -----------------------------------------------------
AMERICAN BANK NOTE COMPANY PRODUCTION COORDINATOR: MARY TARTAGLIA: 215-764-5621
55th and Sansom St. PROOF OF MARCH 3, 2000
PHILA., PA 19139 PartsBase.com
(215) 764-8600 H 65349 BK
- ----------------------------------- -----------------------------------------------------
SALES: A. HOBBS: 404-525-1455 OPERATOR: hj/JW
- ----------------------------------- -----------------------------------------------------
HOME 15/LIVE JOBS/P/PARTSBASE 65349 REV 2
- ----------------------------------- -----------------------------------------------------
===========================================================================================
</TABLE>
<PAGE>
PartsBase.com, Inc.
The Articles of Incorporation of the Corporation on file in the Office of
the Secretary of State of Texas set forth (a) the aggregate number of shares of
each class of capital shares that the Corporation is authorized to issue; (b) a
statement of the authority vested in the Board of Directors to establish series
of stock and to fix and determine the variations in relative rights and
preferences between any such series; (c) a denial of preemptive rights of the
shareholders to acquire additional, unissued or treasury shares of the
Corporation and (d) a denial of cumulative voting at any meeting of the
shareholders for electing directors.
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO
REQUESTS A COPY OF THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE,
PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES
THEREOF OF THE CORPORATION, AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS
ON SUCH PREFERENCES AND/OR RIGHTS.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT-_____Custodian_____
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act for __________
in common (State)
Additional abbreviations may also be used though not in the above list.
For Value Received, ______________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________________
________________________________________________________________________________
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
_______________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated _________________________________
__________________________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE
WHATEVER.
SIGNATURE(S) GUARANTEED: ____________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS
AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE
MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-16.
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN,
MUTILATED OR DESTROYED, THE CORPORATION WILL REQUIRE A BOND OF
INDEMNITY AS A CONDITION TO THE ISSUANCE OF A REPLACEMENT CERTIFICATE.
<TABLE>
<S> <C>
- ----------------------------------- ----------------------------------------------------
AMERICAN BANK NOTE COMPANY PRODUCTION COORDINATOR: MARY TARTAGLIA: 215-764-5621
55th and Sansom St. PROOF OF MARCH 3, 2000
PHILA., PA 19139 PartsBase.com
(215) 764-8600 H 65349 BK
- ----------------------------------- ----------------------------------------------------
SALES: A. HOBBS: 404-525-1455 OPERATOR: hj/ir
- ----------------------------------- ----------------------------------------------------
HOME 15/LIVE JOBS/P/PARTSBASE 65349 REV 1
- ----------------------------------- ----------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT 4.2
WARRANT AGREEMENT
WARRANT AGREEMENT ("Agreement"), dated as of ___________ ___, 2000, by
and between PartsBase.com, Inc., a Texas corporation (the "Company"), and Roth
Capital Partners, Inc. and Pennsylvania Merchant Group (collectively, the
"Representatives").
WHEREAS, pursuant to an underwriting agreement between the Company
and the Representatives dated March __, 2000 (the "Underwriting Agreement"),
the Representatives have agreed to act as the representatives of the several
underwriters in connection with a proposed public offering by the Company
(the "Public Offering") of up to 4,025,000 shares (the "Public Shares") of
its common stock, no par value per share (the "Common Stock"), including
525,000 Public Shares covered by an over-allotment option; and
WHEREAS, pursuant to Section 6(l) of the Underwriting Agreement, the
Company has agreed to issue to the Representatives, for their own account, a
warrant (the "Warrant") to purchase up to 262,500 shares of Common Stock (or
up to 301,875 shares of Common Stock if the over-allotment option is
exercised), representing 7.5% of the Public Shares issued in the Public
Offering, subject to adjustment as provided herein (the "Warrant Shares"), at
a price per share equal to 165% of the Public Offering price; and
WHEREAS, the Public Shares and Warrant Shares are covered by a
registration statement (the "Registration Statement") prepared by the Company
and filed with the Securities and Exchange Commission, registration no.
333-94337.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements set forth herein and in the Underwriting Agreement, and for other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. GRANT. On the Closing Date as defined in the Underwriting
Agreement, as an integral part of the consideration payable to the
Representatives for agreeing to act as the representatives of the several
underwriters under the Underwriting Agreement, the Company shall grant, issue
and deliver the said Warrant to the Representatives, severally and not
jointly. The Warrant shall be evidenced by one or more certificates (the
"Warrant Certificates") substantially in the form set forth in Exhibit A
attached hereto. The Warrant Certificates shall be executed on behalf of the
Company by the manual or facsimile signature of the present or any future
Chairman of the Board, Chief Executive Officer, President or Vice President
of the Company, attested by the manual or facsimile signature of the
Secretary or an Assistant Secretary of the Company. Warrant Certificates
bearing the manual or facsimile signatures of individuals who were at any
time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any one of them shall have ceased to
hold such offices prior to the delivery of such Warrant Certificates or did
not hold such offices on the date of this Agreement. Warrant Certificates
shall be dated as of the date of execution thereof by the Company either upon
initial issuance or upon division, exchange, substitution or transfer.
2. REGISTRATION. The Warrant Certificates shall be consecutively
numbered and shall be registered on the warrant ownership and transfer records
(the "Warrant Register") of the Company as they are issued. The Company shall be
entitled to treat the registered holder (the
<PAGE>
"Holder") of any Warrant Certificate on the Warrant Register as the owner in
fact for all purposes, shall not be bound to recognize any equitable or other
claim to or interest in such Warrant Certificate on the part of any other
person, and shall not be liable for any registration or transfer of Warrant
Certificates which are registered or are to be registered in the name of a
fiduciary or the nominee of a fiduciary unless made with the actual knowledge
that a fiduciary or nominee is committing a breach of trust in requesting
such registration or transfer, or with the knowledge of such facts that its
participation therein amounts to bad faith. One or more Warrant Certificates,
entitling the Holder or Holders thereof to purchase, in the aggregate, the
Warrant Shares shall be registered initially in the names of the
Representatives or in the names of such other Holders as are permitted
hereunder and under the Conduct Rules of the National Association of
Securities Dealers, Inc. ("NASD"), and in such denominations as, not less
than two days before the Closing Date, Roth Capital Partners, Inc., as one of
the Representatives, may request in writing to the Company.
3. EXCHANGE. Upon the surrender of a Warrant Certificate to the Company
and the written request of the Holder, the Company shall exchange the Warrant
Certificate for another certificate or certificates of like tenor entitling the
Holder thereof to purchase, in the aggregate, the number of Warrant Shares
stated in the Warrant Certificate being surrendered.
4. TRANSFER. The Warrant shall not be sold, transferred, assigned,
pledged or hypothecated by any person for a period of one year following the
effective date of the Registration Statement except (a) to any member of the
NASD participating in the Public Offering and their bona fide officers and
partners who agree in writing to be bound by the terms hereof or (b) as
otherwise permitted by Rule 2710(c)(7) of the Conduct Rules of the NASD; and the
Warrant Certificates shall bear an appropriate legend describing such
restriction and stating the time period for which the restriction is operative.
Subject to the restriction on transfer set forth in the preceding sentence, the
Warrant shall be transferable on the Warrant Register upon delivery of the
Warrant Certificate therefor duly endorsed by the Holder or by the Holder's duly
authorized attorney or representative, or accompanied by proper evidence of
succession, assignment or authority to transfer. Upon any registration of
transfer, the Company shall deliver a new Warrant Certificate to the person
entitled thereto.
5. TERM AND EXERCISE.
5.1 Subject to all the terms and provisions of this Agreement,
each Warrant Certificate shall entitle the Holder, at any time from 10:00 a.m.,
Pacific time, on __________ ___, 2001 (the "Initial Exercise Date", being the
date one year after the effective date of the Registration Statement) until 6:00
p.m., Pacific time, on __________ ___, 2005 (the "Expiration Date", being the
date five years after the effective date of the Registration Statement), to
purchase from the Company the number of fully-paid Warrant Shares set forth
therein at a purchase price of $________, subject to adjustment (the "Warrant
Price").]
5.2 The Holder may exercise such right, in whole or part, by
surrender to the Company, or its duly authorized agent, of such Warrant
Certificate, with the form of election to purchase duly filled in and signed,
accompanied by payment to the Company of the Warrant Price, as adjusted in
accordance with the provisions of Section 11 of this Agreement, for the
2
<PAGE>
number of Warrant Shares in respect of which such right is then being exercised.
