<PAGE>
As filed with the Securities and Exchange Commission on March 10, 2000
Registration No. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
DOVEBID, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 7389 94-3331411
(State or other jurisdiction of (Primary standard industrial (I.R.S. employer
incorporation or organization) classification code number) identification no.)
</TABLE>
---------------
1241 E. Hillsdale Boulevard
Foster City, California 94404
(650) 571-7400
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
---------------
Ross Dove
Chief Executive Officer
1241 E. Hillsdale Boulevard
Foster City, California 94404
(650) 571-7400
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
Copies to:
Gordon K. Davidson, Esq. William M. Kelly, Esq.
Daniel J. Winnike, Esq. Davis Polk & Wardwell
Fenwick & West LLP 1600 El Camino Real
Two Palo Alto Square Menlo Park, California 94025
Palo Alto, California 94306 (650) 752-2000
(650) 494-0600 ---------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, 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 of 1933, 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 of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Proposed
Maximum
Title of Each Class Aggregate Amount of
of Securities to be Registered Offering Price(1) Registration Fee
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $0.001 par value per share $80,000,000 $21,120.00
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(o) under the Securities Act of 1933.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting offers to sell these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MARCH 10, 2000
Shares
DoveBid, Inc.
Common Stock
---------
Prior to this offering, there has been no public market for our common stock.
The initial public offering price is expected to be between $ and $
per share. We have applied to list our common stock on The Nasdaq National
Market under the symbol "DOVE."
The underwriters have an option to purchase a maximum of additional
shares to cover over-allotment of shares.
Investing in our common stock involves risks. See "Risk Factors" on page 6.
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions DoveBid
------------- ------------- -------------
<S> <C> <C> <C>
Per Share............................. $ $ $
Total................................. $ $ $
</TABLE>
Delivery of the shares of common stock will be made on or about , 2000.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
Credit Suisse First Boston
Thomas Weisel Partners LLC
U.S. Bancorp Piper Jaffray
The date of this prospectus is , 2000.
<PAGE>
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 6
Special Note Regarding Forward-Looking Statements........................ 17
Use of Proceeds.......................................................... 18
Dividend Policy.......................................................... 18
Capitalization........................................................... 19
Dilution................................................................. 20
Selected Financial Data.................................................. 22
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 23
Business................................................................. 30
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Management................................................................. 44
Related-Party Transactions................................................. 52
Principal Stockholders..................................................... 55
Description of Capital Stock............................................... 57
Shares Eligible for Future Sale............................................ 60
Underwriting............................................................... 62
Notice to Canadian Residents............................................... 64
Legal Matters.............................................................. 64
Experts.................................................................... 64
Where You Can Find More Information........................................ 65
Index to Financial Statements.............................................. F-1
</TABLE>
------------
You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may be used only where it is legal
to sell these securities. The information contained in this document may only
be accurate on the date of this document.
Dealer Prospectus Delivery Obligation
Until , (25 days after the commencement of this offering) all
dealers that effect transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This
is in addition to the dealer's obligation to deliver a prospectus when acting
as an underwriter and with respect to unsold allotments or subscriptions.
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information and Financial Statements and Notes thereto appearing elsewhere in
this Prospectus.
DoveBid, Inc.
We have created an online global marketplace where sellers, buyers and
dealers participate in auctions of used capital assets and gain access to
value-added services through our strategic alliances and extensive referral
network. Our marketplace combines the efficiency, liquidity and global reach of
Internet-based commerce with our 62 years of experience as an auctioneer of
used capital assets. Our customers can conduct transactions through our Webcast
auctions, which broadcast live "open-outcry" auctions via the Internet, or
through our continuous 24x7 online auctions. Our online auctions enable the
sale of large groups of used capital assets, or aggregated assets, which become
available for sale as a result of significant events such as a plant closure or
bankruptcy, as well as unaggregated assets which become eligible for resale in
the ordinary course of business. We currently focus on the auction of inside-
the-building, used capital assets in 19 vertical markets, including the
semiconductor fabrication, electronic test and measurement, and biotechnology
markets.
The Internet is rapidly emerging as an important medium for business-to-
business e-commerce and it presents new opportunities to increase the liquidity
in the market for used capital assets. However, because the expertise and
value-added services offered by auctioneers and dealers are frequently
necessary to facilitate the sale of used capital assets, a stand-alone
Internet-based marketplace is an incomplete solution. In order to succeed, an
Internet-based marketplace must offer the full range of services required to
accommodate the complexities of a used capital asset transaction.
Our objective is to become the leading global online marketplace for the
auction of inside-the-building, used capital assets. Our marketplace provides
sellers, buyers and dealers with the following features:
. Integrated Online Auctions--We offer live, Webcast open-outcry auctions
that eliminate the "latency" that historically compromised the
effectiveness of combining online bidders with on-site auction
participants. We also offer 24x7 online auctions. Together, these
auctions provide an integrated liquidation solution to sellers and
buyers of both aggregated and unaggregated assets. We are the first
provider of such integrated online auction services in the inside-the-
building, used capital asset market.
. Vertical Market Expertise--We possess expertise in a number of vertical
markets that attracts interested, qualified sellers and buyers to our
marketplace.
. Value-Added Services--We provide, or can arrange for, the value-added
services needed to facilitate the purchase and sale of a used capital
asset, including valuation, repair and refurbishment, calibration,
warehousing, escrow and digital photography.
. Relationships with Dealers--In addition to our relationships with
corporate sellers and buyers, we maintain relationships with and support
for dealers to promote their participation in our online marketplace.
. Industry Credibility--We leverage the reputation and experience that we
have established over our 62 years in the used capital asset market to
lend industry credibility to our new online marketplace.
We believe our marketplace will achieve network effects that will enable it
to become the primary forum for the sale and purchase of used capital assets.
We expect the expanded audience reached by our integrated online auctions to
attract sellers seeking to maximize the recoverable value of their used capital
assets. Network effects will be realized as the growing number of sellers in
our marketplace provide an increasing capital asset supply, thereby attracting
an increasing number of buyers and increasing the demand for these assets.
3
<PAGE>
Our strategic relationships with corporations, dealers and other sources of
used capital assets further position us to establish a leadership position in
our marketplace. We have alliances with Comdisco, Datastream and Sun
Microsystems that help to ensure a supply of assets to our marketplace. In
addition, we will continue to enter into alliances with Internet companies,
such as Yahoo!, to promote and drive customers to our online marketplace.
We incorporated in Delaware on June 4, 1999. From March 1995 through June
1999, we conducted our business through Dove Brothers, LLC. Prior to March
1995, we conducted our business as Ross-Dove Company, Inc., which was the
successor to Ross Mercantile Co., formed in 1937. Unless otherwise stated, the
terms "we," "us" or "our" used in this prospectus refer to DoveBid, Inc. Our
address is 1241 E. Hillsdale Boulevard, Foster City, California 94404, and our
telephone number is (650) 571-7400. Our World Wide Web address is
www.dovebid.com. Information contained on our web site is not a part of this
prospectus.
"DoveBid," "DoveBid.com" and our logo are trademarks of DoveBid. All other
trademarks or service marks appearing in this prospectus are trademarks of the
respective companies that use them.
Except as otherwise indicated, information in this prospectus is based on
the following assumptions:
. the conversion of all outstanding shares of preferred stock into
70,309,145 shares of common stock on a share-for-share basis upon the
consummation of this offering;
. no exercise of the underwriters' over-allotment option; and
. the filing of our amended and restated certificate of incorporation in
the state of Delaware after the completion of this offering.
4
<PAGE>
The Offering
<TABLE>
<S> <C>
Common stock offered by DoveBid............. shares
Common stock to be outstanding after this
offering................................... shares
Use of proceeds............................. For general corporate purposes, including
working capital and potential acquisitions.
See "Use of Proceeds."
Nasdaq National Market symbol .............. "DOVE"
</TABLE>
Summary Financial Data
<TABLE>
<CAPTION>
Year Ended
Years Ended December 31, December 31,
----------------------------------------- 1999
1995 1996 1997 1998 1999 Pro Forma
------- ------- ------- ------- ------- ------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues................ $19,532 $16,786 $13,679 $10,801 $12,404 $36,229
Total operating
expenses............... 19,206 16,254 23,475 11,733 16,444 40,484
Net income (loss)
attributable to common
stockholders........... 369 581 (9,758) (867) (4,241) (5,074)
Basic and diluted net
income (loss) per
common share........... $ 0.02 $ 0.02 $ (0.34) $ (0.03) $ (0.15) $ (0.18)
Shares used to compute
basic and diluted net
income (loss) per
common share........... 23,199 28,999 28,988 28,618 28,403 28,403
</TABLE>
<TABLE>
<CAPTION>
December 31, 1999
-----------------------------
Pro Pro Forma
Actual Forma As Adjusted
------- -------- -----------
(in thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents......................... $ 6,969 $ 95,622
Working capital................................... 7,371 108,762
Total assets...................................... 18,932 141,247
Long-term liabilities............................. 3,109 3,612
Total stockholders' equity (deficit).............. (7,158) 128,774
</TABLE>
See Note 2 of the Notes to our Financial Statements for a description of the
method that we used to compute the net loss per share amounts.
The pro forma statement of operations data for the year ended December 31,
1999 gives effect to the six acquisitions which occurred in December 1999 and
February and March 2000 as if these acquisitions had occurred on January 1,
1999. The pro forma balance sheet data gives effect to four acquisitions and
our sale of shares of Series C preferred stock in February and March 2000 as if
those transactions had occurred on December 31, 1999. The basis for these
presentations is described in our pro forma financial information appearing
elsewhere in this prospectus under Index to Financial Statements. In addition,
pro forma long-term liabilities and total stockholders' equity reflects the
automatic conversion into common stock, upon completion of the offering, of all
preferred stock and convertible subordinated notes aggregating approximately
$9.6 million.
The pro forma as adjusted information gives effect to the application of the
net proceeds from the sale of shares of common stock in this offering
at the initial public offering price of $ per share, after deducting the
underwriting discount and estimated offering expenses.
5
<PAGE>
RISK FACTORS
An investment in our common stock involves a high degree of risk. You should
carefully consider the risks described below and all other information
contained in this prospectus before purchasing our common stock. Any of the
following risks could materially harm our business, operating results and
financial condition. Additional risks and uncertainties not currently known to
us or that we currently consider immaterial could also harm our business,
operating results and financial condition. You could lose all or part of your
investment as a result of these risks.
Risks Related To Our Business
We have experienced losses, anticipate incurring losses in the foreseeable
future and may never achieve profitability.
We expect to continue to incur substantial operating losses in the
foreseeable future. We have experienced losses from operations in each of the
last three years, including a net loss of $3.9 million for the year ended
December 31, 1999. As of December 31, 1999, we had an accumulated deficit of
$5.9 million. We have generated very limited revenue from online auctions. If
our revenue does not increase substantially or if our expenses increase more
rapidly than we expect, we may never become profitable.
We anticipate that our operating losses will increase in the future, as we
expect substantial increases in our costs and expenses in a number of areas,
including:
. marketing and promotion of our brand and marketplace;
. expanding our sales force and the number of vertical markets in which we
operate;
. expanding and enhancing our operating infrastructure, including hardware
and software systems and administrative personnel;
. enhancing the functionality of our online marketplace; and
. expanding our offering of value-added services.
Our revenues and operating results are volatile and difficult to predict, and
if we fail to meet the expectations of investors or securities analysts, the
market price of our common stock would likely decline significantly.
Our revenues and operating results are likely to fluctuate significantly
from quarter to quarter, due to a number of factors. These factors include:
. the amount and timing of acquisitions and payments to or from our
strategic partners;
. variability in the amount of used capital assets that we auction, and
the number of auctions we conduct in a given quarter;
. changes in the fees or commissions we charge our customers;
. completion of major liquidation contracts;
. fluctuations in the economic conditions in our vertical markets; and
. changes in general economic and market conditions.
As a result of these factors, the emerging nature of our market and the
evolving nature of our business model, we may be unable to accurately forecast
our revenues. We incur expenses based predominantly on operating plans and
estimates of future revenues. We may be unable to adjust our spending in a
timely manner to compensate for any unexpected revenue shortfalls. Accordingly,
a failure to meet our revenue projections
6
<PAGE>
would have an immediate and negative impact on profitability and cash flow.
Fluctuations in our operating results may cause us to fail to meet the
expectations of investors or securities analysts. If this were to happen, the
market price of our common stock would likely decline significantly.
Because we have only recently introduced our online auction services and
because we operate in a new and rapidly evolving market, you may have
difficulty assessing our business and our future prospects.
Although we have been involved, through our predecessors, in traditional
auctions of used capital assets for over 62 years, we only launched our online
marketplace in November 1999. Because this represents a new and untried line of
business for us, it may be difficult for you to evaluate our business and our
future prospects. Online auctions of used capital assets are new and rapidly
evolving, and it is difficult to predict whether the market will accept our
online auction services and the level of revenue we can expect to derive from
these services. Our business will be seriously harmed, and may fail entirely,
if we do not successfully execute our new online business strategy or if we do
not successfully address the risks we face. In addition, due to our limited
online operating history, we believe that period-to-period comparisons of our
revenues and results of operations are not meaningful.
If sellers and buyers of used capital assets do not accept our business model
of providing an online marketplace, demand for our services may not develop.
Our online marketplace, which aggregates a number of sellers and buyers of
used capital assets, is new and unproven and relies upon sellers and buyers in
this market adopting a new means of selling and purchasing. If sellers and
buyers of used capital assets do not accept our business model, increased
demand for our services may not develop and our growth will be impaired.
Sellers and buyers may prefer to use traditional methods of selling and buying
used capital assets, such as on-site auctions and interacting in person or by
phone. In addition, many of the buyers of used capital assets may not currently
have ready access to the Internet for commercial purposes and may be unwilling
to use the Internet to purchase used capital assets. Even if sellers and buyers
accept the Internet as a means of selling and buying used capital assets, they
may not accept our online marketplace for conducting this type of business.
Reluctance of sellers and buyers to use our services would seriously harm our
business.
If we cannot quickly build a "critical mass" of sellers and buyers of used
capital assets, we will not achieve network effects and our business may not
succeed.
Our strategy of building a competitive advantage through network effects
requires us to quickly build a critical mass of online sellers and buyers, as
network effects represent the enhanced value to all users of an increase in
size of our user community. If another competitor builds this critical mass
more quickly than we do, we will be at a competitive disadvantage. To encourage
sellers to list their products on our online marketplace, we need to increase
the number of buyers who use our marketplace by providing a broad range of used
capital assets from a large number of sellers. If we are unable to
substantially expand our customer base, we may not achieve market acceptance
with sellers and buyers of used capital assets.
We have limited experience with a number of the vertical markets in our
marketplace, and if we do not become recognized as a leading auctioneer in
these markets, our growth will be inhibited.
We believe that our success is dependent on our ability to offer used
capital assets across the range of vertical markets in our marketplace. If we
do not rapidly increase the range of our asset listings in a number of our
vertical markets, our growth will be impaired because we will not have achieved
our goal of being recognized as the sponsor of a broad based marketplace for
used capital assets. We have varying degrees of experience in our vertical
markets. For example, we have not been active in on-site auctions in many of
our vertical markets. We may never be recognized as a viable auction
alternative for the disposition of assets in those markets in which we have
historically had limited experience.
7
<PAGE>
We intend to continue to make acquisitions, which could harm our profitability,
put a strain on our resources, and cause dilution to our stockholders.
We have completed six acquisitions of businesses or assets of businesses
within the last three months and we expect to continue to acquire the assets or
businesses of dealers, auctioneers and appraisers in order to expand our
business and the services we offer. Integrating newly acquired organizations
and technologies into our company could be expensive and time consuming and may
strain our resources. Moreover, we may face unforeseen liabilities related to
the businesses we acquire and we may have inadequate insurance coverage and
working capital to satisfy such liabilities. We may not be successful in
integrating any acquired businesses or technologies and may not achieve our
anticipated revenue and cost benefits. Future acquisitions could result in
potentially dilutive issuances of equity securities or the incurrence of debt,
contingent liabilities or amortization expenses related to goodwill and other
intangible assets, any of which could harm our business. For example, in
connection with our recent acquisitions, we will record approximately $19.1
million in goodwill and other intangible assets, which will be amortized over a
period of four to twelve years.
We may be unable to effect our growth strategy if we are unable to consummate
future business acquisitions.
Our growth is subject to the risk that we will be unable to identify
additional suitable acquisition candidates available for sale at reasonable
prices or on reasonable terms. Additionally, regardless of whether suitable
candidates are available, we may not be able to consummate future acquisitions
for other reasons, such as competition from other bidders. If we are unable to
consummate future acquisitions, our business, financial condition and operating
results could be adversely affected.
In the future we will be exposed to greater risks associated with ownership and
management of inventory, and we could incur losses from carrying and disposing
of our own inventory.
We have recently begun to acquire the businesses of dealers which include
capital asset inventories. Owning inventory subjects us to risks of loss both
from depreciation and obsolescence of this inventory while we are carrying it,
and from the disposition of this inventory for a price below our carrying
value. If we were to incur these losses, our operating results would be
adversely affected and our stock price could decline. As auctioneers, we
historically have not carried inventory and have generally sold the assets of
others without incurring a risk of loss. We have limited experience in managing
the carrying and disposition of inventory and may not be successful in doing
so.
We may incur losses as a result of guarantees of auction proceeds.
Occasionally, we guarantee a minimum amount of auction proceeds that a
corporate customer will receive from a sale of its assets through a Webcast
auction. In the event that actual auction proceeds do not equal or exceed a
guaranteed amount, we are obligated to pay any such shortfall to the seller,
and this could adversely affect our operating results.
If we are unable to maintain our strategic alliances or enter into new
alliances, we may be unable to attract customers to our marketplace.
Our business strategy includes entering into strategic alliances to increase
our customer base, increase the number and variety of our asset listings and
provide additional value-added services to our customers. If any existing
alliance is terminated or is not renewed upon its expiration, or we are unable
to enter into new alliances, we may be unable to increase the attractiveness of
our online marketplace or provide satisfactory services to our customers.
Further, we may not achieve our objectives through these alliances. Many of our
strategic partners may have multiple relationships and may pursue relationships
with our competitors or develop or acquire services that compete with our
services. In addition, in many cases these companies may terminate these
relationships if we do not perform as contemplated by our agreements.
8
<PAGE>
Our recent growth has placed significant strains on our management systems and
resources, and if we fail to successfully manage further growth we may not be
able to conduct our business efficiently and may be unable to execute our
business plan.
If we are unable to successfully manage our business during a period of
rapid growth in the size of our company, our business could be seriously
harmed. We have grown rapidly and will need to continue growing in order to
execute our business strategy. Our growth has placed significant demands on
management as well as on our administrative, operational and financial
resources and internal controls. We expect our future growth to cause similar,
and perhaps increased, strains on our systems and internal controls. For
example, our rapid growth requires us to integrate and manage a large number of
new employees. In addition, we will need to substantially upgrade or replace
our information systems, including our accounting system. Any failure to
successfully upgrade our systems and internal controls could result in
inefficiencies in our business and could prevent us from executing our business
plan.
If sellers of used capital assets utilizing our online marketplace set
unreasonable prices for their assets, our revenues will be adversely affected
and our ability to grow may be limited.
If sellers utilizing our online marketplace establish unreasonable prices
for their assets, these assets will be unlikely to sell. Since our commissions
are based on asset sales, our revenues will be adversely affected if sales are
inhibited for this reason. In addition, our ability to develop a broad network
of buyers could be impaired if buyers do not perceive that the assets sellers
offer for sale through our marketplace are reasonably priced.
We depend heavily on the contacts of Ross and Kirk Dove in the market for used
capital assets and our business would be harmed if for any reason either or
both of them ceased to be active as our senior executives.
If Ross or Kirk Dove ceased to be committed to our business in the capacity
of senior executive officers, our business would be adversely affected. Each of
these two officers has substantial relationships and contacts in the market for
used capital assets, and we could lose important customers if either of them
were no longer active in our business. In addition, they have years of
experience in conducting auctions. The new executive officers that we have
employed within the last six months do not share this experience and likely
would not be as capable as the Doves in the auction business for a substantial
period of time, if ever. Ross and Kirk Dove are employed by us at-will, and we
cannot assure you that they will be employed by us for any period of time.
Many of our executives and other employees have recently joined our company,
and if they are unable to effectively work together we may not be able to
effectively manage our growth and operations.
Several of our executive officers and other key employees joined us only
recently and have had a limited time to work together. We cannot assure you
that they will be able to work effectively together to manage our growth and
continuing operations. Our chief financial officer, Cory M. Ravid, joined
DoveBid in October 1999; our president and chief operating officer, Jeffrey M.
Crowe, joined DoveBid in November 1999; our chief technical officer and vice
president of e-commerce, Francis M. Juliano, joined DoveBid in December 1999;
our vice president of marketing, Steven S. Pollock, joined DoveBid in December
1999; our vice president and general counsel, Anthony Capobianco, joined
DoveBid in December 1999; our vice president of operations, James Hume, joined
DoveBid in January 2000; and our vice president of finance, Dennis Polk, joined
DoveBid in February 2000.
If we are unable to attract qualified personnel or retain our executive
officers and other key personnel, we may not be able to compete successfully in
our industry.
Should we fail to retain or attract qualified personnel, we may not be able
to compete successfully in our industry, and our business would be harmed. Our
success depends on our ability to attract and retain qualified,
9
<PAGE>
experienced employees. Our recent expansion into online auctions and our plans
for aggressively pursuing opportunities in this area have necessitated our
hiring of a number of new executives with expertise in areas such as finance,
marketing and technology where we do not have sufficient existing capabilities.
In addition to the hiring of these executives, we have also hired, and will
need to continue to hire, additional skilled employees in a number of
additional areas to support our growth. Competition for qualified, experienced
employees in the Internet industry, particularly in the San Francisco Bay Area,
where we are located, is intense, and we may not be able to compete effectively
to retain and attract employees. Our employees, including our executives, serve
at-will and may elect to pursue other opportunities at any time. Other than the
limited key person life insurance policies for Ross and Kirk Dove, we do not
maintain any key person life insurance.
If our online systems are unable to provide acceptable performance as the
traffic in our marketplace increases, we could lose customers and we would have
to spend capital to expand and adapt our network infrastructure, either of
which could harm our business and results of operations.
If our online systems do not continue to provide acceptable performance as
use of our services increases, our reputation may be damaged and we may lose
customers. We introduced our 24x7 online auctions in November 1999 and
conducted our first Webcast auction in January 2000. Accordingly, we have
processed a limited number and variety of transactions on our website. Our
systems may not be able to accommodate increased use while continuing to
provide acceptable overall performance. To date we have not experienced
unscheduled system interruptions of our online marketplace, although outages
may occur from time to time as system usage increases. We may be unable to
accurately predict the rate or timing of increases, if any, in the use of our
services or expand and upgrade our systems and infrastructure to accommodate
increased use of our marketplace. Any failure to expand or upgrade our systems
to keep pace with the growth in demand for capacity could cause our website to
become unstable and possibly cease to operate for indefinite periods of time.
Unscheduled downtime could negatively impact our business.
Our infrastructure and systems are susceptible to natural disasters and other
unexpected events, and if any of these events of a significant magnitude were
to occur, they could affect our ability to operate our business for a sustained
period.
The performance of our server and networking hardware and software
infrastructure are critical to our business and reputation and our ability to
process transactions, provide high quality customer service and attract and
retain users of our services. Currently, our infrastructure and systems are
located at one site in Cupertino, California, which is an area susceptible to
earthquakes. We depend on our single-site infrastructure, and any disruption to
this infrastructure resulting from a natural disaster or other event could
result in an interruption in our service, reduce the number of transactions we
are able to process and, if sustained or repeated, could impair our reputation
and the attractiveness of our services, or prevent us from providing our
services entirely.
Our systems and operations are susceptible to damage or interruption from
human error, natural disasters, power loss, telecommunications failures, break-
ins, sabotage, computer viruses, intentional acts of vandalism and similar
events. We rely on a third party for our hosting services and we do not have a
formal disaster recovery plan or alternative provider of hosting services. In
addition, we may not carry sufficient business interruption insurance to
compensate us for losses that we may sustain. Any failure on our part to expand
our system or Internet infrastructure to keep up with the demands of our users,
or any system failure that causes an interruption in service or a decrease in
responsiveness of our online services or website, could result in fewer
transactions and, if sustained or repeated, could damage our reputation and the
attractiveness of our services or prevent us from providing our services
entirely.
We face intense competition, and if we are unable to compete effectively we may
be unable to maintain or expand our customer base, and we may lose market share
or sustain revenue shortfalls.
The online market for used capital assets is new and rapidly evolving and we
expect it to be intensely competitive. Our competition includes traditional
auctioneers that have established online marketplaces for
10
<PAGE>
used capital assets, as well as new online entrants who seek to utilize the
Internet to sell or auction used capital assets. We also face potential
competition from a number of other sources. Many Internet portals and
e-commerce providers have created, or are creating, websites and functions that
may serve the needs of our customers and compete with our services. In
addition, providers of online marketplaces and online auction services that
currently focus on other industries could expand the scope of their services to
include used capital assets. Sellers and buyers that we currently consider to
be customers may also establish competing online marketplaces, either on their
own or by partnering with other companies. Moreover, additional auctioneers
focusing on used capital assets may establish or partner with others to
establish online auction services.
Competition is likely to intensify as our market matures. As competitive
conditions intensify, competitors may:
. enter into strategic or commercial relationships with larger, more
established Internet companies;
. secure assets from sellers on more favorable terms; and
. secure exclusive or preferential arrangements with sellers or buyers
that limit sales through our marketplace.
Many of our existing and potential competitors have longer online operating
histories, greater name recognition, larger customer bases and greater
financial, technical and marketing resources than we do. As a result of these
factors, our current and potential competitors may be able to respond more
quickly to market forces, undertake more extensive marketing campaigns for
their brands and services and make more attractive offers to sellers, buyers,
potential employees and strategic partners. In addition, new technologies may
increase competitive pressures. We cannot be certain that we will maintain or
expand our customer base. We may be unable to compete successfully against
current and future competitors and competition could result in commission
reductions, reduced revenues, gross margins and operating margins and loss of
market share.
If we are unable to increase recognition of the DoveBid brand name, our ability
to attract customers to our online marketplace will be limited and our
operating results will suffer.
We believe that recognition and positive perception of the DoveBid brand
name in the online market for used capital assets are important to our success.
We intend to significantly expand our advertising and publicity efforts in the
near future, which will significantly increase our operating expenses. We may
not achieve our desired goal of increasing the awareness of the DoveBid brand
name to justify the incurrence of those expenses. Even if recognition of our
brand name increases, it may not lead to an increase in our customer base.
Our strategy to expand our services globally will require significant
management attention and financial resources, and if we are unable to execute
this strategy our growth will be limited and our operating results may be
harmed.
In order to increase the market awareness and the use of our online
marketplace by sellers and buyers of used capital assets, we intend to expand
our services globally. If we fail to execute this strategy, our growth will be
limited and our operating results may be harmed. We have limited experience
operating outside the U.S. and with marketing our services globally. Our entry
into global markets may require significant management attention and financial
resources which may adversely affect our ability to effectively manage our
existing business. Furthermore, entry into some global markets would require us
to develop additional foreign language versions of our services. We must also
develop the logistical support necessary to facilitate the delivery and receipt
of payment to and from, and delivery of products by and to offshore sellers and
buyers. There may also be cultural barriers to the acceptance of our services
internationally, particularly in regions that have not traditionally relied
upon auctions as a way to dispose of used capital assets. Competitors with
greater local market knowledge may exist or arise in these international
markets and impede our ability to successfully expand in these markets.
Accordingly, our planned global expansion may be unsuccessful.
11
<PAGE>
If we cannot meet our future capital requirements, we may be unable to develop
and enhance our products and services, take advantage of business opportunities
and respond to competitive pressures.
We currently anticipate that the net proceeds from this offering, together
with our existing working capital immediately prior to this offering, will be
sufficient to meet our anticipated working capital and capital expenditure
requirements through at least the next twelve months. The time period for which
we believe our capital is sufficient is an estimate; the actual time period may
differ materially as a result of a number of factors, risks and uncertainties.
We may need to raise additional funds in the future through public or private
debt or equity financings in order to:
. accelerate our expansion through acquisitions of dealers, auctioneers
and other businesses or technologies;
. develop new products or services; or
. respond to competitive pressures.
Additional financing we may need in the future may be unavailable on terms
favorable to us, if at all. If adequate funds are not available or are not
available on acceptable terms, we may be unable to take advantage of acquistion
opportunities, develop new products or services or otherwise respond to
unanticipated competitive pressures. In such cases, our business results and
financial condition could be harmed.
If we are unable to safeguard the security and privacy of a customer's
confidential information, customers may discontinue using our services.
A significant barrier to the widespread adoption of e-commerce is the secure
transmission of personally identifiable information of Internet users as well
as other confidential information over public networks. If any compromise or
breach of security were to occur, it could harm our reputation and expose us to
possible liability. Despite our efforts to protect customer information, a
party may be able to circumvent our security measures and could misappropriate
proprietary information or cause interruptions in our operations. We may be
required to make significant expenditures to protect against security breaches
or to alleviate problems caused by any breaches.
We may be subject to litigation for defects in used capital assets sold in our
marketplace and this type of litigation may be costly and time-consuming to
defend.
Because we facilitate the sale of used capital assets in our marketplace we
may become subject to legal proceedings arising from defects in such assets,
even though we generally do not take title to or provide a warranty with
respect to such assets. Although the terms and conditions of our service
expressly limit our liability in these situations, we may also become involved
in disputes regarding the terms of the sale through our marketplace, including
disputes arising from the failure of sellers to deliver assets or buyers to pay
for assets. Any claims, with or without merit, could:
. be time-consuming to defend;
. result in costly litigation; and
. divert management's attention and resources.
If we are unable to protect our intellectual property, third parties may gain
access to these rights and harm our business.
We regard our intellectual property as it relates to our ability to
broadcast and conduct live auctions as critical to our success. If we are
unable to protect these rights, we would lose a capability that we regard as a
key strategic advantage. We rely on trademark, copyright and trade secret laws
to protect these and our other proprietary rights. It is possible that by
virtue of using our intellectual property we could receive claims of
12
<PAGE>
infringement of other parties' proprietary rights or claims that our own
trademarks, patents or other intellectual property rights are invalid. Any
claims of this type, with or without merit, could be time consuming to defend,
result in costly litigation, divert management attention and resources or
require us to enter into royalty or license agreements. In addition, there has
been a recent increase in the number of patent applications related to the use
of the Internet to perform business processes. Enforcement of intellectual
property rights in the Internet sector will become a greater source of risk as
the number of business process patents increases.
We have applied for registration of several trademarks including the DoveBid
logo. Our trademark registration applications may not be approved or granted,
or, if granted, may be successfully challenged by others or invalidated through
administrative process or litigation.
We rely on third-party software and technology without which we may not be able
to operate our online marketplace.
We currently rely on software and technology that we have licensed from a
number of suppliers. These licenses may not continue to be available to us on
commercially reasonable terms, if at all. In addition, we may fail to
successfully integrate licensed technology into our services which could
similarly harm development and market acceptance of our services. For example,
we use licensed software to provide part of our website infrastructure and to
provide a substantial part of the functionality of our auction services, and we
use licensed information retrieval software to provide part of our search
capabilities. In addition, the licensors may not continue to support or enhance
the licensed software. In the future, we expect to license other third party
technologies to enhance our services, to meet evolving user needs or to adapt
to changing technology standards. Failure to license, or the loss of any
licenses of, necessary technologies could impair our ability to operate our
online marketplace until equivalent software is identified, licensed and
integrated or developed by us.
If we fail to adapt to the rapidly changing technologies of the Internet or if
the Internet cannot support the demands of our business, our business would be
harmed.
To succeed, we will need to adapt effectively to rapidly changing
technologies and continually improve the performance, features and reliability
of our services. We could incur substantial costs in modifying our products,
services or infrastructure to adapt to these changes, and we may also lose
customers and revenues if our services fail to utilize the latest Internet
technology. The success of our business relies on the Internet to provide a
convenient means of interaction and e-commerce.
Risks Related To Our Industry
The success of our business depends on the participants in the market for used
capital assets accepting the Internet as a means to purchase and sell used
capital assets.
Business-to-business e-commerce is currently not a significant sector of the
market for used capital assets. The Internet may not be adopted by buyers and
sellers in the marketplace for used capital assets for many reasons, including:
. comfort with existing purchasing habits, such as participating in live,
on-site auctions;
. reluctance by the industry to adopt the technology necessary to engage
in the online sale and purchase of used capital assets;
. failure of the market to develop the necessary infrastructure for
Internet-based communications, such as widespread Internet access, high-
speed modems, high-speed communication lines and computer availability;
13
<PAGE>
. concerns with security and confidentiality; and
. investment in existing purchasing and distribution methods and the costs
required to switch methods.
Should sellers and buyers choose not to utilize or accept the Internet as a
means of selling and buying used capital assets, our business model would not
be viable.
Regulation of the Internet is unsettled, and future regulations could inhibit
the growth of e-commerce and limit the market for our services.
Legislation or application of existing laws could expose companies involved
in e-commerce to increased liability, which could limit the growth of e-
commerce. A number of legislative and regulatory proposals under consideration
by federal, state, local and foreign governmental organizations may lead to
laws or regulations concerning various aspects of the Internet, such as user
privacy, taxation of goods and services provided over the Internet and the
pricing, content and quality of services. Legislation could dampen the growth
in Internet usage and decrease or limit its acceptance as a communications and
commercial medium. If enacted, these laws and regulations could limit the
market for our services and increase our cost of doing business. In addition,
existing laws could be applied to the Internet, including consumer privacy and
unfair competition laws. As a provider of auction services we may be subject to
the Federal Trade Commission's mail and telephone order rule, which requires
that at the time an order is solicited a seller must have a "reasonable basis"
to ship within a certain time and must provide reasonable notice of any
inability to ship within that time period.
If regulations with respect to how auctions may be conducted are imposed by
states, our business costs may increase, which would harm our results of
operations.
Numerous states, including California, where our headquarters are located,
have regulations regarding the conduct of auctions and the liability of
auctioneers. We are not aware that any legal determination has been made with
respect to the applicability of these regulations to our online business, and
little precedent exists in this area. One or more states may attempt to impose
these regulations upon us in the future, which could increase our cost of doing
business.
The imposition of additional state and local taxes on Internet-based
transactions would increase our cost of doing business and harm our ability to
become profitable.
We file state tax returns as required by law based on principles applicable
to traditional businesses. However, one or more states could seek to impose
additional income tax obligations or sales and use tax collection obligations
on out-of-state companies such as ours that engage in or facilitate Internet-
based commerce. A number of proposals have been made at state and local levels
that could impose taxes on the sale of products and services through the
Internet or the income derived from those sales. These proposals, if adopted,
could substantially impair the growth of Internet-based commerce and harm our
ability to become profitable.
United States federal law limits the ability of the states to impose taxes
on Internet-based transactions. Until October 21, 2001, state and local taxes
on Internet-based commerce that are discriminatory against Internet access are
prohibited, unless the taxes were generally imposed and actually enforced
before October 1, 1998. It is possible that this tax moratorium will not be
renewed by October 21, 2001 or at all. Failure to renew this legislation would
allow various states to impose taxes on Internet-based commerce. The imposition
of state and local taxes could harm our ability to become profitable.
14
<PAGE>
Risks Related To This Offering
New investors in our common stock will experience immediate and substantial
dilution.
The initial public offering price will be substantially higher than the book
value per share of our common stock. Investors purchasing common stock in this
offering will, therefore, incur immediate dilution of $ per share of common
stock in net tangible book value, based on an assumed initial public offering
price of $ per share. In addition, we have issued options and warrants to
acquire common stock at prices significantly below the assumed initial public
offering price. To the extent outstanding options or warrants are ultimately
exercised, there will be further dilution to investors in this offering.
The price of our common stock may fluctuate significantly, which could lead to
losses for individual stockholders.
The trading prices of many stocks of Internet-related companies have
experienced extreme price and volume fluctuations. These fluctuations often
have been unrelated or disproportionate to the operating performance of these
companies. Because we are an Internet-related company, we expect our stock
price to be similarly volatile. These broad market fluctuations may continue
and could harm our stock price. Any negative change in the public's perception
of the prospects of Internet-related companies could also depress our stock
price, regardless of our results.
We could be subject to securities class action litigation if our stock price is
volatile, which could be costly and time-consuming to defend and could damage
our reputation.
In the past, there have been class action lawsuits filed against companies
after periods of fluctuations in the market price of their securities. If we
were subject to this type of litigation, it would be a strain on our personnel
and financial resources and divert management's attention from running our
company and could negatively affect our public image and reputation.
We have implemented anti-takeover provisions that could discourage or prevent a
takeover, even if an acquisition would be beneficial in the opinion of our
stockholders.
Provisions of our charter and bylaws could make it more difficult for a
third party to acquire us, even if doing so would be beneficial in the opinion
of our stockholders. These provisions include:
. authorizing the issuance of "blank check" preferred stock that could be
issued by our board of directors to increase the number of outstanding
shares and thwart a takeover attempt;
. establishing a classified board of directors, which could discourage a
takeover attempt;
. prohibiting cumulative voting in the election of directors, which would
limit the ability of less than a majority of stockholders to elect
director candidates;
. limiting the ability of stockholders to call special meetings of
stockholders;
. prohibiting stockholder action by written consent, thereby requiring all
stockholder actions to be taken at a meeting of our stockholders; and
. establishing advance notice requirements for nominations for election to
the board of directors or for proposing matters that can be acted upon
by stockholders at stockholder meetings.
In addition, section 203 of the Delaware General Corporation Law may
discourage, delay or prevent a change in control of DoveBid.
15
<PAGE>
Our executive officers, directors and major stockholders will retain
significant control over our business after this offering.
After this offering, executive officers, directors and current holders of 5%
or more of our outstanding common stock will, in the aggregate, own
approximately % of our outstanding common stock. As a result, these
stockholders will be able to influence significantly all matters requiring
approval by our stockholders, including the election of directors and the
approval of significant corporate transactions. This concentration of ownership
may also delay, deter or prevent a change in control of our company and may
make some transactions more difficult or impossible without the support of
these stockholders.
We have broad discretion to use the offering proceeds, and our investment of
these proceeds may not yield a favorable, or any, return.
The net proceeds of this offering are not allocated for specific uses other
than working capital and general corporate purposes. Thus, our management has
broad discretion over how these proceeds are used and could spend the proceeds
in ways with which you may not agree. We cannot assure you that the proceeds
will be invested in a way that yields a favorable, or any, return for us.
Substantial sales of our common stock by our stockholders could depress our
stock price.
Sales of substantial amounts of our common stock in the public market after
this offering could reduce the prevailing market prices for our common stock.
Of the shares of common stock to be outstanding upon the closing of
this offering, the shares offered hereby will be freely tradable
without restriction or further registration, other than shares purchased by our
officers, directors or other "affiliates" within the meaning of Rule 144 under
the Securities Act of 1933, which will be restricted from sale until 180 days
after the date of this prospectus under the terms of agreements between these
affiliates and the underwriters. All of the remaining 109,343,643 shares of our
common stock held by existing stockholders upon the completion of this offering
are subject to stockholder agreements with the underwriters not to sell such
shares for a 180 day period after the date of this prospectus. Approximately
47,553,828 of these shares will be eligible for resale upon the expiration of
such 180 day period, 44,541,839 of which will be subject to sales volume
restrictions under Rule 144 under the Securities Act. The remaining shares will
become freely tradable at various times after the 181st day following the date
of this prospectus through March 2004 as repurchase restrictions and Rule 144
holding periods lapse. In addition the shares (based on a conversion rate
of $ , the midpoint of the price range set forth on the cover page of this
prospectus) of common stock that will be issued upon the automatic conversion
of $9.6 million of convertible subordinated notes issued in connection with
acquisitions completed between December 1999 and March 3, 2000 will become
eligible for resale between December 2000 and March 3, 2001 pursuant to Rule
144.
16
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. These statements relate
to future events or our future financial performance. In some cases, you can
identify forward-looking statements by terminology such as "anticipates,"
"believes," "continue," "could," "estimates," "expects," "intends," "may,"
"plans," "potential," "predicts," "should" or "will" or the negative of these
terms or other comparable terminology. These statements are only predictions
and involve known and unknown risks, uncertainties and other factors, including
the risks outlined under "Risk Factors," that may cause our, or our industry's,
actual results, levels of activity, performance or achievements to be
materially different from any future results, levels of activity, performance
or achievements expressed or implied by these forward-looking statements.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other
person assumes responsibility for the accuracy and completeness of these
statements. We are under no duty to update any of the forward-looking
statements after the date of this prospectus to conform these statements to
actual results, unless required by law.