Payment of the Warrant Price shall be made in cash, by certified or official
bank check, by wire transfer, or a combination thereof. No adjustment shall be
made for any dividends on any Warrant Shares of stock issuable upon exercise of
the Warrant or any intent therein.
5.3 The Company shall thereupon issue and cause to be
delivered with all reasonable dispatch to or upon the written order of the
Holder, and in such name or names as such registered Holder may designate, a
certificate or certificates for the number of full Warrant Shares for which the
Warrant is then being exercised, together with cash, as provided in Section 12
of this Agreement in respect of any fraction of a share otherwise issuable upon
such surrender and, if the right to purchase Warrant Shares represented by a
Warrant Certificate shall not be exercised in full, a new Warrant Certificate
for the remaining number of whole Warrant Shares represented by the Warrant
Certificate surrendered.
5.4 If permitted by applicable law, such certificate or
certificates for the Warrant Shares shall be deemed to have been issued, and any
person so designated to be named therein shall be deemed to have become a holder
of record of such shares, as of the date of the surrender such Warrant
Certificate and payment of the Warrant Price as aforesaid.
6. [Reserved]
7. PAYMENT OF TAXES. The Company shall pay all documentary stamp taxes,
if any, attributable to the initial issuance of Warrant Shares.
8. MUTILATED OR MISSING WARRANTS. In case any Warrant Certificate shall
be mutilated, lost, stolen or destroyed, the Company shall issue and deliver in
exchange and substitution for and upon cancellation of the mutilated Warrant
Certificate, or in lieu of and substitution for the Warrant Certificate lost,
stolen or destroyed, a new Warrant of like tenor and representing an equivalent
right or interest upon receipt of evidence reasonably satisfactory to the
Company of such mutilation, loss, theft or destruction of such Warrant
Certificate and, if requested, indemnity or bond also reasonably satisfactory to
the Company.
9. RESERVATION OF WARRANT SHARES. There have been reserved out of the
authorized and unissued shares of Common Stock a number of shares sufficient to
provide for the exercise of the rights of purchase represented by the Warrant,
and the transfer agent for the Common Stock (the "Transfer Agent") and every
subsequent Transfer Agent for any shares of the Company's capital stock issuable
upon the exercise of any of the rights of purchase aforesaid are hereby
irrevocably authorized and directed at all times until the Expiration Date to
reserve such number of authorized and unissued shares as shall be required for
such purpose. The Company shall keep a copy of this Agreement on file with the
Transfer Agent and with every subsequent Transfer Agent for any shares of the
Company's capital stock issuable upon the exercise of the rights of purchase
represented by the Warrant. The Company shall supply such Transfer Agent with
duly executed stock certificates for such purposes and shall itself provide or
otherwise make available any cash which may be issuable as provided in Section
12 of this Agreement. The Company shall furnish to such Transfer Agent a copy of
all notices of adjustments, and certificates related thereto, transmitted to
each Holder pursuant to Section 11.2 of this
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Agreement. All Warrant Certificates surrendered upon the exercise of the rights
thereby evidenced shall be cancelled.
10. STOCK EXCHANGE LISTINGS. The Company, at any time and from time to
time, at its sole cost and expense, shall take all action which may be necessary
or convenient so that the Warrant Shares, immediately upon their issuance, shall
be listed on the principal securities exchanges and markets within the United
States of America, if any, on which other shares of Common Stock are then
listed.
11. ADJUSTMENT OF WARRANT PRICE AND NUMBER OF WARRANT SHARES. The
number and kind of securities purchasable upon the exercise of the Warrant and
the Warrant Price shall be subject to adjustment from time to time upon the
happening of certain events as hereinafter defined. For purposes of this Section
11, "Common Stock" means shares now or hereafter authorized of any class of
common stock of the Company and any other stock of the Company, however
designated, that has the right (subject to any prior rights of any class or
series of preferred stock) to participate in any distribution of the assets or
earnings of the Company without limit as to per share amount.
11.1 MECHANICAL ADJUSTMENTS. The number of Warrant Shares
purchasable upon the exercise of each warrant and the Warrant Price shall be
subject to adjustment as follows:
(a) In case the Company shall (i) subdivide
its outstanding shares of Common Stock, (ii) combine its outstanding shares of
Common Stock or (iii) issue by reclassification of its shares of Common Stock
other securities of the Company (including any such reclassification in
connection with a consolidation or merger in which the Company is the surviving
corporation), the number of Warrant Shares purchasable upon exercise of the
Warrant immediately prior thereto shall be adjusted so that each Holder shall be
entitled to receive the kind and number of Warrant Shares or other securities of
the Company which he would have owned or would have been entitled to receive
after the happening of any of the events described above had the Warrant been
exercised immediately prior to the happening of such event or any record date
with respect thereto. An adjustment made pursuant to this paragraph (a) shall
become effective immediately after the effective date of such event retroactive
to the record date, if any, for such event. Such adjustment shall be made
successively whenever any event listed above shall occur.
(b) In case the Company shall distribute to
all holders of its shares of Common Stock (including any such distribution made
in connection with a consolidation or merger in which the Company is the
surviving corporation) evidences of its indebtedness or assets (excluding cash
dividends or distributions payable out of consolidated earnings or earned
surplus and dividends or distribution referred to in paragraph (a) above or in
the paragraph immediately following this paragraph) or rights, options or
warrants, or convertible or exchangeable securities containing the right to
subscribe for or purchase shares of Common Stock, then in each case the number
of Warrant Shares thereafter purchasable upon the exercise of the rights
evidenced by the Warrant shall be determined by multiplying the number of
Warrant
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Shares theretofore purchasable by a fraction, the numerator of which shall be
the then current market price per share of Common Stock (as defined in paragraph
(c) below) on the date of such distribution, and the denominator of which shall
be the then current market price per share of Common Stock, less the then fair
value (as reasonably determined by the Board of Directors of the Company) of the
portion of the assets or evidences of indebtedness so distributed or of such
subscription rights, options or warrants, or of such convertible or exchangeable
securities applicable to one share of Common Stock. Such adjustment shall be
made whenever any such distribution is made and shall become effective on the
date of distribution retroactive to the record date for the determination of
stockholders entitled to receive such distribution.
In the event of a distribution by the Company to all holders of its
shares of Common Stock of shares of capital stock of a subsidiary or securities
convertible into or exercisable for such stock, then in lieu of an adjustment in
the number of Warrant Shares purchasable upon the exercise of the Warrant, each
Holder, upon the exercise of the rights evidenced by such Holder's Warrant
Certificate any time after such distribution, shall be entitled to receive from
the Company, such subsidiary or both, as the Company shall determine, the stock
or other securities to which such Holder would have been entitled if such Holder
had exercised the rights evidenced by such Warrant Certificate immediately prior
thereto, all subject to further adjustment as provided in this Section 11.1;
PROVIDED, HOWEVER, that no adjustment in respect of dividends or interest on
such stock or other securities shall be made during the term of the Warrant or
upon the exercise of the rights evidenced by a Warrant Certificate.
(c) For the purpose of any computation under
paragraph (b) of this Section, the current market price per share of Common
Stock at any date shall be the average of the daily Closing Prices for 20
consecutive trading days commencing 30 trading days before the date of such
computation. The selling price for each day (the "Closing Price") shall be the
last such reported sales price regular way or, in case no such reported sale
takes place on such day, the average of the closing bid and asked prices regular
way for such day, in each case on the principal national securities exchange on
which the shares of Common Stock are listed or admitted to trading or, if not
listed or admitted to trading, the average of the closing bid and asked prices
of the Common Stock in the over-the counter market as reported by the Nasdaq
National Market System, Nasdaq SmallCap System or OTC Bulletin Board or if not
approved for quotation on the Nasdaq National Market System, Nasdaq SmallCap
System or OTC Bulletin Board, the average of the closing bid and asked prices as
furnished by two members of the National Association of Securities Dealers, Inc.
selected from time to time by the Company for that purpose.
(d) No adjustment in the number of Warrant
Shares purchasable hereunder shall be required unless such adjustment would
require an increase or decrease of at least one percent (1%) in the number of
Warrant Shares purchasable upon the exercise of the Warrant; PROVIDED, HOWEVER,
that any adjustments which by reason of this paragraph (d) are not required to
be made shall be carried forward and taken into account in any subsequent
adjustment. All calculations shall be made to the nearest one-thousandth of a
share.