17
<PAGE>
USE OF PROCEEDS
The net proceeds to us from the sale of the shares of common stock
offered by us will be approximately $ , or approximately
$ if the underwriters' over-allotment option is exercised in
full, at an assumed initial public offering price of $ per share and after
deducting estimated underwriting discounts and commissions and offering
expenses.
We intend to use the net proceeds from this offering primarily for general
corporate purposes, including working capital. We also intend to use a portion
of the net proceeds from this offering to acquire or invest in assets,
services, technologies or businesses that are complementary to our business. We
are regularly involved in discussions regarding business combinations, but we
do not have any present commitments or understandings to proceed with any
transaction of this type.
The amounts that we actually expend for working capital purposes will vary
significantly depending on a number of factors, including future revenue
growth, if any, and the amount of cash we generate from operations. As a
result, we will retain broad discretion in the allocation and use of the net
proceeds of this offering. Pending the uses described above, we intend to
invest the net proceeds from this offering in short-term, interest-bearing,
investment-grade securities.
DIVIDEND POLICY
We have not paid any cash dividends on our capital stock since we
incorporated in June 1999. However, prior to our incorporation, we were a
limited liability company and made various cash and non-cash distributions to
our members. We intend to retain any future earnings to finance future growth
and do not anticipate paying any cash dividends in the future.
18
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999:
. on an actual basis;
. on a pro forma basis to reflect the subsequent sale of 41,011,242 shares
of Series C preferred stock for gross proceeds of approximately $99.5
million in cash and $10.0 million in assets, the issuance of $7.6
million of convertible subordinated notes in connection with subsequent
acquisitions and the automatic conversion into common stock, upon
completion of the offering, of all preferred stock and convertible
subordinated notes aggregating approximately $9.6 million at an assumed
conversion price of $ (the mid-point of the range set forth on the
cover page of this prospectus);
. on a pro forma as adjusted basis to reflect the sale of shares
of common stock in this offering at an assumed initial public offering
price of $ per share, after deducting estimated underwriting
discounts and commissions and offering expenses.
The table does not reflect 4,256,500 shares issuable upon the exercise of
outstanding stock options at a weighted average exercise price of $0.47 per
share, as of December 31, 1999; and additional shares authorized for issuance
under our plans. It also does not include an immediately exercisable warrant
for 1,405,000 shares of Series C preferred stock at an exercise price of $2.67
per share.
This table should be read in conjunction with our Financial Statements and
Notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere in this prospectus.
<TABLE>
<CAPTION>
December 31, 1999
------------------------------
Pro Forma
Actual Pro Forma As Adjusted
------- --------- -----------
(in thousands, except share
and
per share data)
<S> <C> <C> <C>
Convertible subordinated notes................. $ 2,000 $ $
Convertible preferred stock subject to
redemption, no par value; 30,000,000 shares
authorized, 29,297,902 shares issued and
outstanding, actual; 77,000,000 shares
authorized, 70,309,144 issued and outstanding,
pro forma and shares
authorized, none issued and outstanding pro
forma as adjusted............................. 16,832
Stockholders' equity (deficit):
Common stock, $0.001 par value per share;
70,000,000 shares authorized, 33,877,705
shares issued and outstanding, actual;
150,000,000 shares authorized,
shares issued and outstanding, pro forma;
150,000,000 shares authorized,
shares issued and outstanding, pro forma as
adjusted..................................... 34
Additional paid-in capital.................... 2,966
Deferred stock-based compensation............. (2,378)
Notes receivable from stockholders............ (1,856)
Accumulated deficit........................... (5,924)
------- -------- --------
Total shareholders' equity (deficit)....... (7,158)
------- -------- --------
Total capitalization..................... $11,674 $ $
======= ======== ========
</TABLE>
19
<PAGE>
DILUTION
As of December 31, 1999, our pro forma net tangible book value was
approximately $ million, or $ per share of common stock. Pro forma net
tangible book value per share represents the amount of our total tangible
assets less total liabilities, divided by shares of common stock
outstanding after giving effect to:
. the sale of 41,011,242 shares of Series C preferred stock for
approximately $99.5 million in cash and $10.0 million in assets in
February and March 2000;
. the acquisition of businesses resulting in the issuance of $7.6 million
of convertible subordinated promissory notes in February and March 2000;
and
. the automatic conversion into common stock upon completion of this
offering of all preferred stock and convertible subordinated notes
aggregating approximately $9.6 million at an assumed conversion price of
$ (the mid-point of the range set forth on the cover page of this
prospectus).
Dilution in net tangible book value per share represents the difference
between the amount per share paid by buyers of shares of our common stock in
this offering and the net tangible book value per share of our common stock
immediately following this offering.
After giving effect to the receipt of the net proceeds from the sale of the
shares of our common stock at an assumed initial public offering price of
$ per share and after deducting underwriting discounts and commissions and
the estimated offering expenses, our pro forma net tangible book value as of
December 31, 1999 would have been approximately $ million, or $ per share.
This represents an immediate increase in pro forma net tangible book value of
$ per share to existing stockholders and an immediate dilution of $ per
share to new investors purchasing shares at the initial public offering price.
The following table illustrates the per share dilution:
<TABLE>
<S> <C>
Assumed initial public offering price per share $
Pro forma net tangible book value per share as of December 31, 1999..... $
Increase per share attributable to new investors........................
-----
Pro forma net tangible book value per share after this offering...........
-----
Dilution per share to new investors....................................... $
=====
</TABLE>
20
<PAGE>
The following table summarizes as of December 31, 1999, on the pro forma
basis described above, the number of shares of common stock purchased from us,
the total consideration paid to us and the average price per share paid by
existing stockholders and by new investors purchasing shares of common stock in
this offering, before deducting underwriting discounts and commissions and the
estimated offering expenses:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
------------------- -------------------- Price
Number Percent Amount Percent Per Share
----------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders........ % $ % $
New Investors................ % %
----------- ----- ------------ -----
Total...................... % %
</TABLE>
If the underwriters' over-allotment option is exercised in full, the
following will occur:
. the number of shares of common stock held by existing stockholders will
decrease to approximately % of the total number of shares of our
common stock outstanding after this offering; and
. the number of shares held by new investors will be increased to ,
or approximately % of the total number of our shares of our common
stock outstanding after this offering.
The above discussion and tables assume no exercise of any stock options or
warrants for common stock outstanding as of December 31, 1999. As of December
31, 1999, there were outstanding options to purchase a total of 4,256,500
shares of common stock at a weighted average exercise price of $0.47 per share,
and an immediately exercisable warrant to purchase 1,405,000 shares of Series C
preferred stock. If any of these options are exercised, there will be further
dilution to new public investors. Please see "Capitalization," and
"Management--Employee Benefit Plans."
21
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with,
and are qualified by reference to, our Financial Statements and Notes thereto
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere in this prospectus. The statements of
operations for the years ended December 31, 1997, 1998 and 1999, and the
balance sheet data at December 31, 1998 and 1999, are derived from, and are
qualified by reference to, the financial statements that have been audited by
Ernst & Young LLP, independent auditors, which are included elsewhere in this
prospectus. The statements of operations data for the years ended December 31,
1995 and 1996 and the balance sheet data at December 31, 1995, 1996 and 1997
are derived from our unaudited financial statements not included in this
prospectus. The historical results presented below are not necessarily
indicative of future results. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
The pro forma financial information at December 31, 1999 and for the year
then ended are derived from, and are qualified by reference to, the pro forma
financial data appearing elsewhere in this prospectus. The pro forma statement
of operations data for the year ended December 31, 1999 gives effect to the six
acquisitions which occurred in December 1999 and February and March 2000 as if
those acquisitions had occurred on January 1, 1999. The pro forma balance sheet
data as of December 31, 1999 gives effect to the four acquisitions and our sale
of shares of Series C preferred stock which occurred in February and March 2000
as if those transactions had occurred on December 31, 1999.
<TABLE>
<CAPTION>
Year ended
Years Ended December 31, December 31,
---------------------------------------------------- 1999
1995 1996 1997 1998 1999 Pro Forma
----------- ----------- ----------- ------- ------- ------------
(unaudited) (unaudited) (unaudited)
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues................ $19,532 $16,786 $13,679 $10,801 $12,404 $36,229
Operating expenses:
Direct auction costs... 11,620 8,565 7,005 5,679 5,788 18,924
Sales and marketing.... 1,792 1,527 1,195 1,079 2,271 2,373
General and
administrative........ 5,373 5,327 5,321 4,787 8,196 16,272
Depreciation and
amortization.......... 421 835 204 188 138 2,864
Amortization of
deferred
compensation.......... -- -- -- -- 51 51
Impairment of
goodwill.............. -- -- 9,751 -- -- --
------- ------- ------- ------- ------- -------
Total operating
expenses............ 19,206 16,254 23,475 11,733 16,444 40,484
------- ------- ------- ------- ------- -------
Income (loss) from
operations............. 326 532 (9,796) (932) (4,040) (4,255)
Interest and other
income (expense), net.. 43 49 38 65 168 (450)
------- ------- ------- ------- ------- -------
Net income (loss)....... 369 581 (9,758) (867) (3,872) (4,705)
Preferred stock
accretion.............. -- -- -- -- (369) (369)
------- ------- ------- ------- ------- -------
Net income (loss)
attributable to common
stockholders........... $ 369 $ 581 $(9,758) $ (867) $(4,241) $(5,074)
======= ======= ======= ======= ======= =======
Basic and diluted net
income (loss) per
common share........... $ 0.02 $ 0.02 $ (0.34) $ (0.03) $ (0.15) $ (0.18)
Weighted average common
shares used to compute
basic and diluted net
income (loss) per
common share........... 23,199 28,999 28,988 28,618 28,403 28,403
<CAPTION>
December 31, December 31,
---------------------------------------------------- 1999
1995 1996 1997 1998 1999 Pro Forma
----------- ----------- ----------- ------- ------- ------------
(unaudited) (unaudited) (unaudited) (unaudited)
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents............ $ 168 $ 4,545 $ 267 $ 229 $ 6,969 $95,622
Working capital
(deficit).............. (302) 775 (173) (1,407) 7,371 108,762
Total assets............ 21,905 21,545 8,054 4,351 18,932 141,247
Long-term liabilities... -- -- 461 235 3,109 13,212
Total stockholders'
equity (deficit)....... 10,369 10,950 (268) (1,435) (7,158) (7,158)
</TABLE>
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results
of operations should be read in conjunction with "Selected Consolidated
Financial Data" and our consolidated financial statements and related notes.
Overview
We incorporated in June 1999 as the successor to Dove Brothers, LLC. From
March 1995 through June 1999, we conducted business as Dove Brothers, LLC.
Prior to March 1995, we conducted business as Ross-Dove Company, Inc., which
was the successor to Ross Mercantile Co., a sole proprietorship formed in 1937.
In the past ten years, we have conducted industry-specific auctions across
multiple vertical markets that have generated more than $3 billion in gross
asset sales on behalf of corporations, government agencies and financial
institutions.
We facilitate the sale of used capital assets over the Internet through
Webcast auctions and 24x7 online auctions. We began offering 24x7 online
auctions in November 1999, and commenced our Webcast auctions in January 2000.
Our Webcast auctions enable remote buyers using the Internet to bid in real
time together with onsite buyers for auctions of aggregated assets. Our 24x7
online auctions offer both aggregated and unaggregated assets for sale. We
generally do not take title to assets in our auctions or offer warranties on
the assets sold. As a result of our recent acquisitions of capital asset
dealers, we may buy assets for our own account and resell them through our
online auctions. In instances where we act as the principal seller in a
transaction, we may refurbish or repair assets prior to selling them and
provide a limited warranty. The cost of goods we sell as principal are included
in direct auction costs. Through fiscal 1999, revenues derived from principal
sales have not been significant.
Revenues are generated from commissions earned on asset auctions, principal
assets sales and fee-based services. The commissions we receive from buyers for
our Webcast auctions are variable, depending on the size and scale of the
auction, but we typically receive a 10% "buyer's premium" which is a commission
based on the asset's purchase price. Webcast auction buyers pay us the same
commission rate regardless of whether they purchase assets online or on-site.
Depending on the complexity of the auction we may also receive an additional
commission from the seller. Sellers in 24x7 online auctions typically pay us a
commission rate of 5% of the winning auction bid. These commissions could
change over time. Our commissions are due upon completion of Webcast and 24x7
online auctions. In addition, in our Webcast auctions, we collect the purchase
price from the buyer on behalf of the seller. On occasion we may guarantee the
minimum proceeds that a seller in a Webcast auction will receive from the
auction of specified assets.
Revenues for Webcast auctions are recognized upon the completion of the
auction. Revenues for our 24x7 online auctions are recognized when an auction
sale is completed, subject to a reserve for nonpayment. Principal sales
revenues are recognized when our assets are shipped and our fee-based revenues
are recognized when services are rendered.
In 1995 the Dove family joined with Koll Management Services, or KMS, to
form our predecessor, Dove Brothers, LLC to focus on the auction of real
estate. Goodwill of approximately $10.0 million was recorded at that time. In
1997 KMS withdrew from the business, as we determined to withdraw from the real
estate auction business. At that time the remaining carrying value of the
goodwill was written off.
Recent Events
On December 30, 1999, we acquired certain assets, primarily inventory, of
two San Jose, California based printed circuit board equipment dealers, B&B
Custom Circuit Supplies, Inc. (B&B) and Unidyne International, Inc. (Unidyne),
for $3.25 million each. The consideration paid in each transaction consisted of
$1.75 million in
23
<PAGE>
cash, $500,000 in retention obligation (as a reserve for seller warranties) and
$1.0 million in convertible subordinated promissory notes. In connection with
each of these acquisitions, we recorded approximately $2.0 million of goodwill
and other intangible assets. For the year ended December 31, 1999, B&B and
Unidyne recorded revenues of $1.9 million and $1.3 million, respectively.
On February 29, 2000, we acquired all of the outstanding stock of a
Branford, Connecticut based auctioneer and appraiser of used capital assets,
Greenwich Industrial Services, LLC (Greenwich), for $6.25 million. The
consideration paid consisted of $3.25 million in cash, $2.0 million of
convertible subordinated promissory notes, and a $1.0 million cash earn-out. In
connection with this acquisition, we recorded approximately $4.2 million of
goodwill and other intangible assets. For the year ended December 31, 1999,
Greenwich recorded revenues of $7.8 million.
On March 3, 2000, we acquired all of the outstanding stock of two affiliated
Mequon, Wisconsin based companies, an appraiser, AccuVal Associates, Inc.
(AccuVal), and an auctioneer, Liquitec Industries, Incorporated (Liquitec), for
a total of $5.5 million. The consideration paid consisted of $1.65 million in
cash, $2.85 million in convertible subordinated promissory notes and $1.0
million in subordinated promissory notes. The subordinated promissory notes
have principal payments of $500,000 due March 3, 2001 and payments of $500,000
plus all accrued interest due March 3, 2002. In connection with the
acquisition, we recorded approximately $5.1 million of goodwill and other
intangible assets. For the year ended December 31, 1999, AccuVal and Liquitec
recorded revenues of $3.7 million.
On March 3, 2000, we acquired all of the outstanding stock of a Chicago,
Illinois based auctioneer and appraiser of used capital assets, Phillip Pollack
& Company, Inc. (Pollack), for $4.3 million. The consideration paid consisted
of $1.1 million in cash, $442,000 in deferred cash (as a reserve for seller
warranties) and $2.75 million in convertible subordinated promissory notes. In
connection with the acquisition, we recorded approximately $3.9 million of
goodwill and other intangible assets. For the ten months ended December 31,
1999, Pollack recorded revenues of $1.7 million.
On March 3, 2000, we acquired all of the outstanding stock of a Mountain
View, California based semiconductor equipment dealer, Haltek Electronics dba
Test Lab Company (Test Lab), for $6.75 million in cash and $250,000 in deferred
cash (as a reserve for seller warranties). In connection with the acquisition,
we recorded approximately $3.9 million of goodwill and other intangible assets.
For the year ended December 31, 1999, Test Lab recorded revenues of $7.4
million.
Each of the transactions described above has been accounted for as a
purchase. The convertible subordinated promissory notes issued in these
transactions convert into shares of our common stock automatically upon
consummation of an initial public offering, at a conversion rate equal to the
mid-point of the offering range set forth on the final registration statement.
The convertible subordinated promissory notes issued in each of these
transactions bear interest at rates between 5.74% and 7.0%.
Please see "Index to Financial Statements" for pro forma financial
statements reflecting these acquisitions and for the historical financial
statements of each of the acquired businesses.
24
<PAGE>
Results of Operations
Years Ended December 31, 1997, 1998 and 1999
Revenues
Revenues were $13.7 million in 1997, $10.8 million in 1998, and $12.4
million in 1999. The decrease in 1998 revenues compared to 1997 was attributed
primarily to a decline in our personal computer auctions as a result of fewer
computers being available for auction because of the increasing popularity of
build-to-order personal computer manufacturing and competing distribution
channels, including manufacturer-owned resale stores and Internet sales and
auctions. In addition, we dissolved our real estate auction business. Revenues
in 1999 increased compared to 1998 as a result of our expansion into the
textiles and biotechnology markets, and our increased revenues derived from
auctions in the printed circuit board, disk drive and semiconductor vertical
markets. In November 1999, we began offering 24x7 online auctions with the
launch of our online marketplace. Revenues from our 24x7 online auctions were
$371,000 in 1999. We launched our Webcast auctions in January 2000, and thus,
we recorded no revenues from Webcast auctions in 1999.
In 1998 and 1999, no single customer accounted for more than 10% of
revenues. In 1997, one customer accounted for approximately 10% of our
revenues.
Operating Costs
A. Direct Auction Costs. Direct auction costs include advertising and
promotion expenses, commissions, and outside labor and services incurred in
connection with on-site and Webcast auctions. Direct auction costs decreased
from $7.0 million in 1997 to $5.7 million in 1998, and increased to $5.8
million in 1999. Direct auction costs as a percentage of revenues increased
from 51% in 1997 to 53% in 1998, and decreased to 47% in 1999. The percentage
increase in 1998 compared to 1997 resulted primarily from incremental outside
labor and service costs which we incurred in connection with international on-
site auctions. The percentage decrease from 1998 to 1999 was primarily due to
our expansion into less labor-intensive vertical markets. Direct auction costs
as a percentage of revenue may decrease in future periods as we grow our online
business. However, this decrease may be offset by an increase in direct auction
costs associated with an increase in our sales as a principal.
B. Sales and Marketing. Sales and marketing expenses consist primarily of
advertising and promotional costs and salaries for sales and marketing
personnel. Sales and marketing expenses were $1.2 million in 1997, $1.1 million
in 1998 and increased to $2.3 million in 1999. Sales and marketing expenses as
a percentage of revenues increased from 9% in 1997 to 10% in 1998 and to 18% in
1999. The percentage increase in 1998 compared to 1997 resulted from
incremental business development costs associated with our efforts to expand
into additional vertical markets. The increase in absolute dollars and as a
percentage of revenues in 1999 compared to 1998 was primarily due to
advertising costs associated with our entry into the online auction market. We
expect that our sales and marketing expenses will increase substantially in
future periods as we continue to promote our brand and our marketplace. In
addition, we are contractually committed to make payments aggregating $10.0
million over a 12 month period for Internet marketing and promotion.
C. General and Administrative. General and administrative expenses consist
primarily of salaries and related expenses for executive, operational,
technical, finance and administrative personnel, professional service fees, and
general corporate expenses. General and administrative expenses decreased from
$5.3 million in 1997 to $4.8 million in 1998, and increased to $8.2 million in
1999. General and administrative expenses as a percentage of revenues increased
from 39% in 1997 to 44% in 1998 and to 66% in 1999. The decrease in absolute
dollars in 1998 compared to 1997 was primarily due to the downsizing of our
real estate auction operations. The increase in absolute dollars and as a
percentage of revenues in 1999 compared to 1998 was
25
<PAGE>
primarily due to increased costs incurred in connection with the development
and implementation of our online marketplace. We expect that general and
administrative expenses will increase in future periods as we continue to
support the expansion of our business, and to a lesser extent as we bear the
increased costs associated with operating as a public company.
D. Depreciation and Amortization. Depreciation expense is calculated on
property and equipment utilized in our business, including office furniture,
computers, vehicles and leasehold improvements. Depreciation expense is
recorded over the estimated useful lives of the respective asset or lease
terms, typically three to five years. Depreciation decreased from $204,000 in
1997 to $188,000 in 1998 and to $138,000 in 1999. Amortization expense is
calculated on intangible assets and goodwill recorded as a result of business
acquisitions. Intangible assets are amortized over a four year period, and
goodwill is amortized over a twelve-year period. We did not record any
amortization expense in 1999 since we did not consummate any business
acquisitions prior to the final business day of the year. We anticipate that
depreciation and amortization expense on property and equipment will increase
as a result of our recently completed acquisitions and as we continue to
develop our infrastructure and enhance our Internet auction software.
Depreciation and amortization expenses are also likely to increase if we
acquire additional businesses in the future.
E. Amortization of Deferred Stock Compensation. Deferred stock compensation
results from the grant of stock options to employees at exercise prices deemed
to be less than the fair value of the common stock on the grant date. We are
amortizing this amount ratably over the terms of the related agreements,
typically four years. We incurred total deferred stock compensation of $2.4
million in 1999 and amortized $51,000 of related expense in that period. We
expect to incur amortization expense of at least $607,000 in each of the years
2000, 2001 and 2002, and $556,000 in 2003.
F. Impairment of Goodwill. As a result of the withdrawal of KMS from our
predecessor in 1997, we determined that future cash flows from the real estate
asset line of business, if any, would not be sufficient to recover the carrying
value of the goodwill recorded in connection with the establishment of our
predecessor in 1995. The remaining goodwill was written off by a charge to
earnings of approximately $9.8 million in 1997.
G. Interest Income, net. Interest income, net, is derived from interest
earned on cash and cash equivalents offset by interest expense arising from
notes payable. Interest income increased from $86,000 in 1997 to $121,000 in
1998 and to $229,000 in 1999. The increases between the comparative periods
were primarily a result of higher average cash and cash equivalents balances.
The average cash balance increased in 1999 compared to 1998 primarily due to
the sale of our Series A and Series B preferred stock. We recorded interest
expense of $48,000 in 1997, $56,000 in 1998 and $61,000 in 1999.
H. Income Taxes. Prior to June 1999, we operated as a limited liability
company that was treated as a partnership for federal and state income tax
purposes. As a limited liability company, we were subject to minimal taxes and
fees in certain states; income or losses realized by the company were generally
passed through to the individual members of the limited liability company. We
incurred a net taxable loss in 1999 and therefore did not record a provision
for income taxes in that period.
As of December 31, 1999, we had $4.5 million of net operating loss
carryforwards for federal income tax reporting purposes available to offset
future taxable income. We may use these operating loss carryforwards to offset
future federal income taxes through 2013 and 2015. Utilization of these
operating loss carryforwards may be subject to a substantial annual limitation
due to the ownership change limitations provided by the Internal Revenue Code
of 1986 and similar state provisions. The annual limitation may result in
expiration of the operating loss carryforwards before full utilization.
Liquidity and Capital Resources
We have historically satisfied our cash requirements primarily through a
combination of revenues from operations, private sales of convertible preferred
stock, and to a lesser extent, borrowings under lines of credit. Through
December 31, 1999, we have raised net proceeds of $16.8 million through the
sale of preferred stock.
26
<PAGE>
Net cash provided by (used in) operating activities totaled $(44,000) in
1997, $249,000 in 1998 and $(4.9 million) in 1999. Operating cash flows
resulted primarily from net losses we experienced and year-end fluctuations in
revenues from our on-site auctions.
Net cash used in investing activities totaled $156,000 in 1997, $69,000 in
1998 and $4.2 million in 1999. In 1999, cash used in investing activities was
primarily attributable to our two business acquisitions, and the purchase of
computer hardware and software to support our online marketplace and growing
employee base. In the future, we anticipate a substantial increase in capital
expenditures and lease commitments consistent with anticipated growth in
operations and personnel.
Net cash provided by (used in) financing activities totaled $(4.1 million)
in 1997, $(218,000) in 1998 and $15.9 million in 1999. In 1997 and 1998, cash
used in financing consisted primarily of repayment of short-term obligations.
Cash provided in 1999 was principally generated from the net proceeds from the
issuance of preferred stock totaling $16.8 million.
At December 31, 1999, we had cash and cash equivalents of $7.0 million. In
addition, in February and March 2000 we raised $99.5 million in cash through
the sale of our Series C preferred stock. We expect to experience significant
growth in our operating costs for the foreseeable future in order to continue
our efforts to execute our business plan, particularly in the areas of
technology, sales and marketing and general and administrative. As a result, we
estimate that these operating costs will constitute a significant use of our
cash resources. In addition, we may use cash resources to fund acquisitions of
complementary businesses and technologies. Although, we are regularly involved
in discussions regarding business combinations, we do not have any present
commitments or understandings to proceed with any transactions of this type
regarding any acquisitions. We believe that the net proceeds of this offering,
together with cash generated from operations and our cash and cash equivalents,
will be sufficient to meet our working capital needs for at least the next 12
months. Thereafter, we may find it necessary to obtain additional equity or
debt financing. In the event that additional financing is required, we may not
be able to raise it on terms acceptable to us, if at all. If we are unable to
raise additional capital when required, our business, operations and results
will likely suffer.
In March 2000 we entered into a line of credit agreement with a dealer in
the computer equipment vertical market for our extension of up to $3.0 million
of advances for the dealer's acquisition of assets to be sold on our
marketplace. This secured line of credit expires in August 2000 or earlier if
we request.
27
<PAGE>
Quarterly Operating Results
The following table presents our statement of operations data for each of
the quarters in 1998 and 1999. This information has been derived from our
unaudited financial statements. The unaudited financial statements have been
prepared on substantially the same basis as the audited financial statements
included elsewhere in this prospectus and include all adjustments, consisting
only of normal recurring adjustments, that we consider necessary for a fair
presentation of this information. You should read this information in
conjunction with our audited financial statements and related notes included
elsewhere in this prospectus. We expect our quarterly operating results to vary
significantly from quarter to quarter and you should not draw any conclusions
about our future results from the results of operations for any quarter.
<TABLE>
<CAPTION>
Three Months Ended (unaudited)
------------------------------------------------------------------------
Dec.
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, 31,
1998 1998 1998 1998 1999 1999 1999 1999
-------- -------- --------- -------- -------- -------- --------- -------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues................ $2,977 $2,251 $2,842 $2,731 $2,531 $4,427 $2,669 $ 2,777
Operating expenses:
Direct auction costs.. 1,532 1,484 1,379 1,284 1,169 1,404 1,366 1,849
Sales and marketing... 241 278 288 272 226 220 205 1,620
General and
administrative....... 1,070 1,176 1,112 1,429 1,048 1,426 742 4,980
Depreciation and
amortization......... 23 23 27 115 31 30 27 50
Amortization of
deferred
compensation......... -- -- -- -- -- -- -- 51
------ ------ ------ ------ ------ ------ ------ -------
Total operating
expenses........... 2,866 2,961 2,806 3,100 2,474 3,080 2,340 8,550
------ ------ ------ ------ ------ ------ ------ -------
Income (loss) from
operations............. 111 (710) 36 (369) 57 1,347 329 (5,773)
Interest and other
income (expense), net.. (17) 73 32 (23) (5) 178 6 (11)
------ ------ ------ ------ ------ ------ ------ -------
Net income (loss)....... $ 94 $ (637) $ 68 $ (392) $ 52 $1,525 $ 335 $(5,784)
====== ====== ====== ====== ====== ====== ====== =======
</TABLE>
Our quarterly revenues and operating results may vary significantly as a
result of a variety of factors including, without limitation
. our ability to retain our current customers and attract new customers;
. the amount and timing of operating costs relating to the expansion of
our business;
. the announcement or introduction of new products or services by us or
our competitors;
. costs related to acquisitions of businesses or new technology; and
. changes in general economic and market conditions.
As a result of these factors, and our recent migration to an Internet-based
auction platform, we believe that period-to-period comparisons of our results
of operations are not necessarily meaningful and should not be relied upon as
indications of future performance.
28
<PAGE>
Qualitative and Quantitative Disclosures about Market Risk
Our exposure to market risk for changes in interest rates relates primarily
to increases or decreases in the amount of interest income we can earn on our
investment portfolio and on increases or decreases in the amount of interest
expense we must pay with respect to any outstanding debt instruments. We had no
debt instruments outstanding as of December 31, 1999. The risk associated with
fluctuating interest expense is limited, however, to those debt instruments and
credit facilities that are tied to market rates. We do not plan to use
derivative financial instruments in our investment portfolio. We plan to ensure
the safety and preservation of our invested principal funds by limiting default
risk, market risk and reinvestment risk. We plan to mitigate default risk by
investing in high-credit quality securities.
Year 2000 Impact
We have not experienced any problems with our computer systems relating to
their inability to recognize appropriate dates related to the year 2000. We are
also not aware of any material problems with our clients or vendors.
Accordingly, we do not anticipate incurring material expenses or experiencing
any material operational disruptions as a result of any year 2000 issues.
29
<PAGE>
BUSINESS
Overview
We have created an online global marketplace where sellers, buyers and
dealers participate in auctions of used capital assets and gain access to
value-added services through our strategic alliances and extensive referral
network. Our marketplace combines the efficiency, liquidity and global reach of
Internet-based commerce with our 62 years of experience as an auctioneer in the
market for used capital assets. Our customers can conduct transactions through
our Webcast auctions, which broadcast live open-outcry auctions via the
Internet, or through our 24x7 online auctions. We believe our marketplace will
achieve network effects that will enable it to become the primary forum for the
sale and purchase of used capital assets. We expect the expanded audience
reached by our integrated online auctions to attract sellers seeking to
maximize the recoverable value of their used capital assets. Network effects
will be realized as the growing number of sellers in our marketplace provide an
increasing capital asset supply, thereby attracting an increasing number of
buyers and increasing the demand for these assets.
Industry Background
Dynamics of the Market for Used Capital Assets
The market for used capital assets is currently fragmented and inefficient.
Used capital assets can be characterized as either inside-the-building assets
such as semiconductor fabrication, machine tools and food processing equipment,
or outside-the-building assets such as maritime, aviation and construction
equipment. According to Bain & Co., the global market for used capital assets
in 1998 was approximately $100 billion, and we believe that inside-the-building
assets represented approximately 60% of this total.
Capital assets that no longer fit the needs of their current owners often
have substantial value to another business. For example, the technology leaders
in many industries regularly replace productive assets prior to the expiration
of their useful lives. Used capital assets may also become available for sale
when factories are closed, businesses fail, or leased capital assets are
returned to their lessors. Buyers in the used capital asset market include
small businesses, corporations and dealers. In addition, as manufacturers
across the world seek to move production to the most efficient locales, assets
that cease to be utilized in one geographic region can be resold for use in
another.
Used capital assets have traditionally reached the market either in
"aggregated" form, large groups of capital assets from a single seller which
are usually prompted by an event such as bankruptcy or plant closure, or in
"unaggregated" form, in the ordinary course of business involving single lots
of equipment. Aggregated capital assets are frequently sold through on-site
open-outcry auctions, where buyers bid in person. These live auctions are
enhanced through the selling efforts and ability of an auctioneer, the forces
of competitive bidding and the time certainty of the auction event. However,
because live auctions are practical only for large sales that justify the
expense associated with preparing for, marketing and staging an event that will
attract a sufficiently large and broad group of buyers, sales at live auctions,
according to Bain & Co., represent a small percentage of the total used capital
asset market.
Unaggregated capital assets are rarely of sufficient value to justify the
cost of a live auction and, consequently, are usually sold through direct
selling efforts such as contacting equipment dealers or advertising in trade
journals. The inefficiency of the market for these assets frequently results in
depreciation and slow asset turnover. Unaggregated capital assets represent the
majority of the inside-the-building used capital assets not currently sold
through live auctions.
The Role of Dealers in the Used Capital Asset Market
Dealers buy and sell capital assets for their own accounts and play a very
significant role in facilitating the market for used capital asset sales. Most
dealers focus on a particular vertical market and often have repair,
30
<PAGE>
refurbishment, warranty, and storage capabilities. As a result of their
specialized focus, dealers are knowledgeable about their product lines,
maintain relationships with sellers and buyers of these products and act as
market makers.
Market Inefficiency
The current market for used capital assets lacks an efficient means through
which to obtain information about sellers and buyers of, and the supply and
demand for, used capital assets. In addition, the current market lacks an
efficient manner through which to consummate transactions between the
geographically dispersed sellers and buyers of used capital assets. Dealers
contribute to the inefficient flow of information in the used capital asset
market because they are generally small, specialized businesses with limited
geographic reach. As a result of these inefficiencies, there are significant
barriers to the sale and purchase of used capital assets. For example, in any
given private sale or on-site auction, it is likely that there are numerous
potential buyers who are either unaware of the sale or unwilling to spend the
time and money to travel to the sale. Most corporate sellers face similar
barriers because they often do not have either the time, experience or
knowledge necessary to manage the sale of their capital assets.
Market Opportunity
The Internet is rapidly emerging as an important medium for business-to-
business e-commerce. Forrester Research projects that business-to-business e-
commerce will grow from $17 billion in 1998 to $2.7 trillion in 2004.
Electronic marketplaces are expected to fuel much of this growth. Approximately
53%, or $1.4 trillion, of annual business-to-business e-commerce is projected
by Forrester Research to flow through electronic marketplaces in 2004. While
this broad market data does not pertain directly to the used capital asset
market, it is indicative of the level of commercial acceptance of Internet-
based commerce.
DoveBid believes that there is a significant opportunity to create an online
marketplace which brings together the disjointed efforts of the numerous
participants currently facilitating the sale of used capital assets. The
Internet's ability to connect people in disparate locations and to allow
continuous widespread access to information makes it well suited to address the
inefficiencies of the existing used capital asset market. However, because of
the expertise and value-added services offered by auctioneers and dealers to
facilitate the sale of used capital assets, a stand-alone Internet-based
marketplace is an incomplete solution. In order to provide a highly liquid,
trusted marketplace for used capital assets, an Internet-based approach must:
. provide an integrated online auction alternative to sellers and buyers of
both aggregated and unaggregated assets;
. deliver the extensive vertical market expertise that will attract
participants into the market;
. leverage relationships with dealers to draw them and their extensive
supply and demand of assets into the marketplace;
. offer the logistical services necessary to complete the transaction, such
as valuation, inspection, rigging, shipping and settlement; and
. have credibility as an effective and fair business auctioneer to attract
the large global sellers and buyers that can help to provide a
substantial flow of assets through the marketplace.
The DoveBid Solution
Building on over 62 years of capital asset auction experience, we have
created an online auction marketplace for sellers, buyers and dealers that
combines the efficiency, liquidity and global reach of Internet-based commerce
with the experience of a leading auctioneer in the market for inside-the-
building, used capital assets. We believe that our unique combination of
experience, reputation, and technology positions us to
31
<PAGE>
overcome the historical limitations of the used capital asset market and become
the leading online auction marketplace for selling and buying these assets. Our
marketplace features:
. Integrated Online Auction Services--We offer both live, Webcast open-
outcry auctions and 24x7 online auctions which together provide an
integrated solution to sellers and buyers worldwide of aggregated and
unaggregated assets.
. Vertical Market Expertise--We possess the expertise in a number of
vertical markets to assist our clients in making informed decisions and
to attract interested, qualified sellers and buyers to our marketplace.
. Relationships with Dealers--We maintain relationships with and support
for dealers to promote their participation in our online marketplace.
. Value-Added Services--We provide or can assist our customers in securing
the value-added services needed to complete the auction transaction.
. Industry Credibility--We enhance the value of our marketplace as a result
of our reputation and experience built over our 62 years in the used
capital asset market.
We believe our integrated auction services offer the following benefits to
our key constituencies:
Sellers--Sellers can achieve better pricing, lower transaction costs,
and the time certainty that our online auctions offer. Further, our
ability to provide, directly or through our strategic alliances and our
extensive referral network, the value-added services needed to complete
the auction transaction will enable sellers to liquidate their assets in
an efficient manner.
Buyers--Buyers can benefit from access to a broad, deep, and
continuously replenishing market for the business assets, as well as
from the ability to participate in this marketplace. We believe that
buyers will also benefit from the asset pricing information derived from
the open bidding afforded by an active auction process.
Dealers--Dealers who actively participate as sellers in our market can
benefit from an expanded audience, which helps accelerate their
inventory turnover and improve their use of capital. Dealers will also
be able to access our marketplace for a more extensive supply of assets
for resale. By participating in our auctions, dealers will have the
opportunity to increase the scale of their operations and expand their
ability to sell value-added services to their customers.
The DoveBid Strategy
Our objective is to become the leading global online marketplace for the
auction of inside-the-building, used capital assets. Our strategy includes the
following elements:
Create Liquidity in Target Vertical Markets
We will focus on vertical markets that can benefit from the capabilities of
an online marketplace, and where we can establish a competitive advantage by
virtue of industry experience and market knowledge. We intend to utilize our
experience and our extensive database of sellers and buyers to drive customers
and assets to our marketplace. Augmenting our historical expertise in a number
of vertical markets, we intend to acquire or establish relationships with
dealers and auctioneers in additional vertical markets. By leveraging our
knowledge, experience and relationships with dealers, we will increase the
supply of assets for sale, thereby attracting more buyers and, consequently,
more sellers to our marketplace. We believe that this cycle will help create
network effects, where the value to each participant in the network increases
with the addition of each new participant, thereby increasing the overall value
of our online marketplace.
32
<PAGE>
Expand Value-Added Services
We believe that value-added services are an integral element of our
marketplace. We intend to expand our range of value-added support services for
both sellers and buyers through internal growth as well as through acquisitions
of dealers and service providers. We also plan to develop new strategic
relationships through alliances with third parties that can enhance our
services.
Build Strategic Relationships to Increase Asset Supply and Customer Traffic
We intend to continue to enter into strategic alliances with leading
Internet companies, such as our agreement with Yahoo!, to promote and drive
customers to our marketplace. We also will continue to seek alliances, such as
our agreements with Comdisco and Sun Microsystems, to establish a supply of
assets for sale on our marketplace, and our alliance with Datastream that will
drive both customers and assets to our marketplace.
Broaden Product Offerings
We plan to expand our range of product offerings for sellers, buyers and
dealers who utilize our marketplace. We have developed an extensive database of
sellers, buyers and asset values. By leveraging this database, we plan to offer
sellers, buyers and dealers e-commerce information products. For example, we
plan to make our database for pricing and valuation information available to
sellers and buyers on a fee basis. We also plan to offer asset life cycle
management services to our corporate customers. In addition, we plan to offer
virtual aggregation by staging Webcast auctions that aggregate assets from our
24x7 online auctions.
Expand Globally
We believe that the Internet is the best vehicle to address efficiently and
economically the worldwide market for used capital assets. We plan to
capitalize on this opportunity by devoting significant resources to penetrate
global markets by acquiring or partnering with overseas dealers and service
providers, providing our marketplace and auction services in additional
languages other than English and actively marketing and promoting our services
worldwide. We will focus on Europe, Asia and Latin America because of the
increased demand for used capital assets in these regions.
Leverage and Invest in Technology
Since the Internet is the vehicle through which we reach our customers,
maintaining and further developing our technological advantages is a key
element of our strategy. We plan to continue investing in technology to support
our future growth. Future investments in technology will include enhancements
to our website, and additional alliances with key technology providers to
deliver a superior online experience.
Products and Services
DoveBid has created an online marketplace that serves the needs of sellers,
buyers and dealers of used capital assets around the world by providing an
easy-to-use, comprehensive and integrated portfolio of auction and value-added
services.
Webcast Auctions
Our Webcast auctions are open-outcry auctions broadcast live via the
Internet. Using our advanced technology, Webcast auction participants can view
asset descriptions and photographs online, and enter bids in real time using
the telephone to bid against on-site bidders. Our auctions have eliminated the
"latency" effect of some interactive Internet auctions. By providing real time
responses, we enable remote bidders to effectively compete with on-site bidders
without having to be present physically. We conducted our first Webcast auction
in January 2000 and since then, we have completed five Webcast auctions.
33
<PAGE>
Webcast auctions are critical to establishing an ongoing relationship with
corporate customers because they provide the unique benefits of a live auction
that many of our large corporate customers demand: immediacy, convenience, and
competition among interested buyers. In addition, Webcast auctions create an
event that draws buyers to our marketplace and allows us to direct them to our
24x7 online auctions and other services.
To participate in a Webcast auction, sellers and buyers can register over
the Internet and receive a registration confirmation via email. Registration
information is automatically passed on to our Customer Care systems where all
customer information is consolidated into one database. This database is then
available for our marketing and management purposes.
In addition to providing the Webcast auction, we provide related services to
help ensure the success of the auction such as:
. Valuation of assets to be sold;
. Marketing and promotion of the auction to create large audiences;
. Project management to reduce or eliminate the administrative or
logistical burdens on a seller;
. Settlement and logistical support to ensure rapid transmittal of proceeds
and removal of assets; and
. Complete financial reporting.
The commissions we collect from buyers in our Webcast auctions are variable,
depending on the size and scale of the auction, but we typically receive a
buyer's premium of 10% of the asset's purchase price. Depending on the
complexity of the auction in some cases we also receive an additional
commission from the seller.
24x7 Online Auctions
Our 24x7 online auctions enable customers to sell and buy used capital
assets, 24 hours a day, 7 days a week, using any Internet connection.
In order to buy assets through our 24x7 online auctions, a buyer must
register with us by completing a short online form. Once registered, buyers can
search within a vertical market, and then for a specific item. Having
identified an item, the buyer can "click through" to obtain detailed product
information and bid online for the item. Our 24x7 online auction technology
offers features such as: AutoBid, where the auction engine will automatically
update a buyer's bid until its threshold is reached; email notification when a
buyer's bid has been surpassed; and AuctionWatch, which provides the capability
to create a custom web page.
At closing of an auction, if a bid meets or exceeds a predetermined reserve
price set by the seller, DoveBid automatically notifies the seller and buyer
via email. The seller and buyer can then consummate the transaction
independently of DoveBid. At the time of the email notification, DoveBid
typically charges the seller a transaction fee equal to 5% of the asset's
purchase price. At no point in this process does DoveBid take possession of
either the item being sold, or the buyer's payment for the item. The seller and
buyer must arrange for the shipment of and payment for the item, and the buyer
typically pays for shipment.
Under the terms of our user agreement, if a seller receives one or more
bids, at or in excess of the asset reserve price, the seller is obligated to
consummate a transaction. However, DoveBid cannot compel the seller or winning
bidder to consummate the transaction, although we may suspend them from
participating in our marketplace. If the seller and buyer are unable to
consummate the transaction, DoveBid may waive the commission. Invoices for
transaction fees are sent regularly via email to sellers.
We have recently acquired the businesses of several used capital asset
dealers, including inventories of assets held for resale by these dealers. We
expect to continue to make additional business acquisitions in the
34
<PAGE>
future. As a result of these acquisitions, we may regularly acquire assets
that we will sell as a principal in our marketplace, subject to both the
benefits and risks of doing so.
Valuation Services
We have recently acquired an established capital asset valuation firm that
complements and significantly expands the scope of our valuation capabilities
and business. We intend to capitalize on the knowledge of our experienced
personnel, proprietary database, extensive resource library and expert
contacts to provide valuation services to our auction clients and,
independently, to third parties.
A valuation typically begins with a thorough review of published source
materials that may be available to help to identify the parameters of a
realistic value range. We maintain an extensive library of buyer's guides,
auction guides, new equipment price lists, trade publications, technical
journals, directories and specification manuals that helps to keep us informed
about new and used equipment. In addition, we have maintained and continually
update a database that tracks comparable sale information of capital assets
and inventory. Software programs have been designed and implemented to allow
for the instantaneous comparison of the assets being evaluated to similar
assets that have recently been sold thereby enabling us to offer efficient
valuation services.
Other Value-Added Services
Most participants in the market for used capital assets require additional
services to complete the auction transaction. We have in-house capabilities to
provide a number of these services directly. In addition, we have strategic
alliances and an extensive referral network that provide our customers with
access to additional services. We believe the ability to offer, or refer our
customers to experienced providers of, value-added services is a key
differentiating factor and an important element of our marketplace.
Currently we provide the following services:
. Repair and Refurbishment
. Calibration
. Warehousing
. Escrow (in partnership with i-Escrow)
. Digital Photography
We have entered into strategic alliances and have an extensive referral
network through which our customers have access to the following services:
. Inspection
. Insurance
. Logistics and Freight
. Financing
. Rigging
In the future we may provide these services directly or through a third
party under the DoveBid brand.
Future Products
We expect to offer online access to our asset valuation databases to
sellers and buyers. We plan to offer Webcasts of unaggregated assets by
compiling assets from our 24x7 online auctions. We also expect to offer asset
life cycle management services to corporate customers.
35
<PAGE>
Markets
Capital assets fall within specific vertical markets, some of which are
better suited for an online marketplace than others. We intend to participate
in vertical markets that have the following characteristics:
Technological Innovation--Vertical markets characterized by assets with
rapid technological innovation are attractive because these markets have a
continuous flow of assets from technologically advanced users to mainstream
users.
Long Useful Life--Assets with a long useful life are attractive because they
have a longer potential selling period in the market for used capital assets.
The functional longevity of such assets is likely to attract buyers who
otherwise would be limited to new asset purchases.
Ease of Asset Identification--Vertical markets comprised of assets that can
be clearly specified using a defined set of characteristics (e.g., model
number, serial number) are attractive because such assets are easier for buyers
to identify and verify.
Vertical Market Expertise--A vertical market that requires expertise to
facilitate a sale is attractive because we believe we can leverage our
experience to add value. Vertical market expertise requires a deep
understanding of customer needs, products, market dynamics, and unique
processes for conducting commerce within an industry. Our vertical market
expertise has been developed through direct experience serving customers over
long periods of time.
We have initially targeted the following used capital asset vertical
markets:
. Biotech / Medical / Pharmaceutical
. Computers / Peripherals and Data Processing
. Disk Drive / Media Manufacturing
. Electronic Commodities
. Electronic Test and Measurement
. Food and Chemical Processing
. Metalworking and Machine Tools
. Office Furnishings and Equipment
. Packaging and Converting
. Plant Support / Material Handling / Facility Equipment
. Plastics and Rubber
. Post Production / Audio / Video / Broadcast
. Power Production
. Printed Circuit Board Fabrication / Insertion and Assembly
. Printing
. Semiconductor Fabrication
. Telecommunications
. Textile and Apparel Manufacturing
. Woodworking / Mills
36
<PAGE>
Customers
We have conducted numerous on-site auctions for major corporations
throughout the course of our 62 year operating history. Our customers have
included:
. Hughes
. IBM
. KAO Day
. Lockheed-Martin
. MEMC Electronic Materials
. Packard Bell NEC
. Quantum
. Raytheon
. Rockwell
. Thiokol
In addition, we have conducted auctions as an auctioneer appointed by the
United States Bankruptcy Court for major bankruptcy cases including:
. Drexel Burnham Lambert
. Commercial Financial Services
. Micropolis
. Osborne Computer
To date we have conducted Webcast auctions for Northrup Grumman, Packard
Bell NEC, Raytheon, Teledyne and Valtran.
Our national account program targets large corporations that will provide us
with an ongoing stream of assets for auction. Current national contracts are in
place with the following corporations:
. Cordant Technologies (formerly Thiokol)
. Lockheed Martin
. Raytheon
. Rockwell
Generally under the terms of our national contracts, sellers agree that we
will represent them in connection with auctions or liquidations of capital
assets for a period of time, usually a three year term. During the term of the
contract the seller periodically identifies assets to be sold and we arrange
for the disposition and any value-added services. As part of the contract, the
seller represents that it has sufficient title to the assets and agrees to
indemnify us for any claims. The assets are usually sold on an "as is" basis.
We may receive a commission from the seller in addition to the customary
buyer's premium.
Case Study-Raytheon
The following case study illustrates how our integrated solution has helped
our customer, Raytheon, improve the effectiveness of its asset management
program. Raytheon is a large defense contractor whose business has been
affected by the significant reorganizations, acquisitions and changes in the
defense industry.
37
<PAGE>
Our relationship with Raytheon began in the 1980s when it became the first
major corporation to enter into a national contract with us. The auctions with
Raytheon were initially traditional walkaround auctions, soon followed by
theater-style auctions. Since that time we have conducted more than 40 public
auctions on behalf of Raytheon. In January 2000, Raytheon sold assets in one of
our first Webcast auctions, which enabled bidders from around the world to
participate and purchase assets in real time over the Internet. Equipment with
an aggregate sales price of $850,000 was sold during this auction. The auction
attracted online bidders from remote locations such as Germany. Raytheon is
committed to another Webcast auction, in March 2000.
Raytheon has also elected to conduct a 24x7 online auction of semiconductor
fabrication equipment on our website. This vertical market is particularly well
suited to the 24x7 online auction format due to the specialized nature of this
equipment and the unaggregated nature of assets being sold. Our ability to
provide both full-service Webcast auctions for large quantities of assets
encompassing multiple vertical markets as well as lower-cost 24x7 online
auctions for unaggregated assets has provided Raytheon with an efficient and
easy to manage approach to its capital asset dispositions.
Strategic Investors and Partners
We have formed strategic relationships with a number of business partners
who are also investors in our company. These relationships are aimed at making
assets available through our Webcast and 24x7 online auctions, at increasing
the traffic to our website and expanding the range of value-added services we
can offer sellers, buyers and dealers. Our strategic investors include the
following:
Comdisco. We have an alliance with Comdisco, a leasing and finance company,
through which our customers have access to a full-range of Comdisco's asset
management and leasing services for their capital assets. In addition, we have
specific rights to auction assets being sold by Comdisco that fall within two
of our vertical markets for an initial period of one year subject to our
satisfactory performance under the contract. We have purchased $13 million of
assets from Comdisco for a combination of our Series C preferred stock and
cash.
Datastream. We have a joint marketing and technology alliance with
Datastream Systems, a worldwide vendor of asset management software. We will
jointly market each other's services to one another's customers and plan to
install integrated links between our website and Datastream's websites and
product offerings. We and Datastream have mutual revenue sharing provisions for
revenue from referred customers.
Sun Microsystems. We have established an alliance with Sun Microsystems, a
leading provider of network computing products, in which we will auction
certain returned, excess and refurbished equipment for an initial term of two
years.
Yahoo!. We also have entered into an alliance with Yahoo! under which Yahoo!
will advertise and promote our services as a business-to-business auctioneer.
We will pay to Yahoo! marketing and promotional fees over a period of
approximately twelve months and we will also purchase additional advertising
with Yahoo! based on the amount of our auction commissions derived from
customers originated through Yahoo!.
Sales, Marketing and Customer Service
Marketing Programs
Our marketing programs include traditional and Internet-based marketing
initiatives. General awareness programs feature activities in our market,
public relations initiatives, participation in a variety of industry
conferences, and trade shows. We also promote our services through advertising
on the Internet, business periodicals, local and national newspapers, and
vertical industry trade publications. Our direct marketing initiatives include
email, fax and mail which leverage our extensive customer database.
38
<PAGE>
We intend to establish the DoveBid Dealer Alliance Program, a co-marketing
program for dealers that will provide a supply of assets to our marketplace in
exchange for Dovebid marketing considerations. These co-marketing
considerations will include credits for print advertising, fax marketing,
direct mail and Internet advertising.
Sales
We sell our integrated auction services through a direct sales force and
vertical market managers. Our direct sales force markets our services to large
corporations to sell their used capital assets through our auctions. Our direct
sales force also targets large dealers, both as buyers for auctioned assets as
well as sellers of assets on our marketplace. As of March 3, 2000, we had 16
direct sales personnel. In addition, as of March 3, 2000, we had nine valuation
services sales personnel.
Our vertical market managers focus on small and medium sized resellers and
corporations within specific vertical markets. These managers market our
integrated auction services in their respective vertical markets and source
unaggregated assets. Our vertical market managers will also focus on attracting
dealers to our DoveBid Dealer Alliance Program. As of March 3, 2000, we had
five vertical market managers and intend to continue to add managers in our
targeted vertical markets.
We have implemented a market management team to support both our direct
sales force and vertical market managers in order to provide expertise in
marketing, merchandising, valuing and selling assets. This market management
team works to ensure adequate supplies of assets, maintain relationships with
dealers, and build and support communities of buyers.
Customer Service
We devote significant resources to providing personalized, timely customer
service and support. Customer support inquiries are handled via phone or email,
with customer email inquiries typically answered within 24 hours. The Help area
of our web site contains extensive information about buying and selling on
DoveBid, as well as information on and links to value-added services, including
logistics, escrow, inspection, appraisal, digital photography and financing.
Help buttons on every page of the site take customers to the specific customer
service topic they need. In addition, our Customer Care group provides
personalized assistance to help customers through the entire auction process,
including registration, listing of assets, bidding, navigation and usage of our
website, settlement and logistics. Part of our customer support includes an
asset loading service through which sellers can upload descriptions of assets
for auction from any location.
We use a customer relationship application for the management of all
customer service information and customer data. Our customer relationship
management and transaction processing systems include industry-standard
security features to protect the privacy and integrity of customer data.
Technology and Operations
To establish a secure and reliable marketplace for sellers and buyers of
used capital assets, our underlying infrastructure was built on industry
standard software and hardware from leading technology companies such as Sun
Microsystems and Oracle. This infrastructure enables us to continuously enhance
the features and functionality of our services to meet the evolving needs of
our users.
Functionality
Our systems are designed to replace the manual processes traditionally used
by sellers and buyers in the used capital asset market with automated processes
that integrate dynamic pricing with electronic commerce. We rely on technology
developed by third parties to implement our solution and to create the
functionality described below.
39
<PAGE>
Webcast Auctions. Our Webcast capability is based upon Mshow.com's patent
pending technology that allows users with varying levels of bandwidth and
firewall configurations to share a rich media experience through real-time
delivery of interactive web presentations. It also integrates telephone audio
bridges, online polling and voting and displays media that can be viewed via a
web browser. Such media include PowerPoint slides, images, animations, pre-
recorded audio/video, streaming audio/video and 3D graphics.
The interactive Webcast application enables two primary types of auction
participants. An active (bidding) participant launches the application from his
computer and dials into a traditional telephone conference call bridge. The
user listens to the auction over the telephone while the application triggers
the automatic advancement of the auction lot images and descriptions on the
screen. The interactive auction server is operated in concert with the
telephone's touch-tone system and communicates the bid by the phone touch-tone
pad. In the passive (non-bidding) mode, the user can listen to the auction over
the Internet.
We are working with a third-party vendor that provides the technology for
our Webcast auctions and we may to enter into a definitive agreement for their
services.
24x7 Online Auctions. Our online auction functionality is designed to meet
the needs of both sellers and buyers. At the core of our online auction system
is an Oracle database, which maintains all seller, buyer, and transaction
information. Both sellers and buyers register through the same basic process,
and provide us with demographic information as well as industry interests.
Our Website contains a complete set of functions specifically designed to
enable sellers to list and monitor assets. Sellers have password-based access
to administrative screens which allow them to list assets, individually or in
bulk uploads, as well as track all open auctions and revenue from those
auctions. This seller-based accounting information is also downloadable in a
standard format and can be imported into a variety of programs. Sellers are
also provided with notification emails regarding the status of their assets on
the site. Sellers can choose from a range of auction lengths, specify minimum
bids, bid increments, reserve prices and choose the auction ending type.
Sellers are also able to enter asset descriptors such as location, weight and
manufacturer and provide a description. Sellers may also upload an image of the
asset to be sold, and specify payment methods.
Buyers have access to a number of features to locate assets, track auctions,
and receive notification when certain assets are posted to the DoveBid website.
Three forms of searching are offered: category based browsing of assets in the
19 vertical markets, basic text search, and advanced text search. The advanced
search capability allows the buyer to search only selected areas of the
website. Our AuctionWatch feature allows users to create a customized page of
auctions so that they can easily track a number of auctions with assets of
interest. Any asset can be added to a user's AuctionWatch with a single click
while browsing the asset. The CategoryWatch feature allows buyers to determine
when certain assets are added to the DoveBid website. By specifying keywords,
the user sets the CategoryWatch feature to send a notification email when
certain assets are added. This notification email provides brief descriptions
and direct links back to such assets.
Buyers bid using the password established during registration on the DoveBid
website. A buyer may place a single bid, or use the DoveBid AutoBid feature.
This feature allows the buyer to specify the maximum price they are willing to
pay, and allows the DoveBid website to automatically manage the bidding
process. Bidders are automatically sent emails notifying them of successful
bids, or when another buyer has outbid them.
DoveBid supports two auction closing formats: fixed time closing and auto-
extension. The fixed time closing auction format stops bidding at a specific
time which is tracked by the server. The auto-extension format provides for
automatic extension of the closing time of the auction if there is bidding
activity in the final minutes prior to close. When an auction is closed, the
buyer and seller are both notified by email.
Living Brochures. We provide brochures that include video and in some cases
audio, descriptions of selected products. These living brochures are currently
available in several languages, such as English, Spanish and Mandarin. These
video streams play back on standard streaming format players.
40
<PAGE>
Infrastructure
We have designed our website and supporting infrastructure to be highly
robust and to support new products and increased traffic. Our servers are
hosted in a physically and network-secure environment at Digex. The Digex data
center features redundant power sources and redundant high-speed network
connections. This network connectivity offers us high performance and immediate
scalability as our website traffic increases. In addition, our servers are
monitored twenty-four hours a day by software "agents" which immediately notify
DoveBid operations staff of any anomalies.
Our applications support multiple layers of security, including password
protected log-ins, encryption technology to safeguard information transmitted
in web sessions and firewalls to help prevent unauthorized access to our
network and servers. We devote significant efforts to ensure that our system is
protected from intrusion, but individuals, using rapidly evolving techniques
and technologies may be successful in gaining unauthorized entry to our system
or disrupting service. If we experience an attack from an individual or group,
our services could be disrupted indefinitely, during which time we may not be
able to conduct auctions or other business.
Our software is based on applications developed by third parties and
modified to fit our needs. Our database that tracks and maintains our
transaction data is based on Oracle database management software. We have
implemented software that will support future generations of web-based
technology, such as applications that utilize extensible mark-up language, or
XML, a language that facilitates the creation of large, secure cross-platform
applications and documents.
Competition
We believe that the principal competitive factors affecting our market
include the following:
. an integrated auction capability;
. vertical market expertise;
. a critical mass of sellers and buyers;
. relationships with capital asset dealers;
. customer service;
. a user-friendly technology interface; and
. an ability to implement an array of value-added services.
Although we believe that we compete favorably with respect to each of these
factors, the market for online auctions is relatively new and is evolving
rapidly. We may not be able to maintain our competitive position against
current or potential competitors, especially those with significantly greater
financial, marketing, service, support, technical and other resources.
A number of companies provide services or products to the capital asset
auction market, and existing and potential customers can, or will be able to,
choose from a variety of current and potential competitors' services.
Competition in this market is rapidly evolving and intense, and we expect
competition to intensify in the future.
We currently compete with a number of established companies engaged in
traditional on-site business-to-business auctions. We also compete with a
number of new online auction firms that are focusing on the same capital market
as we are. There are also providers of business-to-business online marketplaces
and online auction services that currently focus on other industries or
specific vertical markets that could expand the scope of their business to
include used capital assets. Other potential competitors include established
business-to-consumer auction sites such as Egghead or uBid, and consumer-to-
consumer auction sites such as Amazon.com or eBay. Many of these providers have
significantly greater installed customer bases, greater financial resources and
have the opportunity to offer additional products to those customers as
additional components of their respective application suites.
41
<PAGE>
Many of our current and potential competitors have larger customer bases,
greater brand recognition and significantly greater financial, marketing and
other resources than we do and may enter into strategic or commercial
relationships with larger, more established companies. Some of our competitors
may be able to secure alliances with customers and affiliates on more favorable
terms, devote greater resources to marketing and promotional campaigns and
devote substantially more resources to systems development than we do. In
addition, new technologies and the expansion of existing technologies may
increase the competitive pressures on us. We cannot assure you that we will be
able to compete successfully against current or future competitors, and
competitive pressures faced by us could harm our business, operating results
and financial condition.
Intellectual Property
Our success is dependent upon our ability to develop and protect our
proprietary technology and intellectual proprietary rights, including our
database of buyers, sellers and transaction information and our internally
developed software. We rely primarily on a combination of contractual
provisions, confidentiality procedures, trade secrets, and copyright and
trademark laws to accomplish these goals.
In addition, we seek to avoid disclosure of our trade secrets by requiring
employees, customers and others with access to our proprietary information to
execute confidentiality agreements. We also seek to protect our software,
documentation and other written materials under trade secret and copyright
laws.
Despite our efforts to protect our proprietary rights, existing laws afford
only limited protection. Attempts may be made to copy or use information that
we regard as proprietary. Accordingly, there can be no assurance that we will
be able to protect our proprietary rights against unauthorized third party
copying or use. Use by others of our proprietary rights could materially harm
our business.
It is also possible that third parties will claim that we have infringed
their current or future products. Any claims, regardless of merit, could be
time-consuming, result in costly litigation, cause delays or require us to
enter into royalty or licensing agreements, any of which could harm our
business. Patent litigation in particular has complex technical issues and
inherent uncertainties. In the event an infringement claim against us was
successful and we could not obtain a license on acceptable terms or license a
substitute technology or redesign to avoid infringement, our business would be
harmed.
Regulation
As with many Internet-based businesses, we operate in an environment of
uncertainty as to potential government regulation. We believe that we are not
currently subject to direct regulation applicable to online commerce, other
than regulations applicable to businesses generally. However, the Internet has
rapidly emerged as a commercial medium, and governmental agencies have not yet
been able to adapt existing regulations to its use. Future laws, regulations
and court decisions may affect the Internet or other online services, covering
issues such as user pricing, user privacy, freedom of expression, access
charges, taxation, content and quality of products and services, advertising,
intellectual property rights and information security. In addition, because our
services are offered worldwide, and we facilitate sales of goods to clients
worldwide, foreign jurisdictions may claim that we are required to comply with
their laws. Any future regulation may have a negative impact on our business.
Because we are an Internet company, it is unclear in which jurisdictions we
are actually conducting business. Our failure to qualify to do business in a
jurisdiction that requires us to do so could subject us to fines and penalties
and could result in our inability to enforce agreements in that jurisdiction.
Numerous states have laws and regulations regarding the conduct of auctions
and the liability of auctioneers. We and the auctioneers we employ are bonded
and regulated under the laws of the State of California and maintain licenses
or bonds as required in other jurisdictions where we conduct a substantial
number of auctions.
42
<PAGE>
Employees
As of March 3, 2000, we had 157 employees. We believe that we have good
relationships with our employees. We have never had a significant work
stoppage, and none of our employees is represented under a collective
bargaining agreement.
Facilities
Our headquarters, including our principal administrative and marketing
facilities, are located in approximately 9486 square feet of space we have
leased in Foster City, California under a lease expiring November 30, 2000.
This facility is leased from Dove Holdings, Inc., an entity controlled by Ross
and Kirk Dove. See "Certain Transactions." In addition, we also lease office
and warehouse facilities in other locations throughout the United States. We
believe that our existing facilities are adequate to meet our requirements for
the foreseeable future. The table below summarizes the square footage of
premises leased by us as of March 3, 2000.
<TABLE>
<CAPTION>
Approximate
Location Square Footage
- -------- --------------
<S> <C>
Foster City, California.......................................... 9,486
Foster City, California.......................................... 10,000
Huntington Beach, California..................................... 1,000
Mountain View, California........................................ 23,750
San Jose, California............................................. 50,000
San Leandro, California.......................................... 35,570
Branford, Connecticut............................................ 3,700
Kennesaw, Georgia................................................ 1,000
Chicago, Illinois................................................ 28,000
Worcester, Massachusetts......................................... 1,000
Santa Fe, New Mexico............................................. 6,500
Mequon, Wisconsin................................................ 9,000
</TABLE>
Legal Proceedings
We are not currently subject to any legal proceedings that we expect will
have a material impact on us. We are subject to legal proceedings now, and
likely will be in the future, that arise in the course of our business, and we
cannot assure you that any such proceeding will not have a material adverse
effect on us.
43
<PAGE>
MANAGEMENT
Executive Officers and Directors
The following table sets forth the name, age and position of each of our
executive officers and directors as of the date of this prospectus.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Ross Dove*.............. 47 Chairman of the Board, Chief Executive Officer
Jeffrey M. Crowe........ 43 President, Chief Operating Officer and Director
Kirk Dove*.............. 44 President of Auction Services, Chief Auctioneer and Director
Cory M. Ravid........... 35 Chief Financial Officer and Secretary
Francis M. Juliano...... 33 Chief Technical Officer and Vice President of E-Commerce
James Hume.............. 46 Vice President of Operations
Steven S. Pollock....... 36 Vice President of Marketing
Dennis Polk............. 33 Vice President of Finance
Anthony Capobianco...... 34 Vice President and General Counsel
William Burnham......... 29 Director(1)
A. Grant Heidrich, III.. 47 Director(1)
David S. Pottruck....... 51 Director(2)
William Price........... 43 Director(1)
Todd Rulon-Miller....... 48 Director(2)
W. Blake Winchell....... 46 Director(2)
</TABLE>
- --------
* Ross Dove and Kirk Dove are brothers.
(1) Member of Audit Committee
(2) Member of Compensation Committee
Ross Dove has served as our chairman of the board and chief executive
officer since June 1999. Ross Dove served as the chairman of the board and
chief executive officer of our predecessors Ross-Dove Company and Dove
Brothers, LLC, from 1980 to 1999.
Jeffrey M. Crowe has served as our president and chief operating officer
since November 1999 and a director since December 1999. Prior to joining
DoveBid, Mr. Crowe was co-founder, president, chief executive officer and a
board member of Edify Corporation from May 1990 to November 1999.
Kirk Dove has served as our president of auction services and as chief
auctioneer and a director since June 1999. Kirk Dove served as president of our
predecessors Ross-Dove Company and Dove Brothers, LLC from 1984 to 1999.
Cory M. Ravid has served as our chief financial officer and secretary since
October 1999. From January 1997 to October 1999, Mr. Ravid served as chief
financial officer and partner at The Parkside Group, a private equity buyout
firm. In addition, Mr. Ravid was chief financial officer of MacGregor Golf from
August 1998 to August 1999. Mr. Ravid was first the corporate controller and
then the chief financial officer and general counsel at DuPont Flooring Systems
from February 1994 to December 1996.
Francis M. Juliano has served as our chief technical officer and vice
president of e-commerce since December 1999. Prior to joining DoveBid, Mr.
Juliano was the director of technology and product development for Office Depot
Online from March 1998 to December 1999. Previously, Mr. Juliano was vice-
president of technology and development of Cybernet International from March
1997 to March 1998. In addition, Mr. Juliano was the director of technology for
Scholastic New Media from July 1995 to March 1997. Prior to that he was the
director of technology for Ultra Media, Inc. and the co-founder and vice
president of Roundbook Publishing Group, Inc.
44
<PAGE>
Steven S. Pollock has served as our vice president of marketing since
December 1999. Prior to joining DoveBid. Mr. Pollock was vice president of
worldwide marketing at Edify Corporation from May 1998 to November 1999. He was
executive vice president of product marketing and operations for Portera
Systems/Netiva Software from May 1996 to November 1998. Prior to that, Mr.
Pollock was vice president of marketing at Claris Corporation.
James Hume has served as our vice president of operations since January
2000. Prior to joining DoveBid, Mr. Hume was vice president of corporate
materials and supplier management with Sanmina Corporation from May 1997 to
January 2000. Prior to that, Mr. Hume was senior manager of enterprise services
at Sun Microsystems from July 1995 to May 1997.
Dennis Polk has served as our vice president of finance since February 2000.
Prior to joining DoveBid, Mr. Polk was first the controller and then the chief
financial officer at Savoir Technology Group, Inc. from December 1995 to
February 2000. Prior to December 1995 Mr. Polk was employed by Grant Thornton,
LLP.
Anthony Capobianco has served as our vice president and general counsel
since December 1999. Prior to joining DoveBid, Mr. Capobianco was first an
associate and then a partner with the law firm of Sonnenschein Nath & Rosenthal
from September 1992 to December 1999.
William Burnham has served as a director of DoveBid since February 2000. Mr.
Burnham has been a general partner of Softbank Capital Partners since August
1999. Prior to Softbank Capital Partners, Mr. Burnham was a vice president and
senior research analyst for Credit Suisse First Boston's Technology Group from
July 1998 to August 1999. Prior to that, Mr. Burnham was the senior research
analyst at Deutsche Morgan Grenfell from May 1998 to July 1998 and Piper
Jaffray Inc. from April 1997 to May 1998. Prior to Piper Jaffray, Mr. Burnham
was a senior associate at Booz, Allen & Hamilton. Mr. Burnham is also a
director of Buy.com Inc.
A. Grant Heidrich, III has served as a director of DoveBid since October
1999. Mr. Heidrich has been a general partner at the Mayfield Fund, a venture
capital firm, since 1982. Mr. Heidrich is a director of Millenium
Pharmaceuticals, Inc. and Tularik Inc.
David S. Pottruck has served as a director of DoveBid since December 1999.
Since June 1992 Mr. Pottruck has been the president, and since June 1997 the
co-chief executive officer, of The Charles Schwab Corporation, of which he is
also a director. Mr. Pottruck is also a director of McKesson HBOC, Inc., and
Intel Corporation.
William Price has served as a director of DoveBid since February 2000. Mr.
Price has been the managing director of Tarrant Partners since September 1992
and is a founding director of Texas Pacific Group. Mr. Price is also a director
of Aerfi Group plc, Beldin Blake Corporation, Beringer Wine Estates Holdings,
Inc., Continental Airlines, Inc., Del Monte Foods Company, Derbury Resources,
Inc., Favorite Brands International, Inc., Vivra Specialty Partners, Inc. and
Zilog, Inc.
Todd Rulon-Miller has served as a director of DoveBid since December 1999.
Mr. Rulon-Miller has been a partner of Apogee Venture Group since June 1998.
Prior to that Mr. Rulon-Miller was a vice president of sales at Netscape
Communications from October 1994 to October 1997. Mr. Rulon-Miller is also a
director of Active Software, Inc.
W. Blake Winchell has served as a director of DoveBid since June 1999. Mr.
Winchell has been a general partner of Fremont Ventures, a venture capital
firm, since December 1998. Prior to that Mr. Winchell was a managing director
with Generation Ventures from 1996 to 1999, and a managing director with the
Channel Investment Group from 1991 to 1996. Mr. Winchell is also a director of
Bay View Capital Corporation.
Board Committees
Our board has three committees, the audit committee, the compensation
committee and the executive committee. The audit committee consists of Messrs.
Burnham, Heidrich and Price. The compensation committee consists of Messrs.
Pottruck, Rulon-Miller and Winchell. The executive committee consists of
Messrs. Ross and
45
<PAGE>
Kirk Dove, Burnham, Crowe, Heidrich, Rulon-Miller and Winchell. The audit
committee reviews our financial statements and accounting practices, makes
recommendations to the board regarding the selection of independent auditors
and reviews the results and scope of the audit and other services provided by
our independent auditors. The compensation committee makes recommendations to
the board concerning salaries and incentive compensation for our officers and
employees and administers our employee benefit plans. The executive committee
is empowered to take all action of the board except actions required by law to
be taken by the full board.
Compensation Committee Interlocks and Insider Participation
Before December 17, 1999, our board of directors did not have a compensation
committee and all material compensation decisions were made by the full board
of directors. In December 1999 we formed a compensation committee consisting of
Messrs. Pottruck and Winchell. Mr. Rulon-Miller was appointed to the committee
in March 2000. No interlocking relationship exists between our board of
directors or compensation committee and the board of directors or compensation
committee of any other company, nor has an interlocking relationship existed in
the past.
Director Compensation
Our directors do not receive cash compensation for their services as
directors but are reimbursed for reasonable expenses in attending board and
board committee meetings. In December 1999, we granted to each of David S.
Pottruck and Todd Rulon-Miller options to purchase 200,000 shares of our common
stock at an exercise price of $0.77 per share. These options were granted under
our 1999 Stock Plan.
Members of the board who are not employees of DoveBid, or any parent,
subsidiary or affiliate of DoveBid, will be eligible to participate in the 2000
Equity Incentive Plan. The option grants under the plan are automatic and
nondiscretionary, and the exercise price of the options is the fair market
value of the common stock on the date of grant. Each non-employee director who
becomes a member of the board on or after the effective date of the
registration statement of which this prospectus forms a part, will be granted
an option to purchase 100,000 shares. Immediately following each annual meeting
of our stockholders, each eligible director will automatically be granted an
additional option to purchase 25,000 shares if the director has served
continuously as a member of the board since the date of the non-employee
director's last stock option grant. All options granted to non-employee
directors will vest over a four year period at a rate of 25% of the total
shares granted on the first one year anniversary of the date of grant, and
thereafter as to 6.25% of the total shares granted after each subsequent three
month period. All options granted to non-employee directors will be immediately
exercisable subject to a repurchase right by us for any unvested shares. In the
event of our dissolution or liquidation or a "change in control" transaction as
described below, options granted under the plan will become 100% vested and
exercisable in full.
Executive Compensation
The following table sets forth all compensation paid or accrued during 1999
to our Chief Executive Officer and our four most highly compensated executive
officers whose salary and bonus for 1999 were more than $100,000.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Long-Term
Compensation Compensation Awards
----------------- -------------------------------
Restricted Securities
Name and Principal Positions Salary Bonus Stock Awards Underlying Options
- ---------------------------- -------- -------- ------------ ------------------
<S> <C> <C> <C> <C>
Ross Dove.................... $298,000 $400,000 -- --
Chairman of the Board and
Chief Executive Officer
Kirk Dove.................... $341,000 $400,000 -- --
President of Auction
Services, Chief Auctioneer
and Director
</TABLE>
46
<PAGE>
See "Employment Contracts and Change of Control Arrangements" for
compensation information regarding other of our executive officers.
Option Grants and Restricted Stock Purchases in 1999
None of the persons listed in the Summary Compensation Table received grants
of stock options from us during 1999. See "Employment Contracts and Change of
Control Arrangements," for additional information regarding options granted to,
and shares of restricted stock sold to, others of our executive officers.
Employee Benefit Plans
1999 Stock Option Plan. As of March 8, 2000, options to purchase 4,222,000
shares of our common stock were outstanding under our 1999 Stock Option Plan
and 4,313,000 shares of our common stock remained available for issuance upon
the exercise of options that may be granted in the future. The options
outstanding as of March 8, 2000 had a weighted average exercise price of $1.72
per share. Our 2000 Equity Incentive Plan will be effective upon the
effectiveness of this offering. As a result, no options will be granted under
our 1999 Stock Option Plan after this offering. However, any outstanding
options under our 1999 Stock Option Plan will remain outstanding and subject to
our 1999 Stock Option Plan until exercise or until they terminate or expire by
their terms. Options granted under our 1999 Stock Option Plan are subject to
terms substantially similar to those described below with respect to options to
be granted under our 2000 Equity Incentive Plan.
2000 Equity Incentive Plan. Our 2000 Equity Incentive Plan will become
effective on the date of this prospectus and will serve as the successor to our
1999 Stock Option Plan. We have reserved 10,000,000 shares of our common stock
to be issued under our 2000 Equity Incentive Plan. In addition, shares under
the 1999 Stock Option Plan not issued or subject to outstanding grants on the
date of this prospectus and any shares issued under this plan that are
forfeited or repurchased by us or that are issuable upon exercise of options
that expire or become unexercisable for any reason without having been
exercised in full will be available for grant and issuance under our 2000
Equity Incentive Plan.
On each January 1, the aggregate number of shares reserved for issuance
under our 2000 Equity Incentive Plan will increase automatically by a number of
shares equal to 5% of our outstanding shares on December 31 of the preceding
year. Our 2000 Equity Incentive Plan will terminate after 10 years from the
date our board of directors approved the plan, unless it is terminated earlier
by our board of directors. The plan will authorize the award of options,
restricted stock awards and stock bonuses.
Our 2000 Equity Incentive Plan will provide for the grant of both incentive
stock options that qualify under Section 422 of the Internal Revenue Code and
nonqualified stock options. Incentive stock options may be granted only to our
employees. All awards other than incentive stock options may be granted to our
employees, officers, directors, consultants, independent contractors and
advisors. The exercise price of incentive stock options must be at least equal
to the fair market value of our common stock on the date of grant. The exercise
price of incentive stock options granted to 10% stockholders must be at least
equal to 110% of that value. The exercise price of nonqualified stock options
must be at least equal to 85% of the fair market value of our common stock on
the date of grant.
Options may be exercisable only as they vest or may be immediately
exercisable with the shares issued subject to our right of repurchase. In
general, options will vest over a four-year period. The maximum term of options
granted under our 2000 Equity Incentive Plan is 10 years.
The purchase price for any restricted stock awarded under the 2000 Equity
Incentive Plan will be determined by our compensation committee. Stock bonuses
may be issued for past services or may be awarded upon the completion of
certain services or performance goals.
If we are dissolved or liquidated or have a "change in control" transaction,
the vesting of all outstanding awards may be assumed or substituted by the
successor company. However, if an optionee is terminated within one year from
the date of such "change in control" transaction, the vesting of such
optionee's outstanding
47
<PAGE>
awards will accelerate as to an additional 25% of the shares that are unvested
on the date of the "change in control" transaction. In the discretion of the
compensation committee the vesting of these awards may be further accelerated
upon one of these transactions.
2000 Employee Stock Purchase Plan. Our 2000 Employee Stock Purchase Plan
will become effective on the date of this prospectus. We have initially
reserved 1,000,000 shares of our common stock under this plan. On each January
1, the aggregate number of shares reserved for issuance under our 2000 Employee
Stock Purchase Plan will increase automatically by a number of shares equal to
1% of our outstanding shares on December 31 of the preceding year. Our board of
directors or compensation committee may reduce the amount of the increase in
any particular year. The aggregate number of shares reserved for issuance under
our 2000 Employee Stock Purchase Plan may not exceed 10,000,000 shares.
Our 2000 Employee Stock Purchase Plan will be administered by our
compensation committee. Our compensation committee will have the authority to
construe and interpret the plan, and its decisions will be final and binding.
Employees generally will be eligible to participate in our 2000 Employee Stock
Purchase Plan if they are employed before the beginning of the applicable
offering period and they are customarily employed by us for more than 20 hours
per week and more than five months in a calendar year and are not, and would
not become as a result of being granted an option under the plan, 5%
stockholders of us.
Under our 2000 Employee Stock Purchase Plan, eligible employees will be
permitted to acquire shares of our common stock through payroll deductions.
Eligible employees may select a rate of payroll deduction between 1% and 10% of
their compensation and are subject to maximum purchase limitations.
Except for the first offering period, each offering period under our 2000
Employee Stock Purchase Plan will be for two years and consist of four six-
month purchase periods. The first offering period is expected to begin on the
date of this prospectus. Offering periods and purchase periods will begin on
April 1 and October 1 of each year. However, because the first day on which
price quotations for our common stock will be available on the Nasdaq National
Market may not be April 1 or October 1, the length of the first offering period
may be more or less than two years, and the length of the first purchase period
may be more or less than six months.
The purchase price for our common stock purchased under the plan will be 85%
of the lesser of the fair market value of our common stock on the first day of
the applicable offering period or the last day of the applicable purchase
period. The compensation committee will have the power to change the offering
dates, purchase dates and duration of offering periods without stockholder
approval, if the change is announced prior to the beginning of the affected
date or offering period. Our 2000 Employee Stock Purchase Plan will provide
that, in the event of our proposed dissolution or liquidation, each offering
period that commenced prior to the closing of the proposed event will continue
for the duration of the offering period, provided that the compensation
committee may fix a different date for termination of the plan.
Our 2000 Employee Stock Purchase Plan is intended to qualify as an "employee
stock purchase plan" under Section 423 of the Internal Revenue Code. The plan
will terminate 10 years from the date the plan was adopted unless it is
terminated earlier under the terms of the plan. The board will have the
authority to amend, terminate or extend the term of the plan, except that no
action may adversely affect any outstanding options previously granted under
the plan.
Except for the automatic annual increase of shares described above,
stockholder approval will be required to increase the number of shares that may
be issued or to change the terms of eligibility under our 2000 Employee Stock
Purchase Plan. The board will be able to make amendments to the plan as it
determines to be advisable if the financial accounting treatment for the plan
is different from the financial accounting treatment in effect on the date the
plan was adopted by the board.