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(e) Whenever the number of Warrant Shares
purchasable upon the exercise of the Warrant is adjusted, as herein provided,
the Warrant Price payable upon exercise of the Warrant shall be adjusted by
multiplying such Warrant Price immediately prior to such adjustment by a
fraction, the numerator of which shall be the number of Warrant Shares
purchasable upon the exercise of each Warrant immediately prior to such
adjustment, and the denominator of which shall be the number of Warrant Shares
purchasable immediately thereafter.
(f) No adjustment in the number of Warrant
Shares purchasable upon the exercise of the Warrant need be made under paragraph
(b) if the Company issues or distributes to each Holder the rights, options,
warrants or convertible or exchangeable securities, or evidences of indebtedness
or assets referred to in those paragraphs which each Holder would have been
entitled to receive had rights evidenced by the Warrant Certificate of such
Holder been exercised prior to the happening of such event or the record date
with respect thereto. No adjustment need be made for a change in the par value
of the Warrant Shares.
(g) In the event that at any time, as a result
of an adjustment made pursuant to paragraph (a) above, the Holders shall become
entitled to purchase any securities of the Company other than shares of Common
Stock, thereafter the number of such other shares so purchasable upon exercise
of the Warrant and the Warrant Price of such shares shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Warrant Shares contained in
this Section 11, and the other provisions of this Agreement, with respect to the
Warrant and Warrant Shares, shall apply as nearly equivalent as practicable on
like terms to such other securities.
11.2 NOTICE OF ADJUSTMENT. Whenever the number of Warrant
Shares purchasable upon the exercise of the Warrant or the Warrant Price of the
Warrant is adjusted, as herein provided, the Company shall promptly provide to
each Holder of the Warrant Certificates notice of such adjustment or adjustments
and a certificate of the Chief Financial Officer of the Company setting forth
the number of Warrant Shares purchasable upon the exercise of the Warrant and
the Warrant Price of such Warrant Shares after such adjustment, setting forth a
brief statement of the facts requiring such adjustment and setting forth the
computation by which such adjustment was made.
11.3 NO ADJUSTMENT FOR DIVIDENDS. No adjustments in respect of
any dividends shall be made during the term of a Warrant or upon any exercise of
the Warrant.
11.4 PRESERVATION OF PURCHASE RIGHTS UPON MERGER,
CONSOLIDATION ETC. In case of any consolidation of the Company with, or merger
of the Company into, another corporation or in case of any sale, transfer or
lease to another corporation of all or substantially all the property of the
Company, the Company or such successor or purchasing corporation, as the case
may be, shall execute with each Holder an agreement that each Holder shall have
the right thereafter upon payment of the Warrant Price in effect immediately
prior to such action to purchase upon exercise of the rights evidenced by each
Warrant Certificate the kind and amount of shares and other securities, cash and
property which he would have owned or would have been entitled to receive after
the happening of such consolidation, merger, sale, transfer or lease had
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such warrant been exercised immediately prior to such action; PROVIDED, HOWEVER,
that no adjustment in respect of dividends, interest or other income on or from
such shares or other securities, cash and property shall be made during the term
of the Warrant or upon the exercise of a Warrant. Such agreement shall provide
for adjustments, which shall be as nearly equivalent as may be practicable to
the adjustments provided for in this Section 11. The provisions of this Section
11.4 shall similarly apply to successive consolidations, mergers, sales,
transfer or leases.
11.5 STATEMENTS ON WARRANT CERTIFICATES. Irrespective of any
adjustments in the Warrant Price or the number or kind of shares purchasable
upon any exercise of the Warrant, Warrant Certificates theretofore or thereafter
issued may continue to express the same price and number and kind of shares as
are stated in the Warrant Certificates issued pursuant to this Agreement.
11.6 OPTIONAL CONVERSION.
(a) In addition to and without limiting the
rights of the Holders under this Agreement, the Holders shall have the right
(the "Conversion Right"), severally and not jointly, to convert the Warrant or
any portion thereof into shares of Common Stock as provided in this Section 11.6
at any time and from time to time on or after the Initial Exercise Date and
until the Expiration Date, subject to the restrictions set forth in paragraph
(c) below. Upon any exercise of the Conversion Right, the Company shall deliver
to the exercising Holder, without payment by the Holder of any exercise price or
any cash or other consideration, such number of shares of Common Stock equal to
the quotient obtained by dividing the Net Value (as hereinafter defined) of the
Converted Warrant Shares (as defined in paragraph (b) below) by the fair market
value (as defined in paragraph (d) below) of a single share of Common Stock,
determined in each case as of the close of business on the Conversion Date (as
hereinafter defined). The "Net Value" of the converted Warrant Shares shall be
determined by subtracting the aggregate purchase price of the Converted Warrant
Shares from the aggregate fair market value of the Converted Warrant Shares. No
fractional shares shall be issuable upon exercise of the Conversion Right, and
if the number of shares to be issued in accordance with the foregoing formula is
other than a whole number, the Company shall pay to the Holder an amount in cash
equal to the fair market value of the resulting fractional share.
(b) The Conversion Right may be exercised by any
Holder by the surrender of one or more Warrant Certificates held of record by
such Holder at the principal office of the Company together with a written
statement specifying that the Holder thereby intends to exercise the Conversion
Right and indicating the number of shares subject to the Warrant which are being
surrendered (referred to in paragraph (a) above as the Converted Warrant Shares)
in exercise of the Conversion Right. Such conversion shall be effective upon
receipt by the Company of the Warrant Certificates together with the aforesaid
written statement, or on such later date as is specified therein (the
"Conversion Date"), not later than the Expiration Date. Certificates for the
shares of Common Stock issuable upon exercise of the Conversion Right together
with a check in payment of any fractional share and, in the case of a partial
exercise, a new Warrant Certificate evidencing the remaining Warrant Shares
which the
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Holder might acquire upon further exercise, shall be issued as of, and
delivered to the Holder within seven days following, the Conversion Date.
(c) For purposes of this Section 11.6, the "fair
market value" of a share of Common Stock as of a particular date shall mean the
closing sale price per share reported on a consolidated basis for the Common
Stock on the principal stock exchange or market on which Stock is listed or
traded on the date as of which such value is being determined or, if there is no
sale on that date, then on the last previous day on which a sale was reported.
12. REGISTRATION UNDER THE SECURITIES ACT OF 1933. The
Representatives shall not sell, transfer, assign, pledge, hypothecate or
otherwise dispose of the Warrant or any interest therein, or the Warrant
Shares, except in a transaction (i) subject to an effective registration
statement under the Securities Act of 1933, as amended (the "Act"), including
a post-effective amendment to the Registration Statement, or (ii) exempt from
registration under the Act. Unless the Warrant or Warrant Shares are so
registered, the Warrant Certificates and certificates for the Warrant Shares
shall bear a restrictive legend substantially as follow:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY STATE SECURITIES LAW. SAID SECURITIES MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION
THEREFROM UNDER SAID ACT.
13. REGISTRATION RIGHTS.
13.1 DEMAND REGISTRATION RIGHTS. The Company covenants and
agrees with the Representatives and any subsequent Holders of the Warrant
and/or Warrants Shares that, on one occasion, within 60 days after receipt of
a written request from the Representatives or from Holders of more than 40%
in interest of the aggregate of the Warrant and/or Warrant Shares (considered
for this purpose as one class) issued pursuant to this Agreement that the
Representatives or such Holders of the Warrant and/or Warrant Shares desire
and intend to transfer more than 25% in interest of the aggregate of the
Warrant Shares (the "Offered Warrant Shares") under such circumstances that a
public offering, within the meaning of the Act, would be involved, the
Company, on that one occasion, shall file a registration statement (and use
its reasonable best efforts to cause such registration statement to become
effective under the Act and to remain effective for not less than 90 days
thereafter with respect to the offering and sale or other disposition of the
Offered Warrant Shares; PROVIDED, HOWEVER, that any such disposition shall
occur on or after the Initial Exercise Date and on or before the Expiration
Date; PROVIDED FURTHER, that the Company shall have no obligation to comply
with the foregoing provisions of this Section 13.1 if, in the opinion of
counsel to the Company reasonably acceptable to the Holders from whom such
written requests have been received, registration under the Act is not
required for such disposition or that a post-effective amendment to an
existing registration statement would be legally sufficient for such transfer
(in which latter event the Company shall promptly file such post-effective
amendment and use its reasonable best efforts to cause such
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<PAGE>
amendment to become effective under the Act). All expenses of registration and
disposition pursuant to this Section 13.1, exclusive of any underwriting
discounts and commissions, non-accountable expense allowances or costs and fees
of separate counsel to the Holders, shall be borne by the Company.