48
<PAGE>
401(k) Plan
We sponsor a defined contribution plan intended to qualify under Section 401
of the Internal Revenue Code, or a 401(k) plan. Employees who are at least 21
years old and who have been employed with us for at least one year are
generally eligible to participate and may enter the plan on the first day of
the month following the date the employee meets the eligibility requirements.
Participants may make pre-tax contributions to the plan of up to 15% of their
eligible compensation, subject to a statutorily prescribed annual limit. Each
participant is full vested in his or her contributions and the investment
earnings. We make matching contributions to the 401(k) plan in an amount not to
exceed 100% of each participant's first 15% of compensation contributed as pre-
tax contributions to the plan for the plan year. Contributions by the
participants to the plan, and the income earned on these contributions, are
generally not taxable to the participants until withdrawn. Participant
contributions are held in trust as required by law. Individual participants may
direct the trustee to invest their accounts in authorized investment
alternatives.
Employment Contracts and Change of Control Arrangements
From time to time we have entered employment agreements with our executive
officers, including the executive officers listed in the "Summary Compensation
Table."
Ross Dove. Ross Dove receives an annual salary of $300,000 and a minimum
annual bonus of $200,000. His employment with us is at will. In connection with
his employment, Ross Dove entered into a stock repurchase agreement with us and
The Dove Holdings Corporation. Under this agreement, in the event of any
termination of Mr. Dove's employment by us for "cause" or by Mr. Dove for other
than "good reason," Dove Bid shall have the right to repurchase up to 4,230,004
shares of our common stock held by Mr. Dove through The Dove Holdings
Corporation at a purchase price of $0.33 per share. The number of shares
subject to repurchase decreases ratably over a period of 28 months commencing
on February 25, 2000. Termination for "good reason" would involve changes in
Mr. Dove's role with us without his consent. The stock repurchase agreement
terminates upon a "change of control" or if Mr. Dove's employment is terminated
without cause or for good reason. A "change of control" includes:
. an acquisition of 50% of more of our outstanding stock by a person other
than a person related to DoveBid;
. a merger or consolidation of DoveBid after which our then-current
stockholders own less than a majority of the voting power of the
surviving corporation; or
. a sale of all or substantially all of our assets.
Kirk Dove. Kirk Dove receives an annual salary of $300,000 and a minimum
annual bonus of $200,000. His employment with us is at will. In connection with
his employment, Kirk Dove has entered into a stock repurchase agreement with us
and The Dove Holdings Corporation. Under the terms of this agreement, in the
event of any termination of Mr. Dove's employment by us for cause or by Mr.
Dove for other than good reason, DoveBid has a right to repurchase up to
4,230,004 shares of our common stock held by Mr. Dove through The Dove Holdings
Corporation on the same terms and conditions as in Ross Dove's stock repurchase
agreement with us.
Jeffrey M. Crowe. In November 1999, Jeffrey Crowe accepted our offer of
employment. His employment letter provides that Mr. Crowe is entitled to
receive an annual salary of $300,000 with annual target bonuses of up to
$100,000. His employment with us is on an at-will basis. In connection with his
employment, Mr. Crowe purchased 4,800,000 shares of our common stock at a
purchase price of $0.33 per share with a promissory note payable to DoveBid in
November 2004. These shares are subject to a right of repurchase that lapses as
to one-fourth of these shares in November, 2000, with the repurchase right
lapsing ratably monthly over 36 months after that. In addition, pursuant to the
terms of his employment letter, in January 2000 Mr. Crowe purchased 500,000
shares of our common stock from The Dove Holdings Corporation at a purchase
price of $1.50 per share.
49
<PAGE>
We have the right to terminate Mr. Crowe's employment upon his disability or
for cause. Mr. Crowe has the right to terminate the arrangement for "good
reason," essentially consisting of changes in his role with us without his
consent. In the event of any termination of Mr. Crowe's employment by us
without cause or by Mr. Crowe for good reason, within one year of the date of
commencement of his employment with us, all of Mr. Crowe's shares purchased in
connection with his employment that would have otherwise vested through the
first anniversary of such commencement date and for such additional period as
any cash severance is paid to Mr. Crowe after such first anniversary, vest
immediately. If such termination occurs on or after the first anniversary of
the commencement date of Mr. Crowe's employment with us, Mr. Crowe will be
entitled to receive six months of accelerated vesting of any unvested options.
If termination of Mr. Crowe's employment by us without "cause" or by Mr.
Crowe for "good reason" occurs within 60 days prior to or one year following a
"change of control" that occurs within one year of the date of commencement of
employment with us, Mr. Crowe will be entitled to receive a cash severance
payment equal to one year's base salary plus his annual bonus, and two years of
accelerated vesting of the shares purchased in connection with his employment.
If such termination occurs within 60 days prior to or one year following a
change of control that occurs after the first anniversary of such commencement
date, Mr. Crowe will be entitled to receive a cash severance payment equal to
one year's base salary plus his annual bonus and immediate vesting of all
shares purchased in connection with his employment with us. A "change of
control" includes:
. an acquisition of 50% or more of our outstanding stock by a person other
than a person related to DoveBid;
. a merger or consolidation of DoveBid after which our then-current
stockholders own less than a majority of the voting power of the
surviving corporation;
. a sale of all or substantially all of our assets; or
. the replacement of more than a majority of our incumbent directors.
Cory M. Ravid. In September 1999, Cory Ravid accepted our offer of
employment. His employment letter provides that Mr. Ravid is entitled to
receive an initial annual salary of $225,000 with annual bonuses of up to 40%
of his annual base salary. His employment with us is on an at-will basis. In
connection with his employment letter, Mr. Ravid purchased 700,000 shares of
our common stock at a purchase price of $0.33 per share with a promissory note
payable to DoveBid in November 2004. These shares are subject to a right of
repurchase that lapses as to one-fourth of these shares on October 15, 2000,
with the repurchase right lapsing ratably monthly over a 36 month period after
that. We have similar right to terminate Mr. Ravid's employment and he has the
right to terminate his employment with us for "good reason" on terms similar to
those of Mr. Crowe's arrangement with us. Similar provisions have also been
provided for termination in connection with a change of control.
Francis M. Juliano. In December 1999 Francis Juliano accepted our offer of
employment. His employment letter provides that Mr. Juliano is entitled to
receive an annual salary of $200,000 with annual bonuses of up to 30% of his
annual base salary. In connection with his employment, Mr. Juliano purchased
600,000 shares of our common stock at a purchase price of $0.77 per share,
which he purchased with a promissory note payable to DoveBid in January 2004.
In the event of any termination of Mr. Juliano's employment by us without
"cause," Mr. Juliano will receive a cash payment of $100,000. In March 2000,
Mr. Juliano was granted options to purchase an additional 100,000 shares of our
common stock at an exercise price of $2.50 per share.
Indemnification of Directors and Executive Officers and Limitation of Liability
Our certificate of incorporation includes a provision that eliminates the
personal liability of a director for monetary damages resulting from breach of
his fiduciary duty as a director, except for liability:
. for any breach of the director's duty of loyalty to DoveBid or its
stockholders;
50
<PAGE>
. for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
. under section 174 of the Delaware General Corporation Law regarding
unlawful dividends and stock purchases; or
. for any transaction from which the director derived an improper personal
benefit.
Our bylaws provide that:
. we are required to indemnify our directors and officers to the fullest
extent permitted by the Delaware General Corporation Law, subject to very
limited exceptions;
. we may indemnify our other employees and agents to the extent that we
indemnify our officers and directors, unless otherwise required by law,
our certificate of incorporation, our bylaws or agreements;
. we are required to advance expenses, as incurred, to our directors and
executive officers in connection with a legal proceeding to the fullest
extent permitted by the Delaware General Corporation Law, subject to very
limited exceptions; and
. the rights conferred in the bylaws are not exclusive.
In addition to the indemnification required in our certificate of
incorporation and bylaws, before the completion of this offering, we intend to
enter into indemnity agreements with our current directors and officers. These
agreements provide for the indemnification of our officers and directors for
all expenses and liabilities incurred in connection with any action or
proceeding brought against them by reason of the fact that they are or were
agents of DoveBid. We have also obtained directors' and officers' insurance to
cover our directors, officers and some of our employees for certain
liabilities. We believe that these indemnification provisions and agreements
and this insurance are necessary to attract and retain qualified directors and
officers.
The limitation of liability and indemnification provisions in our
certificate of incorporation and bylaws may discourage stockholders from
bringing a lawsuit against directors for breach of their fiduciary duty. They
may also reduce the likelihood of derivative litigation against directors and
officers, even though an action, if successful, might benefit us and other
stockholders. Furthermore, a stockholder's investment may be adversely affected
to the extent we pay the costs of settlement and damage awards against
directors and officers as required by these indemnification provisions. At
present, there is no pending litigation or proceeding involving any of our
directors, officers or employees regarding which indemnification by us is
sought, nor are we aware of any threatened litigation that may result in claims
for indemnification.
51
<PAGE>
CERTAIN TRANSACTIONS
Sales of Our Common Stock and Preferred Stock
Common Stock
In October 1997 The Dove Holdings Corporation, Ross Dove and Kirk Dove
(collectively the "Dove Group") entered into an agreement with Koll Management
Services, Inc. ("Koll") for the Dove Group's purchase of Koll's membership
interests in Dove Brothers, LLC, which was then known as Koll-Dove Global
Disposition Services (the "Koll Buyout Agreement"). Under the terms of the Koll
Buyout Agreement, Koll also received, in addition to the purchase price paid by
the Dove Group, a limited partnership interest in a website known as RealBid
equivalent to 50% of any ownership interest in RealBid acquired by any member
of the Dove Group on or before September 30, 2000, 25% of the pre-tax income of
Dove Brothers, LLC and its subsidiaries for the calendar years 1998, 1999 and
2000, and 25% of the net proceeds of certain capital events of Dove Brothers,
LLC occurring on or before September 30, 2000. The Dove Holdings Corporation
and Ross Dove and Kirk Dove secured their obligations to Koll through a
security interest in their membership interests in Dove Brothers, LLC.
In June 1999, Dove Brothers, LLC distributed its 66-2/3% interest in
National Loan Exchange, Inc. ("NLEX"), a subsidiary of Dove Brothers, LLC, to
the members of Dove Brothers, LLC, which at that time were The Dove Holdings
Corporation, Ross Dove and Kirk Dove. Thereafter, The Dove Holdings
Corporation, Ross Dove and Kirk Dove transferred to Koll a portion of their
membership interests in Dove Brothers, LLC and a portion of their shares of the
common stock of NLEX, in partial satisfaction of the purchase price under the
Koll Buyout Agreement. In addition, Dove Brothers, LLC agreed to assume and pay
to Koll the remaining balance of the purchase price under the Koll Buyout
Agreement, which was $1.0 million, in one payment due in March 2000, and The
Dove Holdings Corporation, Ross Dove and Kirk Dove jointly and severally
guaranteed such payment by Dove Brothers, LLC. In exchange, Koll released The
Dove Holdings Corporation, Ross Dove and Kirk Dove from further obligations
under the Koll Buyout Agreement.
On June 4, 1999, in connection with the formation of DoveBid, Inc., we
issued, in exchange for the contribution of all of the membership interests in
Dove Brothers, LLC, a total of 28,212,121 shares of our common stock to the
following persons:
<TABLE>
<CAPTION>
Shares of
Buyer Common Stock
----- ------------
<S> <C>
The Dove Holdings Corporation................................ 25,688,135
Ross Dove.................................................... 254,417
Kirk Dove.................................................... 254,417
Koll Management Services, Inc................................ 2,015,152
</TABLE>
The Dove Holdings Corporation is beneficially owned by Ross and Kirk Dove.
Ross Dove is the chairman of our board of directors and is our chief executive
officer. Kirk Dove is one of our directors and is our president of auction
services and chief auctioneer.
In June 1999 we entered into a Stockholders' Agreement, which was amended on
October 1999 and in February 2000, with our largest stockholders. Among other
things the Stockholders' Agreement imposed limits on the ability of The Dove
Holdings Corporation, Ross Dove or Kirk Dove to transfer or encumber shares of
our common stock. This agreement expires upon completion of this offering. In
January 2000, The Dove Holdings Corporation sold 500,000 shares to Jeffrey
Crowe, 333,334 shares to Fremont Ventures, 666,667 shares to David Pottruck,
183,332 shares to Cory Ravid and 400,000 shares to Todd Rulon-Miller, each at a
per share price of $1.50.
Preferred Stock
The share numbers and per share prices are adjusted to reflect the
conversion of preferred stock into common stock, which will occur on the
effectiveness of this offering.
52
<PAGE>
Series A preferred stock financing. On June 4, 1999, we sold 12,090,909
shares of our Series A preferred stock for $0.33 per share. Each share of
Series A preferred stock currently is convertible into one share of common
stock. The buyer of the Series A preferred stock was Fremont Ventures I, L.P. a
holder of more than 5% of our stock. W. Blake Winchell, one of our directors is
a partner of Fremont Ventures I, L.P.
In connection with its purchase of our Series A preferred stock on June 14,
1999, Fremont Ventures I, L.P. entered into a Put/Call Agreement with The Dove
Holdings Corporation whereby Fremont Ventures granted The Dove Holdings
Corporation the right, exercisable from February 15, 2000 to March 1, 2001, to
require Fremont Ventures to purchase up to 2,000,000 shares of our common stock
owned by The Dove Holdings Corporation at a purchase price of $0.77 per share.
In the same agreement The Dove Holdings Corporation granted Fremont Ventures
the right, exercisable at any time from February 15, 2000 to March 1, 2001, to
require The Dove Holdings Corporation the right to sell to Fremont Ventures up
to 2,000,000 shares of our common stock owned by The Dove Holdings Corporation
at a purchase price of $2.48 per share. The put/call rights granted under the
Put/Call Agreement will terminate upon the completion of this offering. In
February 2000 Fremont Ventures elected to purchase the shares under the
Put/Call Agreement.
Series B preferred stock financing. On October 18, 1999, we sold 15,870,129
shares of our Series B preferred stock at a price of $0.77 per share. Each
share of Series B preferred stock currently is convertible into one share of
common stock. The buyers of the Series B preferred stock included affiliated
funds of Mayfield Fund and Fremont Ventures. The Mayfield Fund entities hold
more than 5% of our stock and A. Grant Heidrich, III, one of our directors, is
a partner of the Mayfield Fund.
Series C preferred stock financing. Between February 25, 2000 and March 8,
2000, we sold 41,011,242 shares of our Series C preferred stock at a price of
$2.67 per share. Each share of Series C preferred stock is convertible into one
share of common stock. The buyers of the Series C preferred stock included,
among others, entities associated with Softbank, the Texas Pacific Group, the
Mayfield Fund and Fremont Ventures, each of which hold more than 5% of our
stock.
Stockholder and Other Agreements. In connection with our preferred stock
sales we and our largest stockholders entered into Stockholder Agreements by
which Messrs. Winchell, Heidrich, Burnham and Price were appointed to our
board. We also granted registration rights to the preferred stock investors.
These rights are further described under "Description of Capital Stock--
Registration Rights."
Loans to Executive Officers
Jeffrey M. Crowe. In November 1999, Jeffrey Crowe purchased 4,800,000 shares
of our common stock, with a $1,579,200 secured full recourse promissory note
with an annual interest rate equal to 5.92% compounded monthly. The note also
provides that we may accelerate payment of the amounts outstanding under the
loan in the event Mr. Crowe ceases to be an employee or consultant of ours.
Cory M. Ravid. In November 1999, Cory Ravid's purchased 700,000 shares of
our common stock, with a $230,300 secured full recourse promissory note with an
annual interest rate equal to 5.92% compounded monthly. The note also provides
that we may accelerate payment of the amounts outstanding under the loan in the
event Mr. Ravid ceases to be an employee or consultant of ours.
Steven S. Pollock. In January 2000, Steven Pollock purchased 700,000 shares
of our common stock, with a $230,300 secured full recourse promissory note with
an annual interest rate equal to 6.04% compounded monthly. The note also
provides that we may accelerate payment of the amounts outstanding under the
loan in the event Mr. Pollock ceases to be an employee or consultant of ours.
Francis Juliano. In January 2000, Francis Juliano purchased 600,000 shares
of our common stock, with a $461,400 secured full recourse promissory note with
an annual interest rate equal to 6.04% compounded
53
<PAGE>
monthly. The note also provides that we may accelerate payment of the amounts
outstanding under the loan in the event Mr. Juliano ceases to be an employee or
consultant of ours.
James Hume. In January 2000, James Hume purchased 700,000 shares of our
common stock, with a $538,300 secured full recourse promissory note with an
annual interest rate equal to 6.04% compounded monthly. The note also provides
that we may also accelerate payment of the amounts outstanding under the loan
in the event Mr. Hume ceases to be an employee or consultant of ours.
Anthony Capobianco. In February 2000, Anthony Capobianco purchased 150,000
shares of our common stock, with a $115,350 secured full recourse promissory
note with an annual interest rate equal to 6.37% compounded monthly. In March
2000 Mr. Capobianco purchased an additional 50,000 shares of our common stock,
with a $124,950 secured full recourse promissory note with an annual interest
rate equal to 6.60% compounded monthly. Both notes also provide that we may
accelerate payment of amounts outstanding under the loans in the event Mr.
Capobianco ceases to be an employee or consultant of ours.
Dennis Polk. In February 2000, Dennis Polk purchased 200,000 shares of our
common stock, with a $299,800 secured full recourse promissory note with an
annual interest rate equal to 6.37% compounded monthly. In March 2000 Mr. Polk
purchased an additional 90,000 shares of our common stock, with a $224,910
secured recourse promissory note with an annual interest rate equal to 6.60%
compounded monthly. Both notes also provide that we may accelerate payment of
amounts outstanding under the loan in the event Mr. Polk ceases to be an
employee or consultant of ours.
Real Property Lease
We lease our headquarters office space at 1241 E. Hillsdale Boulevard in
Foster City, California from a corporation in which some of our directors and
officers have an interest. The lessor under the lease is Dove Holdings, Inc.,
the shareholders of which are Ross Dove and Kirk Dove. The lease commenced on
December 1, 1997 and expires on November 30, 2000. The annual rent under the
lease is $295,963 and is adjusted based on increases in the Consumer Price
Index for the San Francisco-Oakland-San Jose metropolitan area.
Other Transactions
For a description of our employment agreements with Ross and Kirk Dove, Mr.
Crowe, Mr. Ravid and Mr. Juliano, please see "Management-Employment Contracts
and Change of Control Arrangements."
Stock Option Grants to Certain Directors
In December 1999, we granted to each of David S. Pottruck and Todd Rulon-
Miller options to purchase 200,000 shares of our common stock at an exercise
price $0.77 per share. These options were granted under our 1999 Stock Plan.
54
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to
beneficial ownership of our common stock as of March 8, 2000 and as adjusted to
reflect the sale of the common stock in this offering by:
. each stockholder known by us to be the beneficial owner of more than 5%
of our common stock;
. each of our directors;
. each executive officer listed in the Summary Compensation Table; and
. all executive officers and directors as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Unless otherwise indicated below, to our
knowledge, the persons and entities named in the table have sole voting and
sole investment power with respect to all shares beneficially owned, subject to
community property laws where applicable. Shares of common stock subject to
options that are currently exercisable or exercisable within 60 days of March
8, 2000 are deemed to be outstanding and to be beneficially owned by the person
holding the options for the purpose of computing the percentage ownership of
such person but are not treated as outstanding for the purpose of computing the
percentage ownership of any other person.
The number of shares of common stock outstanding after this offering
includes shares of common stock being offered and does not
include the shares which are subject to the underwriters' over-allotment
option. The percentage of common stock outstanding as of March 8, 2000 is based
on shares of common stock outstanding on that date, giving
effect to the automatic conversion into common stock on completion of this
offering of all outstanding preferred stock and of $9.6 million of convertible
subordinated promissory notes issued in connection with recent acquisitions
(based on a conversion rate of $ per share, the midpoint of the price range
set forth on the cover page of the prospectus). Unless otherwise indicated, the
address of each of the individuals and entities named below is c/o DoveBid,
Inc. 1241 E. Hillsdale Boulevard, Foster City, California 94404.
<TABLE>
<CAPTION>
Percentage of Outstanding
Shares Beneficially Owned
------------------------------
Number of Shares
Name of Beneficial Owner Beneficially Owned Before Offering After Offering
- ------------------------ ------------------ --------------- --------------
<S> <C> <C> <C>
The Dove Holdings
Corporation(1)............. 19,754,802
Kirk Dove(2)................ 20,009,219
Ross Dove(2)................ 20,009,219
Fremont Ventures I,
L.P(3)..................... 21,217,597
50 Fremont Street
San Francisco, California,
94105
Entities affiliated with
Mayfield(4)................ 15,221,450
2800 Sand Hill Road, Suite
250
Menlo Park, California
94025
Entities affiliated with
SOFTBANK Corp.(5).......... 14,981,274
24-1, Nihonbashi-
Hakozakicho
Chuo-ku, Tokyo 103-8501,
JAPAN
TPG Advisors III, Inc....... 6,501,630
201 Main Street, Suite 2420
Fort Worth, TX 76102(6)
Entities affiliated with
T/3/ Advisors, Inc. ....... 2,861,666
201 Main Street, Suite 2420
Fort Worth, TX 76102(7)
Jeffrey M. Crowe............ 5,189,000
William Burnham(5).......... 14,981,274
A. Grant Heidrich, III(4)... 21,217,597
David S. Pottruck........... 866,667
William Price(8)............ 9,363,296
Todd Rulon-Miller........... 600,000
W. Blake Winchell(3)........ 15,221,450
All 15 directors and
executive officers as a
group (9).................. 91,226,252
</TABLE>
55
<PAGE>
- --------
1 Ross Dove and Kirk Dove are the sole natural persons who exercise voting
and/or dispositive powers for the shares held by The Dove Holdings
Corporation.
2 Includes 19,754,802 shares of common stock owned by The Dove Holdings
Corporation, which is owned equally by Ross Dove and Kirk Dove.
3 Represents 21,217,597 shares held by Fremont Ventures I, L.P., which
includes 2,000,000 shares that Fremont Ventures I, L.P. has elected to
purchase from The Dove Holdings Corporation pursuant to the terms of the
Second Amended and Restated Put/Call Agreement, dated as of February 25,
2000 between Fremont Ventures I, L.P. and The Dove Holdings Corporation.
FV, L.P. is the general partner of Fremont Ventures I, L.P. Fremont
Resources, Inc. ("FRI") is the general partner and Fremont Sequoia
Holdings, L.P., an affiliate of FRI, W. Blake Winchell and M. Hannah
Sullivan are the limited partners of FV, L.P. The directors of Fremont
Resources, Inc. are Alan M. Dachs, Jon S. Higgins, Richard S. Kopf, S. D.
Bechtel, Jr., H. J. Haynes, C. W. Hull and Robert Jaunich II. All of the
individuals listed above may be deemed to have shared voting and
dispositive power over the shares with are, or may be deemed to be
beneficially owned by Fremont Ventures, L.P., but disclaim such beneficial
ownership.
4 Represents 13,264,327 shares held by Mayfield X, L.P., 1,505,479 shares
held by Mayfield Principals' Fund, L.L.C., and 451,644 shares held by
Mayfield Associates Fund V, L.P. Mayfield X Management L.L.C. is the
general partner of Mayfield X, L.P. and Mayfield Associates Fund V, L.P.
and the managing member of Mayfield Principals' Fund L.L.C. The managing
directors of Mayfield X Management L.L.C. are A. Grant Heidrich, III,
Michael Levinthal, William D. Unger, William G. Van Auken, III, Kevin A.
Fong, Yogen Dalal, Russell C. Hirsh, Warde S. Hutton, George A. Palor, Todd
A. Brooks, Robert T. Vasan and David J. Ladd. All of the individuals listed
above may be deemed to have shared voting and dispositive power over the
shares which are, or may be deemed to be beneficially owned by Mayfield X,
L.P., Mayfield Associates Fund V, L.P. and Mayfield Principals' Fund,
L/L/C., but disclaim such beneficial ownership.
5 Includes 14,767,042 shares held by SOFTBANK Capital Partners LP and 214,232
shares held by SOFTBANK Capital Advisors Fund LP. SOFTBANK Capital Partners
LLC is the sole general partner of both SOFTBANK Capital Partners LP and
SOFTBANK Capital Advisors Fund LP. As a result, securities beneficially
owned by SOFTBANK Capital Partners LP and SOFTBANK Capital Advisors Fund LP
may be deemed beneficially owned by SOFTBANK Capital Partners LLC. All
investment decisions on behalf of SOFTBANK Capital Partners LLC must be
approved by SOFTBANK Capital Partners Investment Inc. and by any of Mr.
Ronald D. Fisher, Mr. Charles R. Lax or Mr. William L. Burnham, all of whom
are members of SOFTBANK Capital Partners LLC. As a result, securities
beneficially owned by SOFTBANK Capital Partners LLC may be deemed
beneficially owned by SOFTBANK Capital Partners Investment Inc., Mr.
Fisher, Mr. Lax and Mr. Burnham. SOFTBANK Capital Partners Investment Inc.
is a wholly-owned subsidiary of SOFTBANK Holdings Inc. Accordingly,
securities owned by SOFTBANK Capital Partners Investment Inc. may be deemed
beneficially owned by SOFTBANK Holdings Inc. SOFTBANK Holdings Inc. is a
wholly-owned subsidiary of SOFTBANK Corp. Mr. Masayoshi Son, President and
Chief Executive Officer of SOFTBANK Corp., owns an approximately 38.27%
interest in SOFTBANK Corp. Accordingly, securities owned by SOFTBANK
Holdings Inc. may be deemed beneficially owned by SOFTBANK Corp. and Mr.
Son. SOFTBANK Capital Partners LP, SOFTBANK Capital Advisors Fund LP,
SOFTBANK Capital Partners LLC, SOFTBANK Capital Partners Investment Inc.,
Mr. Fisher, Mr. Lax, Mr. Burnham, SOFTBANK Holdings Inc., SOFTBANK Corp.
and Mr. Son disclaim beneficial ownership of shares owned directly by
SOFTBANK Capital Partners LP and SOFTBANK Capital Advisors Fund LP,
respectively, except to the extent of their respective pecuniary interests,
if any, therein.
6 TPG Advisors III, Inc. indirectly controls each of TPG Partners III, L.P.,
TPG Parallel III, L.P., TPG Investors III, L.P., FOF Partners III, L.P.,
FOF Partners III-B, L.P., and TPG Dutch Parallel III, C.V., which directly
own the aggregate number of shares listed above.
7 T/3/ Advisors, Inc. indirectly controls each of T/3/ Partners, L.P., T/3/
Parallel, L.P., T/3/ Investors, L.P., and T/3/ Dutch Parallel, C.V., which
directly own the aggregate number of shares listed above.
8 Includes shares listed above as beneficially owned by TPG Advisors III,
Inc. and T/3/ Advisors, Inc., each of which may be deemed an affiliate of
Mr. Price.
9 Includes 50,000 shares of common stock issuable under options held by
directors and executive officers that are presently exercisable within 60
days of March 8, 2000. Also includes 15,649,612 outstanding shares that are
subject to repurchase rights that lapse over time.
56
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Immediately following the closing of this offering, our authorized capital
stock will consist of 150,000,000 shares of common stock, $0.001 par value per
share, and 77,000,000 shares of preferred stock, $0.001 par value per share. As
of March 8, 2000, giving effect to the automatic conversion of all outstanding
preferred stock into common stock upon the closing of this offering, there were
outstanding 109,343,643 shares of common stock held of record by approximately
100 stockholders. An additional shares of common stock will be issued on
the closing of this offering to the holders of convertible subordinated
promissory notes that convert into common stock upon closing of this offering.
Following the closing of this offering, we intend to amend and restate our
certificate of incorporation. Our amended and restated certificate of
incorporation, as we propose to file it, and bylaws, described below, are
included as exhibits to the registration statement of which this prospectus
forms a part.
Common Stock
Dividend Rights. Subject to preferences that may apply to shares of
preferred stock outstanding at the time, the holders of outstanding shares of
common stock are entitled to receive dividends out of assets legally available
at the times and in the amounts as the board of directors may from time to time
determine.
Voting Rights. Each holder of common stock is entitled to one vote for each
share of common stock held on all matters submitted to a vote of stockholders.
Cumulative voting for the election of directors is not provided for in our
certificate of incorporation, which means that the holders of a majority of the
shares voted can elect all of the directors then standing for election.
No preemptive or similar rights. The common stock is not entitled to
preemptive rights and is not subject to conversion or redemption.
Right to receive liquidation distributions. Upon a liquidation, dissolution
or winding-up of DoveBid, the assets legally available for distribution to
stockholders are distributable ratably among the holders of the common stock
and any preferred stock outstanding at that time after payment of liquidation
preferences, if any, on any outstanding preferred stock.
Preferred Stock
Upon the closing of this offering, each outstanding share of preferred stock
will be converted into shares of common stock.
Following the offering, we will be authorized, subject to limitations
prescribed by Delaware law, to issue preferred stock in one or more series, to
establish from time to time the number of shares to be included in each series,
to fix the rights, preferences and privileges of the shares of each wholly
unissued series and any of its qualifications, limitations or restrictions. The
board can also increase or decrease the number of shares of any series, but not
below the number of shares of such series then outstanding, without any further
vote or action by the stockholders. The board may authorize the issuance of
preferred stock with voting or conversion rights that could adversely affect
the voting power or other rights of the holders of the common stock. The
issuance of preferred stock, while providing flexibility in connection with
possible acquisitions and other corporate purposes, could, among other things,
have the effect of delaying, deferring or preventing a change in control of
DoveBid and may adversely affect the market price of the common stock and the
voting and other rights of the holders of common stock. We have no current plan
to issue any shares of preferred stock.
Warrants
In connection with its purchase of shares of our Series C preferred stock,
we issued to Yahoo! a warrant exercisable to purchase a total of 1,405,000
shares of our Series C preferred stock at an exercise price, subject to certain
adjustments, of $2.67 per share. Following the closing of this offering, the
warrants will
57
<PAGE>
automatically become exercisable for the same number of shares of common stock
at the same exercise price per share. Yahoo! may exercise such warrant by means
of either a cash payment in an amount equal to the exercise price or a net
issue exercise whereby Yahoo! would receive shares equal to the value of the
warrant, as calculated pursuant to the terms set forth therein. The warrant
expires upon the earlier to occur of March 8, 2004 or the termination of our
advertising and promotion agreement with Yahoo! upon the occurrence of certain
events.
Registration Rights
As a result of investors' rights agreements entered into in connection with
the sales of our preferred stock, the holders of approximately 70,309,145
shares of common stock will be entitled to rights with respect to the
registration of these shares under the Securities Act of 1933, as described
below.
Demand Registration Rights. At any time beginning six months after the
completion of this offering, the holders of at least 20% of the shares of
common stock issued upon conversion of our preferred stock can request that we
register all or a portion of our shares. We will only be required to file two
registration statements in response to their demand registration rights. We may
postpone the filing of a registration statement for up to 120 days once in a 12
month period if we determine that the filing would be seriously detrimental to
us or our stockholders.
Piggyback Registration Rights. If we register any securities for public
sale, the holders of the shares of common stock issued upon conversion of our
preferred stock will have the right to include their shares in the registration
statement. However, this right does not apply to a registration relating to any
of our employee benefit plans or a corporate reorganization. The managing
underwriter of any underwritten offering will have the right to limit the
number of shares registered by these holders to 30% of the total shares covered
by the registration statement due to marketing reasons.
Form S-3 Registration Rights. The holders of the shares of common stock
issued upon conversion of our preferred stock can request that we register
their shares if we are eligible to file a registration statement on Form S-3
and if the aggregate price of the shares offered to the public is at least $1.0
million. The holders may only require us to file two registration statements on
Form S-3 per calendar year.
We will pay all expenses incurred in connection with the registrations
described above, except for underwriters' and brokers' discounts and
commissions, which will be paid by the selling stockholders.
The registration rights described above will expire with respect to a
particular stockholder if at such date he, she or it can sell all of its shares
in a three-month period under Rule 144 of the Securities Act of 1933 (the
"Securities Act"). In any event, the registration rights described above will
expire five years after this offering is completed.
All holders of these registration rights have signed agreements with the
underwriters prohibiting the exercise of these registration rights for 180 days
following the date of this prospectus.
Anti-Takeover Provisions
The provisions of Delaware law, our certificate of incorporation and bylaws
may have the effect of delaying, deferring or discouraging another person from
acquiring control of our company.
Delaware Law
We will be subject to the provisions of Section 203 of the Delaware General
Corporation Law regulating corporate takeovers. This section prevents some
Delaware corporations from engaging, under some circumstances, in a "business
combination," which includes a merger or sale of more than 10% of the
58
<PAGE>
corporation's assets with any "interested stockholder," meaning a stockholder
who owns 15% or more of the corporation's outstanding voting stock, as well as
affiliates and associates of the stockholder, for three years following the
date that the stockholder became an "interested stockholder" unless:
. the transaction is approved by the board of directors prior to the date
the "interested stockholder" attained that status;
. upon consummation of the transaction that resulted in the stockholder's
becoming an "interested stockholder," the "interested stockholder" owned
at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced; or
. on or subsequent to such date the "business combination" is approved by
the board and authorized at an annual or special meeting of stockholders
by at least two-thirds of the outstanding voting stock that is not owned
by the "interested stockholder."
A Delaware corporation may "opt out" of this provision with an express
provision in its original certificate of incorporation or an express provision
in its certificate or incorporation or bylaws resulting from a stockholders'
amendment approved by at least a majority of the outstanding voting shares. We
have not "opted out" of this provision. The statute could prohibit or delay
mergers or other takeover or change-in-control attempts and, accordingly, may
discourage attempts to acquire us.
Charter and Bylaw Provisions
Our certificate of incorporation and bylaws provide that:
. following the completion of this offering, no action shall be taken by
stockholders except at an annual or special meeting of the stockholders
called in accordance with our bylaws and that stockholders may not act
by written consent;
. following the completion of this offering, the approval of two-thirds of
the stockholders shall be required to adopt, amend or repeal our bylaws;
. stockholders may not call special meetings of the stockholders or fill
vacancies on the board;
. upon the completion of this offering , our board of directors will be
divided into three classes, each serving staggered three-year terms,
which means that only one class of directors will be elected at each
annual meeting of stockholders, with the other classes continuing for
the remainder of their respective terms; and
. we will indemnify officers and directors against losses that they may
incur in investigations and legal proceedings resulting from their
services to us, which may include services in connection with takeover
defense measures.
These provisions of our certificate of incorporation and bylaws may have the
effect of delaying, deferring or discouraging another person from acquiring
control of our company.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is ChaseMellon
Shareholder Services LLC.
Listing
We have applied to list our common stock on The Nasdaq Stock Market's
National Market under the trading symbol "DOVE."
59
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of common stock, including shares issued upon
exercise of outstanding warrants or options, in the public market after this
offering could adversely affect market prices prevailing from time to time and
could impair our ability to raise capital through sale of equity securities.
Furthermore, as described below, no shares currently outstanding will be
available for sale immediately after this offering due to certain contractual
restrictions on resale. Sales of substantial amounts of our common stock in the
public market after these restrictions lapse could adversely affect the
prevailing market price and our ability to raise equity capital in the future.
All of the shares of common stock being sold in this offering will be freely
tradeable without restriction or further registration under the Securities Act,
except for shares held by our "affiliates," as defined in Rule 144 under the
Securities Act, which may generally only be sold in compliance with the
limitations of Rule 144, described below. The remaining 109,343,643 shares were
issued and sold by us in private transactions and are deemed restricted
securities under Rule 144. These shares may be sold in the public market only
if registered under the Securities Act or if exempt from registration under
Rules 144, 144(k) or 701 under the Securities Act, which rules are summarized
below. All of these remaining shares will be available for sale under Rules 144
and 701 upon the expiration of agreements between our stockholders and the
underwriters at varying dates beginning 180 days after the date of this
prospectus. Of these shares, approximately 47,553,828 will then be eligible for
immediate resale, although approximately 44,541,839 of these shares will be
subject to the volume limitations of Rule 144. The remaining shares will become
eligible for resale beginning after 180 days from the date of this prospectus
at various times as repurchase restrictions and Rule 144 holding periods lapse.
In addition, the shares (based on a conversion rate of $ , the midpoint of
the price range set forth on the cover page of this prospectus) of common stock
that will be issued upon the automatic conversion of $9.6 million of
convertible subordinated notes issued in connection with acquisitions completed
between December 1999 and March 3, 2000 will become eligible for resale between
December 2000 and March 3, 2001 pursuant to Rule 144.
Lock-Up Agreements. All of our officers and directors and all of our
stockholders have signed lock-up agreements under which they agreed not to
sell, transfer or dispose of, directly or indirectly, any shares of common
stock or any securities convertible into or exercisable or exchangeable for
shares of common stock without the prior consent of Credit Suisse First Boston
Corporation for a period of 180 days after the date of this prospectus.
Rule 144. In general, under Rule 144 as currently in effect, beginning 90
days after the date of this prospectus a person or persons whose shares are
aggregated, who has beneficially owned restricted shares of our common stock
for at least one year, including the holding period of any prior owner except
an affiliate of ours, would be entitled to sell within any three-month period a
number of shares that does not exceed the greater of:
. 1% of the number of shares of common stock then outstanding, which will
equal approximately shares immediately after this offering; or
. the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to the sale.
Sales under Rule 144 are also subject to manner-of-sale provisions and
notice requirements and to the availability of current public information about
us.
Rule 144(k). Under Rule 144(k), a person who has not been one of our
affiliates at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner except an affiliate of ours, is
entitled to sell those shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.
60
<PAGE>
Rule 701. In general, under Rule 701 of the Securities Act as currently in
effect, any of our employees, consultants or advisors, other than affiliates,
who purchased his or her shares from us under a written compensatory stock
purchase plan or option plan or other written agreement may be eligible to sell
their shares beginning 90 days after the date of this prospectus, subject to
the manner of sale provisions of Rule 144. Affiliates who purchase or receive
shares from us in connection with a compensatory stock purchase plan or option
plan or other written agreement will be eligible to sell their shares beginning
90 days after the date of this prospectus under Rule 701 without compliance
with the Rule 144 holding period requirements. However, all shares issued under
Rule 701 are subject to lock-up agreements and will only become eligible for
sale when the 180-day lock-up agreements expire.
Registration Rights. On the date 180 days after the date of this prospectus,
the holders of 70,309,145 shares of common stock, or their transferees, will be
entitled to certain rights with respect to the registration of those shares
under the Securities Act. See "Description of Capital Stock--Registration
Rights." After these shares are registered, they will be freely tradable
without restriction under the Securities Act.
Stock Options. Immediately after this offering, we intend to file a
registration statement under the Securities Act covering shares of common stock
reserved for issuance under our stock option and employee stock purchase plans.
As of March 8, 2000, options to purchase 4,222,000 shares of common stock were
issued and outstanding. Upon the expiration of the lock-up agreements described
above, at least 298,500 shares of common stock will be subject to vested
options, based on the number of options outstanding as of March 8, 2000. This
registration statement is expected to be filed and become effective as soon as
practicable after the effective date of this offering. Accordingly, shares
registered under this registration statement will, subject to vesting
provisions and Rule 144 volume limitations applicable to our affiliates, be
available for sale in the open market immediately after the 180-day lock up
agreements expire.
61
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , 2000, we have agreed to sell to the underwriters
named below, for whom Credit Suisse First Boston Corporation, Thomas Weisel
Partners LLC and U.S. Bancorp Piper Jaffray Inc. are acting as representatives,
the following respective number of shares of common stock:
<TABLE>
<CAPTION>
Number of
Underwriter Shares
----------- ---------
<S> <C>
Credit Suisse First Boston Corporation.............................
Thomas Weisel Partners LLC.........................................
U.S. Bancorp Piper Jaffray Inc.....................................
Total............................................................
=====
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in this offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be increased or this
offering of common stock may be terminated.
We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to additional shares from us at the initial public
offering price less the underwriting discounts and commissions. The option may
be exercised only to cover any over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $ per share. The
underwriters and selling group members may allow a discount of $ per share
on sales to other broker/dealers. After the initial public offering, the public
offering price and concession and discount to broker/dealers may be changed by
the representatives.
The following table summarizes the compensation and estimated expenses we
will pay.
<TABLE>
<CAPTION>
Per Share Total
----------------------------- -----------------------------
Without With Without With
Over-Allotment Over-allotment Over-allotment Over-allotment
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Underwriting Discounts
and Commissions
paid by us.............. $ $ $ $
Expenses payable by us.. $ $ $ $
</TABLE>
The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the shares of common stock being offered.
We have agreed that we will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the Securities and
Exchange Commission a registration statement under the Securities Act relating
to, any shares of our common stock or securities convertible into or
exchangeable or exercisable for any shares of our common stock, or publicly
disclose the intention to make any such offer, sale, pledge, disposition or
filing, without the prior written consent of Credit Suisse First Boston
Corporation for a period of 180 days after the date of this prospectus, except
issuances pursuant to the exercise of employee stock options outstanding on the
date hereof or pursuant to our dividend reinvestment plan.
62
<PAGE>
Our officers, directors, stockholders and option holders have agreed that
they will not offer, sell, contract to sell, pledge or otherwise dispose of,
directly or indirectly, any shares of our common stock or securities
convertible into or exchangeable or exercisable for any shares of our common
stock, enter into a transaction which would have the same effect, or enter into
any swap, hedge or other arrangement that transfers, in whole or in part, any
of the economic consequences of ownership of our common stock, whether any such
aforementioned transaction is to be settled by delivery of our common stock or
such other securities, in cash or otherwise, or publicly disclose the intention
to make any such offer, sale, pledge or disposition, or to enter into any such
transaction, swap, hedge or other arrangement, without, in each case, the prior
written consent of Credit Suisse First Boston Corporation for a period of 180
days after the date of this prospectus.
The underwriters have reserved for sale, at the initial public offering
price, up to shares of the common stock for employees, directors and
certain other persons associated with us who have expressed an interest in
purchasing common stock in this offering. The number of shares available for
sale to the general public in this offering will be reduced to the extent such
persons purchase such reserved shares. Any reserved shares not so purchased
will be offered by the underwriters to the general public on the same terms as
the other shares.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act or contribute to payments which the underwriters may be required
to make in that respect.
We have applied to list our common stock on The Nasdaq Stock Market's
National Market under the symbol "DOVE."
Prior to this offering, there has been no public market for our common
stock. The initial public offering price will be determined by negotiation
between us and the underwriters. The principal factors that will be considered
in determining the public offering price include:
. the information set forth in this prospectus and otherwise available to
the underwriters;
. the history and the prospects for the industry in which we will compete;
. the ability of our management;
. the prospects for our future earnings;
. the present state of our development and our current financial
condition;
. the general condition of the securities markets at the time of this
offering; and
. the recent market prices of, and the demand for, publicly traded common
stock of generally comparable companies.
The representatives may engage in overallotment, stabilizing transactions,
syndicate covering transactions, penalty bids and passive market making in
accordance with Regulation M under the Securities Exchange Act of 1934 (the
"Exchange Act").
. Overallotment involves syndicate sales in excess of this offering size,
which creates a syndicate short position.
. Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
. Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions.
. Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by the
syndicate member is purchased in a syndicate covering transaction to
cover syndicate short positions.
63
<PAGE>
. In "passive" market making, market makers in the common stock who are
underwriters or prospective underwriters may, subject to limitations,
make bids for or purchases of common stock until the time, if any, at
which a stabilizing bid is made.
These stabilizing transactions, syndicate covering transactions and penalty
bids may cause the price of the common stock to be higher than it would
otherwise be in the absence of these transactions. These transactions may be
effected on The Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
Thomas Weisel Partners LLC, one of the representatives of the underwriters,
was organized and registered as a broker-dealer in December 1998. Since
December 1998, Thomas Weisel Partners has been named as a lead or co-manager on
135 filed public offerings of equity securities, of which 101 have been
completed, and has acted as a syndicate member in an additional 73 public
offerings of equity securities. Thomas Weisel Partners does not have any
material relationship with us or any of our officers, directors or other
controlling persons, except with respect to its contractual relationship with
us pursuant to the underwriting agreement entered into in connection with this
offering.
NOTICE TO CANADIAN RESIDENTS
Resale Restrictions
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any resale of the common
stock in Canada must be made in accordance with applicable securities laws
which will vary depending on the relevant jurisdiction, and which may require
resales to be made in accordance with available statutory exemptions or
pursuant to a discretionary exemption granted by the applicable Canadian
securities regulatory authority. Purchasers are advised to seek legal advice
prior to any resale of the common stock.
LEGAL MATTERS
Fenwick & West LLP, Palo Alto, California, will pass upon the validity of
the issuance of the shares of common stock offered by this prospectus for
DoveBid. Davis Polk & Wardwell, Menlo Park, California, will pass upon certain
legal matters in connection with this offering for the underwriters. As of the
date of this prospectus F&W Investments 1999, an investment partnership
comprised of partners of Fenwick & West LLP, holds 187,266 shares of our common
stock.
EXPERTS
The consolidated financial statements of DoveBid, Inc., and subsidiary at
December 31, 1998 and 1999, and for each of the three years in the period ended
December 31, 1999, appearing in this prospectus and registration statement have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance upon
such report given on the authority of such firm as experts in accounting and
auditing.
The statements of operations and cash flows of B&B Custom Circuit Supplies,
Inc. for each of the three years in the period ended June 30, 1999, appearing
in this prospectus and registration statement have been audited by Ernst &
Young LLP, independent auditors, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance upon such report given on the
authority of such firm as experts in accounting and auditing.
64
<PAGE>
The statements of operations and cash flows of Unidyne International Inc.
for the years ended December 31, 1997 and 1998 and for the period January 1,
1999 through December 30, 1999, appearing in this prospectus and registration
statement have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon appearing elsewhere herein, and are included in
reliance upon such report given on the authority of such firm as experts in
accounting and auditing.
The combined financial statements of AccuVal Associates, Incorporated and
LiquiTec Industries, Incorporated at December 31, 1998 and 1999, and for the
years then ended, appearing in this prospectus and registration statement have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance upon
such report given on the authority of such firm as experts in accounting and
auditing.
The financial statements of Greenwich Industrial Services, LLC at December
31, 1998 and 1999, and for the years then ended, appearing in this prospectus
and registration statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
are included in reliance upon such report given on the authority of such firm
as experts in accounting and auditing.
The financial statements of Haltek Electronics dba Test Lab at June 30 1999
and December 31, 1999, and for the year ended June 30, 1999 and for the six
months ended December 31, 1999, appearing in this prospectus and registration
statement have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon appearing elsewhere herein, and are included in
reliance upon such report given on the authority of such firm as experts in
accounting and auditing.
The financial statements of Philip Pollack & Co., Inc. at February 28, 1998,
February 28, 1999 and December 31, 1999, and for each of the two years in the
period ended February 28, 1999 and for the ten months ended December 31, 1999,
appearing in this prospectus and registration statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
on the authority of such firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act of 1933 with respect to the
shares of common stock offered under this prospectus. This prospectus, which
constitutes a part of the registration statement, does not contain all of the
information set forth in the registration statement, some items of which are
contained in exhibits to the registration statement as permitted by the rules
and regulations of the Commission. For further information with respect to
DoveBid, Inc. and the common stock we are offering, reference is made to the
registration statement, including the exhibits and the financial statements and
notes filed as a part of the registration statement. Statements contained in
this prospectus concerning the contents of any contract or any other document
referred to may be only summaries of these documents. The exhibits to this
registration statement should be referenced for the complete contents of these
contracts and documents. A copy of the registration statement, including the
exhibits and the financial statements and notes filed as a part of it, may be
inspected without charge at the public reference facilities maintained by the
Commission in Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and
copies of all or any part of the registration statement may be obtained from
the Commission upon the payment of fees prescribed by it. You may call the
Commission at 1-800-SEC-0330 for more information on the operation of the
public reference facilities. The Commission maintains a Web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding companies that file electronically with it.
As a result of this offering, we will become subject to the information and
reporting requirements of the Securities Exchange Act and, in accordance with
this law, will file periodic reports, proxy statements and other information
with the Commission. These periodic reports, proxy statements and other
information will be available for inspection and copying at the Commission's
public room and the web site of the SEC referred to above.
65
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Unaudited Pro Forma Consolidated Financial Information
Overview.............................................................. F-2
Unaudited Pro Forma Consolidated Balance Sheet........................ F-4
Unaudited Pro Forma Consolidated Statement of Operations ............. F-5
Notes to Unaudited Pro Forma Consolidated Financial Information....... F-6
DoveBid, Inc. Consolidated Financial Statements
Report of Independent Auditors........................................ F-7
Consolidated Balance Sheets........................................... F-8
Consolidated Statements of Operations................................. F-9
Consolidated Statements of Changes in Convertible Preferred Stock and
Changes in Shareholders' Equity (Deficit)............................ F-10
Consolidated Statements of Cash Flows................................. F-11
Notes to Consolidated Financial Statements............................ F-12
B&B Custom Circuit Supplies, Inc. Financial Statements
Report of Independent Auditors........................................ F-27
Statements of Operations.............................................. F-28
Statements of Cash Flows.............................................. F-29
Notes to Financial Statements......................................... F-30
Unidyne International, Inc. Financial Statements
Report of Independent Auditors........................................ F-31
Statements of Operations.............................................. F-32
Statements of Cash Flows.............................................. F-33
Notes to Financial Statements......................................... F-34
AccuVal Associates, Incorporated and LiquiTec Industries, Incorporated
Combined Financial Statements
Report of Independent Auditors........................................ F-35
Combined Balance Sheets............................................... F-36
Combined Statements of Income and Retained Earnings................... F-37
Combined Statements of Cash Flows..................................... F-38
Notes to Combined Financial Statements................................ F-39
Greenwich Industrial Services, LLC Financial Statements
Report of Independent Auditors........................................ F-42
Balance Sheets........................................................ F-43
Statements of Operations and Members' Equity.......................... F-44
Statements of Cash Flows.............................................. F-45
Notes to Financial Statements......................................... F-46
Haltek Electronics dba Test Lab Financial Statements
Report of Independent Auditors........................................ F-50
Balance Sheets........................................................ F-51
Statements of Operations.............................................. F-52
Statements of Shareholders' Equity.................................... F-53
Statements of Cash Flows.............................................. F-54
Notes to Financial Statements......................................... F-55
Philip Pollack & Co. Inc. Financial Statements
Report of Independent Auditors........................................ F-58
Balance Sheets........................................................ F-59
Statements of Income and Retained Earnings............................ F-60
Statements of Cash Flows.............................................. F-61
Notes to Financial Statements......................................... F-62
</TABLE>
F-1
<PAGE>
DOVEBID, INC.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
Overview
The following unaudited pro forma financial information has been prepared to
give effect to the business acquisitions and stock acquisitions described
below. These transactions were accounted for using the purchase method of
accounting.
The unaudited pro forma consolidated balance sheet presents the Company's
consolidated balance sheet as of December 31, 1999 which reflects the
acquisition of B&B Custom Circuit Supplies, Inc. and Unidyne International,
Inc. because such transactions occurred on December 30, 1999. The unaudited pro
forma consolidated balance sheet also gives effect to the acquisitions of
AccuVal Accociates, Incorporated and LiquiTec Industries, Incorporated,
Greenwich Industrial Services, LLC, Haltek Electronics dba Test Lab, and Philip
Pollack & Co. as if such acquisitions occurred on December 31, 1999
(intangibles and goodwill in these pro forma financial statements are based on
amounts as of December 31, 1999 which will differ from amounts calculated as of
the actual acquisition date).
The unaudited pro forma consolidated balance sheet also gives effect to the
sale of the Series C convertible preferred stock as if such sale occurred on
December 31, 1999.
The unaudited pro forma consolidated statement of operations presents the
Company's consolidated statement of operations for the year ended December 31,
1999 giving effect to the acquisitions described above as if such acquisitions
had occurred on January 1, 1999. The Company's statement of operations for the
year ended December 31, 1999 is combined with the results of operations of the
acquired companies for the same reporting period for all acquisitions except
B&B Custom Circuit Supplies, Inc. The statement of operations for B&B Custom
Circuit Supplies, Inc. reflects the twelve months ended June 30, 1999 because
it was impractical to adjust its operations to the year ended December 31,
1999.
On December 30, 1999, the Company acquired certain assets, primarily
inventory, of two San Jose, California based printed circuit board equipment
dealers, B&B Custom Circuit Supplies, Inc. ("B&B") and Unidyne International,
Inc. (Unidyne), for $3.25 million each. The consideration paid in each
transaction consisted of $1.75 million in cash, $500,000 in retained obligation
(as a reserve for seller warranties) and $1.0 million in convertible
subordinated promissory notes. In connection with each of these acquisitions,
the Company recorded approximately $2.0 million of goodwill and other
intangible assets. For the year ended December 31, 1999, B&B and Unidyne
recorded revenues of $1.9 million and $1.3 million, respectively.
On February 29, 2000, the Company acquired all of the outstanding stock of a
Branford, Connecticut based auctioneer and appraiser of used capital assets,
Greenwich Industrial Services, LLC ("Greenwich"), for $6.25 million. The
consideration paid consisted of $3.25 million in cash, $2.0 million of
convertible subordinated promissory notes, and a $1.0 million cash earn-out. In
connection with this acquisition, the Company recorded approximately $4.2
million of goodwill and other intangible assets. For the year ended December
31, 1999, Greenwich recorded revenues of $7.8 million.
On March 3, 2000, the Company acquired all of the outstanding stock of two
affiliated Mequon, Wisconsin based companies, an appraiser, AccuVal Associates,
Inc. ("AccuVal"), and an auctioneer, Liquitec Industries, Incorporated
(Liquitec), for a total of $5.5 million. The consideration paid consisted of
$1.65 million in cash, $2.85 million in convertible subordinated promissory
notes and $1.0 million in subordinated promissory notes. The subordinated
promissory notes have principal payments of $500,000 due March 3, 2001 and
payments of $500,000 plus all accrued interest due March 3, 2002. In connection
with the acquisition, the Company recorded approximately $5.1 million of
goodwill and other intangible assets. For the year ended December 31, 1999,
AccuVal and Liquitec recorded revenues of $3.7 million.
F-2
<PAGE>
On March 3, 2000, the Company acquired all of the outstanding stock of a
Chicago, Illinois based auctioneer and appraiser of used capital assets, Philip
Pollack & Company, Inc. ("Pollack"), for $4.3 million. The consideration paid
consisted of $1.1 million in cash, $442,000 in deferred cash (as a reserve for
seller warranties) and $2.75 million in convertible subordinated promissory
notes. In connection with the acquisition, the Company recorded approximately
$3.9 million of goodwill and other intangible assets. For the ten months ended
December 31, 1999, Pollack recorded revenues of $1.7 million.
On March 3, 2000, the Company acquired all of the outstanding stock of a
Mountain View, California based electric test and measurement dealer, Haltek
Electronics dba Test Lab Company ("Test Lab"), for $6.75 million in cash and
$250,000 in deferred cash (as a reserve for seller warranties). In connection
with the acquisition, the Company recorded approximately $3.9 million of
goodwill and other intangible assets. For the year ended December 31, 1999,
Test Lab recorded revenues of $7.4 million.
Each of the transactions described above has been accounted for as a
purchase. The convertible subordinated promissory notes issued in these
transactions convert into Company common stock automatically upon consummation
of an initial public offering at a conversion rate equal to the mid-point of
the offering range set forth on the final registration statement.
The unaudited pro forma consolidated statement of operations is not
necessarily indicative of the operating results that would have been achieved
had the transactions been in effect as of the beginning of the period presented
and should not be construed as being representative of future operating
results.
The audited historical financial statements of the Company, B&B, Unidyne,
AccuVal, Greenwich, Test Lab, and Pollack are included elsewhere in this
Prospectus and the unaudited pro forma financial information presented herein
should be read in conjunction with those financial statements and related
notes.
F-3
<PAGE>
DOVEBID, INC. AND SUBSIDIARY
UNAUDITED PRO FORMA BALANCE SHEET
December 31, 1999
(in thousands)
<TABLE>
<CAPTION>
Test Pro Forma Pro
DoveBid AccuVal Greenwich Lab Pollack Adjustments Forma
------- ------- --------- ------ ------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash
equivalents........... $ 6,969 $ 667 $ 768 $ 449 $ 19 $(12,750) (A) $ 95,622
99,500 (B)
Cash in trust.......... 2,563 -- 46 -- -- -- 2,609
Accounts receivable,
net................... 1,110 373 307 1,427 169 -- 3,386
Inventory.............. 2,584 -- 139 2,752 -- 10,000 (B) 15,475
Prepaid expenses and
other current
assets................ 294 25 44 8 164 -- 535
------- ------ ------ ------ ---- -------- --------
Total current
assets.............. 13,520 1,065 1,304 4,636 352 96,750 117,627
Property and Equipment,
net.................... 829 566 401 196 52 -- 2,044
Intangible assets
including goodwill,
net.................... 4,039 -- -- -- -- 16,378 (A) 20,417
Other assets............ 544 -- -- 52 563 -- 1,159
------- ------ ------ ------ ---- -------- --------
Total assets......... $18,932 $1,631 $1,705 $4,884 $967 $113,128 $141,247
======= ====== ====== ====== ==== ======== ========
Liabilities and
stockholders' equity
(deficit)
Current liabilities:
Accounts payable and
accrued expenses...... $ 2,529 $ 346 $ 157 $1,143 $477 $ -- $ 4,652
Trust account
liability............. 2,509 -- -- -- -- -- 2,509
Current portion of
note payable.......... 111 -- 11 354 224 -- 700
Note payable to
stockholder........... 1,000 -- -- -- -- -- 1,000
------- ------ ------ ------ ---- -------- --------
Total current
liabilities......... 6,149 346 168 1,497 701 -- 8,861
Long-term liabilities:
Retention obligation... 1,000 -- -- -- -- 692 (A) 1,692
Notes payable, net of
current portion....... 109 -- 195 517 99 1,000 (A) 1,920
Convertible
subordinated notes.... 2,000 -- -- -- -- 7,600 (A) 9,600
------- ------ ------ ------ ---- -------- --------
Total long-term
liabilities......... 3,109 -- 195 517 99 9,292 13,212
------- ------ ------ ------ ---- -------- --------
Total liabilities.... 9,258 346 363 2,014 800 9,292 22,073
Convertible preferred
stock subject to
redemption:
Series A............... 4,035 -- -- -- -- -- 4,035
Series B............... 12,797 -- -- -- -- -- 12,797
Series C............... -- -- -- -- -- 109,500 (B) 109,500
------- ------ ------ ------ ---- -------- --------
Total convertible
preferred stock
subject to
redemption.......... 16,832 -- -- -- -- 109,500 126,332
Stockholders' equity
(deficit)
Common stock........... 34 20 1,342 40 1 (1,403) 34
Additional paid in
capital............... 2,966 -- -- -- -- -- 2,966
Deferred stock
compensation.......... (2,378) -- -- -- -- -- (2,378)
Notes receivable from
stockholders.......... (1,856) -- -- -- -- -- (1,856)
Accumulated earnings
(deficit)............. (5,924) 1,265 -- 2,830 166 (4,261) (5,924)
------- ------ ------ ------ ---- -------- --------
Total stockholders'
equity (deficit).... (7,158) 1,285 1,342 2,870 167 (5,664) (A) (7,158)
------- ------ ------ ------ ---- -------- --------
Total liabilities and
stockholders' equity
(deficit)........... $18,932 $1,631 $1,705 $4,884 $967 $113,128 $141,247
======= ====== ====== ====== ==== ======== ========
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE>
DOVEBID, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
Year Ended December 31, 1999
(in thousands, except share and per share amount)
<TABLE>
<CAPTION>
Pro Forma
DoveBid B&B Unidyne Accu Val Greenwich Test Lab Pollack Adjustments Pro Forma
----------- ------ ------- -------- --------- -------- ------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............... $ 12,404 $1,920 $1,275 $3,668 $7,833 $7,400 $1,729 $ -- $ 36,229
Operating expenses:
Direct auction
costs............... 5,788 654 533 590 5,876 4,920 563 -- 18,924
Sales and marketing.. 2,271 -- -- -- -- 102 -- -- 2,373
General and
administrative...... 8,196 1,209 653 2,169 1,187 1,572 1,286 -- 16,272
Depreciation and
amortization........ 138 36 -- 203 25 20 13 2,429 (1) 2,864
Amortization of
deferred stock
compensation........ 51 -- -- -- -- -- -- -- 51
----------- ------ ------ ------ ------ ------ ------ ------- --------------
Total operating
expenses........... 16,444 1,899 1,186 2,962 7,088 6,614 1,862 2,429 40,484
----------- ------ ------ ------ ------ ------ ------ ------- --------------
Income (loss) from
operations............ (4,040) 21 89 706 745 786 (133) (2,429) (4,255)
Interest and other
income, net........... 229 (6) -- 17 89 99 18 -- 446
Interest expense....... (61) -- -- -- (44) (89) (21) (681) (2) (896)
----------- ------ ------ ------ ------ ------ ------ ------- --------------
Net income (loss)
before income taxes... (3,872) 15 89 723 790 796 (136) (3,110) (4,705)
Income tax provison.... -- -- -- -- -- (318) 41 277 (3) --
----------- ------ ------ ------ ------ ------ ------ ------- --------------
(3,872) 15 89 723 790 478 (95) (2,833) (4,705)
Preferred stock
accretion............. (369) -- -- -- -- -- -- -- (369)
----------- ------ ------ ------ ------ ------ ------ ------- --------------
Net income (loss)
attributable to common
stockholders.......... $ (4,241) $ 15 $ 89 $ 723 $ 790 $ 478 $ (95) $(2,833) $ (5,074)
=========== ====== ====== ====== ====== ====== ====== ======= ==============
Historical basic and
diluted net loss per
share applicable to
common stockholders... $ (0.15) $ (0.18)
=========== ==============
Weighted average common
shares used in the
calculation of
historical basic and
diluted net loss per
share applicable to
common stockholders... 28,402,639 28,402,639 (4)
=========== ==============
</TABLE>
See notes to financial statements
F-5
<PAGE>
DOVEBID, INC.
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL INFORMATION
Pro forma adjustments giving effect to the acquisitions of AccuVal,
Greenwich, Test Lab, and Pollack in the unaudited pro forma consolidated
balance sheet at December 31, 1999, reflect the following:
(A) Reflects the acquisitions of AccuVal, Greenwich, Test Lab and Pollack at
December 31, 1999 in aggregate, as follows (in thousands):
<TABLE>
<S> <C>
Consideration paid:
Cash............................................................... $12,750
Retention.......................................................... 692
Convertible subordinated notes issued.............................. 7,600
Promissory notes issued............................................ 1,000
-------
$22,042
=======
</TABLE>
<TABLE>
<S> <C> <C>
Allocation of purchase price:
Consideration paid.......................................... $22,042
Net assets at predecessor
Basis carried over are:
Assets.................................................... $9,187
Liabilities............................................... 3,523 (5,664)
------ -------
Excess assumed to be allocated to intangibles and goodwill.... $16,378
=======
</TABLE>
(Pro forma intangibles and goodwill are based on amounts which were
calculated as of December 31, 1999 which will differ from amounts calculated as
of the actual acquisition date.)
(B) Reflects the sale of Series C convertible preferred stock as if such
sale occurred on December 31, 1999. The company sold 41,011,242 shares at $2.67
per share and received cash proceeds of $99,500,000 and inventory valued at
$10,000,000 in February and March 2000.
Pro forma adjustments giving effect to the acquisitions of B&B, Unidyne,
AccuVal, Greenwich, Test Lab, and Pollack in the unaudited pro forma
consolidated statement of operations for the year ended December 31, 1999,
reflect the following:
(1) Amortization of goodwill and other intangible assets for B&B
($252,000), Unidyne ($252,000), AccuVal ($517,000), Greenwich
($453,000), Test Lab ($478,000), and Pollack ($477,000) acquisitions
totaling $2,429,000. Goodwill is being amortized over twelve years and
intangible assets are being amortized over four years.
(2) Increase in interest expense related to interest payable on convertible
subordinated notes issued totaling $9,600,000 and promissory notes
totaling $1,000,000 at annual rates from 5.74% to 7.0%; issued in
connection with the acquisitions of B&B ($1,000,000), Unidyne
($1,000,000), AccuVal ($3,850,000, which includes promissory notes of
$1,000,000), Greenwich ($2,000,000) and Pollack ($2,750,000).
(3) Reduction in tax expense is a result of the net operating loss
carryforwards of the Company.
(4) The cash portion of the purchase price consideration relating to the
acquisitions of B&B, Unidyne, AccuVal, Greenwich, Test Lab and Pollack
is assumed to be derived from the sale of Series A and B convertible
preferred stock as of the beginning of the period presented. As the
shares relating to these offerings are antidilutive at December 31,
1999, such shares are not included in the calculation of pro forma
basic and diluted net loss per share applicable to common stockholders.
F-6
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
DoveBid, Inc.
We have audited the accompanying consolidated balance sheets of DoveBid,
Inc. and subsidiary as of December 31, 1998 and 1999, and the related
consolidated statements of operations, changes in convertible preferred stock
and changes in 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 auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of DoveBid,
Inc. and subsidiary at December 31, 1998 and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
/s/ ERNST & YOUNG LLP
January 28, 2000 except as to Note 11,
as to which the date is March 8, 2000
San Francisco, California
F-7
<PAGE>
DOVEBID, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Proforma
Liabilities and
Stockholders'
December 31, equity (deficit)
---------------- at December 31,
1998 1999 1999
------- ------- ----------------
(unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents................. $ 229 $ 6,969
Cash in trust............................. 3,514 2,563
Accounts receivable, less allowance of $26
in 1998 and $43 in 1999.................. 285 1,110
Inventory................................. -- 2,584
Prepaid expenses.......................... 116 294
------- -------
Total current assets.................... 4,144 13,520
------- -------
Property and equipment, net................. 169 829
Intangible assets including goodwill, net... -- 4,039
Other assets................................ 38 544
------- -------
Total assets............................ $ 4,351 $18,932
======= =======
Liabilities and stockholders' equity
(deficit)
Current liabilities:
Accounts payable and accrued expenses..... $ 1,666 $ 2,529 $ 2,529
Trust account liability................... 3,506 2,509 2,509
Advances from affiliate................... 268 -- --
Current portion of note payable........... 111 111 111
Note payable to shareholder............... -- 1,000 1,000
------- ------- -------
Total current liabilities............... 5,551 6,149 6,149
Long-term liabilities:
Retention obligation...................... -- 1,000 1,000
Note payable, net of current portion...... 235 109 109
Convertible subordinated notes............ -- 2,000 --
------- ------- -------
Total long-term liabilities............. 235 3,109 1,109
------- ------- -------
Total liabilities....................... 5,786 9,258 7,258
Convertible preferred stock subject to
redemption:
Series A, no par value 12,500,000 shares
authorized, 12,480,468 issued and
outstanding, aggregate liquidation
preference of $4,118,554 as of December
31, 1999................................. -- 4,035 --
Series B, no par value 17,500,000 shares
authorized, 16,817,434 issued and
outstanding, aggregate liquidation
preference of $12,949,424 as of December
31, 1999................................. -- 12,797 --
------- ------- -------
Total convertible preferred stock
subject to redemption.................. -- 16,832 --
Stockholders' equity (deficit):
Members' equity (deficit)................. (1,435) -- --
Common stock, par value $0.001, 70,000,000
shares authorized, 33,877,705 issued and
outstanding at December 31, 1999;
63,607,359 proforma shares outstanding... -- 34 66
Additional paid-in capital................ -- 2,966 21,766
Deferred stock compensation............... -- (2,378) (2,378)
Notes receivable from stockholders........ -- (1,856) (1,856)
Accumulated deficit....................... -- (5,924) (5,924)
------- ------- -------
Total stockholders' equity (deficit).... (1,435) (7,158) 11,674
------- ------- -------
Total liabilities and stockholders'
equity (deficit)....................... $ 4,351 $18,932 $18,932
======= ======= =======
</TABLE>
See notes to consolidated financial statements.
F-8
<PAGE>
DOVEBID, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Revenues............................... $ 13,679 $ 10,801 $ 12,404
Operating expenses:
Direct auction costs................. 7,004 5,679 5,788
Sales and marketing.................. 1,195 1,079 2,271
General and administrative........... 5,321 4,787 8,196
Depreciation and amortization........ 204 188 138
Amortization of deferred stock
compensation........................ -- -- 51
Impairment of goodwill............... 9,751 -- --
----------- ----------- -----------
Total operating expenses........... 23,475 11,733 16,444
----------- ----------- -----------
Loss from operations................... (9,796) (932) (4,040)
Interest and other income, net......... 86 121 229
Interest expense....................... (48) (56) (61)
----------- ----------- -----------
Net loss............................... (9,758) (867) (3,872)
Preferred stock accretion.............. -- -- (369)
----------- ----------- -----------
Net loss attributable to common
stockholders.......................... $ (9,758) $ (867) $ (4,241)
=========== =========== ===========
Basic and diluted net loss per common
share (Note 2) ....................... $ (0.34) $ (0.03) $ (0.15)
=========== =========== ===========
Weighted average common shares used in
net loss per common share calculation
(Note 2) ............................. 28,987,596 28,617,578 28,402,639
=========== =========== ===========
Pro forma basic and diluted net loss
per share
(unaudited, Note 2)................... $ (0.11)
===========
Weighted average common shares used in
computing pro forma basic and diluted
net loss per share (unaudited, Note
2).................................... 38,761,430
===========
</TABLE>
See notes to consolidated financial statements.
F-9
<PAGE>
DOVEBID, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN CONVERTIBLE PREFERRED STOCK AND
CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(amounts in thousands)
<TABLE>
<CAPTION>
Convertible Stockholders' Equity (deficit)
Preferred Stock --------------------------------------------------------------------------------------
Subject to Notes Total
Redemption Common Stock Additional Deferred Receivable Stockholders'
---------------- Members' ------------- Paid-in Stock from Accumulated Equity
Shares Amount Equity Shares Amount Capital Compensation Shareholders Deficit (Deficit)
------- -------- -------- ------ ------ ---------- ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at
December 31,
1996............ -- $ -- $10,950 -- $-- $ -- $ -- $ -- $ -- $10,950
Assumption of
partner debt
accounted for as
noncash
distribution.... -- -- (1,200) -- -- -- -- -- -- (1,200)
Cash
distributions... -- -- (260) -- -- -- -- -- -- (260)
Net loss........ -- -- (9,758) -- -- -- -- -- -- (9,758)
------- -------- ------- ------ --- ------ ------- ------- ------- -------
Balances at
December 31,
1997............ -- -- (268) -- -- -- -- -- -- (268)
Cash
distributions... -- -- (300) -- -- -- -- -- -- (300)
Net Loss........ -- -- (867) -- -- -- -- -- -- (867)
------- -------- ------- ------ --- ------ ------- ------- ------- -------
Balances at
December 31,
1998............ -- -- (1,435) -- -- -- -- -- -- (1,435)
Cash
distributions... -- -- (550) -- -- -- -- -- -- (550)
Net Income
through June 14,
1999............ -- -- 1,683 -- -- -- -- -- -- 1,683
Assumption of
partner debt
accounted for as
noncash
distribution.... -- -- (1,015) -- -- -- -- -- -- (1,015)
------- -------- ------- ------ --- ------ ------- ------- ------- -------
Balances at June
14, 1999........ -- -- (1,317) -- -- -- -- -- -- (1,317)
Exchange of
common stock for
members'
equity.......... -- -- 1,317 28,212 28 (1,345) -- -- -- --
Issuances of
convertible
preferred stock
Series A, net of
issuance costs.. 12,481 3,870 -- -- -- -- -- -- -- --
Issuances of
convertible
preferred stock
Series B, net of
issuance costs.. 16,817 12,593 -- -- -- -- -- -- -- --
Issuances of
common stock
upon exercise of
stock options... -- -- -- 5,625 6 1,850 -- (1,856) -- --
Issuances of
common stock.... -- -- -- 41 -- 32 -- -- -- 32
Preferred stock
accretion....... -- 369 -- -- -- -- -- -- (369) (369)
Deferred stock
compensation.... -- -- -- -- -- 2,429 (2,429) -- -- --
Amortization of
deferred stock
compensation.... -- -- -- -- -- -- 51 -- -- 51
Net loss from
June 15, 1999... -- -- -- -- -- -- -- -- (5,555) (5,555)
------- -------- ------- ------ --- ------ ------- ------- ------- -------
Balances at
December 31,
1999............ 29,298 $ 16,832 $ -- 33,878 $34 $2,966 $(2,378) $(1,856) $(5,924) $(7,158)
======= ======== ======= ====== === ====== ======= ======= ======= =======
</TABLE>
See notes to consolidated financial statements.
F-10
<PAGE>
DOVEBID, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Years ended
December 31,
------------------------
1997 1998 1999
------- ------ -------
<S> <C> <C> <C>
Operating activities
Net loss........................................... $(9,758) $ (867) $(4,241)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization expense............. 256 188 138
Provision for bad debts........................... (48) (17) 17
Impairment of goodwill............................ 9,751 -- --
Amortization of deferred stock compensation....... -- -- 51
Provision for inventory losses.................... -- -- 371
Changes in operating assets and liabilities:
Cash in trust................................... (1,320) 2,438 951
Accounts receivable............................. (722) 1,228 (842)
Prepaid expenses and other assets............... 142 (103) (684)
Inventory, excluding acquisitions............... 110 -- (558)
Accounts payable and accrued expenses........... 249 (214) 863
Trust account liability......................... 1,296 (2,404) (997)
------- ------ -------
Net cash (used in) provided by operating
activities........................................ (44) 249 (4,931)
------- ------ -------
Investing activities
Purchases of property and equipment, net of
acquisitions...................................... (183) (127) (819)
Proceeds from sales of property and equipment...... 27 58 70
Acquisition of businesses, net of obligations
payable........................................... -- -- (3,500)
------- ------ -------
Net cash used in investing activities.............. (156) (69) (4,249)
------- ------ -------
Financing activities
Payments on short-term debt........................ (4,000) -- --
Proceeds (payments) on advances from affiliates.... -- 268 (268)
Payments on line of credit......................... (350) -- --
Issuance of note payable........................... 532 -- --
Payments on note payable........................... -- (186) (126)
Net proceeds from issuance of preferred stock...... -- -- 16,832
Cash distributions to members...................... (260) (300) (550)
Issuance of common stock........................... -- -- 32
------- ------ -------
Net cash (used in) provided by financing
activities........................................ (4,078) (218) 15,920
------- ------ -------
Net (decrease) increase in cash.................... (4,278) (38) 6,740
Cash and cash equivalents at beginning of year..... 4,545 267 229
------- ------ -------
Cash and cash equivalents at end of year........... $ 267 $ 229 $ 6,969
======= ====== =======
Supplemental disclosure of cash flow information
Cash paid for interest............................. $ 48 $ 56 $ 61
Supplemental disclosure of non-cash transactions
Issuance of retention obligations and convertible
subordinated notes for acquisition of businesses.. $ -- $ -- $ 3,000
Assumption of partner debt accounted for as noncash
distribution...................................... 1,200 -- 1,015
Issuances of common stock for notes receivable..... -- -- (1,856)
</TABLE>
See notes to consolidated financial statements.
F-11
<PAGE>
DOVEBID, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
1. Business and Organization
Business
DoveBid, Inc. (the "Company" or "DoveBid") is a business-to-business online
auctioneer focusing on the used capital assets market. The Company's auction
activities are provided through DoveBid, Inc. The Company also provides
appraisal and other related services through its wholly owned subsidiary,
DoveTech, Inc.
DoveBid has experienced net losses for 1997, 1998 and 1999 and has an
accumulated deficit at December 31, 1999. Net losses are expected for at least
the next year. In addition, the Company's business plan contemplates the need
for additional financing to fund current and future initiatives.
Organization
DoveBid succeeded to a business formed in March 1995 named Koll-Dove Global
Disposition Services, LLC ("Koll-Dove"). Koll-Dove was owned 50.1% by Koll
Management Services ("KMS") and 49.9% directly and indirectly by members of the
Dove Family including Messrs. Ross and Kirk Dove (collectively referred to
herein as the "Dove Group"). In October 1997, the Dove Group acquired KMS's
interest. This acquisition was accounted for at the partner level, and part of
the consideration included a note payable. Koll-Dove was then renamed Dove
Brothers, LLC ("Dove Brothers").
In June 1999, KMS reacquired a minority interest in Dove Brothers from the
Dove Group, and the acquisition was accounted for at the partner level.
However, as part of this transaction, Dove Brothers assumed a $1.0 million note
payable owed by the Dove Group to KMS, which has been treated in these
financial statements as a liability of Dove Brothers and a corresponding
decrease in Dove Group's equity.
In a series of reorganizations which occurred in June 1999, DoveBid, Inc.
was formed and the members of Dove Brothers exchanged their interests in Dove
Brothers for shares of stock in DoveBid, Inc. Dove Brothers then became a
subsidiary of DoveBid, Inc. Accordingly, because of the common control, the
accounts of Dove Brothers carried over to those of DoveBid, Inc. and subsidiary
at Dove Brothers' net book value. In December 1999, Dove Brothers was merged
into DoveBid, Inc.
For convenience herein, the consolidated financial statements for all
periods are referred to as those of DoveBid or the Company.
In June 1999, DoveBid began issuing its preferred stock to new investors.
2. Summary of Significant Accounting Policies
Basis of Presentation and Use of Estimates
The consolidated financial statements include DoveBid, Inc. and its wholly
owned subsidiary, DoveTech, Inc. All significant intercompany transactions and
balances have been eliminated.
The preparation of the Company's financial statements in accordance with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect amounts reported in
the financial statements and the accompanying notes. These estimates are based
on information
F-12
<PAGE>
DOVEBID, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
available as of the date of the financial statements; therefore, actual results
could differ from those estimates, although management does not believe that
any differences would materially affect the Company's financial position or
results of operations.
Cash, Cash Equivalents and Cash in Trust
The Company generally collects the gross proceeds from an onsite auction on
behalf of the selling parties and holds such proceeds in a trust account until
the final settlement date of the auction. These amounts are classified as cash
in trust in the accompanying balance sheets. Cash in trust is excluded from
cash for purposes of presentation in the statements of cash flows.
The portion of the proceeds that must be remitted to the owner of the asset
that was sold during an auction is reflected as a trust account liability in
the accompanying balance sheets, net of the Company's commissions and expense
reimbursements that have not been disbursed from the trust account.
Concentration of Credit Risk, Credit Evaluations and Significant Customers
Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash, cash equivalents, cash in trust
and accounts receivable. Cash, cash equivalents and cash in trust are deposited
with creditworthy financial institutions. The Company's unsecured accounts
receivable are derived from revenue earned from customers located in the U.S.
and throughout the world and are denominated in U.S. dollars. The Company
maintains an allowance for doubtful accounts receivable based upon the expected
collectibility. As of December 31, 1998 and 1999, the Company had no
significant concentrations of credit risk.
In 1998 and 1999, no single customer accounted for more than 10% of
revenues. One customer in 1997 accounted for revenues, exclusive of
reimbursements, of approximately $1,378,000, representing 10% of revenues. No
other single customer accounted for more than 10% of revenues in 1997.
Inventory
Inventory, consisting of used capital assets, is stated at the lower of cost
or market as determined by the first-in first-out (FIFO) method. The Company
periodically evaluates its inventory to ensure inventory is recorded at net
realizable value. During 1999, the Company provided a $542,000 allowance for
obsolete or slow moving inventory.
Property and Equipment, and Software for Internal Use
Office equipment and leasehold improvements are carried at cost.
Depreciation and amortization are computed on a straight-line basis over the
estimated useful lives of the respective assets or lease term. These useful
lives range from three to five years for office equipment and the shorter of
six years, or the remaining lease term for leasehold improvements.
The Company follows the provisions of Statement of Position ("SOP") 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use," which requires the capitalization of costs incurred in
connection with developing or obtaining software for internal use. These costs
are amortized over a period of three years on a straight line basis. Internet
related and website development costs are capitalized and amortized on a
straight line basis over two to five years.
Intangible Assets
Intangible assets consist principally of the cost in excess of assets
acquired resulting from acquisitions and are being amortized on a straight-line
basis over four years for intangibles relating to covenants not to compete and
customer lists, and over twelve years for goodwill.
F-13
<PAGE>
DOVEBID, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company assesses the carrying value and future useful life of these
assets whenever events or changes in circumstances indicate that impairment may
have occurred or that the future life has diminished. The Company considers the
future undiscounted cash flows of the acquired companies in assessing the
recoverability of these assets. If an impairment is indicated through this
review, the carrying amount of the intangible assets will be reduced to their
respective estimated fair values as determined based upon the best information
available in the circumstances. Such information likely would include a review
of comparable market prices of similar assets or businesses, if available, or
an estimate of fair value based upon the present value of estimated expected
future cash flows. Any impairment is charged to expense in the period in which
the impairment is incurred.