13.2 PIGGY-BACK REGISTRATION RIGHTS. The Company covenants
and agrees with the Representatives and any subsequent Holders of the Warrant
and/or Warrant Shares that, in the event the Company proposes to file a
registration statement under the Act with respect to any class of security
(other than in connection with an exchange offer, a non-cash offer or a
registration statement on Form S-4, Form S-8 or other unsuitable registration
statement form) which becomes or which the Company believes will become
effective on or after the Initial Exercise Date and on or before the
Expiration Date, then the Company shall in each case give written notice of
such proposed filing to the Holders of the Warrant and/or Warrant Shares at
least 15 days before the proposed filing date and, by such notice, shall
offer to such Holders the opportunity to include in such registration
statement such as they may request in writing.
The Company shall permit, or shall cause the managing
underwriter of a proposed offering to permit, the Holders from whom such written
requests have been received to include such number of Warrant Shares (the
"Piggy-back Shares") in the proposed offering on the same terms and conditions
as applicable to securities of the Company included therein or as applicable to
securities of any person other than the Company and the Holders of Piggy-back
Shares if the securities of any such person are included therein; PROVIDED,
HOWEVER, that the Company shall not be required to honor any such request that
is received more than 15 days after the proper giving of the Company's notice or
after the Expiration Date. Notwithstanding the foregoing, if any such managing
underwriter shall advise the Company in writing that it believes that the
distribution of all or a portion of the Piggy-back Shares requested to be
included in the registration statement concurrently with the securities being
registered by the Company would materially adversely affect the distribution of
such securities by the Company for its own account, then the Holders of such
Piggy-back Shares shall delay their offering and sale of Piggyback Shares (or
the portion thereof so designated by such managing underwriter) for such period,
not to exceed 180 days, as the managing underwriter shall request, provided that
no such delay shall be required as to Piggy-back Shares if any securities of the
Company are included in such registration statement for the account of any
person other than the Company and the Holders of Piggy-back Shares. In the event
of such delay, the Company shall file such supplements, post-effective
amendments or separate registration statement, and shall use reasonable best
efforts to permit such Holders to make their proposed offering and sale for a
period of 90 days immediately following the end of such period of delay
("Piggy-back Termination Date"); PROVIDED, HOWEVER, that if at the Piggy-back
Termination Date the Piggy-back Shares are covered by a registration statement
which is, or required to remain, in effect beyond the Piggy-back Termination
Date, the Company shall maintain in effect the registration statement as it
relates to the Piggy-back Shares for so long as such registration statement
remains or is required to remain in effect for any of such other securities. All
expenses of registration and sale pursuant to this Section 13.2, exclusive of
any underwriting commissions or discounts, non-accountable expense allowances or
costs of separate counsel for the Holders, shall be borne by the Company.
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The Company shall be obligated pursuant to this Section 13.2
to include in the piggy-back offering Warrant Shares that have not yet been
purchased by a Holder so long as such Holder submits an undertaking to the
Company that such Holder intends to exercise the Warrant for at least the number
of Warrant Shares to be included in such piggy-back offering prior to the
consummation of such piggy-back offering.
If the Company decides not to proceed with the piggy-back
offering, the Company will have no obligation to proceed with the offering of
the Piggy-back Shares, unless the Holders from whom such written requests have
been received otherwise comply with the provisions of Section 13.1 hereof
(without regard to the 60 days' written request required thereby).
13.3 (a) The Company shall use its reasonable best efforts to
register or qualify the Offered Warrant Shares or Piggy-back Shares Warrant
Shares for offer or sale under the state securities or Blue Sky laws of such
states which the Holders of such Offered Warrant Shares or Piggy-back Shares
shall designate; PROVIDED, HOWEVER, that in no event shall the Company be
obligated to qualify to do business in any jurisdiction where it is not now so
qualified or to take any action which would subject it to general service of
process in any jurisdiction where it is not now so subject or to register or get
a license as a broker or dealer in securities in any jurisdiction where it is
not so registered or licensed.
(b) (i) In the event of any post-effective
amendment or other registration with respect to any Offered Warrant Shares or
Piggy-back Shares pursuant to Section 13.1 or 13.2 above, the Company will
indemnify and hold harmless any Holder whose Offered Warrant Shares or
Piggy-back Shares are being so registered, and each person, if any, who controls
such Holder within the meaning of the Act, against any losses, claims, damages
or liabilities, joint or several, to which such Holder or such controlling
person may be subject, under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained, on the effective date thereof, in any such registration
statement, or final prospectus contained therein, or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading; and will reimburse each such Holder and
each such controlling person for any legal or other expenses reasonably incurred
by such Holder or such controlling person in connection with investigating or
defending any such loss, claim, damage, liability or action; PROVIDED, HOWEVER,
that the Company will not be liable in such case to the extent that any such
loss, claim, damage or liability arises out of, or is based upon, any untrue
statement or alleged untrue statement or omission or alleged omission made in
any such registration statement, or final prospectus, or any amendment or
supplement thereto, in reliance upon and in conformity with written information
furnished by such Holder expressly for use in the preparation thereof. The
Company will not be liable to a claimant to the extent of any misstatement
corrected or remedied in any amended prospectus if the Company timely delivers a
copy of such amended prospectus to such indemnified person and such indemnified
person does not timely furnish such amended prospectus to such claimant. The
Company shall not be
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required to indemnify any Holder or controlling person for any payment made to
any claimant in settlement of any suit or claim unless such payment is approved
by the Company.
(ii) Each Holder of Offered Warrant
Shares or Piggy-back Shares who participates in a registration pursuant to
Section 13.1 or 13.2 shall indemnify and hold harmless the Company, each of its
directors, each of its officers who have signed any such registration statement,
and each person, if any, who controls the Company within the meaning of the Act,
against any losses, claims, damages or liabilities to which the Company, or any
such director, officer or controlling person may become subject under the Act,
or otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of, or are based upon, any untrue or alleged
untrue statement or any material fact contained in any such registration
statement, or final prospectus, or any amendment or supplement thereto, or arise
out of or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in any such registration statement, or final prospectus, or
any amendment or supplement thereto, in reliance upon and in conformity with
written information furnished by such Holder expressly for use in the
preparation thereof; and will reimburse any legal or other expenses reasonably
incurred by the Company, or any such director, officer or controlling person in
connection with investigating or defending any such loss, claim, damage,
liability or action; PROVIDED, HOWEVER, that the indemnity agreement contained
in this subparagraph (ii) shall not apply to amounts paid to any claimant in
settlement of any suit or claim unless such payment is first approved by such
Holder.
(iii) In order to provide for just and
equitable contribution in any action in which a claim for indemnification is
made pursuant to this subsection b(iii) of Section 13.3 but is judicially
determined (by the entry of a final judgment or decree by a court of competent
jurisdiction and the expiration of time to appeal or the denial of the last
right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that this subsection (b) of Section 13.3 provides for
indemnification in such case, all the parties hereto shall contribute to the
aggregate losses, claims, damages or liabilities to which they may be subject
(after contribution from others) in such proportion so that each Holder whose
Offered Warrant Shares or Piggy-back Shares are being registered is responsible
pro rata for the portion represented by the public offering price received by
such Holder from the sale of such Holder's Offered Warrant Shares or Piggy-back
Shares, and the Company is responsible for the remaining portion; PROVIDED,
HOWEVER, that (i) no Holder shall be required to contribute any amount in excess
of the public offering price received by such Holder from the sale of such
Holder's Warrant Shares and (ii) no person guilty of a fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation. This subsection (b)(iii) shall not be operative as to any
Holder of Offered Warrant Shares or Piggy-back Shares to the extent that the
Company has received indemnity under this subsection (b) of Section 13.3.
13.4 Each of the Holders shall comply with all reasonable
requests made by the Company or its counsel with respect to the registration of
such Offered Warrant Shares or Piggy-
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back Shares, including, without limitation, providing access to all relevant
books and records, completing, executing and delivering all questionnaires,
powers of attorney and other usual and customary documents necessary or
appropriate with respect to the offering of such Offered Warrant Shares or
Piggy-back Shares. In the case of a registration which is underwritten, each of
the Holders shall sell such Offered Warrant Shares or Piggy-back Shares on the
basis provided in the applicable underwriting arrangement including the making
of reasonable representations or warranties to the Company or the underwriters,
or to undertake any indemnification obligations to the Company or the
underwriters with respect thereto.