Revenue Recognition
Revenues from commission income from third-party auctions, less estimates
for certain allowances, are recognized upon closing of the related auction and
after resolution of any significant uncertainties as to ultimate collection of
auction proceeds. This income consists of a fee based on the auction
transaction price and other fees associated with certain costs and services.
Revenues from auctions of the Company's own inventory are recognized upon sale
and shipment of the equipment. The cost of inventory is included in direct
auction costs. Revenues from appraisal and other services are recognized when
the services are performed.
Advertising Costs
The Company recognizes advertising expenses in accordance with SOP 93-7,
"Reporting on Advertising Costs." As such, the Company expenses the costs of
producing advertisements at the time production occurs, and expenses the cost
of communicating advertising in the period in which the advertising space or
airtime is used. The Company incurred $1,911,000, $1,498,000, and $1,869,000 in
advertising costs in 1997, 1998 and 1999, respectively.
Stock-based Compensation and Consideration
The Company accounts for stock-based employee compensation arrangements in
accordance with provisions of Accounting Principles Board ("APB") Opinion No.
25, "Accounting for Stock Issued to Employees" (APB No. 25), and complies with
the disclosure provisions of Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock-Based Compensation" (SFAS 123). Under
APB No. 25, compensation expense is based on the difference, if any, on the
date of the grant, between the estimated fair value of the Company's stock and
the exercise price.
The Company accounts for stock issued to non-employees in accordance with
the provisions of SFAS No. 123 and the Emerging Issues Task Force Consensus in
Issue No. 96-18.
Income Tax Matters
Prior to June 15, 1999, the Company operated as a limited liability company
which was treated as a partnership for federal and state income tax purposes.
As a limited liability company, the Company was subject to minimal taxes and
fees in certain states; however, income taxes on income or losses realized by
the Company were generally the obligation of the members.
From June 15, 1999, the Company accounts for income taxes in accordance with
SFAS No. 109, "Accounting for Income Taxes" ("SFAS 109"), which requires the
use of the liability method of accounting for income taxes. Under SFAS 109,
deferred tax assets and liabilities are measured based on differences between
the financial reporting and tax bases of assets and liabilities using enacted
tax rate and laws that are expected to be in effect when the differences are
expected to reverse.
F-14
<PAGE>
DOVEBID, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Comprehensive Income (Loss)
The Company follows the requirements of SFAS No. 130, "Reporting
Comprehensive Income" ("SFAS 130"). Under SFAS 130, the Company is required to
display comprehensive income (loss) and its components as part of the financial
statements. Comprehensive income (loss) includes certain changes in equity that
are excluded from net income (loss). Specifically, SFAS 130 requires unrealized
holding gains and losses on available-for-sale securities to be included in
accumulated comprehensive income (loss). The Company has no material components
of comprehensive income and, accordingly, the comprehensive loss is the same as
net loss for all periods presented.
Segment Information
The Financial Accounting Standards Board (the "FASB") issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information" ("SFAS
131"), which is effective for financial statements for periods beginning after
December 15, 1997. SFAS 131 establishes standards for the way that public
business enterprises report financial and descriptive information about
reportable operating segments in annual financial statements and interim
reporting to shareholders. In adopting the provisions of SFAS 131, the Company
has determined that it has only one operating and reportable segment;
therefore, separate segment disclosure has not been made.
Net Loss Per Common Share
Basic and diluted net loss per common share information for all periods is
presented in accordance with the requirements of SFAS No. 128, "Earnings per
Share" ("FAS 128"). Basic loss per common share has been computed using the
weighted-average number of shares of common stock outstanding during the
period, less shares subject to repurchase.
Shares associated with options and convertible securities have been excluded
from the computation of diluted earnings per share as their inclusion would be
anti-dilutive.
Prior to June 15, 1999, the Company operated as a limited liability company.
The calculation of the weighted-average number of shares of common stock
outstanding for 1997, 1998 and 1999 includes a pro forma adjustment to reflect
the number of shares that would have been outstanding as if the shares that
were issued on June 14, 1999 had been issued on January 1, 1997, as adjusted
for cash distributions for those periods.
Pro forma basic and diluted net loss per common share assuming conversion
has been computed as described above and also gives effect, under Securities
and Exchange Commission guidance, to the conversion of debt and preferred
shares not included above that would automatically convert to common shares if
the Company were to complete an initial public offering, using the if-converted
method, from the original date of issuance.
F-15
<PAGE>
DOVEBID, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The calculations of historical basic and diluted net loss per common share
(using the pro forma weighted average shares outstanding), and pro forma basic
and diluted net loss per common share assuming conversion are as follows (in
thousands, except share and per share amounts):
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Net loss attributable to common
stockholders........................ $ (9,758) $ (867) $ (4,241)
=========== =========== ===========
Basic and diluted:
Weighted-average pro forma shares
of common stock outstanding....... 28,987,596 28,617,578 28,869,762
Less: Weighted-average common
shares subject to repurchase...... -- -- (467,123)
----------- ----------- -----------
Weighted-average shares used in
computing basic and diluted net
loss per common share............. 28,987,596 28,617,578 28,402,639
=========== =========== ===========
Basic and diluted net loss per
share............................... $ (0.34) $ (0.03) $ (0.15)
=========== =========== ===========
</TABLE>
<TABLE>
<S> <C>
Pro forma (see Note 11):
</TABLE>
<TABLE>
<S> <C>
Net loss.................................................... $ (4,241)
===========
Shares used above........................................... 28,402,639
Pro forma adjustment to reflect weighted effect of assumed
conversion of convertible preferred stock and convertible
subordinated debt (unaudited).............................. 10,358,791
-----------
Weighted average shares used in computing pro forma basic
and diluted net loss per common share (unaudited).......... 38,761,430
===========
Pro forma basic and diluted net loss per common share
(unaudited)................................................ $ (0.11)
===========
</TABLE>
The Company has excluded all convertible debt, convertible preferred stock,
outstanding stock options and shares subject to repurchase from the
calculations of diluted net loss per common share because their inclusion would
be anti-dilutive. The total number of shares excluded from the calculations of
diluted net loss per common share are 39,612,154 as of December 31, 1999. Such
securities, had they been dilutive, would have been included in the
computations of diluted net loss per share using the treasury stock method. In
February 2000, convertible preferred shares were split, as fully explained in
Note 11.
Recent Accounting Pronouncements
The staff of the Securities and Exchange Commission and the members of the
Emerging Issues Task Force of the Financial Accounting Standards Board, among
other accounting standard setters, are addressing accounting issues related to
companies doing business commonly referred to as "electronic commerce." Areas
of discussion include advertising barter transactions, website development,
exchange of equity investment for services, revenue recognition in complex
multiple element arrangements, arrangements with up front payments and revenue
recognition for auction sites. The ultimate resolutions to these issues and
other similar issues could have a material effect on the Company's accounting
policies used in the future.
3. Acquisitions and Retention Obligations
On December 30, 1999, Dovebid, Inc. acquired two printed circuit board
businesses, B&B Custom Circuit Supplies, Inc. and Unidyne International, Inc.
for $3,250,000 each. Both of the acquisitions were accounted for using the
purchase method of accounting and are included in the results of operations of
the Company from the
F-16
<PAGE>
DOVEBID, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
dates of acquisition. The purchase prices have been allocated to tangible and
intangible assets acquired based on estimates of their respective fair values.
The amortization periods for covenants not to compete, customer lists and
goodwill are four, four and twelve years, respectively.
The purchase price allocations are as follows (in thousands):
<TABLE>
<S> <C>
Intangibles Assets:
Covenants not to compete........................................... $ 500
Customer lists..................................................... 500
Goodwill........................................................... 3,039
------
4,039
Inventory............................................................ 2,397
Office equipment..................................................... 64
------
$6,500
======
Consideration for the purchases was comprised of (in thousands):
Cash................................................................. $3,500
Convertible subordinated notes....................................... 2,000
Retention obligation................................................. 1,000
------
$6,500
======
</TABLE>
The convertible subordinated notes convert automatically into common stock
upon the occurrence of an initial public offering. The common stock conversion
rate is determined by dividing the mid-point of the common stock offering price
range set forth in the Company's final registration statement, into the
aggregate outstanding principal and accrued interest arising from the
convertible subordinated notes upon the conversion date. The convertible
subordinated notes bear interest at 5.74% and mature on December 30, 2002.
The retention obligations (a reserve for seller warrantees) are without
interest and represents consideration retained as collateral to support the
indemnification provided by the seller to the Company for any future claims for
damages for breach of any obligation, representations or warranties arising and
asserted before January 3, 2001. The amount is fully payable to the sellers,
adjusted for any claims that might arise.
The following summarized unaudited pro forma information assumes the
acquisitions of B&B Custom Circuit Supplies, Inc. and Unidyne International,
Inc. occurred as of January 1, 1998 (in thousands, except share and per share
amounts):
<TABLE>
<CAPTION>
Years ended December
31,
------------------------
1998 1999
----------- -----------
<S> <C> <C>
Revenues......................................... $ 15,337 $ 15,599
Net loss applicable to common stockholders....... (2,040) (4,756)
Net loss per share applicable to common
stockholders:
Basic and diluted.............................. (0.07) (0.17)
Weighted average shares........................ 28,617,578 28,402,639
</TABLE>
F-17
<PAGE>
DOVEBID, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. Property and Equipment, Net
Property and equipment, net consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
------------
1998 1999
----- ------
<S> <C> <C>
Office equipment............................................... $ 522 $1,005
Leasehold improvements......................................... 103 102
Software....................................................... -- 273
----- ------
625 1,380
Less accumulated depreciation and amortization................. 456 551
----- ------
$ 169 $ 829
===== ======
</TABLE>
5. Impairment of Goodwill
In connection with the formation and capitalization of Koll-Dove in 1995 as
discussed in Note 1, goodwill of $10,000,000 was recorded. This goodwill
related solely to the Company's line of business focused on the auction of real
estate assets.
During 1997, it was determined that the opportunities in this line of
business were not consistent with the future direction of the Company and, as
part of this decision, KMS withdrew as a member. Given the withdrawal of KMS as
a member of the Company, management determined that future cash flows from the
real estate line of business, if any, would not be sufficient to recover the
carrying value of goodwill and the entire remaining balance was written off in
1997 by a charge to earnings of $9,751,000.
6. Notes Payable
Unsecured notes payable consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
------------
1998 1999
----- ------
<S> <C> <C>
Note payable to shareholder, bearing interest at 8% per annum,
due April 2000................................................ $ -- $1,000
===== ======
Other notes payable:
Note payable, bearing interest at 8.5% per annum, principal
and interest of $34 due quarterly through October 2001...... $ 346 $ 220
Convertible subordinated notes, bearing interest at 5.74% per
annum, principal and interest due December 2002 (see Note
3).......................................................... 2,000
----- ------
$ 346 $2,220
===== ======
</TABLE>
The aggregate annual principal maturities of the long-term notes as of
December 31, 1999 are as follows: 2000--$111,000; 2001--$109,000; and 2002--
$2,000,000.
7. Commitments and Contingencies
Operating Leases
The Company leases its headquarters office space for approximately $25,000
per month from The Dove Holdings Company, Inc., a related party, through
November, 2000. The Company also has entered into
F-18
<PAGE>
DOVEBID, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
noncancelable operating leases for facilities and equipment with various
expiration dates through the year 2005. Future minimum payments under the
noncancelable operating leases as of December 31, 1999, are as follows (in
thousands):
<TABLE>
<S> <C>
2000.............................................................. $ 774
2001.............................................................. 484
2002.............................................................. 480
2003.............................................................. 480
2004.............................................................. 480
Thereafter........................................................ 480
------
$3,178
======
</TABLE>
Rent expense under all operating leases totaled approximately $439,000,
$369,000, and $368,000 during 1997, 1998 and 1999, respectively.
Litigation
The Company is involved in various legal claims and litigation in the normal
course of its business. In the opinion of management, based upon consultation
with legal counsel, the eventual outcome of such claims and litigation is not
expected to have a material adverse effect on the Company's consolidated
financial position or results of operations.
Off Balance Sheet Market Risk
From time to time, the Company guarantees the auction proceeds to its
clients for client owned assets. At December 31, 1999, the Company had provided
one such guarantee totaling approximately $2,000,000. The Company assesses
these guarantees for any potential losses for the difference between the
estimated auction value and the guarantee amount, and reserves for any such
probable losses. At December 31, 1999, the Company had accrued for
approximately $400,000 of such probable losses.
8. Stockholders' Equity and Stock Option Plan
The Company has two classes of authorized stock: common stock and
convertible preferred stock. In October 1999, the Company's stockholders
approved a decrease in the originally authorized number of shares of common
stock from 75,000,000 to 70,000,000, and an increase in authorized preferred
stock from 25,000,000 to 30,000,000.
Common Stock
The Company has issued 33,877,705 shares of common stock as of December 31,
1999. In June 1999, 28,212,121 shares were issued to the Dove Group in exchange
for their interest in Dove Partners, Inc. The holder of each share of common
stock is entitled to the right of one vote.
In October 1999, two employees of the Company were granted fully vested
options to purchase 125,000 shares of stock at $0.33 per share. These options
were exercised in October 1999 with notes payable as consideration. The notes
were paid off subsequent to year end.
In November 1999, the Company's Chief Operating Officer and Chief Financial
Officer exercised their options to purchase a total of 5,500,000 shares of
stock at $0.33 per share with notes payable to the Company
F-19
<PAGE>
DOVEBID, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
as consideration pursuant to restricted stock purchase agreements. The
agreements grant the Company the right to repurchase any of the unvested shares
at its discretion at a price equal to the grant price. The shares vest, and the
right to repurchase expires, 25% at the first anniversary of the grant date,
and 2.08% per month for the next thirty six months. The notes bear interest at
5.92% per annum and are due on or before the fifth anniversary of the grant
date of the options, November 30, 2004. The notes, which are classified as a
component of stockholders' equity, are full recourse and are collateralized by
shares of common stock owned by the officers. Shares subject to repurchase were
5,500,000 as of December 31, 1999.
The Company is required to reserve and keep available out of its authorized
but unissued shares of common stock such number of shares sufficient to effect
the conversion of all outstanding shares of convertible preferred stock plus
shares granted and available for grant under the Company's 1999 Stock Option
Plan (the Plan). At December 31, 1999, common stock was reserved for issuances
as follows:
<TABLE>
<S> <C>
Conversion of convertible preferred stock......................... 29,629,654
Conversion of convertible subordinated debt....................... 100,000
1999 Stock Option Plan............................................ 2,618,500
----------
32,348,154
==========
</TABLE>
Holders of common stock are entitled to receive $0.33 as a liquidation
preference for each share outstanding.
Convertible Preferred Stock Subject to Redemption
The Company is authorized to issue 30,000,000 shares of convertible
preferred stock in one or more series.
Convertible preferred stock issued and outstanding is as follows:
<TABLE>
<CAPTION>
December 31, 1999
--------------------------------------------------
Shares Accumulated
Outstanding(1) Amount(2) Accretion Total
-------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Series A.................. 12,480,468 $ 3,869,915 $165,400 $ 4,035,315
Series B.................. 16,817,434 12,592,912 203,600 12,796,512
---------- ----------- -------- -----------
29,297,902 $16,462,827 $369,000 $16,831,827
========== =========== ======== ===========
</TABLE>
- --------
(1) The per share issuance price for Series A and Series B was $0.33, and
$0.77, respectively.
(2) Amount is net of issuance costs.
Holders of Series A and Series B convertible preferred stock are entitled to
receive annual cumulative dividends of $0.0264 and $0.616 per share,
respectively. Holders of Series A and Series B Convertible Preferred Stock are
also entitled to receive a liquidation preference, for each outstanding share,
equal to the original issue price of $0.33 and $0.77, respectively.
After payment of the liquidation preference to Series A and Series B
Convertible Preferred Stock and common stock, holders of Series A and Series B
Convertible Preferred Stock are entitled to receive, prior and in preference to
any common stockholders, an amount equal to accumulated or declared but unpaid
dividends, if any, attributable to the Series A and B Convertible Preferred
Stock. Following the payment of such liquidation preference, the remaining
distributable assets, if any, will be available for distribution to holders of
F-20
<PAGE>
DOVEBID, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Series A and Series B Convertible Preferred Stock, on an as converted basis,
along with holders of common stock. If the distributable assets are
insufficient to permit payment of the preferential amounts, then the entire
amount of distributable assets, shall be distributed pro rata among the Series
A and B Preferred Stockholders and common stock stockholders in proportion to
their respected aggregate liquidation preference amounts.
Each share of Series A and Series B Convertible Preferred Stock carries
voting rights ("Voting Preferred"). Each holder of Voting Preferred is entitled
to the number of votes equal to the number of shares of common stock into which
such shares of Series A and Series B held could then be converted.
Each share of Voting Preferred is convertible, at the option of the holder,
into shares of common stock, determined by dividing the sum of the applicable
original issue price, as defined in the certificates of incorporation, of
Series A and B Convertible Preferred Stock, plus an amount equal to declared or
accumulated but unpaid dividends on such share, divided by the then effective
conversion price. The conversion price per share for shares of Series A and B
Convertible Preferred Stock equals the original issue price subject to
adjustments for stock splits, stock dividends, combinations, and
recapitalizations. At December 31, 1999, the Conversion Rate for each series of
Preferred Stock was one share of common stock for each share of preferred
stock.
In addition, each share of Convertible Preferred Stock is automatically
converted into shares of common stock at the then effective conversion price
for such share immediately upon the consummation of a firmly underwritten
public offering of common stock (other than a registration on Form S-8 or
comparable form).
At any time after June 7, 2002, holders of at least 51% of Series A and
Series B Preferred Stock are entitled to cause the Company to redeem all or
part of the then outstanding Series A and Series B preferred stock at a price
equal to the then fair market value of the Series A and Series B Convertible
Preferred Stock, as converted, and common stock, as more fully described in the
applicable stock agreements.
Stock Option Plan
Under the 1999 Stock Option Plan (the "Plan"), the Company offers options to
purchase shares of its common stock to employees, including officers and
directors of, and consultants to, the Company who are not also employees of the
Company. The Company reserved 12,500,000 shares of common stock for issuance
through the Plan. The Plan is administered by the Company's Board of Directors.
The Board of Directors may award a number of forms of stock-based compensation
to eligible participants including incentive and nonqualified stock options
which generally vest over a four year period, not to exceed ten years.
The following summarizes stock option activity and related information
during the year ended December 31, 1999:
<TABLE>
<CAPTION>
Exercise Weighted Average
Shares Price Exercise Price
---------- ------------- ----------------
<S> <C> <C> <C>
Outstanding at October, 8, 1999
(Plan inception)
Granted...................... 9,881,500 $0.33 - $0.77 $0.39
Exercised.................... (5,625,000) 0.33 0.33
Forfeited.................... -- -- --
---------- ------------- -----
Outstanding at December 31,
1999.......................... 4,256,500 $0.33 - $0.77 $0.47
========== ============= =====
Options exercisable at December
31, 1999...................... -- -- --
========== ============= =====
</TABLE>
F-21
<PAGE>
DOVEBID, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Exercise prices for stock options outstanding as of December 31, 1999 and
the weighted average remaining contractual life are as follows:
<TABLE>
<CAPTION>
Weighted Average
Exercise Price at Shares Remaining Number
December 31, 1999 Outstanding Contractual Life Exercisable
----------------- ----------- ---------------- -----------
<S> <C> <C> <C>
$0.33 2,960,000 9.49 --
$0.77 1,296,000 9.02 --
--------- ---
4,256,500 --
========= ===
</TABLE>
As discussed in Note 2, the Company follows APB No. 25 and related
interpretations in accounting for its employee and director stock-based awards
because, as discussed below, the alternative fair value accounting provided for
under SFAS 123 requires use of option valuation models that were not developed
for use in valuing employee stock-based awards. Under APB Opinion No. 25, the
Company does not recognize compensation expense with respect to such awards if
the exercise price equals or exceeds the fair value of the underlying security
on the date of grant and other terms are fixed.
The fair value for these awards for the purpose of the alternative fair
value disclosures required by SFAS 123 was estimated as of the date of grant
using the minimum value options pricing model. This model was developed for use
in estimating the fair value of traded options that have no vesting
restrictions and are fully transferable. In addition, option valuation models
require the input of highly subjective assumptions, including the expected life
of the options. Because the Company's stock-based awards 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 stock-based awards. For the purposes of
the Company's pro forma disclosures, the fair value of options granted during
the period ended December 31, 1999 was determined using the minimum value
method with a risk-free interest rate of approximately 5.5%, an expected life
of 5 years, and a dividend yield of zero.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the option's vesting period. The Company's
pro forma information follows (in thousands except per share amounts):
<TABLE>
<CAPTION>
Year ended
December 31,
1999
------------
<S> <C>
Net Loss attributable to common stockholders:
As reported............................................... $(4,241)
Pro Forma................................................. (4,276)
Basic and diluted net loss per common share:
As reported............................................... $ (0.15)
Pro Forma................................................. (0.15)
</TABLE>
The compensation cost associated with the Company's stock-based compensation
plans determined using the minimum value method prescribed above did not result
in a material difference from the reported net income for the period from
October 8, 1999 (inception) to December 31, 1999. Future pro forma net income
results may be materially different from actual amounts reported.
Deferred Stock Compensation
Deferred compensation represents the aggregate difference, at the date of
grant, between the respective exercise price of stock options and the estimated
fair value of the underlying stock. Deferred stock-based
F-22
<PAGE>
DOVEBID, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
compensation is amortized over the vesting period of the underlying options
based on an accelerated vesting method, generally four years. Through December
31, 1999, the Company had recorded unearned stock-based compensation of
$2,480,000. For 1999, the Company recorded amortization of stock-based
compensation of $50,600.
9. Income Taxes
At December 31, 1999, the Company had net operating loss carryforwards of
$4,521,087 for federal income tax purposes that expire in years 2013 to 2015.
For financial reporting purposes, a valuation allowance has been recognized in
1999 to offset the deferred tax assets, which primarily related to those
carryforwards.
Due to the "change in ownership" provisions of the Internal Revenue Code,
utilization of the net operating loss carryforwards may be subject to an annual
limitation regarding their utilization against taxable income in future
periods.
Deferred income taxes reflected the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax liabilities and assets as of December 31, 1999
are as follows (in thousands):
<TABLE>
<S> <C>
Deferred tax liabilities........................................ $ --
Deferred tax assets:
Depreciation.................................................. 9
Contribution carryover........................................ 12
Net operating loss carryover.................................. 1,854
Provision for bad debts....................................... 13
Reserves...................................................... 452
-------
Total deferred tax assets....................................... 2,340
Valuation allowance for deferred tax assets..................... (2,340)
-------
Net deferred tax liabilities/assets............................. $ --
=======
</TABLE>
The federal statutory rate reconciles to the Company's effective tax rate as
follows for the year ended December 31, 1999:
<TABLE>
<S> <C>
Federal Statutory income tax rate................................ 35.00%
State tax provision, net of federal tax benefit.................. 6.51
Net operating loss carryforward.................................. (33.67)
Other............................................................ (7.84)
------
Effective tax rate............................................... 0.00%
======
</TABLE>
10. Fair Value of Financial Instruments
As of December 31, 1998 and 1999, the respective carrying values of the
Company's financial instruments, which include cash and cash equivalents, cash
in trust, accounts receivable, accounts payable and accrued expenses, and debt
approximated their fair values. Carrying values were estimated to approximate
fair values for these financial instruments as they are short-term in nature
and are receivable or payable on demand.
F-23
<PAGE>
DOVEBID, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
11. Other Subsequent Events
Initial Public Offering ("IPO")
The Company is contemplating filing a registration statement with the
Securities and Exchange Commission relating to an IPO of shares of its unissued
common stock. If the IPO is consummated under the terms presently anticipated,
all of the preferred stock outstanding will automatically convert into common
stock. At December 31, 1999, on an unaudited pro forma basis, 29,297,902 shares
of common stock would be issued upon automatic conversion of preferred stock.
The pro forma effect on stockholders' equity and pro forma effect on basic and
diluted net loss per common share, as adjusted for the assumed conversion of
the preferred stock, is set forth on the accompanying balance sheet and
statement of operations, and in Note 2 under Net Loss per Common Share.
Series C Convertible Preferred Stock Financing
In February and March 2000, the Company sold 41,011,242 shares of Series C
preferred stock at a price of $2.67 per share. Each share of Series C preferred
stock is convertible into one share of common stock. All holders of Series C
shares have dividend, liquidation preferences and redemption rights
substantially the same as holders of Series A and Series B convertible
preferred stock.
Business Acquisitions
On December 30, 1999, the Company acquired certain assets, primarily
inventory, of two San Jose, California-based printed circuit board equipment
dealers, B&B Custom Circuit Supplies, Inc. (B&B) and Unidyne International,
Inc. (Unidyne), for $3.25 million each. The consideration paid in each
transaction consisted of $1.75 million in cash, $500,000 in retention
obligations (as a reserve for seller warranties) and $1.0 million in
convertible subordinated promissory notes. In connection with each of these
acquisitions, the Company recorded approximately $2.0 million of goodwill and
other intangible assets. For the year ended December 31, 1999, B&B and Unidyne
recorded revenues of $1.9 million and $1.3 million, respectively, in their
separate financial statements.
On February 29, 2000, the Company acquired all of the outstanding stock of a
Branford, Connecticut-based auctioneer and appraiser of used capital assets,
Greenwich Industrial Services, LLC (Greenwich), for $6.25 million. The
consideration paid consisted of $3.25 million in cash, $2.0 million of
convertible subordinated promissory notes, and a $1.0 million cash earn-out. In
connection with this acquisition, the Company recorded approximately $4.2
million of goodwill and other intangible assets. For the year ended December
31, 1999, Greenwich recorded revenues of $7.8 million, in its separate
financial statements.
On March 3, 2000, the Company acquired all of the outstanding stock of two
affiliated Mequon, Wisconsin-based companies, an appraiser, AccuVal Associates,
Inc. (AccuVal), and an auctioneer, Liquitec Industries, Incorporated
(Liquitec), for a total of $5.5 million. The consideration paid consisted of
$1.65 million in cash, $2.85 million in convertible subordinated promissory
notes and $1.0 million in subordinated promissory notes. The subordinated
promissory notes have principal payments of $500,000 due March 3, 2001 and
payments of $500,000 plus all accrued interest due March 3, 2002. In connection
with the acquisition, the Company recorded approximately $5.1 million of
goodwill and other intangible assets. For the year ended December 31, 1999,
AccuVal and Liquitec recorded revenues of $3.7 million, in their separate
financial statements.
F-24
<PAGE>
DOVEBID, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
On March 3, 2000, the Company acquired all of the outstanding stock of a
Chicago, Illinois based auctioneer and appraiser of used capital assets, Philip
Pollack & Company, Inc. (Pollack), for $4.3 million. The
consideration paid consisted of $1.1 million in cash, $442,000 in deferred cash
(as a reserve for seller warranties) and $2.75 million in convertible
subordinated promissory notes. In connection with the acquisition, the Company
recorded approximately $3.9 million of goodwill and other intangible assets.
For the ten months ended December 31, 1999, Pollack recorded revenues of $1.7
million, in its separate financial statements.
On March 3, 2000, the Company acquired all of the outstanding stock of a
Mountain View, California-based semiconductor equipment dealer, Haltek
Electronics dba Test Lab Company ("Test Lab"), for $6.75 million in cash and
$250,000 in deferred cash (as a reserve for seller warranties). The acquisition
has been accounted for using the purchase method. In connection with the
acquisition, the Company recorded approximately $3.9 million of goodwill and
other intangible assets. For the year ended December 31, 1999, Test Lab
recorded revenues of $7.4 million (unaudited), in its separate financial
statements.
Each of the transactions described above has been accounted for as a
purchase. The convertible subordinated promissory notes issued in these
transactions convert into Company common stock automatically upon consummation
of an initial public offering at a conversion rate equal to the mid-point of
the offering range set forth on the final registration statement.
Promotional agreement with Yahoo!
In March 2000, the Company entered into an alliance with Yahoo! under which
Yahoo! will advertise and promote the Company's services as a business-to-
business auctioneer. The Company will pay Yahoo! marketing and promotional fees
over a period of approximately twelve months and will also purchase additional
advertising with Yahoo! based on the amount of the Company's auction
commissions derived from customers originated through Yahoo!. In addition, the
Company issued an immediately exercisable warrant to Yahoo! to purchase
1,405,000 shares of Series C convertible preferred stock. The warrant expires
four years from the date of the agreement.
Stock Option Issued
Through February 29, 2000, the Company granted additional options to
purchase 1,789,000 shares of common stock at exercise prices ranging from $0.77
to $2.67 per share.
Exercise of Stock Options
In January and February 2000, five officers of the Company exercised options
to purchase 2,350,000 shares at a prices ranging from $0.33 to $1.50 per share.
These options were exercised in the form of a note payable to the Company as
consideration pursuant to restricted stock purchase agreements. The agreements
grant the Company the right to repurchase any of the unvested shares at its
discretion at a price equal to the grant price. The shares vest, and the
repurchase right expires, 25% at the first anniversary of the grant date and
6.25% per quarter thereafter. The notes bear interest at rates ranging from
5.92% to 8.0% per annum and are due on or before the fifth anniversary of the
grant date of the options. The notes, which are classified as a component of
stockholders' equity, are full recourse and are collateralized by shares of
common stock owned by the officers.
F-25
<PAGE>
DOVEBID INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Preferred Stock Split
In February 2000, the Board of Directors effected a 1.03221917 to one stock
split in the form of a stock dividend on the outstanding shares of Series A
Convertible Preferred Stock and a 1.01643835 to one stock split on the
outstanding shares of Series B Convertible Preferred Stock. All share and per
share information included in these financial statements have been
retroactively adjusted to reflect this stock spilt.
12. Impact of the Year 2000 (Unaudited)
In late 1999, the Company completed its remediation and testing of systems.
As a result of those planning and implementation efforts, the Company
experienced no significant disruptions in mission critical information
technology and non-information technology systems and believes those systems
successfully responded to the Year 2000 date change. The Company is not aware
of any material problems resulting from Year 2000 issues, either with its
products, its internal systems, or the products and services of third parties.
The Company will continue to monitor its mission critical computer applications
and those of its suppliers and vendors throughout the year 2000 to ensure that
any latent Year 2000 matters that may arise are addressed promptly.
F-26
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders
B&B Custom Circuit Supplies, Inc.
We have audited the statements of operations and cash flows of B&B Custom
Circuit Supplies, Inc. (the Company) for each of the three years in the period
ended June 30, 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 auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of the Company's operations and the
Company's cash flows for each of the three years in the period ended June 30,
1999, in conformity with accounting principles generally accepted in the United
States.
/s/ ERNST & YOUNG LLP
February 29, 2000
San Francisco, California
F-27
<PAGE>
B&B CUSTOM CIRCUIT SUPPLIES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended Year ended Year ended
June 30, June 30, June 30,
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Net revenues................................. $3,475,537 $2,876,833 $1,920,060
Cost of revenues............................. 1,943,116 1,631,138 654,167
---------- ---------- ----------
Gross profit............................. 1,532,421 1,245,695 1,265,893
---------- ---------- ----------
Operating expenses:
General and administrative................. 1,154,058 1,468,701 1,245,106
---------- ---------- ----------
Total operating expenses................. 1,154,058 1,468,701 1,245,106
---------- ---------- ----------
Income (loss) from operations................ 378,363 (223,006) 20,787
Interest expense............................. -- -- (6,368)
---------- ---------- ----------
Net income (loss)............................ $ 378,363 $ (223,006) $ 14,419
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-28
<PAGE>
B&B CUSTOM CIRCUIT SUPPLIES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended Year ended Year ended
June 30, June 30, June 30,
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss).......................... $ 378,363 $(223,006) $ 14,419
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation and amortization............ 30,945 35,564 35,973
Changes in operating assets and
liabilities:
Accounts receivable..................... (92,160) 315,471 48,623
Other assets............................ (13,253) 8,143 3,330
Inventory............................... (2,311) (64,116) (31,046)
Accounts payable........................ 47,628 67,880 88,206
--------- --------- ---------
Net cash provided by operating activities.. 349,212 139,936 159,505
--------- --------- ---------
Cash flows from investing activities
Purchases of property and equipment........ -- (202,694) (5,290)
--------- --------- ---------
Net cash used in investing activities...... -- (202,694) (5,290)
--------- --------- ---------
Cash flows from financing activities
(Payment to) and advances from
Shareholder............................... (308,191) 24,594 (114,364)
--------- --------- ---------
Net cash (used in) provided by financing
activities................................ (308,191) 24,594 (114,364)
--------- --------- ---------
Change in cash............................. 41,021 (38,164) 39,851
Cash, beginning of year.................... -- 41,021 2,857
--------- --------- ---------
Cash, end of year.......................... $ 41,021 $ 2,857 $ 42,708
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-29
<PAGE>
B&B CUSTOM CIRCUIT SUPPLIES, INC.
NOTES TO FINANCIAL STATEMENTS
1. The Company
B&B Custom Circuit Supplies, Inc. (the "Company") was incorporated in June
1998. The Company purchases used circuit board machinery for resale.
On December 30, 1999, Dovebid, Inc. acquired the assets of the Company,
primarily inventory, and hired the Company's executives and employees. The
Company's operations ceased on that date.
2. Summary of Significant Accounting Policies
Use of Estimates--The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of revenues and expenses
during the reporting period. Actual results may differ from these estimates.
Revenue Recognition--The Company's revenues are derived principally from the
sale of new and refurbished circuit equipment. Revenues are recognized upon
shipment of goods.
Advertising Expense--Advertising costs are expensed as incurred and totaled
$26,179, $26,912 and $9,040 for the years ended June 30, 1997, 1998 and 1999,
respectively.
Concentration of Credit Risk--During the years ended June 30, 1997 and 1998
two customers accounted for approximately 20% and 26%, respectively, of
revenues, and one customer accounted for approximately 11% of revenues for the
year ended June 30, 1999. No other customers accounted for more than 10% of
revenues.
3. Related Party
The Company leases its building facilities from a related entity on a month
to month operating lease.
Total rental expense for operating leases was $112,000, $105,491 and $88,929
for the years ended June 30, 1997, 1998 and 1999, respectively.
4. Income Taxes
The Company is a Subchapter S corporation for federal and state income tax
purposes. In accordance with federal and state provisions, corporate earnings
flow through to the shareholders and are taxed at the shareholder level. Any
such shareholder tax obligations are not reflected herein.
F-30
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders
Unidyne International Inc.
We have audited the statements of operations and cash flows of Unidyne
International Inc. (the Company) for the years ended December 31, 1997 and 1998
and for the period January 1, 1999 through December 30, 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 auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of the Company's operations and the
Company's cash flows for the years ended December 31, 1997 and 1998 and for the
period January 1, 1999 through December 30, 1999, in conformity with accounting
principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
February 29, 2000
San Francisco, California
F-31
<PAGE>
UNIDYNE INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period
January 1,
Year ended Year ended 1999 through
December 31, December 31, December 30,
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Net revenues............................. $2,615,105 $1,659,240 $1,274,626
Cost of revenues......................... 1,930,064 974,126 533,025
---------- ---------- ----------
Gross profit......................... 685,041 685,114 741,601
---------- ---------- ----------
Operating expenses:
General and administrative............. 879,980 1,016,576 652,732
---------- ---------- ----------
Total operating expenses............. 879,980 1,106,576 652,732
---------- ---------- ----------
Net (loss) income........................ $ (194,939) $ (331,462) $ 88,869
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-32
<PAGE>
UNIDYNE INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period
January 1,
Year ended Year ended 1999 through
December 31, December 31, December 30,
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income..................... $(194,939) $(331,462) $ 88,869
Adjustments to reconcile net (loss)
income to net cash provided by
operating activities:
Changes in operating assets and
liabilities:
Accounts receivable................. (153,672) 106,364 43,904
Other assets........................ (23,084) (12,078) 28,400
Inventory........................... 489,000 337,500 --
Accounts payable.................... 6,167 20,517 (22,506)
Accrued liabilities................. 77,546 (77,546) 12,500
--------- --------- ----------
Net cash provided by operating
activities............................. 201,018 43,295 151,167
--------- --------- ----------
Cash flows from financing activities
Advances to shareholder................. (137,390) (141,000) (209,537)
--------- --------- ----------
Net cash used in financing activities... (137,390) (141,000) (209,537)
--------- --------- ----------
Change in cash.......................... 63,628 (97,705) (58,370)
Cash, beginning of period............... 187,665 251,293 153,588
--------- --------- ----------
Cash, end of period..................... $ 251,293 $ 153,588 $ 95,218
========= ========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-33
<PAGE>
UNIDYNE INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
1. The Company
Unidyne International, Inc. (the Company) was incorporated in 1995. The
Company purchases used hand circuit board machinery for resale.
On December 30, 1999, Dovebid, Inc. acquired the assets of the Company,
primarily inventory, and hired the Company's executives and employees. The
Company's operations ceased on that date.
2. Summary of Significant Accounting Policies
Use of Estimates--The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of revenues and expenses
during the reporting period. Actual results may differ from those estimates.
Revenue Recognition--The Company's revenues are derived principally from the
sale of new and refurbished circuit equipment. Revenues are recognized upon
shipment of goods.
Advertising Expense--Advertising costs are expensed as incurred and totalled
$34,457 and $31,757 during the years ended December 31, 1997 and 1998,
respectively, and $6,941 for the period January 1, 1999 through December 30,
1999.
Concentration of Credit Risk--During the years ended December 31, 1997 and
1998, two customer accounted for 21% and 26%, respectively, of revenues. During
the period January 1, 1999 through December 30, 1999, one customer accounted
for 11% of revenues. No other customers accounted for more than 10% of
revenues.
3. Related Party
The Company leases its building facilities from a related entity on a month
to month operating lease.
Total rental expense for operating leases was $104,124, $96,000 and $88,000
for the years ended December 31, 1997 and 1998, and the period January 1, 1999
through December 30, 1999, respectively.
4. Income Taxes
The Company is a Subchapter S corporation for federal and state income tax
purposes. In accordance with federal and state provisions, corporate earnings
flow through to the shareholders and are taxed at the shareholder level. Any
such shareholder tax obligations are not reflected herein.
F-34
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
AccuVal Associates, Incorporated and LiquiTec Industries, Incorporated
We have audited the accompanying combined balance sheets of AccuVal
Associates, Incorporated and LiquiTec Industries, Incorporated (collectively,
the "Company") as of December 31, 1998 and 1999, and the related combined
statements of income and retained earnings and cash flows for the years then
ended. 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 auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the
Company at December 31, 1998 and 1999, and the combined results of their
operations and their cash flows for the years then ended, in conformity with
accounting principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
March 3, 2000
Milwaukee, Wisconsin
F-35
<PAGE>
ACCUVAL ASSOCIATES, INCORPORATED AND LIQUITEC INDUSTRIES, INCORPORATED
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
---------------
1998 1999
------- -------
(in thousands)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents.................................... $ 353 $ 667
Accounts receivable.......................................... 195 373
Unbilled costs and expenses.................................. 55 6
Other current assets......................................... 35 19
------- -------
Total current assets....................................... 638 1,065
Software development costs, net................................ 193 303
Property and equipment, net.................................... 244 263
------- -------
Total assets............................................... $ 1,075 $ 1,631
======= =======
Liabilities and shareholders' equity
Current liabilities:
Accounts payable............................................. $ 56 $ 65
Accrued wages and payroll taxes.............................. 108 121
Accrued profit sharing....................................... 44 73
Accrued vacation............................................. 76 79
Deposits..................................................... 6 4
Due to related parties....................................... -- 4
------- -------
Total current liabilities.................................. 290 346
Commitments
Shareholders' equity:
Common stock................................................. 20 20
Retained earnings............................................ 765 1,265
------- -------
Total shareholders' equity................................. 785 1,285
------- -------
Total liabilities and shareholders' equity................. $ 1,075 $ 1,631
======= =======
</TABLE>
See accompanying notes.
F-36
<PAGE>
ACCUVAL ASSOCIATES, INCORPORATED AND LIQUITEC INDUSTRIES, INCORPORATED
COMBINED STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
Year ended
December 31,
----------------
1998 1999
------- -------
(in thousands)
<S> <C> <C>
Revenues:
Appraisal services.......................................... $ 2,792 $ 3,382
Auction commissions......................................... 279 286
------- -------
3,071 3,668
Costs of revenues............................................. 488 590
------- -------
Gross profit.................................................. 2,583 3,078
General and administrative expense............................ 1,819 2,169
Depreciation and amortization................................. 137 203
------- -------
Income from operations........................................ 627 706
Other (expense) income:
Interest income............................................. 14 18
Other....................................................... 5 (1)
------- -------
19 17
------- -------
Net income.................................................... 646 723
Retained earnings--beginning of year.......................... 466 765
Distributions to shareholders................................. (347) (223)
------- -------
Retained earnings--end of year................................ $ 765 $ 1,265
======= =======
</TABLE>
See accompanying notes.
F-37
<PAGE>
ACCUVAL ASSOCIATES, INCORPORATED AND LIQUITEC INDUSTRIES, INCORPORATED
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
------------------------
1998 1999
----------- -----------
(in thousands)
<S> <C> <C>
Operating activities
Net income.......................................... $ 646 $ 723
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation...................................... 63 68
Amortization of software development costs........ 74 135
Gain on sale of equipment......................... (7) --
Changes in operating assets and liabilities:
Accounts receivable.............................. 102 (178)
Unbilled costs and expenses...................... (33) 49
Other current assets............................. (13) 16
Accounts payable................................. 6 9
Accrued liabilities and deposits................. (11) 43
Due to related parties........................... -- 4
----------- -----------
Total adjustments............................... 181 146
----------- -----------
Net cash provided by operating activities........... 827 869
Investing activities
Purchases of property and equipment................. (123) (87)
Proceeds from sale of equipment..................... 12 --
Payment of software development costs............... (163) (245)
----------- -----------
Net cash used in investing activities............... (274) (332)
Financing activities
Distributions to shareholders....................... (347) (223)
----------- -----------
Net cash used in financing activities............... (347) (223)
----------- -----------
Increase in cash and cash equivalents............... 206 314
Cash and cash equivalents at beginning of year...... 147 353
----------- -----------
Cash and cash equivalents at end of year............ $ 353 $ 667
=========== ===========
</TABLE>
See accompanying notes.
F-38
<PAGE>
ACCUVAL ASSOCIATES, INCORPORATED AND LIQUITEC INDUSTRIES, INCORPORATED
NOTES TO COMBINED FINANCIAL STATEMENTS
Years Ended December 31, 1998 and 1999
1. Nature of Business and Significant Accounting Policies
Basis of Presentation and Nature of Operations
The accompanying financial statements represent the combined financial
statements of AccuVal Associates, Incorporated ("AccuVal") and LiquiTec
Industries, Incorporated ("LiquiTec") (collectively, the "Company"). AccuVal
and LiquiTec are both equally owned by two individual shareholders and are in
related lines of business. As such, management believes there is adequate
support for presenting combined financial statements. All significant
intercompany transactions have been eliminated in combination.
AccuVal performs appraisal and consulting services in a variety of
industries throughout North America and on a limited international basis. These
services are provided to companies, lenders and buyers seeking advice on the
value of businesses, inventory, tangible and intangible assets.
LiquiTec provides liquidation services to a variety of parties including
lenders, attorneys, bankruptcy courts and others seeking to dispose of tangible
personal and real property. These services include coordination, marketing,
preparation, conduction and accounting for the sale of assets. These services
are provided throughout North America and are typically provided on a
commission basis as a percentage of the liquidation sales proceeds.
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
the accompanying notes. Actual results could differ from those estimates.
Revenue recognition
AccuVal recognizes revenue from appraisal fees as the revenue is earned
(measured by delivery of the appraisal report) utilizing the completed contract
method of accounting for these relatively short-term contracts. Deposits
received on appraisal projects are deferred until completion of the appraisal
report. Costs and expenses are recognized during the same period in which the
associated revenue is earned. Accordingly, costs and expenses that are directly
associated with projects in process are deferred as unbilled costs and expenses
in the accompanying combined balance sheets until the matching revenue is
earned. Costs and expenses projected to exceed revenues are immediately
expensed.
Auction commission revenue of LiquiTec is generally recognized upon closing
of the related auction less estimates for certain allowances and after
resolution of any significant uncertainties as to ultimate collection of
auction proceeds. Commission income consists of a fee based on the transaction
price plus revenues associated with other costs and services.
Advertising and Marketing Costs
The Company expenses all advertising and marketing costs as incurred which
totaled approximately $43,000 and $29,000 for the years ended December 31, 1998
and 1999, respectively.
Cash Equivalents
The Company considers all highly liquid investments purchased with a
maturity of three months or less at the date of purchase to be cash
equivalents. For such investments, cost approximates fair value.
F-39
<PAGE>
ACCUVAL ASSOCIATES, INCORPORATED AND LIQUITEC INDUSTRIES, INCORPORATED
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
Concentrations of Credit Risk
The Company's cash and cash equivalents include deposits and overnight
investments primarily in one financial institution and had a net balance that
exceeded FDIC insurance levels at December 31, 1998 and 1999, by approximately
$253,000 and $567,000, respectively.
The Company typically does not require collateral or other security of its
customers.
In 1998, sales to two customers amounted to approximately 23% of total
revenues. There were no sales to individual customers in excess of 10% of total
revenues in 1999.
Software Development Costs
The Company follows the provisions of Statement of Position (SOP) 98-1,
"Accounting For The Costs Of Computer Software Developed Or Obtained For
Internal Use," which requires the capitalization of costs incurred in
connection with developing or obtaining software for internal use. These costs
are amortized over a period of three years, the estimated useful life of the
software. Accumulated amortization of software development costs totaled
approximately $143,000 and $278,000 at December 31, 1998 and 1999,
respectively.
Property and Equipment
Properly and equipment are stated at cost. Depreciation for financial
statement purposes is provided on the straight-line method over the estimated
useful lives. The composition of property and equipment and related useful
lives are as follows:
<TABLE>
<CAPTION>
December 31,
Useful Lives in ----------------
Years 1998 1999
--------------- ------- -------
(in thousands)
<S> <C> <C> <C>
Computer equipment........................ 5 $ 138 $ 190
Computer software......................... 3 25 35
Business machines......................... 5 70 75
Office equipment.......................... 5 65 67
Furniture and fixtures.................... 7 119 128
Vehicles.................................. 7 107 107
Leasehold improvements.................... 7-15 19 28
------- -------
543 630
Less accumulated depreciation............. (299) (367)
------- -------
$ 244 $ 263
======= =======
</TABLE>
2. Income Taxes
AccuVal and LiquiTec are subject to the provisions of Subchapter S of the
Internal Revenue Code and the tax code of Wisconsin. Accordingly, these
financial statements reflect no provision or liability for federal or Wisconsin
income taxes because federal and Wisconsin taxes on the income of AccuVal and
LiquiTec are attributed directly to the individual shareholders.
3. Related-Party Transactions
AccuVal and LiquiTec have certain transactions in the ordinary course of
business with its shareholders and related companies. The Company leases its
corporate headquarters from the shareholders and paid rent of
F-40
<PAGE>
ACCUVAL ASSOCIATES, INCORPORATED AND LIQUITEC INDUSTRIES, INCORPORATED
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
approximately $117,000 each for the years ended December 31, 1998 and 1999. The
Company also rented storage space from an affiliated company which is under
common ownership with AccuVal and LiquiTec. Total payments for this storage
space amounted to $6,500 and $5,500 for the years ended December 31, 1998 and
1999, respectively.
4. Financing
The Company maintained a $1,000,000 line of credit with a bank which was
canceled February 24, 2000. Interest was payable monthly at LIBOR plus 2.25%.
There were no borrowings outstanding under this line of credit as of December
31, 1998 and 1999. The note was secured by all of the Company's assets and the
personal guarantees of the shareholders.
5. Benefit Plan
AccuVal and LiquiTec sponsor a profit-sharing plan for substantially all
employees. The Company recorded profit sharing expense of approximately $79,000
and $105,000 for the years ended December 31, 1998 and 1999, respectively.
6. Commitments
As described in Note 3, the Company leases its corporate headquarters from
the shareholders. The lease term is for one year and is renewed annually on
December 31 of each year. Minimum rental payments for 2000 under this agreement
are $117,000 and the Company is required to pay the real estate taxes.
The Company also has a lease commitment to rent storage space from an
affiliated company which is under common ownership. This agreement is also
renewed annually on December 31 of each year. Minimum rental payments for 2000
under this agreement are $6,000.
7. Shareholders' Equity
AccuVal has the authority to issue 2,800 shares of no par value common
stock. As of December 31, 1998 and 1999, 200 shares are issued and outstanding.
Consideration for these shares totaled $10,000.
LiquiTec has the authority to issue 2,800 shares of no par value common
stock. As of December 31, 1998 and 1999, 200 shares are issued and outstanding.
Consideration for these shares totaled $10,000.
8. Sale of Company
On March 3, 2000, the Company sold all of the issued and outstanding shares
of stock of AccuVal and LiquiTec to DoveBid, Inc. for approximately $5.5
million. The total consideration consisted of $1.65 million in cash, $2.85
million in a convertible note and a $1 million holdback note payable in cash at
a later date.
F-41
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Members
Greenwich Industrial Services, LLC
We have audited the accompanying balance sheets of Greenwich Industrial
Services, LLC as of December 31, 1998 and 1999, and the related statements of
operations and members' equity, and cash flows for the years then ended. 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 auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Greenwich Industrial
Services, LLC at December 31, 1998 and 1999, and the results of its operations
and its cash flows for the years then ended in conformity with accounting
principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
March 8, 2000
Stamford, Connecticut
F-42
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
(A LIMITED LIABILITY COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
----------------------
1998 1999
---------- ----------
<S> <C> <C>
Assets
Current assets:
Cash................................................. $ 509,956 $ 767,982
Cash held in escrow.................................. 332,930 45,973
Accounts receivable.................................. 348,443 306,556
Accounts receivable, affiliate....................... -- 22,300
Due from members (Note 6)............................ 46,354 --
Equipment held for resale............................ 282,657 139,470
Prepaid expenses and deposits........................ -- 21,716
---------- ----------
Total current assets............................... 1,520,340 1,303,997
Property and equipment, net of accumulated depreciation
(Notes 3)............................................. 6,805 400,976
Organization costs, net of accumulated amortization
(1998-$9,240)......................................... 13,225 --
---------- ----------
Total assets....................................... $1,540,370 $1,704,973
========== ==========
Liabilities and Members' Equity
Current liabilities:
Current portion of long-term debt (Note 5)........... $ -- $ 10,625
Accounts payable and accrued expenses................ 133,473 143,286
Due to customers..................................... 494,149 --
Due to affiliate..................................... 96,159 --
Sales tax payable.................................... 96,524 14,117
---------- ----------
Total current liabilities.......................... 820,305 168,028
Long-term debt, net of current portion (Note 5)........ -- 194,792
Commitment (Note 7)
Members' equity........................................ 721,065 1,342,153
Less subscription receivable........................... (1,000) --
---------- ----------
Total members' equity.............................. 720,065 1,342,153
---------- ----------
Total liabilities and members' equity.............. $1,540,370 $1,704,973
========== ==========
</TABLE>
See accompanying notes.
F-43
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
(A LIMITED LIABILITY COMPANY)
STATEMENTS OF OPERATIONS AND MEMBERS' EQUITY
<TABLE>
<CAPTION>
Year ended December
31,
----------------------
1998 1999
---------- ----------
<S> <C> <C>
Revenues:
Auction............................................... $9,055,411 $7,529,412
Appraisal............................................. 319,855 304,308
---------- ----------
Total revenues...................................... $9,375,266 7,833,720
Operating Expenses:
Direct auction costs.................................. 7,907,833 5,876,045
Selling, general and administrative................... 864,638 1,187,030
Depreciation and amortization......................... 11,120 25,078
---------- ----------
Total operating expenses............................ 8,783,591 7,088,153
---------- ----------
Income from operations.................................. 591,675 745,567
Other income (expense):
Interest expense...................................... (16,099) (44,366)
Interest income....................................... 37,531 53,539
Other................................................. 1,461 35,143
---------- ----------
22,893 44,316
Net income.............................................. 614,568 789,883
Members' equity, beginning of year...................... 280,497 720,065
Less distributions...................................... (175,000) (167,795)
---------- ----------
Members' equity, end of year............................ $ 720,065 $1,342,153
========== ==========
</TABLE>
See accompanying notes.
F-44
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
(A LIMITED LIABILITY COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended
December 31,
----------------------
1998 1999
----------- ---------
<S> <C> <C>
Cash flows from operating activities
Net income............................................ $ 614,568 $ 789,883
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization....................... 11,120 25,078
Accounts receivable................................. (298,351) 41,887
Accounts receivable, affiliate...................... -- (22,300)
Equipment held for resale........................... (282,657) 143,187
Prepaid expenses and deposits....................... 290,456 (21,716)
Accounts payable and accrued expenses............... 3,754 9,813
Due to affiliate.................................... 96,159 (96,159)
Due to customers.................................... (978,213) (494,149)
Sales tax payable................................... (216,894) (82,407)
----------- ---------
Net cash provided by (used in) operating activities... (760,058) 293,117
Cash flows from investing activities
Advances (to) from members............................ (44,954) 46,354
Acquisition of furniture and equipment................ -- (406,024)
Organization costs.................................... (17,615) --
----------- ---------
Net cash used in investing activities................. (62,569) (359,670)
Cash flows from financing activities
Proceeds from borrowing............................... -- 212,500
Principal payments in note payable.................... -- (7,083)
Distributions to members.............................. (175,000) (167,795)
Repayments to member.................................. (32,726) --
----------- ---------
Net cash used in financing activities................. (207,726) 37,622
----------- ---------
Net decrease in cash.................................. (1,030,353) (28,931)
Cash, beginning of year............................... 1,873,239 842,886
----------- ---------
Cash, end of year..................................... $ 842,886 $ 813,955
=========== =========
Supplemental disclosures of cash flow information
Interest paid......................................... $ 16,099 $ 44,366
=========== =========
</TABLE>
See accompanying notes.
F-45
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
(A LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
1. Organization and Business
Greenwich Industrial Services, LLC (the "Company") was formed as a
Connecticut Limited Liability Company in April 1997 to perform appraisals,
auctions, asset recovery and liquidation of equipment owned by others
throughout the world.
The Company was 96% owned by Greenwich Financial Group, Inc., whose owner is
also the 100% owner of Avatar Alliance, L.P. (an affiliate) with the remaining
4% owned by its current members. During 1999, the current members purchased the
entire interest of Greenwich Financial Group, Inc.
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of the Company's financial statements in accordance with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect amounts reported in
the financial statements and the accompanying notes. Actual amounts could
differ from those estimates.
Income Taxes
The Company is not subject to federal income taxes and no provision for
federal income taxes is made in the financial statements. The Company's
operating results are included in the respective member's federal income tax
returns.
Cash Held in Escrow / Due To Customers
The Company generally collects the gross proceeds from an auction on behalf
of the selling parties and holds such proceeds in an escrow account until the
final settlement date of the auction. These amounts are classified as cash held
in escrow in the accompanying balance sheets. Cash held in escrow is excluded
from cash for purposes of the statements of cash flows.
The portion of the proceeds that must be remitted to the owner of the goods
that were sold during an auction is reflected as due to customers in the
accompanying balance sheets, net of the Company's commissions and expense
reimbursements that have not been disbursed from the escrow account.
Accounts Receivable, Affiliate / Due to Affiliate
Accounts receivable, affiliate at December 31, 1999 represents the Company's
share of proceeds related to the sale of airframe equipment due from Avatar
Alliance, L.P. Due to affiliate at December 31, 1998 represents funds due to
Avatar Alliance, L.P. for the Company's portion of the charges related to the
sharing of office space.
Equipment Held for Resale
Equipment held for resale represents equipment not sold at an initial
auction. The equipment is stated at the lower of cost or market based on a
specific identification method.
F-46
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
(A LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed on a
straight line basis over the estimated useful lives of the related assets. The
useful lives range from three years for computer equipment and furniture and
fixtures to thirty-nine years for the building.
Revenue Recognition
Commission income from auctions is recognized upon closing of the related
auction less estimates for certain allowances and after resolution of any
significant uncertainties as to ultimate collection of auction proceeds.
Commission income consists of a fee based on the transaction price plus
revenues associated with other costs and services.
Revenue and cost of sales from auctions of the Company's own inventory are
recognized upon sale and shipment of the equipment and after resolution of any
significant uncertainties as to ultimate collection of auction proceeds.
Revenues from appraisal and other services are recognized when the services
are performed. Costs related to appraisal services are included within general
and administrative expenses in the accompanying statements of operations and
member's equity.
Organization Costs
Organization costs were fully amortized in 1999. Prior to 1999 such costs
were being amortized on a straight-line basis over five years. Amortization
expense for the years ended December 31, 1998 and 1999 was $8,512 and $13,225,
respectively.
Employee Retirement Plan
The Company participates in a 401(k) Plan sponsored and administered by an
affiliate. The Plan covers substantially all employees who are allowed to
contribute a percentage of salary, based on certain parameters as defined in
the Plan. The Company does not match any contributions. No fees are charged to
the Company for Plan administration.
Advertising Costs
Advertising costs are expensed as incurred. Total advertising expenses were
$179,475 and $298,330 for the years ended December 31, 1998 and 1999,
respectively.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash, cash in escrow and accounts
receivable. Cash and cash in escrow are deposited with high credit, quality
financial institutions. As of December 31, 1998 and 1999, the Company has no
significant concentrations of credit risk. The Company's accounts receivable
are derived from revenue earned from customers located in the U.S. and are
denominated in U.S. dollars.
Fair Value of Financial Instruments
As of December 31, 1998 and 1999, the respective carrying values of the
Company's financial instruments approximated their fair values. These financial
instruments include cash, due from members, accounts payable,
F-47
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
(A LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS--(Continued)
accrued expenses, due to customers and debt. Carrying values were estimated to
approximate fair values for these financial instruments as they are short-term
in nature and are receivable or payable on demand.
3. Property and Equipment
<TABLE>
<CAPTION>
December 31,
-----------------
1998 1999
------- --------
<S> <C> <C>
Building..................................................... $ -- $344,268
Office equipment............................................. 11,368 73,124
------- --------
11,368 417,392
Less accumulated depreciation................................ (4,563) (16,416)
------- --------
$ 6,805 $400,976
======= ========
</TABLE>
Depreciation expense for the years ended December 31, 1998 and 1999 was
$3,578 and $11,853, respectively.
4. Note Payable--Bank
In September 1998, the Company secured a line of credit with a bank for up
to $5 million. The agreement allows for borrowings against qualified asset
purchase and auction service transactions and allows the Company to issue
letters of credit against specified transactions. Interest is payable monthly
based on either the bank's prime rate plus .25% or LIBOR plus 2.5%. The
agreement expires in June 2001. Borrowings are secured by the underlying assets
acquired and are also personally guaranteed by the Company's members.
As of December 31, 1998 and 1999, there were no outstanding borrowings. In
1999, the Company had issued a letter of credit in the amount of $250,000 which
expired on January 7, 2000.
5. Long-Term Debt
<TABLE>
<S> <C>
The note payable is payable through monthly payments of $885 plus
interest calculated at either the bank's prime rate plus .25% or
LIBOR plus 2.5%. The interest rate at December 31, 1999 was
8.48%. Loan matures in April 2009 with a balloon payment for
remaining balance secured by the building and guarantee of the
Company's members............................................... $205,417
Less current portion............................................. (10,625)
--------
$194,792
========
</TABLE>
Maturities of long-term debt are as follows:
<TABLE>
<S> <C>
Year ending December 31:
2000........................................................... $ 10,625
2001........................................................... 10,625
2002........................................................... 10,625
2003........................................................... 10,625
2004........................................................... 10,625
Thereafter..................................................... 152,292
--------
$205,417
========
</TABLE>
F-48
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
(A LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS--(Continued)
6. Related Party Transactions
Due from Member
The Company advanced and borrowed funds on an as needed basis from its
affiliate during 1998. The advances has an interest rate at 9% and were payable
on demand. All advances have been repaid in 1999.
Expense Allocation
The Company shares office space with other companies affiliated through
common ownership. Allocated expenses to the Company totaled $90,223 and $23,316
in 1998 and 1999, respectively.
7. Commitments
Leases
During 1999, the Company leased certain equipment under noncancellable
operating leases expiring at various times through September 2000. Future
minimum lease payments totaled $9,158 and extend through September 30, 2000.
Rent expense was $14,760 in 1999, and related to charge for office
equipment. In 1998 rent expense was changed through the allocation from its
affiliate.
8. Limited Liability Company Agreement
Under the terms of the LLC Agreement (the "Agreement"), the proportionate
interest of the members in the Company's net profits, net losses, and other
items of net income, gain or loss is equal to their percentage interest in the
LLC. The Agreement expires March 31, 2027. The Agreement provides that no
member shall be liable for the liabilities of the Company. Any member may
assign all or any portion of his membership interest to any other member upon
prior written notice to the manager. Upon dissolution of the Company, the
property of the Company will be distributed as follows: (a) to creditors in
satisfaction of Company liabilities and (b) to the members in proportion to
their percentage interests.
9. Subsequent Event
Effective February 29, 2000, the Company was acquired by DoveBid, Inc.
F-49
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Haltek Electronics dba Test Lab
We have audited the accompanying balance sheets of Haltek Electronics dba
Test Lab ("the Company") as of June 30, 1999 and December 31, 1999, and the
related statements of operations, shareholders' equity, and cash flows for the
year ended June 30, 1999 and the six months 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 auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Haltek Electronics at June
30, 1999 and December 31, 1999, and the results of its operations and its cash
flows for the year ended June 30, 1999 and the six months ended December 31,
1999, in conformity with accounting principles generally accepted in the United
States.
/s/ ERNST & YOUNG LLP
March 2, 2000
San Francisco, California
F-50
<PAGE>
HALTEK ELECTRONICS DBA TEST LAB
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
----------------------- December 31,
1998 1999 1999
----------- ----------- ------------
(unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents............... $ 281,312 $ 476,540 $ 448,612
Accounts receivable, net of allowance
for doubtful accounts of $5,000 at June
30, 1998 and $6,000 at June 30, 1999
and December 31, 1999.................. 627,902 673,167 1,427,094
Inventory............................... 2,777,095 2,461,212 2,762,260
Other assets............................ 83,384 9,211 7,732
----------- ----------- -----------
Total current assets.................. 3,769,693 3,620,130 4,645,698
Fixed assets, net......................... 208,334 197,572 195,988
Other assets.............................. 46,280 52,443 52,443
Deferred tax asset........................ -- 1,488 34,831
----------- ----------- -----------
Total assets.......................... $ 4,024,307 $ 3,871,633 $ 4,928,960
=========== =========== ===========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable........................ $ 418,767 $ 504,392 $ 701,064
Accrued expenses........................ 195,474 208,170 161,381
Bank line of credit..................... 461,500 -- --
Income taxes payable.................... -- -- 425,108
Current portion of notes payable--
shareholder............................ 115,075 427,359 347,128
----------- ----------- -----------
Total current liabilities............. 1,190,816 1,139,921 1,634,681
Notes payable--shareholder, less current
portion.................................. 707,768 584,763 516,799
Other liabilities......................... 10,000 10,000 --
Shareholders' equity:
Common stock, no par value: Authorized
shares--1,000,000 Issued and
outstanding shares--267,499 in 1998 and
1999................................... 40,365 40,365 40,365
Retained earnings....................... 2,075,358 2,096,584 2,737,115
----------- ----------- -----------
Total shareholders' equity............ 2,115,723 2,136,949 2,777,480
----------- ----------- -----------
$ 4,024,307 $ 3,871,633 $ 4,928,960
=========== =========== ===========
</TABLE>
See accompanying notes.
F-51
<PAGE>
HALTEK ELECTRONICS DBA TEST LAB
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six months
Year ended June 30, ended
----------------------- December 31,
1998 1999 1999
----------- ---------- ------------
(unaudited)
<S> <C> <C> <C>
Revenues................................ $6,866,438 $5,942,365 $4,263,943
Cost of revenues........................ 4,581,552 4,143,208 2,329,726
---------- ---------- ----------
Gross profit............................ 2,284,886 1,799,157 1,934,217
---------- ---------- ----------
Operating expenses:
Sales and marketing................... 106,104 86,265 65,300
General and administrative............ 2,122,434 1,596,886 771,797
---------- ---------- ----------
Total operating expenses............ 2,228,538 1,683,151 837,097
---------- ---------- ----------
Income from operations.................. 56,348 116,006 1,097,120
Interest income......................... 16,285 13,075 --
Interest expense........................ (92,082) (100,787) (31,481)
---------- ---------- ----------
Net (loss) income before taxes on
income................................. (19,449) 28,294 1,065,639
Taxes on income......................... 4,744 (7,068) (425,108)
---------- ---------- ----------
Net (loss) income ...................... $ (14,705) $ 21,226 $ 640,531
========== ========== ==========
</TABLE>
See accompanying notes.
F-52
<PAGE>
HALTEK ELECTRONICS DBA TEST LAB
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional Total
-------------- Paid In Retained Shareholders'
Shares Amount Capital Earnings Equity
------- ------ ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Balances at June 30, 1997
(unaudited).............. 267,499 $ -- $40,365 $2,090,063 $2,130,428
Net loss (unaudited).... -- -- -- (14,705) (14,705)
------- ---- ------- ---------- ----------
Balances at June 30, 1998
(unaudited).............. 267,499 -- 40,365 2,075,358 2,115,723
Net income.............. -- -- -- 21,226 21,226
------- ---- ------- ---------- ----------
Balances at June 30,
1999..................... 267,499 -- 40,365 2,096,584 2,136,949
Net income.............. -- -- -- 640,531 640,531
------- ---- ------- ---------- ----------
Balances at December 31,
1999..................... 267,499 $ -- $40,365 $2,737,115 $2,777,480
======= ==== ======= ========== ==========
</TABLE>
See accompanying notes.
F-53
<PAGE>
HALTEK ELECTRONICS DBA TEST LAB
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six months
Year ended June 30, ended
--------------------- December 31,
1998 1999 1999
----------- --------- ------------
(Unaudited)
<S> <C> <C> <C>
Operating activities
Net income (loss)......................... $ (14,705) $ 21,226 $ 640,531
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation............................ 15,763 20,466 5,040
Deferred tax asset...................... -- (1,488) (33,343)
Change in operating assets and
liabilities:
Accounts receivable..................... 477,295 (45,265) (753,927)
Inventory............................... (187,052) 315,883 (301,048)
Other assets............................ (83,384) 74,173 1,479
Accounts payable........................ (208,016) 85,625 196,672
Cash overdraft.......................... (205,507) -- --
Accrued expenses........................ (3,909) 12,696 (46,789)
Income taxes payable.................... -- -- 425,108
Other liabilities....................... -- -- (10,000)
--------- --------- ---------
Net cash (used in) provided by operating
activities............................... (209,515) 483,316 123,723
Investing activities
Purchases of property and equipment....... (3,159) (9,704) (3,456)
Increase in cash surrender value of
officers' life insurance................. (3,600) (6,163) --
--------- --------- ---------
Net cash used in investing activities..... (6,759) (15,867) (3,456)
Financing activities
Proceeds from notes payable to
shareholders............................. -- 392,284 --
Principal payments to shareholders........ (216,611) (203,005) (148,195)
Line of credit............................ 714,197 (461,500) --
--------- --------- ---------
Net cash provided by (used in) financing
activities............................... 497,586 (272,221) (148,195)
--------- --------- ---------
Net increase (decrease) in cash........... 281,312 195,228 (27,928)
Cash and cash equivalents at beginning of
year..................................... -- 281,312 476,540
--------- --------- ---------
Cash and cash equivalents at end of year.. $ 281,312 $ 476,540 $ 448,612
========= ========= =========
Supplemental disclosure of cash flows
information
Interest paid............................. $ 92,082 $ 100,787 $ 31,481
========= ========= =========
Supplemental disclosure--noncash
transactions
Write off fully depreciated fixed assets.. $ -- $ 3,159 $ 9,704
========= ========= =========
</TABLE>
See accompanying notes.
F-54
<PAGE>
HALTEK ELECTRONICS DBA TEST LAB
NOTES TO FINANCIAL STATEMENTS
1. The Company:
Haltek Electronics (the "Company") was incorporated in 1973. The Company
purchases used electronic test and measurement equipment and refurbishes it
for resale.
On February 29, 2000, Dovebid, Inc., acquired all of the Company's
outstanding shares of common stock, at which time the Company became a wholly
owned subsidiary of Dovebid, Inc.
2. Summary of Significant Accounting Policies:
Use of Estimates--The preparation of financial statements in conformity
with generally accepted accounting principles in the United States requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and the reported amounts of revenues and expenses.
Actual results may differ from those estimates.
Concentrations of Credit Risk and Credit Evaluations--Financial instrument,
which subject the Company to concentrations of credit risk consists primarily
of trade accounts receivable. For years ended June 30, 1998 (unaudited) and
1999 and the six months ended December 31, 1999, no single customer accounted
for greater than 10% of net revenue.
Fixed Assets--Fixed assets are stated at cost less accumulated depreciation
and amortization. Depreciation is computed using accelerated methods (which
approximates the straight line method) over the estimated useful lives of the
related assets, which range from five to seven years.
Income Taxes--The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109"), which requires the use of the liability method in
accounting for income taxes. Under SFAS 109, deferred tax assets and
liabilities are measured based on differences between the financial reporting
and tax bases of assets and liabilities using enacted tax rate and laws that
are expected to be in effect when the differences are expected to reverse.
Revenue Recognition--The Company's revenues are derived primarily from the
resale of used laboratory equipment. The Company recognizes revenues as
equipment is shipped.
The Company has incurred a nominal amount of warranty expense in past years
and management does not expect that warranty costs will be material in the
future.
Inventory--Inventory consists of used laboratory equipment that is
refurbished for resale. Inventory is stated at the lower of cost or market
value.
Recent Accounting Pronouncements -- In June 1998, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 133,
"Accounting for Derivatives Financial Instruments and for Hedging Activities"
("SFAS 133"), which provides a comprehensive and consistent standard for the
recognition and measurement of derivatives and hedging activities. This
Statement is effective for fiscal years beginning after June 15, 1999. The
Company adopted SFAS 133 in 1999. The adoption of SFAS 133 did not have a
material impact on the Company's financial statements.
3. Bank Line of Credit:
As of June 30, 1999 and December 31, 1999, the Company had available an
unused line of credit with a bank. The line of credit provides that the
Company may borrow up to $700,000 until January 1, 2000, at the bank's prime
rate plus .50% (9.25% at December 31, 1999). As of June 30, 1998 (unaudited)
the line of credit was $500,000 and the Company had drawn $492,600.
The line of credit is secured by the Company's assets and is guaranteed by
one of the major shareholders.
F-55
<PAGE>
HALTEK ELECTRONICS DBA TEST LAB
NOTES TO FINANCIAL STATEMENTS--(Continued)
4. Notes Payable--Shareholder:
Notes payable--shareholder consisted of the following:
<TABLE>
<CAPTION>
June 30,
---------------------- December 31,
1998 1999 1999
----------- ---------- ------------
(unaudited)
<S> <C> <C> <C>
Note payable, shareholder, secured by the
assets of the Company, monthly
installments of $14,916, interest rate of
8% per annum, maturing April 1, 2004..... $ 822,843 $ 707,768 $643,927
Note payable, shareholder, secured by the
assets of the Company, monthly
installments paid from available cash,
accruing interest rate of 8% per annum,
principal and accrued interest are due on
demand................................... -- 304,354 220,000
--------- ---------- --------
822,843 1,012,122 863,927
Less current portion...................... 115,075 427,359 347,128
--------- ---------- --------
$ 707,768 $ 584,763 $516,799
========= ========== ========
</TABLE>
Maturities of notes payable--shareholder were as follows, for the year
ending December 31:
<TABLE>
<S> <C>
2000............................................................ $347,128
2001............................................................ 148,450
2002............................................................ 155,171
2003............................................................ 124,774
2004............................................................ 88,404
--------
$863,927
========
</TABLE>
5. Related Party Transactions:
The Company leases certain office space on a month to month operating lease
from a shareholder.
For the years ended June 30, 1998 (unaudited) and 1999 and the six months
ended December 31, 1999, the Company paid rent expense to the shareholder of
$72,250, $165,000 and $161,000, respectively and is included in general and
administrative expenses in the statement of operations.
6. Income Taxes:
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax liabilities and assets as of the years ended June
30, 1998 (unaudited) and June 30, 1999 and the six months ended December 31,
1999 are as follows:
<TABLE>
<CAPTION>
June 30,
------------------ December 31,
1998 1999 1999
----------- ------ ------------
(unaudited)
<S> <C> <C> <C>
Deferred tax assets:
Bad Debt Allowance......................... $ -- $1,192 $ 2,570
State Taxes................................ -- 296 32,261
----- ------ -------
Total Deferred tax assets................ -- 1,488 34,831
----- ------ -------
Net Deferred tax asset (liability)........... $ -- $1,488 $34,831
===== ====== =======
</TABLE>
F-56
<PAGE>
HALTEK ELECTRONICS DBA TEST LAB
NOTES TO FINANCIAL STATEMENTS--(Continued)
For financial reporting purposes, the provision for income taxes consists of
the following for the years ended June 30, 1998 (unaudited) and June 30, 1999
and for the six months ended December 31, 1999.
<TABLE>
<CAPTION>
June 30,
------------------ December 31,
1998 1999 1999
----------- ------ ------------
(unaudited)
<S> <C> <C> <C>
Current
Federal................................... $(10,522) $5,339 $363,370
State..................................... (546) 3,217 94,428
-------- ------ --------
Total Current........................... (11,068) 8,556 457,798
-------- ------ --------
Deferred
Federal................................... 6,324 (1,046) (32,601)
State..................................... -- (442) (88)
-------- ------ --------
Total Deferred.......................... 6,324 (1,488) (32,689)
-------- ------ --------
Total Tax Provision....................... $ (4,744) $7,068 $425,108
======== ====== ========
</TABLE>
The federal statutory rate reconciles to the Company's effective tax rate as
follows for the year ended June 30, 1998 (unaudited) and June 30, 1999 and for
the six months ended December 31, 1999.
<TABLE>
<CAPTION>
June 30, December 31,
1999 1999
-------- ------------
<S> <C> <C>
Federal Statutory income tax rate...................... 15.00% 34.00%
State tax provision, net of federal tax benefit........ 8.34 5.83
Other.................................................. 1.64 0.06
----- -----
Effective tax rate..................................... 24.98% 39.89%
===== =====
</TABLE>
7. Retirement Plan:
The Company has a retirement SEP/IRA plan for the employees of the Company.
Contributions by the Company to the plan are discretionary and no amounts are
contributed by the employees. There were no contributions to the plan for the
year ended December 31, 1999. Contribution expense and amounts accrued for the
years ended June 30, 1998 (unaudited) and 1999 and for the six months ended
December 31, 1999 were $120,000, $110,000 and $60,000, respectively.
The Company was purchased subsequent to February 29, 2000 and it is intended
that the plan will be dissolved with the funds being rolled over into new
plans.
F-57
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Philip Pollack & Co., Inc.
We have audited the accompanying balance sheets of Philip Pollack & Co.,
Inc. as of December 31, 1999, February 28, 1999, and February 28, 1998, and the
related statements of income and retained earnings and cash flows for the ten
month period ended December 31, 1999 and years ended February 28, 1999 and
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Philip Pollack & Co., Inc.
at December 31, 1999, February 28, 1999, and February 29, 1998, and the results
of its operations and its cash flows for the ten month period ended December
31, 1999 and the years ended February 28, 1999 and 1998, in conformity with
generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
March 7, 2000
Chicago, Illinois
F-58
<PAGE>
PHILIP POLLACK & CO., INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
February 28,
December 31, -------------------
1999 1999 1998
------------ ---------- --------
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents................... $ 18,558 $ 887,205 $185,257
Billed accounts receivable, net of allowance
for doubtful accounts of $34,070, $34,070,
and $20,313, respectively.................. 159,318 150,198 171,947
Unbilled accounts receivable................ 9,760 70,172 6,371
Deferred auction and appraisal costs........ 118,845 60,327 3,539
Prepaid expenses and other current assets... 44,653 167,993 23,905
-------- ---------- --------
Total current assets...................... 351,134 1,335,895 391,019
Other assets:
Deferred tax asset.......................... 26,816 34,974 79,707
Intangible asset, net....................... 18,000 27,000 36,000
Equipment held for sale..................... 77,931 21,593 --
Due from shareholders....................... 440,485 315,670 257,079
Total other assets............................ 563,232 399,237 372,786
Equipment and leasehold improvements, net..... 52,407 26,449 30,962
-------- ---------- --------
Total assets.............................. $966,773 $1,761,581 $794,767
======== ========== ========
Liabilities and Shareholders' Equity
Current liabilities:
Notes payable............................... $224,179 $ 224,702 $102,525
Accounts payable............................ 174,922 176,219 150,850
Accrued litigation expense.................. 217,192 -- --
Auction proceeds payable.................... 33,987 849,644 276,107
-------- ---------- --------
Total current liabilities................. 650,280 1,250,565 529,482
Deferred income tax........................... 51,231 100,211 36,931
Due to shareholders........................... 98,611 148,899 218,480
Shareholders' equity
Preferred stock, no par value 1,000 shares
authorized, none outstanding............... -- -- --
Common stock, no par value 10,000 shares
authorized, 1,000 issued and outstanding-at
stated value............................... 1,000 1,000 1,000
Retained earnings........................... 165,651 260,906 8,874
-------- ---------- --------
Total shareholders' equity................ 166,651 261,906 9,874
-------- ---------- --------
Total liabilities and shareholders' equity.. $966,773 $1,761,581 $794,767
======== ========== ========
</TABLE>
See accompanying notes to financial statements.
F-59
<PAGE>
PHILIP POLLACK & CO., INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
Ten Month Year ended
Period Ended February 28,
December 31, --------------------
1999 1999 1998
------------ --------- ---------
<S> <C> <C> <C>
Revenues:
Auction income............................ $ 808,120 $ 576,356 $ 534,696
Appraisal income.......................... 920,592 1,473,230 979,550
--------- --------- ---------
Total revenues............................. 1,728,712 2,049,586 1,514,246
Operating expenses:
Direct auction costs...................... 442,620 369,611 336,904
Direct appraisal costs.................... 120,311 93,891 25,370
Selling, general and administrative
expenses................................. 1,081,794 1,248,455 1,062,905
Provision for litigation expense.......... 217,192 -- --
--------- --------- ---------
Total operating expenses................... 1,861,917 1,711,957 1,425,179
--------- --------- ---------
Income (loss) from operations.............. (133,205) 337,629 89,067
Other income............................... 18,167 50,777 11,311
Interest expense........................... (21,040) (28,360) (15,249)
--------- --------- ---------
Income (loss) before income taxes.......... (136,078) 360,046 85,129
Income taxes (credit)...................... (40,823) 108,014 25,539
--------- --------- ---------
Net income (loss).......................... (95,255) 252,032 59,590
Retained earnings (deficit) at beginning of
period.................................... 260,906 8,874 (50,716)
--------- --------- ---------
Retained earnings at end of period......... $ 165,651 $ 260,906 $ 8,874
========= ========= =========
</TABLE>
See accompanying notes to financial statements.
F-60
<PAGE>
PHILIP POLLACK & CO., INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Ten Month
Period Ended Year ended February 28,
December 31, -------------------------
1999 1999 1998
------------ ------------ -----------
<S> <C> <C> <C>
Operating activities:
Net income (loss).................... $(95,255) $ 252,032 $ 59,590
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization...... 13,137 20,943 22,280
Deferred income taxes.............. (40,823) 108,014 25,539
Changes in operating assets and
liabilities:
Billed accounts receivable....... (9,120) 21,749 (58,597)
Unbilled accounts receivable..... 60,412 (63,801) (6,371)
Auction inventory................ (56,338) (21,593) 44,500
Deferred auction and appraisal
costs........................... (58,518) (56,788) 20,291
Prepaid expenses and other
current assets.................. 123,340 (144,088) 47,615
Accounts payable................. (1,297) 25,369 1,858
Accrued litigation expense....... 217,192 -- --
Auction proceeds payable......... (815,657) 573,537 (34,318)
-------- ------------ -----------
Net cash provided by (used in)
operating activities................ (662,927) 715,374 122,387
Investing activity:
Purchases of equipment and leasehold
improvements.......................... (30,094) (7,439) (57,767)
-------- ------------ -----------
Net cash used in investing activity.. (30,094) (7,439) (57,767)
Financing activities:
(Repayments ) borrowings under notes
payable, net........................ (523) 122,177 (104,000)
Due from shareholder, net............ (124,815) (58,591) (14,967)
Due to shareholder, net.............. (50,288) (69,581) (29,655)
-------- ------------ -----------
Net cash provided by (used in)
financing activities................ (175,626) (5,995) (148,622)
-------- ------------ -----------
Net increase in cash and cash
equivalents........................... (868,647) 701,940 (84,002)
Cash and cash equivalents at beginning
of period............................. 887,205 185,257 269,259
-------- ------------ -----------
Cash and cash equivalents at end of
period................................ $ 18,558 $ 887,205 $ 185,257
======== ============ ===========
Supplemental disclosure of cash flow
information:
Interest paid.......................... $ 21,040 $ 28,360 $ 15,249
======== ============ ===========
</TABLE>
See accompanying notes to financial statements.