14. NO RIGHTS AS STOCKHOLDER; NOTICES TO HOLDERS. Nothing contained in
this Agreement or in any of the Warrant Certificates shall be construed as
conferring upon the Holders or their transferee(s) the right to vote or to
receive dividends or to consent to or receive notice as stockholders in respect
of any meeting of stockholders for the election of directors of the Company or
any other matter or any rights whatsoever as stockholders of the Company. If,
however, at any time prior to the expiration of the Warrants and prior to their
exercise, any of the following events occur:
(a) the Company shall declare any dividend
payable in any securities upon its shares of Common Stock or make any
distribution (other than a cash dividend) to the holders of its shares of Common
Stock; or
(b) the Company shall offer to the holders of
its shares of Common Stock any additional shares of Common Stock or securities
convertible into or exchangeable for shares of Common Stock or any right to
subscribe to or purchase any thereof; or
(c) a dissolution, liquidation or winding up of
the Company (other than in connection with a consolidation, merger, sale,
transfer or lease of all or substantially all of its property, assets and
business as an entirety) shall be proposed, then in any one or more of said
events the Company shall (i) give notice in writing of such event to the
Holders, as provided in Section 15 hereof and (ii) if there are more than 100
Holders, cause notice of such event to be published once in The Wall Street
Journal (national edition), such giving of notice and publication to be
completed at least 20 days prior to the date fixed as a record date or the date
of closing the transfer books for the determination of the stockholders entitled
to such dividend, distribution or subscription rights, or for the determination
of stockholders entitled to vote on such proposed dissolution, liquidation or
winding up. Such notice shall specify such record date or the date of closing
the transfer books, as the case may be. Failure to publish, mail or receive such
notice or any defect therein or in the publication or mailing thereof shall not
affect the validity of any action taken in connection with such dividend,
distribution or subscription rights, or such proposed dissolution, liquidation
or winding up.
15. NOTICES. Any notice permitted or required to be give or made
hereunder shall be sufficiently given or made if sent by first-class mail,
postage prepaid, addressed as follows:
If to the Representatives to:
Roth Capital Partners, Inc.
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24 Corporate Plaza
Newport Beach, California 92660
Attention: Syndicate Department
If to the Company, to:
PartsBase.com, Inc.
7171 N. Federal Blvd., Suite 100
Boca Raton, Florida 33487
Attention: President
and, if to any Holder, to such Holder at the address of such Holder as shown on
the Warrant Register.
16. GOVERNING LAW. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of California without giving effect to
principles of conflicts of laws.
17. SUPPLEMENTS AND AMENDMENTS. The Company and the Representatives
may from time to time supplement or amend this Agreement in order to cure any
ambiguity or to correct or supplement any provision contained herein, or to
make any other provisions in regard to matters or questions arising hereunder
which the Company and the Representatives may deem necessary or desirable and
which shall not be inconsistent with the provisions of the Warrant and which
shall not adversely affect the interests of the Holders. This Agreement may
also be supplemented or amended from time to time by a writing executed by or
on behalf of the Company and all of the Holders.
18. SUCCESSOR. All the covenants and provisions of this Agreement by or
for the benefit of the Company or the Holders shall bind and inure to the
benefit of their respective successors and assigns hereunder. Assignments by the
Holders of their rights hereunder shall be made in accordance with Section 4
hereof.
19. MERGER OR CONSOLIDATION OF THE COMPANY. So long as the Warrant
remains outstanding, the Company will not merge or consolidate with or into, or
sell, transfer or lease all or substantially all of its property to, any other
corporation unless the successor or purchasing corporation, as the case may be
(if not the Company), shall expressly assume, by supplemental agreement executed
and delivered to the Holders, the due and punctual performance and observance of
each and every covenant and condition of this Agreement to be performed and
observed by the Company.
20. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company and the
Holders any legal or equitable right, remedy or claim under this Agreement, but
this Agreement shall be for the sole and exclusive benefit of the Company and
the Holders.
13
<PAGE>
21. CAPTIONS. The captions of the sections and subsections of this
Agreement have been reserved for convenience only and shall have no substantive
effect.
22. COUNTERPARTS. This Agreement may be executed in any number of
counterparts each of which when so executed shall be deemed to be an original;
but such counterparts together shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day, month and year first above written.
PARTSBASE.COM, INC.
Attest:
______________________ By:_________________________________
_______________, Secretary Robert A. Hammond, President
ROTH CAPITAL PARTNERS, INC.
Attest:
______________________ By:_________________________________
_______________, Secretary Shelly Singhal, Managing Director
PENNSYLVANIA MERCHANT GROUP
Attest:
______________________ By:_________________________________
_______________, Secretary
14
<PAGE>
EXHIBIT A
[FORM OF WARRANT CERTIFICATE]
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAW AND, ACCORDINGLY,
MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EXEMPTION FROM REGISTRATION
UNDER THE SECURITIES ACT (IF AVAILABLE) OR PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT AND, IN ANY EVENT, IN COMPLIANCE WITH ANY
APPLICABLE STATE SECURITIES LAWS.
THIS CERTIFICATE IS SUBJECT IN ITS ENTIRETY TO THE TERMS OF A
WARRANT AGREEMENT DATED _________ ___, 2000 BETWEEN PARTSBASE.COM, INC. (THE
"COMPANY") AND ROTH CAPITAL PARTNERS, INC. AND PENNSYLVANIA MERCHANT GROUP
(THE "REPRESENTATIVES"), THE ORIGINAL HOLDERS OF THE WARRANT EVIDENCED
HEREBY. IN ACCORDANCE WITH THE WARRANT AGREEMENT, THE WARRANT WILL BE
RESTRICTED FROM SALE, TRANSFER, ASSIGNMENT, PLEDGE, OR HYPOTHECATION FOR A
PERIOD OF ONE YEAR AFTER MARCH ___, 2000, THE EFFECTIVE DATE OF THE COMPANY'S
REGISTRATION STATEMENT UNDER THE SECURITIES ACT, COMMISSION FILE NO.
333-94337, EXCEPT TO ANY MEMBER PARTICIPATING IN THE OFFERING OF THE PUBLIC
SHARES COVERED BY THE REGISTRATION STATEMENT AND THEIR BONA FIDE OFFICERS AND
PARTNERS WHO AGREE IN WRITING TO BE BOUND BY THE TERMS HEREOF. ANY SUCCESSOR
OR PERMITTED ASSIGNEE OF SUCH HOLDER WILL BE REQUIRED TO AGREE IN WRITING TO
TAKE SUBJECT TO SUCH AGREEMENT. A COPY OF THE WARRANT AGREEMENT WILL BE
FURNISHED WITHOUT CHARGE BY THE COMPANY TO THE HOLDER HEREOF UPON WRITTEN
REQUEST. CERTIFICATES FOR ANY SHARES ACQUIRED UPON EXERCISE HEREOF WILL BEAR
A COMPARABLE LEGEND.
No. _____
_________ ___, 2000
Warrant to Purchase _____ Shares of Common Stock
VOID AFTER 6:00 P.M., LOS ANGELES TIME
ON _________ ___, 2005
PARTSBASE.COM, INC.
WARRANT CERTIFICATE
(REGISTRATION RIGHTS INCLUDED)
This certifies that ______________, or registered assigns (the
"HOLDER"), is the holder of a warrant (the "WARRANT") to purchase up to _______
shares of the common stock, par value $.01 per share (the "WARRANT SHARES"), of
PartsBase.com, Inc., a Texas corporation (the "COMPANY"), at any time and from
time to time, commencing at 9:00 a.m., Los Angeles time, on ________ ___, 2001
(the "INITIAL EXERCISE DATE") and ending at 6:00 p.m., Los Angeles time, on
________ ___, 2005 or, if _______ ___, 2000 is not a business day in the City of
Los Angeles, then on the next succeeding business day (the "EXPIRATION DATE").
<PAGE>
Until the Expiration Date, the Warrant may be exercised, in whole or in
part, at any time and from time to time, by presentation and surrender of this
Warrant Certificate, with the Election to Purchase form annexed hereto duly
executed and accompanied by payment of the exercise price (the "EXERCISE
PRICE"), at the principal office of the Company at 7171 N. Federal Highway,
Suite 100, Boca Raton, Florida 33487, or such other place at the Company may
hereafter specify by notice. The Exercise Price for each Common Share acquired
upon exercise of the Warrant evidenced hereby is $_____, payable in cash, by
certified or cashier's check, or by immediately available funds. The number of
Warrant Shares for which the Warrant is exercisable and the Exercise Price are
both subject to adjustment, as provided in that certain warrant agreement (the
"Warrant Agreement") dated ________ ___, 2000, between the Company and the
Representatives.
Upon the exercise of the Warrant in part only, the Company will return
to the Holder a new warrant certificate, in form identical to this Warrant
Certificate, specifying the remaining number of Warrant Shares for which the
Warrant evidenced by this Warrant Certificate is then exercisable. Unless fully
exercised prior to the Expiration Date as provided herein, the Warrant evidenced
by this Certificate will expire.
The Holder of the Warrant evidenced by this Certificate is entitled to
certain registration rights with respect to the Warrant Shares purchasable upon
exercise thereof. Such registration rights are set forth in full in the Warrant
Agreement.
No holder of this Warrant Certificate shall be deemed to be the holder
of Warrant Shares or any other securities of the Company that may at any time be
issuable on the exercise of the Warrant for any purpose, nor shall anything
contained herein be construed to confer upon the holder of this Warrant
Certificate as such any of the rights of a shareholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
shareholders at any meeting thereof, or to give or withhold consent to any
corporate action (whether upon any reorganization, issuance of shares,
reclassification or conversion of shares, change of par value, or exchange of
shares, consolidation, merger, conveyance, or otherwise) or to receive notice of
meetings, or to receive dividends or subscription rights or otherwise, until the
Warrant evidenced by this Warrant Certificate shall have been exercised and the
Warrant Shares purchasable upon the exercise thereof shall have become issuable.
This Warrant Certificate may not be transferred or otherwise disposed
of without the prior consent of the Company. The registration rights described
herein may not be transferred separately from the Warrants or underlying Warrant
Shares.
2
<PAGE>
IN WITNESS WHEREOF, PartsBase.com, Inc. has caused this Certificate to
be executed and delivered on its behalf on ________ ___, 2000.
PARTSBASE.COM, INC.
Attest:
___________________________ By: _______________________________
, Secretary Robert A. Hammond, President
(SEAL)
3
<PAGE>
ELECTION TO PURCHASE
To: PARTSBASE.COM, INC.
On this _____ day of _________, ______, the undersigned Holder of the
Warrant evidenced by this Certificate hereby irrevocably elects to exercise the
Warrant and to purchase thereby _____________ Warrant Shares, and requests that
certificates for such Warrant Shares be issued and registered in the name of
- -------------------------------------------------------------------------------
(Name)
- -------------------------------------------------------------------------------
(Address)
- -------------------------------------------------------------------------------
(Social Security or Other Tax Identification Number)
- -------------------------------------------------------------------------------
(Telephone and Fax Numbers; email Address)
- -------------------------------------------------------------------------------
(Relationship to the Undersigned)
and be delivered to
- -------------------------------------------------------------------------------
(Name)
- -------------------------------------------------------------------------------
(Address)
and, if said number of Warrant Shares shall not be all the Warrant Shares for
which the Warrant evidenced hereby may be exercised, a new Warrant Certificate
for the balance of such Warrant Shares be delivered to the undersigned at the
record address of the undersigned on file with the Company.
Name of Warrant Holder: _____________________________________________________
(Please Print)
Signature: __________________________________________________________________
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, on this _____ day of _________, ______, the
undersigned Holder hereby sells, transfers and assigns to
_________________________________________, whose address is
_______________________________________________________________, whose telephone
and fax numbers, and email address, are ______________________________
________________________________________, and whose social security or other tax
identification number is __________________, the right represented by the within
Certificate to purchase _________ Warrant Shares of PartsBase.com, Inc. to which
the within Certificate relates, and appoints the Secretary of the Company
attorney-in-fact to transfer such right on the books of the Company with full
power of substitution in the premises, and, if said number of Warrant Shares
shall not be all the Warrant Shares for which the Warrant evidenced hereby may
be exercised, a new Warrant Certificate for the balance of such Warrant Shares
be delivered to the undersigned at the record address of the undersigned on file
with the Company.
Name of Warrant Holder: _____________________________________________________
(Please Print)
Signature: __________________________________________________________________
<PAGE>
[LETTERHEAD]
March 7, 2000 60871-0001
PartsBase.com, Inc.
7171 N. Federal Highway, Suite 100
Boca Raton, Florida 33487
Re: PartsBase.com, Inc. (the "Company") Registration
Statement For Offering of Common Stock, no par value
("Common Stock")
Gentlemen:
At your request, we have examined the Registration Statement on Form S-1,
as amended, Registration No. 333-94337 (the "Registration Statement"), filed by
the Company with the Securities and Exchange Commission in connection with the
registration under the Securities Act of 1933, as amended (the "Act"), of (i)
3,000,000 shares of Common Stock for sale by the Company (the "Company Stock"),
and (ii) 450,000 shares of Common Stock that may be sold by the Company upon
exercise of the underwriters' over-allotment option (the "Over-Allotment
Stock"), and (iii) 1,336,250 shares of Common Stock for resale by certain
selling stockholders that is not being underwritten in the initial public
offering by the Company contemplated by the Registration Statement (the "Selling
Stockholder Stock"). We are familiar with the actions taken and proposed to be
taken by the Company in connection with the authorization and proposed issuance
and sale of the Company Stock and the Over-Allotment Stock. The Company Stock,
the Over-Allotment Stock and the Selling Stockholder Stock are sometimes
collectively referred to herein as the "Registered Stock."
It is our opinion that when the Registration Statement has become
effective under the Act, subject to (i) due authorization, execution and
delivery by the Company and the Underwriters of the Underwriting Agreement
between the Company and the Underwriters relating to the sale of the Company
Stock and Over-Allotment Stock, (ii) payment for and delivery of the Company
Stock and Over-Allotment Stock in accordance with the terms of the
Underwriting Agreement, and (iii) appropriate qualification of the Registered
Stock by the appropriate authorities of the various states in which such
Registered Stock will be sold,
(1) the Company Stock and the Over-Allotment Stock will, upon the
issuance and the sale thereof in the manner referred to in the Registration
Statement, be legally issued, fully paid and non-assessable; and
(2) the Selling Stockholder Stock will, upon the sale thereof by the
selling stockholders in the manner referred to in the Registration Statement,
be legally issued, fully-paid and non-assessable.
<PAGE>
JEFFER, MANGELS, BUTLER & MARMARO LLP
PartsBase.com, Inc.
March 7, 2000
Page 2
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement, and we further consent to the use of our name under the
caption "Legal Matters" in the Registration Statement and in the Prospectus
which is a part thereof.
Respectfully submitted,
/s/ Jeffer, Mangels, Butler & Marmaro LLP
<PAGE>
EXHIBIT 10.4
INDEMNIFICATION AGREEMENT
This Agreement is made effective as of ___________, _____, by and
between PartsBase.com, Inc., a Texas corporation (the "Company"), and the
undersigned, a director and/or officer of the Company ("Indemnitee"), with
respect to the following facts.
A. The Company is aware that competent and experienced persons are
increasingly reluctant to serve as directors or officers of corporations unless
they are protected by comprehensive liability insurance or indemnification, due
to increased exposure to litigation costs and risks resulting from their service
to such corporations, and due to the fact that the exposure frequently bears no
reasonable relationship to the compensation of such directors and officers.
B. The following facts contribute to unfairness to directors and
officers: (i) laws regarding the duties of directors and officers are often
ambiguous; (ii) costs of litigation may be so enormous (whether or not the case
is meritorious) that the defense and/or settlement of such litigation is often
beyond the personal resources of officers and directors; and (iii) delay in
litigation may extend the period of exposure to an officer or director until
after retirement or death, thus forcing spouses, heirs, executors or
administrators to expend funds.
C. The Company has been advised that there can be no assurance that
directors' and officers' liability insurance will be available to the Company
and Indemnitee in the future, and that the cost of such insurance, if available,
may not be acceptable to the Company.
D. Indemnitee questions the adequacy and reliability of the protection
presently afforded by the Texas Business Corporation Laws (the "Corporation
Laws") and the Company's Articles of Incorporation, as amended, and Bylaws, as
amended, in part because certain of the indemnification provisions of the
Corporation Laws are for the most part merely permissive and because the impact
of provisions of the Company's Articles of Incorporation, as amended, and
Bylaws, as amended, is presently uncertain.
E. Indemnitee currently serves or has agreed to serve as a director
and/or officer of the Company and/or any of its subsidiaries. Indemnitee is
concerned about continuing to serve the Company as a director and/or officer
without assurance that indemnities available to him are, and will be, adequate
to protect him against the risks associated with his service to the Company.
F. The Company, in order to induce Indemnitee to continue to serve the
Company as a director and/or officer without assurance that indemnities
available to him are, and will be, adequate to protect him against the risks
associated with his service to the Company, has agreed to provide Indemnitee
with the benefits contemplated by this Agreement, which benefits are intended to
provide Indemnitee with the maximum possible protection permitted by law.
<PAGE>
G. As a result of the provision of such benefits and in reliance
thereon Indemnitee is continuing to serve as a director or officer.
NOW, THEREFORE, in consideration of the foregoing and the promises,
conditions, representations and warranties set forth herein, the Company and
Indemnitee hereby agree as follows:
1. DEFINITIONS. The following terms, as used herein, shall have
the following respective meanings:
1.1 "COVERED ACT" means (i) any actual or alleged action taken
or attempted by Indemnitee (including, without limitation, any breach of duty,
neglect, error, misstatement, or misleading statement) (a) in his capacity as,
or otherwise by reason of, or arising out of his being, a director, officer,
employee or other agent of the Company or any of its subsidiaries, or (b) by
reason of the fact he is or was serving at the request of the Company as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise; or (ii) any inaction or omission on
Indemnitee's part while acting in any of the foregoing capacities. For purposes
solely of this Agreement, it shall be conclusively deemed between the parties
that the Indemnitee is serving at the request of the Company whenever such
director serves as an officer, director, employee or other agent of any business
entity controlling, controlled by or under common control with the Company.
1.2 "D & O INSURANCE" means directors' and officers' liability
insurance with coverage sufficient to ensure performance of the indemnification
obligation of the Company hereunder issued by one or more reputable insurers.
1.3 "EXCLUDED CLAIM" means any payment for Losses or Expenses
in connection with any claim: (i) for the return by Indemnitee of any
remuneration which is illegal; or (ii) for an accounting of profits in fact made
from the purchase or sale by Indemnitee of securities of the Company within the
meaning of Section 16(b) of the Securities Exchange Act of 1934, as amended, or
similar provisions of any state law, if the Company is in fact entitled to
recover such profits; or (iii) resulting from Indemnitee's knowingly fraudulent,
deliberately dishonest or intentional misconduct; or (iv) the payment of which
by the Company under this Agreement is not permitted by applicable law; or (v)
initiated or brought voluntarily by Indemnitee and not by way of defense, except
with respect to proceedings brought to establish or enforce a right to
indemnification or advancement of Expenses and Losses or a proceeding initiated
with the approval of a majority of the members of the Board of Directors.
Any facts pertaining to any other director, officer,
employee or agent of the Company shall not be imputed to Indemnitee for the
purpose of determining an Excluded Claim.
1.4 "EXPENSES" means any reasonable expenses incurred by
Indemnitee as a result of a claim or claims whether brought by or in the right
of the Company (e.g.,
-2-
<PAGE>
derivatively by stockholders of the Company for the benefit of the Company) or
otherwise and whether of a civil, criminal, administrative or investigative
nature made against him for, or otherwise in respect of, Covered Acts including,
without limitation, counsel fees, costs of bonds, and other costs of proceedings
or appeals.
1.5 "LOSS" means any amount which Indemnitee pays or is
obligated to pay as a result of a claim or claims whether brought by or in the
right of the Company (e.g., derivatively by stockholders of the Company for the
benefit of the Company) or otherwise and whether of a civil, criminal,
administrative or investigative nature made against him or for or otherwise in
respect of Covered Acts including, without limitation, damages, judgments, sums
paid in settlement of such claim or claims, sums paid in respect of any
deductible under any policy of D & O Insurance, and fines and penalties other
than fines and penalties for which indemnification is not permitted by
applicable law.
2. MAINTENANCE OF D & O INSURANCE.
2.1 The Company hereby covenants and agrees that, as long as
Indemnitee shall continue to serve as a director or officer of the Company and
thereafter so long as Indemnitee shall be subject to any possible claim or
threatened, pending or completed action, suit or proceeding, whether civil,
criminal or investigative, by reason of his services to the Company, the
Company, subject to Section 2.3 hereof, shall obtain and maintain in full force
and effect D & O Insurance.
2.2 All policies of D & O Insurance shall be written in such a
manner as to provide Indemnitee the same rights and benefits, subject to the
same limitations, as are accorded to the Company's directors or officers most
favorably insured by such policy.
2.3 The Company shall have no obligation to maintain D & O
Insurance (i) at any time prior to the effective date of the Company's
initial public offering, or (ii) if the Board of Directors of the Company
determines in good faith that such insurance is not reasonably available, the
premium costs for such insurance are disproportionate to the amount of
coverage provided, or the coverage provided for such insurance is limited by
exclusions so as to provide an insufficient benefit.
3. INDEMNIFICATION.
3.1 The Company, at the request of Indemnitee, shall indemnify
Indemnitee and hold him harmless from any and all Losses and Expenses subject,
in each case, to the further provisions of this Agreement.
3.2 The protection afforded to Indemnitee hereunder is
intended to supplement the other protections to which Indemnitee may be entitled
now or hereafter under statutory law, the Company's Articles of Incorporation,
as amended, or Bylaws, as amended, the D & O Insurance, vote of stockholders or
of directors or otherwise, and all of such protections and the provisions hereof
are intended to be cumulative.
-3-
<PAGE>
3.3 Indemnitee may seek such indemnification under statutory
law, the Company's Articles of Incorporation, as amended, or Bylaws, as amended,
the D & O Insurance, the provisions of Section 3.1 of this Agreement, or
otherwise concurrently or in such sequence as Indemnitee may choose, in his sole
discretion.
3.4 The Company shall have no obligation to indemnify
Indemnitee for and hold him harmless from any Loss or Expense which constitutes
an Excluded Claim.
4. INDEMNIFICATION PROCEDURES.
4.1 Promptly after receipt by Indemnitee of notice of the
commencement of or the threat of commencement of any action, suit or proceeding,
Indemnitee shall notify the Company of the commencement or threat thereof; but
the omission so to notify or delay in notifying the Company will not relieve it
from any liability which it may have to Indemnitee except to the extent that the
Company is actually prejudiced by any such omission or delay.
4.2 The Company shall give prompt notice of the commencement
of such action, suit or pending to the insurers on the D & O Insurance, if any,
in accordance with the procedures set forth in the respective policies in favor
of Indemnitee. The Company shall thereafter take all necessary or desirable
action to cause such insurers to pay, on behalf of Indemnitee, all amounts as a
result of such action, suit or proceeding in accordance with the terms of such
policies.
4.3 If such action, suit or proceeding is other than by or
in the right of the Company, Indemnitee shall, assuming that the D & O
Insurance, if any, then provides for Indemnitee's defense, accept the defense
provided under the D & O Insurance. If it does not so provide for his
defense, or if Indemnitee reasonably determines that the insurers under the D
& O Insurance are unable or unwilling to defend, contest and protect
Indemnitee adequately against any such action, suit or proceeding, or if no D
& O Insurance is maintained pursuant to Section 2.3 hereof, Indemnitee may at
his option, either control the defense thereof himself or require the Company
to defend him; provided, however, that Indemnitee may not control the defense
himself or require the Company to defend him if such decision would
jeopardize the coverage provided by the D & O Insurance, if any, to the
Company and/or the other directors and officers covered thereby. If (a)
Indemnitee requires the Company to defend him, (b) the Company does not
maintain any D & O Insurance pursuant to Section 2.3 hereof or (c) Indemnitee
proceeds under the D & O Insurance but Indemnitee reasonably determines that
the insurers under the D & O Insurance are unable or unwilling to defend,
contest and protect Indemnitee adequately against any such action, suit or
proceeding, then the Company shall promptly undertake to defend any such
action, suit or proceeding, at the Company's sole cost and expense, utilizing
counsel of the Indemnitee's choice who has been approved by the Company. If
appropriate the Company shall have the right to participate in the defense of
such action, suit or proceeding.
4.4 If such action, suit or proceeding is by or in the right
of the Company, Indemnitee may, at his option, either control the defense
thereof himself or accept the defense
-4-
<PAGE>
provided under the D & O Insurance, if any; PROVIDED, HOWEVER, that Indemnitee
may not control the defense himself if such decision would jeopardize the
coverage provided by the D & O Insurance, if any, to the Company and/or the
other directors and officers covered thereby.
4.5 If the Company shall fail to defend, contest or otherwise
protect Indemnitee in a timely manner against any such action, suit or
proceeding which is not by or in the right of the Company, Indemnitee shall have
the right to do so, including without limitation, the right to make any
compromise or settlement thereof, and to recover from the Company all attorney's
fees, reimbursements and all amounts paid as a result thereof.
4.6 Expenses and Losses incurred or to be incurred by
Indemnitee from time to time as a result of any actions, suit or proceeding
covered by the indemnity provisions of this Agreement (including, without
limitation, an action, suit or proceeding by or in the right of the Company)
which have not been paid by the insurers under the D & O Insurance, if any,
shall be paid by the Company within 30 days of the written request of the
Indemnitee, unless the Company, after consultation with independent legal
counsel, reasonably determines that such Expenses and Losses are more likely
than not to constitute an Excluded Claim. At the election of Indemnitee,
Indemnitee may from time to time request the Company to advance to him funds
to pay any expenses which would be subject to reimbursement hereunder. The
Company shall provide such advances within five business days after written
request thereof. Indemnitee agrees that he will reimburse the Company for all
Losses and Expenses paid or advanced by the Company in connection with any
such action, suit or proceeding against Indemnitee in the event, and only to
the extent, that a determination shall have been made by an arbitrator that
Indemnitee is not entitled to be indemnified by the Company for such Losses
and Expenses because the claim is an Excluded Claim.
5. SETTLEMENT. Except as otherwise provided in Section 4.5,
hereof, Indemnitee shall not settle any suit, action or proceeding without
the Company's prior written consent. The Company shall not settle any suit,
action or proceeding in any manner which would impose any obligation on
Indemnitee which is not covered by indemnification hereunder without
Indemnitee's written consent. Neither the Company nor Indemnitee shall
unreason ably withhold their consent to any proposed settlement.
6. MISCELLANEOUS.
6.1 NOTICES. Any communication contemplated under this
Agreement shall be in writing and shall be effective upon personal delivery or
five days after deposit in the United States mail, postage prepaid, certified or
registered, return receipt requested, addressed as follows or to such other
address as may be specified in the same manner:
If to Company: PartsBase.Com, Inc.
7171 N. Federal Highway
Boca Raton, Florida 33487
Attention: President
-5-
<PAGE>
With copy to: Robert Steinberg, Esq.
Jeffer, Mangels, Butler & Marmaro
2121 Avenue of the Stars, 10th Flr.
Los Angeles, California 90067
If to Indemnitee: To the address set forth on the
signature page hereof.
6.2 ENFORCEMENT.
(a) If any action is instituted under this
Agreement, or to enforce or interpret any of the terms of this Agreement, all
court or arbitration costs and expenses, including reasonable counsel fees,
incurred or to be incurred by Indemnitee with respect to such action or
arbitration shall be paid by the Company within 30 days of written request by
the Indemnitee, unless and until an arbitrator determines that each of the
material assertions made by Indemnitee as a basis for such action were not
made in good faith or were frivolous.
(b) All agreements and obligations of the
Company contained herein shall continue during the period the Indemnitee is a
director, officer, employee or agent of the Company (or is serving at the
request of the Company as a director, officer, employee or agent of another
corporation or other enterprise) and shall continue thereafter so long as
Indemnitee shall be subject to any possible claim or threatened, pending or
completed action, suit or proceeding, whether civil, criminal or investigative,
by reason of the fact that Indemnitee was a director or officer of the Company
or serving in any other capacity referred to herein.
(c) The Company's indemnity obligations
hereunder shall be applicable to any and all claims made after the date hereof
regardless of when the facts upon which such claims are based occurred,
including times prior to the date hereof.
(d) The Company expressly confirms and agrees
that it has entered into this Agreement and assumed the obligations imposed on
the Company hereby, in order to induce Indemnitee to serve, or continue to
serve, as a director and/or officer of the Company, and acknowledges that
Indemnitee is relying upon this Agreement in agreeing to serve or in continuing
to serve in such capacity.
-6-
<PAGE>
6.3 PROVISIONS NOT TO INURE TO BENEFIT OF INSURERS. It is the
intention of the parties in entering into this Agreement that the insurers under
the D & O Insurance, if any, shall be obligated ultimately to pay any claims by
Indemnitee which are covered by the D & O Insurance, and nothing herein shall be
deemed to diminish or otherwise restrict the Company's or Indemnitee's right to
proceed or collect against any insurers under the D & O Insurance or to give
such insurers any rights against the Company under or with respect to this
Agreement, including, without limitation, any right to be subrogated to
Indemnitee's rights hereunder, unless otherwise expressly agreed to by the
Company in writing and the obligation of such insurers to the Company and
Indemnitee shall not be deemed reduced or impaired in any respect by virtue of
the provisions of this Agreement.
6.4 SEVERABILITY. In the event that any provision of this
Agreement is determined by a court to require the Company to do or to fail to do
any act which is in violation of applicable law, such provision shall be limited
or modified in its application to the minimum extent necessary to avoid a
violation of law and, as so limited or modified, such provision and the balance
of this Agreement shall be enforceable in accordance with their terms. Without
limiting the generality of the foregoing, if this Agreement or any portion
thereof shall be invalidated on any ground, the Company shall nevertheless
indemnify Indemnitee to the full extent permitted by any applicable portion of
this Agreement that shall not have been invalidated.
6.5 PARTIAL INDEMNIFICATION. If Indemnitee is entitled under
any provision of this Agreement to indemnification by the Company for some or a
portion of the Expenses and Losses but not, however, for the total amount
thereof, the Company shall nevertheless indemnify Indemnitee for the portion of
such Expenses and Losses to which Indemnitee is entitled to indemnification.
6.6 CHOICE OF LAW. The validity, construction, performance,
and enforcement of this Agreement, and each part thereof, shall be governed by
and construed in accordance with the laws of the State of Texas, applicable to
agreements made and to be wholly performed in such state.
6.7 SUCCESSOR AND ASSIGNS. This Agreement shall be (i) binding
upon all successors and assigns of the Company (including any transferee of all
or substantially all of its assets and any successor by merger or otherwise by
operation of law) and (ii) shall be binding on and inure to the benefit of the
heirs, personal representatives and estate of Indemnitee.
6.8 AMENDMENT. No amendment, modification, termination or
cancellation of this Agreement shall be effective unless made in writing and
signed by each of the parties hereto. This Agreement constitutes the entire
agreement between the parties hereto with respect to the subject matter hereof.
6.9 GENDER. Whenever the context so requires, the masculine
shall mean the feminine.
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6.10 ARBITRATION. Any dispute or controversy arising under or
in connection with this Agreement or any other agreement entered into in
connection herewith, other than matters pertaining to injunctive relief,
including without, limitation, temporary restraining orders, preliminary
injunctions and permanent injunctions, shall, upon the written demand of either
party served upon the other party, be submitted to arbitration. Such arbitration
shall be held in the City of Boca Raton, Florida, and conducted in accordance
with the provisions of the rules of the American Arbitration Association, as
then in effect. The arbitrator's determination of the dispute or controversy
shall be final and binding on the parties. Judgment may be entered on the
arbitrator's award in any court having jurisdiction, and the parties hereby
consent to the jurisdiction of the courts of the State of Florida (including the
federal courts located therein) for this purpose. The parties specifically
confer upon the arbitrator the right to direct each of the parties to produce in
advance of the hearing(s) whatever documents the arbitrator deems appropriate.
IN WITNESS WHEREOF, the Company and Indemnitee have executed this
Agreement as of the date and year first above written.
"Company" PARTSBASE.COM, INC.
By___________________________________
Name:
Title:
"Indemnitee"
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Name:
Address:
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EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of PartsBase.com on Form
S-1 of our report dated January 28, 2000, appearing in this prospectus, which is
part of this Registration Statement and to the reference to us under the heading
"Experts" in the Prospectus, which is part of this Registration Statement.
DELOITTE & TOUCHE LLP
Certified Public Accountants
Miami,Florida
March 15, 2000