F-61
<PAGE>
PHILIP POLLACK & CO., INC.
NOTES TO FINANCIAL STATEMENTS
Ten month period ended December 31, 1999 and
Years ended February 28, 1999 and 1998
1. Basis of Presentation and Description of Business
Philip Pollack & Co., Inc. ("the Company") is a business to business
auctioneer focusing on the used capital equipment market. The Company also
provides appraisal and other related services. The accompanying financial
statements have been prepared using historical cost basis. On February 7, 2000
the shareholders agreed to sell all of the common stock of the Company to
Dovebid, Inc., and the carrying values of assets and liabilities in the
accompanying financial statements have not been adjusted for any purchase
accounting adjustments. This transaction closed on March 2, 2000.
2. Summary of Significant Accounting Policies
Equipment and Leasehold Improvements
Equipment and leashold improvements are stated at cost. Depreciation and
amortization are computed using accelerated methods over the estimated useful
lives of the respective assets, ranging from five to seven years.
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"), which requires the use of the liability method of accounting for income
taxes. Under SFAS 109, deferred tax assets and liabilities are measured based
on differences between the financial reporting and tax bases of assets and
liabilities using enacted tax rate and laws that are expected to be in effect
when the differences are expected to reverse.
The Company files income tax returns on a cash basis. Deferred income taxes
are provided on differences between accrual and cash basis.
Accounting Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires Company management
to make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. The Company will, when determined
necessary, accrue for estimated liabilities when the financial effect is
probable and can be estimated by management. Actual results could differ from
those estimates.
Revenue Recognition
Buyer's premiums and direct auction expenses charged to customers are
recognized as auction income upon closing of the related auction less estimates
for certain allowances and after resolution of any significant uncertainties as
to the ultimate collection of auction proceeds. Buyer's premiums consists of a
fee based on the transaction price. Direct costs of auctions are deferred and
charged to expense upon closing of the related auction.
Income from appraisals are recognized as the services are performed.
Unbilled Accounts Receivable
Unbilled accounts receivable represent direct costs of appraisals incurred
and income recognized on appraisals in process. The amounts are typically
billed within the following month.
F-62
<PAGE>
PHILIP POLLACK & CO., INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Advertising Costs
The Company expenses advertising costs as incurred.
3. Equipment and leasehold improvements
Equipment and leasehold improvements consists of the following:
<TABLE>
<CAPTION>
February 28,
-------------------- December 31,
1998 1999 1999
--------- --------- ------------
<S> <C> <C> <C>
Furniture and fixtures....................... $ 124,394 $ 124,394 $ 124,394
Computers and software....................... 112,647 119,910 147,494
Office equipment............................. 8,398 8,563 11,074
--------- --------- ---------
245,439 252,867 282,962
Less Accumulated depreciation................ (214,477) (226,418) (230,555)
--------- --------- ---------
$ 30,962 $ 26,449 $ 52,407
========= ========= =========
</TABLE>
4. Accrued Litigation Expense
On August 4, 1999, a judgment in the amount of $217,192 was entered against
the Company in the State of Idaho as a result of litigation arising from
appraisal services and a provision for this judgment was recorded in the ten
month period ended December 31, 1999. Management intends to pursue, through
legal counsel, the non-enforceability of this judgement in the State of
Illinois.
5. Notes Payable
Notes payable are borrowings generally under six month notes to a bank which
bear interest (9.5% at December 31, 1999) at 1% over the bank's prime rate. The
notes are collateralized by inventory, chattel paper, accounts and general
intangibles of the Company and are personally guaranteed by a shareholder.
6. Related Party Transactions
During the ten months ended December 31, 1999, the Company and Dove Brothers
LLC, a subsidiary of Dove Bid Inc., jointly conducted an auction. The Company's
portion of buyer's premium and direct auction costs are reflected in the
statement of operations.
In addition, the Company engaged an advertising firm owned by the
shareholders to provide advertising services in the amount of $134,313,
$109,451 and $149,714 for the years ended February 28, 1998 and 1999 and in the
ten-month period ended December 31, 1999, respectively.
F-63
<PAGE>
PHILIP POLLACK & CO., INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
7. Commitments and Contingencies
Future minimum rental payments under non cancelable operating lease
agreements with terms in excess of one year are as follows:
<TABLE>
<S> <C>
2000............................................................. $21,233
2001............................................................. 21,933
2002............................................................. 22,633
2003............................................................. 23,333
2004............................................................. 23,700
Thereafter....................................................... 15,667
</TABLE>
Rent expense under all operating leases totaled $64,203, $73,734, $66,707
for the years ended February 28, 1998 and 1999 and the ten-month period ended
December 31, 1999, respectively.
8. Income Taxes
The provision for income taxes is as follows:
<TABLE>
<CAPTION>
February 28,
---------------- December 31,
1998 1999 1999
------- -------- ------------
<S> <C> <C> <C>
Current:
Federal......................................... -- -- --
State........................................... -- -- --
------- -------- --------
Deferred (credit)................................. $25,539 $108,014 $(40,823)
------- -------- --------
$25,539 $108,014 $(40,823)
======= ======== ========
</TABLE>
At December 31, 1999, the Company had net operating losses carry forwards
(on a cash basis) for income tax purposes of approximately $89,000.
9. Impact of the Year 2000 (Unaudited)
The Company was not required to replace significant portions of its
software, and the Year 2000 issue did not cause operational problems for its
computer systems. Ultimately, any potential future impact of the Year 2000
issue will depend not only on corrective measures the Company undertook, but
also on the way in which the Year 2000 issue was addressed by businesses and
other entities whose financial condition or operational capability is important
to the company as vendors.
F-64
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. Other Expenses of Issuance and Distribution.
The following table sets forth the costs and expenses to be paid by DoveBid
in connection with the sale of the shares of common stock being registered
hereby. All amounts are estimates except for the SEC registration fee, the NASD
filing fee and the Nasdaq National Market filing fee.
<TABLE>
<S> <C>
SEC registration fee.............................................. $21,120
NASD filing fee................................................... 8,400
Nasdaq National Market initial filing fee......................... 1,000
Printing and engraving ........................................... *
Legal fees and expenses of the Registrant ........................ *
Accounting fees and expenses ..................................... *
Directors and officers liability insurance........................ *
Blue sky fees and expenses ....................................... *
Transfer agent and registrar fees and expenses.................... *
Miscellaneous..................................................... *
-------
Total........................................................... $ *
=======
</TABLE>
- --------
*To be filed by amendment
ITEM 14. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's board of directors to grant, indemnity to directors
and officers under certain circumstances and subject to certain limitations.
The terms of Section 145 of the Delaware General Corporation Law are
sufficiently broad to permit indemnification under certain circumstances for
liabilities, including reimbursement of expenses incurred, arising under the
Securities Act of 1933.
As permitted by the Delaware General Corporation Law, the Registrant's
certificate of incorporation includes a provision that eliminates the personal
liability of its directors for monetary damages for breach of fiduciary duty as
a director, except for liability:
. for any breach of the director's duty of loyalty to the Registrant or
its stockholders;
. for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
. under section 174 of the Delaware General Corporation Law regarding
unlawful dividends and stock purchases; or
. for any transaction from which the director derived an improper personal
benefit.
As permitted by the Delaware General Corporation Law, the Registrant's
bylaws provide that:
. the Registrant is required to indemnify its directors and officers to
the fullest extent permitted by the Delaware General Corporation Law,
subject to certain very limited exceptions;
. the Registrant may indemnify its other employees and agents to the
extent that it indemnifies its officers and directors, unless otherwise
required by law, its certificate of incorporation, its bylaws or
agreements;
. the Registrant is required to advance expenses, as incurred, to its
directors and officers in connection with a legal proceeding to the
fullest extent permitted by the Delaware General Corporation Law,
subject to certain very limited exceptions; and
II-1
<PAGE>
. the rights conferred in the Bylaws are not exclusive.
In addition, the Registrant intends to enter into indemnity agreements with
each of its current directors and officers. These agreements provide for the
indemnification of officers and directors for all expenses and liabilities
incurred in connection with any action or proceeding brought against them by
reason of the fact that they are or were agents of the Registrant.
The Registrant currently carries liability insurance for its directors and
officers.
The Underwriting Agreement filed as Exhibit 1.01 to this Registration
Statement provides for indemnification by the underwriters of the Registrant
and its directors and officers for certain liabilities under the Securities Act
of 1933, or otherwise.
Reference is made to the following documents filed as exhibits to this
Registration Statement regarding relevant indemnification provisions described
above and elsewhere herein:
<TABLE>
<CAPTION>
Exhibit Document Number
---------------- ------
<S> <C>
Form of Underwriting Agreement..................................... 1.01
Registrant's Certificate of Incorporation.......................... 3.01
Form of Registrant's Amended and Restated Certificate of
Incorporation (to be filed following the closing of this
offering)......................................................... 3.02
Registrant's Bylaws................................................ 3.03
Form of Indemnity Agreement........................................ 10.14
</TABLE>
ITEM 15. Recent Sales of Unregistered Securities.
Since March 1997, the Registrant and its predecessor, Dove Brothers LLC,
issued and sold the following securities:
1. In June 1999, we issued, in exchange for the contribution of the
membership interests of Dove Brothers, LLC an aggregate of 28,212,121 shares of
our common stock to Ross Dove, Kirk Dove, The Dove Holdings Corporation and
Koll Management Services, Inc.
2. In June 1999, we issued and sold an aggregate of 12,090,909 shares of
Series A Preferred Stock to one investor for $0.33 per share or an aggregate of
$3,990,000.
3. In October 1999, we issued and sold an aggregate of 15,870,129 shares of
Series B Preferred Stock to three investors for $0.77 per share or an aggregate
of $12,219,999.
4 In December 1999 we issued and sold an aggregate of 675,325 shares of
Series B Preferred Stock to one investor for $0.77 per share or an aggregate of
$520,000.
5. In February 2000, we issued and sold an aggregate of 32,022,476 shares of
Series C Preferred Stock to six investors for $2.67 per share or an aggregate
of $80,500,011.
6. In March 2000, we issued and sold an aggregate of 8,988,766 shares of
Series C Preferred Stock to five investors for $2.67 per share or an aggregate
of $29,000,005.
7. In December 1999, we issued Convertible Notes to two individuals in the
aggregate principal amount of $2,000,000, which, upon or immediately prior to
the consummation of this offering, will convert into shares of common stock at
a conversion rate equal to the mid-point of the common stock offering price
range set forth in this registration statement.
8. In February 2000, we issued Convertible Notes to four individuals in the
aggregate principal amount of $2,000,000, which, upon or immediately prior to
the consummation of this offering, will convert into shares of common stock at
a conversion rate equal to the mid-point of the common stock offering price
range set forth in this registration statement upon.
II-2
<PAGE>
9. In March 2000, we issued four Convertible Notes to four individuals in
the aggregate principal amount of $5,600,000, which, upon or immediately prior
to the consummation of this offering, will convert into shares of common stock
at a conversion rate equal to the mid-point of the common stock offering price
range set forth in this registration statement.
10. Since November 1999, we have granted stock options under our 1999 Stock
Option Plan, covering an aggregate of 4,222,000 shares of common stock (net of
option exercises, expirations and cancellations) at exercise prices of $0.33 to
$2.67.
11. Since November 1999, options to purchase 3,760,000 of common stock under
our 1999 Stock Option Plan were exercised with a weighted average exercise
price of approximately $1.42 per share.
12. Since November 1999, we issued and sold an aggregate of 6,938,877 shares
of our common stock to employees, consultants, directors and other service
providers at prices ranging from $0.33 to $2.67 per share.
13. On March 8, 2000, we issued a warrant to Yahoo! Inc. to purchase
1,405,000 shares of our Series C preferred stock at an exercise price of $2.67
per share.
The sales of the above securities were deemed to be exempt from registration
under the Securities Act in reliance upon Section 4(2) of the Securities Act or
Regulation D promulgated thereunder, or Rule 701 promulgated under Section 3(b)
under the Securities Act as transactions by an issuer not involving any public
offering or pursuant to benefit plans and contracts relating to compensation as
provided under Rule 701. The recipients of such securities in each of these
transactions represented their intentions to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof, and appropriate legends were placed upon the share
certificates issued in such transactions. All recipients had adequate access,
through their relationships with us, to information about DoveBid.
ITEM 16. Exhibits and Financial Statement Schedules.
(a) The following exhibits are filed herewith:
<TABLE>
<CAPTION>
Number Exhibit Title
------ -------------
<C> <S>
1.01 Form of Underwriting Agreement.*
2.01 Asset Purchase Agreement by and between the Registrant and Unidyne
International, Inc.
2.02 Asset Purchase Agreement by and between the Registrant and B&B Custom
Circuit Supplies.
2.03 Membership Interest Purchase Agreement by and between the Registrant,
Greenwich Industrial Services, LLC, William J. Gardner Jr., James F.
Gardner, Scott Lankert and Michael DiProspero.
2.04 Stock Purchase Agreement by and between the Registrant, Philip Pollack
& Co., Inc., Ross Pollack and Philip Pollack.
2.05 Stock Purchase Agreement by and between the Registrant, Haltek
Electronics d/b/a Test Lab Company, the Manford and Audrey Trees Living
Trust, Manford J. Trees, Audrey Trees, the Michael P. Megown and Darcy
E. Megown Trust, Michael Megown and Darcy Megown.
2.06 Stock Purchase Agreement by and between the Registrant, DoveBid
Valuation Services, Accuval Associates Incorporated, Liquitec
Industries Incorporated, David S. Granik, Jr. and Richard E. Schmitt.
3.01 Amended and Restated Certificate of Incorporation of the Registrant.
3.02 Form of Amended and Restated Certificate of Incorporation of the
Registrant to be filed on the closing of the offering made hereby.*
3.03 Bylaws of the Registrant.
3.04 Form of Bylaws of the Registrant to be filed on the closing of the
offering made hereby.*
4.01 Form of Registrant's Common Stock certificate.*
5.01 Opinion of Fenwick & West LLP regarding the legality of the securities
being registered.*
10.01 1999 Stock Option Plan.*
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Number Exhibit Title
------ -------------
<C> <S>
10.02 2000 Equity Incentive Plan*
10.03 2000 Employee Stock Purchase Plan.*
10.04 Warrant to purchase 1,405,000 shares of Series C preferred stock of the
Registrant issued to Yahoo! Inc.*
10.05 Commercial Lease between the Registrant and Dove Holdings, Inc.
10.06 Stock Repurchase Agreement between the Registrant, Ross Dove and The
Dove Holdings Corporation.*
10.07 Stock Repurchase Agreement between the Registrant, Kirk Dove and The
Dove Holdings Corporation.*
10.08 Offer Letter to Jeffrey M. Crowe from the Registrant.*
10.09 Offer Letter to Cory M. Ravid from the Registrant.*
10.10 Offer Letter to Anthony Capobianco from the Registrant.*
10.11 Offer Letter to Francis M. Juliano from the Registrant.*
10.12 Offer Letter to James Hume from the Registrant.*
10.13 Second Amended and Restated Investors' Rights Agreement by and between
the Registrant and certain investors of the Registrant dated February
25, 2000.*
10.14 Form of Indemnity Agreement between the Registrant and each of its
directors and executive officers.*
10.15 Convertible Promissory Note dated December 30, 1999 issued by the
Registrant to Unidyne International, Inc.*
10.16 Convertible Promissory Note dated December 30, 1999 issued by the
Registrant to B&B Custom Circuit Supplies.*
10.17 Convertible Subordinated Promissory Note dated February 29, 2000 issued
by the Registrant to William J. Gardner Jr.*
10.18 Convertible Subordinated Promissory Note date February 29, 2000 issued
by the Registrant to James F. Gardner.*
10.19 Convertible Subordinated Promissory Note date February 29, 2000 issued
by the Registrant to Scott Lankert.*
10.20 Convertible Subordinated Promissory Note date February 29, 2000 issued
by the Registrant to Michael DiProspero.*
10.21 Convertible Subordinated Promissory Note dated March 2, 2000 issued by
the Registrant to Phillip Pollack.*
10.22 Convertible subordinated Promissory Note dated March 2, 2000 issued by
the Registrant to Ross J. Pollack.*
10.23 Convertible Subordinated Promissory Note dated March 2, 2000 issued by
the Registrant to David S. Gronik, Jr.*
10.24 Convertible Subordinated Promissory Note dated March 2, 2000 issued by
the Registrant to Richard E. Schmitt.*
10.25 Secured Promissory Note held by the Registrant for Jeffrey M. Crowe
dated November 30, 1999.*
10.26 Secured Promissory Note held by the Registrant for Cory M. Ravid dated
November 30, 1999.*
10.27 Secured Promissory Note held by the Registrant for Francis M. Juliano
dated January 14, 2000.*
10.28 Secured Promissory Note held by the Registrant for Steven S. Pollock
dated January 16, 2000.*
10.29 Secured Promissory Note held by the Registrant for Anthony Capobianco
dated February 23, 2000.*
Secured Promissory Note held by the Registrant for Dennis Polk dated
10.30 February 23, 2000.*
Secured Promissory Note held by the Registrant for James Hume dated
10.31 January 14, 2000.*
21.01 List of Registrant's Subsidiaries.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Number Exhibit Title
------ -------------
<C> <S>
23.01 Consent of Fenwick & West LLP (included in Exhibit 5.01).*
23.02 Consent of Ernst & Young LLP, independent accountants.
24.01 Power of Attorney. (Included on signature page. See page II-6)
27.01 Financial Data Schedule.
</TABLE>
- --------
* To be supplied by amendment.
** Confidential treatment has been requested with regard to certain portions
of this document. Such portions were filed separately with the Securities
and Exchange Commission.
(b) The following financial statement schedule is filed herewith:
Schedule II--Valuation and Qualifying Accounts
Other financial statement schedules are omitted because the information
called for is not required or is shown either in the financial statements or
the notes thereto.
ITEM 17. Undertakings.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each buyer.
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 provisions described under Item 14 above, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the 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.
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-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Foster City, State of
California, on this 10th day of March 2000.
DOVEBID, INC.
By:
/s/ Ross Dove
----------------------------------
Ross Dove
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that each individual whose signature
appears below constitutes and appoints Jeffrey M. Crowe and Cory M. Ravid, and
each of them, his or her true and lawful attorneys-in-fact and agents with full
power of substitution, for him or her and in his or her name, place and stead,
in any and all capacities, to sign any and all amendments (including post-
effective amendments) to this Registration Statement, and to sign any
registration statement for the same offering covered by the Registration
Statement that is to be effective upon filing pursuant to Rule 462(b)
promulgated under the Securities Act, and all post-effective amendments
thereto, and to file the same, with all exhibits thereto and all documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or his,
her or their substitute or substitutes, may lawfully do or cause to be done or
by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
date indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
Principal Executive Officer:
/s/ Ross Dove Chief Executive March 10, 2000
______________________________________ Officer and Director
Ross Dove
Principal Financial Officer and
Principal Accounting Officer:
/s/ Cory M. Ravid Chief Financial Officer March 10, 2000
______________________________________
Cory M. Ravid
Additional Directors:
/s/ William Burnham Director March 10, 2000
______________________________________
William Burnham
/s/ Jeffrey M. Crowe Director March 10, 2000
______________________________________
Jeffrey M. Crowe
/s/ Kirk Dove Director March 10, 2000
______________________________________
Kirk Dove
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ A. Grant Heidrich III Director March 10, 2000
______________________________________
A. Grant Heidrich, III
/s/ David S. Pottruck Director March 10, 2000
______________________________________
David S. Pottruck
/s/ William Price Director March 10, 2000
______________________________________
William Price
/s/ Todd Rulon-Miller Director March 10, 2000
______________________________________
Todd Rulon-Miller
/s/ W. Blake Winchell Director March 10, 2000
______________________________________
W. Blake Winchell
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Number Exhibit Title
------ -------------
<C> <S>
1.01 Form of Underwriting Agreement.*
2.01 Asset Purchase Agreement by and between the Registrant and Unidyne
International, Inc.
2.02 Asset Purchase Agreement by and between the Registrant and B&B Custom
Circuit Supplies.
2.03 Membership Interest Purchase Agreement by and between the registrant,
Greenwich Industrial Services, LLC, William J. Gardner Jr., James F.
Gardner, Scott Lankert and Michael DiProspero.
2.04 Stock Purchase Agreement by and between the Registrant, Philip Pollack
& Co., Inc., Ross Pollack and Philip Pollack.
2.05 Stock Purchase Agreement by and between the Registrant, Haltek
Electronics d/b/a Test Lab Company, the Manford and Audrey Trees Living
Trust, Manford J. Trees, Audrey Trees, the Michael P. Megown and Darcy
E. Megown Trust, Michael Megown and Darcy Megown.
2.06 Stock Purchase Agreement by and between the Registrant, DoveBid
Valuation Services, Accuval Associates Incorporated, Liquitec
Industries Incorporated, David S. Granik, Jr. and Richard E. Schmitt.
3.01 Amended and Restated Certificate of Incorporation of the Registrant.
3.02 Form of Amended and Restated Certificate of Incorporation of the
Registrant to be filed on the closing of the offering made hereby.*
3.03 Bylaws of the Registrant.
3.04 Form of Bylaws of the Registrant to be filed on the closing of the
offering made hereby.*
4.01 Form of Registrant's Common Stock certificate.*
5.01 Opinion of Fenwick & West LLP regarding the legality of the securities
being registered.*
10.01 1999 Stock Option Plan.*
10.02 2000 Equity Incentive Plan*
10.03 2000 Employee Stock Purchase Plan.*
10.04 Warrant to purchase 1,405,000 shares of Series C preferred stock of the
Registrant issued to Yahoo! Inc.*
10.05 Commercial Lease between the Registrant and Dove Holdings, Inc.
10.06 Stock Repurchase Agreement between the Registrant, Ross Dove and The
Dove Holdings Corporation.*
10.07 Stock Repurchase Agreement between the Registrant, Kirk Dove and The
Dove Holdings Corporation.*
10.08 Offer Letter to Jeffrey M. Crowe from the Registrant.*
10.09 Offer Letter to Cory M. Ravid from the Registrant.*
10.10 Offer Letter to Anthony Capobianco from the Registrant.*
10.11 Offer Letter to Francis M. Juliano from the Registrant.*
10.12 Offer Letter to James Hume from the Registrant.*
10.13 Second Amended and Restated Investors' Rights Agreement by and between
the Registrant and certain investors of the Registrant dated February
25, 2000.*
10.14 Form of Indemnity Agreement between the Registrant and each of its
directors and executive officers.*
</TABLE>
<PAGE>
<TABLE>
<C> <S>
10.15 Convertible Promissory Note dated December 30, 1999 issued by the
Registrant to Unidyne International, Inc.*
10.16 Convertible Promissory Note dated December 30, 1999 issued by the
Registrant to B&B Custom Circuit Supplies.*
10.17 Convertible Subordinated Promissory Note dated February 29, 2000 issued
by the Registrant to William J. Gardner Jr.*
10.18 Convertible Subordinated Promissory Note date February 29, 2000 issued
by the Registrant to James F. Gardner.*
10.19 Convertible Subordinated Promissory Note date February 29, 2000 issued
by the Registrant to Scott Lankert.*
10.20 Convertible Subordinated Promissory Note date February 29, 2000 issued
by the Registrant to Michael DiProspero.*
10.21 Convertible Subordinated Promissory Note dated March 2, 2000 issued by
the Registrant to Philip Pollack.*
10.22 Convertible Subordinated Promissory Note dated March 2, 2000 issued by
the Registrant to Ross J. Pollack.*
10.23 Convertible Subordinated Promissory Note dated March 2, 2000 issued by
the Registrant to David S. Gronik, Jr.*
10.24 Convertible Subordinated Promissory Note dated March 2, 2000 issued by
the Registrant to Richard E. Schmitt.*
10.25 Secured Promissory Note held by the Registrant for Jeffrey M. Crowe
dated November 30, 1999.*
10.26 Secured Promissory Note held by the Registrant for Cory M. Ravid dated
November 30, 1999.*
10.27 Secured Promissory Note held by the Registrant for Francis Juliano dated
January 14, 2000.*
10.28 Secured Promissory Note held by the Registrant for Steven Pollock dated
January 16, 2000.*
10.29 Secured Promissory Note held by the Registrant for Anthony Capobianco
dated February 13, 2000.*
10.30 Secured Promissory Note held by the Registrant for Dennis Polk dated
February 23, 2000.*
10.31 Secured Promissory Note held by the Registrant for James Hume dated
January 14, 2000.*
21.01 List of Registrant's Subsidiaries.
23.01 Consent of Fenwick & West LLP (included in Exhibit 5.01).*
23.02 Consent of Ernst & Young LLP, independent auditors.
24.01 Power of Attorney. (Included on signature page. See page II-6).
27.01 Financial Data Schedule.
</TABLE>
- --------
* To be supplied by amendment.
** Confidential treatment has been requested with regard to certain portions
of this document. Such portions were filed separately with the Securities
and Exchange Commission.
<PAGE>
EXHIBIT 2.01
ASSET PURCHASE AGREEMENT
dated as of the 30th day of December, 1999
by and among
DOVEBID, INC.,
UNIDYNE INTERNATIONAL, INC.,
RICK ADAMS
AND
JACK SAGGAU
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement") is made as of December
30, 1999, by and among DoveBid, Inc., a Delaware corporation, and/or any
assignee of same (collectively, "DoveBid"), Unidyne International, Inc., a
Delaware corporation ("Unidyne"), and Rick Adams and Jack Saggau (together, the
"Stockholders").
WHEREAS, the Board of Directors of Unidyne and DoveBid deem it
advisable and in the best interests of Unidyne and DoveBid, respectively, that
Unidyne sell to DoveBid, and that DoveBid purchase from Unidyne, certain assets
in consideration for cash and a promissory note on the terms and subject to the
conditions of this Agreement; and
WHEREAS, concurrently herewith, DoveBid also is entering into a
substantially similar Asset Purchase Agreement with B&B Custom Circuit Supplies,
Inc. ("B&B") and the shareholders of B&B (the "B&B Shareholders) covering
DoveBid's purchase of substantially all of the assets of B&B (the "B&B
Agreement").
NOW, THEREFORE, in consideration of the premises and of the
agreements, representations, warranties, provisions and covenants herein
contained, and intending to be legally bound, the parties hereto hereby agree as
follows:
1. PURCHASE AND SALE.
1.1 Sale of Assets. Unidyne hereby undertakes to transfer to DoveBid
--------------
substantially all of Unidyne's assets (other than the Excluded Assets described
in Section 1.2 immediately below), including all of Unidyne's right, title and
interest in and to the assets described in Schedule 1.1 (each an "Asset" and
collectively the "Assets") and DoveBid agrees to purchase the Assets from
Unidyne. Except as expressly provided in Section 1.3 below, the Assets will be
transferred to DoveBid free and clear of all liens, security interests,
mortgages, indentures, pledges, options, attachments, charges, voting trusts,
restrictions, encumbrances and claims of every kind (collectively, "Liens"). In
return for its sale of the Assets, Unidyne will receive from DoveBid (i) the
Convertible Subordinated Promissory Note (as defined in Section 6.8 below), and
(ii) cash consideration equal to $2,250,000 (the "Cash Consideration") payable
as set forth in Sections 2.2 and 2.3 below, subject to DoveBid's right to retain
$500,000 of the Cash Consideration as a holdback as more specifically set forth
in Section 2.3 below.
1.2 Excluded Assets. Unidyne is not selling to DoveBid, and DoveBid is not
---------------
purchasing from Unidyne, the following assets (collectively, the "Excluded
Assets"): (i) the cash and accounts receivable of Unidyne at Closing, except
cash and accounts receivable that are the proceeds of Pending Sale Assets (as
defined in Section 3.3 below), which cash and accounts receivable do constitute
part of the Assets being purchased by DoveBid, and (ii) Unidyne's rights as
lessor with respect to the equipment leased by Unidyne to third parties as
specifically listed on Schedule 1.2 hereto.
1.3 Pending Sale Assets. The Pending Sale Assets (as defined in Section 3.3
-------------------
below) and the proceeds thereof constitute part of the Assets being sold to
DoveBid under this Agreement, and DoveBid shall succeed to all of Unidyne's
rights with respect thereto, including the right to be paid the purchase price
for the Pending Sale Assets by the third-party purchasers of the
1
<PAGE>
Pending Sale Assets. The Pending Sales Assets, like all of the other Assets,
shall be turned over to DoveBid's ownership, possession and control at the
Closing, and DoveBid will transfer and release the applicable Pending Sale Asset
to the applicable purchaser thereof upon DoveBid being paid in full the purchase
price for such Pending Sale Asset(s) as specified on Part II of Schedule 3.3
hereto. Any and all amounts due or payable by any purchaser or any other person
or entity in connection with any Pending Sale Assets shall be remitted to
DoveBid upon (i) the Closing, if due or payable from the purchaser or any other
person or entity prior to the Closing, or (ii) promptly when due or payable from
the purchaser or any other person or entity, if due or payable from such
purchaser or other person or entity after the Closing.
1.4 No Assumed Obligations and Liabilities. Without regard to whether any
--------------------------------------
law, governmental authority, or other third party may impose or attempt to
impose any liability of Unidyne, in whole or in part, on DoveBid, DoveBid does
not assume, and Unidyne shall continue to be solely liable for, all liabilities
and obligations, fixed or contingent, known or unknown, of Unidyne. Without
limiting the generality of the foregoing, DoveBid shall neither assume nor have
any liability for any obligation of Unidyne under any contract, whether oral or
written (including, without limitation, any employment contract of Unidyne).
1.5 DoveBid's Hiring Rights. Although DoveBid shall have no obligation or
-----------------------
liability with respect to any employee of Unidyne, DoveBid shall have the right,
in its sole discretion, to hire any employee or employees of Unidyne as DoveBid
may elect. This provision does not benefit and is not intended to inure to the
benefit of any third parties, including, without limitation, any employees of
Unidyne.
2. CLOSING.
2.1 Closing. The closing of the transactions contemplated by this
-------
Agreement (the "Closing") will take place at DoveBid's corporate headquarters in
Foster City, California, when all of the conditions set forth in Sections 6 and
7 have either been satisfied or waived in writing by the party entitled to the
benefit of such condition.
2.2 Delivery of Consideration. At the Closing, DoveBid shall deliver to
-------------------------
Unidyne the Cash Consideration minus $500,000 (such net amount being hereinafter
referred to as the "Closing Cash Payment") and the Convertible Subordinated
Promissory Note duly executed by DoveBid. The Closing Cash Payment shall be
made via wire transfer of immediately available funds to Unidyne per wire
transfer instructions provided by Unidyne in writing, or by delivery of a
cashier's check made payable to Unidyne.
2.3 Holdback Amount. DoveBid shall retain $500,000 of the Cash
---------------
Consideration (the "Holdback Amount") as security for (i) the indemnification
and other obligations of Unidyne and the Stockholders under this Agreement
(including any claim for damages by DoveBid for breach of any obligations,
representations or warranties of Unidyne or the Stockholders under this
Agreement), and (ii) the indemnification and other obligations of B&B and the
B&B Shareholders under the B&B Agreement (including any claim for damages by
DoveBid for breach of any obligations, representations or warranties of B&B or
the B&B Shareholders under the B&B Agreement); and Unidyne hereby grants DoveBid
a security interest in such $500,000 and any accrued interest thereon in order
to secure all such indemnity and other obligations and
2
<PAGE>
claims. Because there is a substantially identical holdback provision in the B&B
Agreement, Unidyne and the Stockholders acknowledge and agree that there
effectively is an aggregate $1,000,000 holdback amount when both Section 2.3 of
this Agreement and Section 2.3 of the B&B Agreement are taken into account (the
"Combined Holdback Amount"), and that DoveBid may proceed against all or any
portion of the Combined Holdback Amount to the extent necessary to make DoveBid
whole on its claims arising and asserted before January 3, 2001. Accordingly,
Unidyne and the Stockholders here expressly acknowledge and agree that claims of
DoveBid against B&B or the B&B Shareholders arising under or in connection with
the B&B Agreement may be satisfied from all or a portion of the Holdback Amount
under this Agreement. DoveBid shall pay the Holdback Amount jointly to the
Stockholders (by a check made payable to both Stockholders) on January 3, 2001
unless exhausted or depleted due to indemnification claims by DoveBid or another
Indemnified Party (as defined in Section 9.3(i) below) or by any claim for
damages by DoveBid against (i) Unidyne or the Stockholders for breach of any of
their respective obligations, representations or warranties under this
Agreement, or (ii) B&B or the B&B Shareholders for breach of any of their
respective obligations , representation or warranties under the B&B Agreement.
To the extent the Holdback Amount is depleted but not entirely exhausted by such
claims, DoveBid shall so pay on such date only the portion of the Holdback
Amount that has not been depleted by such claims. Any payment of all or any
portion of the Holdback Amount to the Stockholders on January 3, 2001 or
thereafter shall not preclude or prejudice any claims that DoveBid then or
thereafter might have against Unidyne or the Stockholders.
3. REPRESENTATIONS AND WARRANTIES OF UNIDYNE AND STOCKHOLDER.
(A) Representations and Warranties of Unidyne and the Stockholders.
--------------------------------------------------------------
Unidyne and the Stockholders jointly and severally represent and warrant that
all of the following representations and warranties in this Section 3(A) are
true at the time of Closing, and that such representations and warranties shall
survive the Closing for a period of three (3) years (the last day of such period
being hereinafter called the "Expiration Date"), except that (i) the warranties
and representations set forth in Sections 3.5 (Environmental Matters) and 3.9
(Employee Plans) hereof shall survive until such date as the limitations period
has run for each act, inaction, fact, event or circumstance which constitutes a
breach thereof, which date shall be deemed to be the Expiration Date for
Sections 3.5 (Environmental Matters) and 3.9 (Employee Plans),and (ii) the
warranties and representations set forth in Section 3.11 (Taxes) hereof shall
survive until such date as the limitations period has run for all tax periods
ended on or prior to the Closing, which date shall be deemed to be the
Expiration Date for Section 3.11 (Taxes).
3.1 Due Organization. Unidyne is a corporation duly organized, validly
----------------
existing and in good standing under the laws of the state of its incorporation,
and is duly authorized and qualified to own and lease the Assets and to do
business under all applicable laws, regulations, ordinances and orders of public
authorities and to carry on its business in the places and in the manner as now
conducted, except where the failure to be so authorized or qualified would not
have a material adverse effect on the business, operations, properties, assets
or condition (financial or otherwise), of Unidyne (a "Material Adverse Effect").
True, complete and correct copies of the Articles of Incorporation and Bylaws,
each as amended, of Unidyne (collectively, the "Charter Documents"), have been
made available to DoveBid.
3
<PAGE>
3.2 Authorization. (i) The representatives of Unidyne executing this
-------------
Agreement have the corporate authority to enter into and bind Unidyne to the
terms of this Agreement, (ii) Unidyne has the full legal right, power and
authority to enter into this Agreement and (iii) no other corporate action is
necessary for the authorization, execution, delivery and performance by Unidyne
of this Agreement and any other agreements contemplated by this Agreement.
3.3 Inventory/Equipment Lists; Pending Sale Assets. Part I of Schedule 3.3
----------------------------------------------
hereto contains a true and correct specific list of the Assets constituting
inventory and equipment ("Inventory/Equipment Assets") and the book value of
such Assets. Part II of Schedule 3.3 hereto contains a true and correct specific
list of those Inventory/Equipment Assets which Unidyne, as of the Closing, has
previously contracted to sell to third parties other than DoveBid (each a
"Pending Sale Asset" and collectively the "Pending Sale Assets"), and which
sales remains pending and unconsummated as of the Closing. For each Pending Sale
Asset, Part II of Schedule 3.3 hereto also contains the price at which Unidyne
has so contracted to sell such Pending Sale Asset (including an itemization of
any and all cash and non-cash consideration to be paid by the purchaser of such
Pending Sale Asset) and which remains due and payable from the purchaser
thereof. Unidyne and the Stockholders represent and warrant that no sales tax
shall be collectible, due or payable in connection with the consummation of the
sale of any Pending Sale Asset because Unidyne and the Stockholders have
determined that each purchaser of a Pending Sale Asset is a qualified reseller
exempt from sales tax.
3.4 Permits and Intangibles. Unidyne holds all licenses, franchises,
-----------------------
permits and other governmental authorizations including permits, titles
(including motor vehicle titles and current registrations), fuel permits,
licenses, franchises, certificates, trademarks (or applications therefor), trade
names (or applications therefor), patents (or applications therefor), and
copyrights, the absence of any of which would have a Material Adverse Effect.
Schedule 3.4 contains an accurate list and summary description of all such
copyrights, trademarks (or applications therefor), trade names (or applications
therefor), patents (or applications therefor), licenses, franchises, permits and
other governmental authorizations. To the knowledge of Unidyne, the copyrights,
trademarks (or applications therefor), trade names (or applications therefor),
patents (or applications therefor), licenses, franchises, permits and other
governmental authorizations listed on Schedule 3.4 are valid, and Unidyne has
not received any notice that any governmental authority intends to cancel,
terminate or not renew any such item. Unidyne has conducted and is conducting
its business in compliance with the requirements, standards, criteria and
conditions set forth in applicable permits, licenses, orders, approvals,
variances, rules and regulations and is not in violation of any of the foregoing
except where such non-compliance or violation would not have a Material Adverse
Effect. The transactions contemplated by this Agreement will not result in a
default under or a breach or violation of, or have a Material Adverse Effect
upon the rights and benefits afforded by, any such licenses, franchises, permits
or government authorizations.
3.5 Environmental Matters. Except to the extent that noncompliance with
---------------------
any Environmental Law (as defined below), either singly or in the aggregate,
does not have a Material Adverse Effect, (i) Unidyne has complied with and is in
compliance with all federal, state, local and foreign statutes (civil and
criminal), laws, ordinances, regulations, rules, notices, permits, judgments,
orders and decrees applicable to any of them or any of their respective
properties, assets, operations and businesses relating to environmental
protection (collectively
4
<PAGE>
"Environmental Laws") including, without limitation, Environmental Laws relating
to protection of the air, water or land or to the generation, storage, use,
handling, transportation, treatment or disposal of Solid Wastes, Hazardous
Wastes or Hazardous Substances (as such terms are defined in any applicable
Environmental Law), (ii) Unidyne has obtained and complied with all necessary
permits and other approvals necessary to treat, transport, store, dispose of or
otherwise handle Solid Wastes, Hazardous Wastes or Hazardous Substances and has
reported, to the extent required by all Environmental Laws, all past and present
sites owned and operated by Unidyne where Solid Wastes, Hazardous Wastes or
Hazardous Substances have been treated, stored, used, disposed of or otherwise
handled, (iii) there have been no releases (as defined in Environmental Laws)
at, from, under, in or on any property owned or operated by Unidyne except as
permitted by Environmental Laws, (iv) to the knowledge of Unidyne there is no
on-site or off-site location to which Unidyne has transported or disposed of
Solid Wastes, Hazardous Wastes or Hazardous Substances or arranged for the
transportation of Solid Wastes, Hazardous Wastes or Hazardous Substances, which
site is the subject of any federal, state, local or foreign enforcement action
or any other investigation which could lead to any claim against Unidyne or
DoveBid for any clean-up cost, remedial work, damage to natural resources or
personal injury, including, but not limited to, any claim under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended and (v) Unidyne has no contingent liability in connection with any
release of any Solid Waste, Hazardous Waste or Hazardous Substance into the
environment. There have been no material releases of Hazardous Wastes or
Hazardous Substances by Unidyne.
3.6 Title and Condition of Assets. The Assets consisting of equipment and
-----------------------------
other material fixed Assets may be in need of repair and are being purchased by
DoveBid in "AS IS" condition. All fixed Assets are either owned by Unidyne or
leased under an agreement indicated in Schedule 3.6. Except as set forth in
Schedule 3.6, Unidyne is the sole and exclusive owner of, and has good and
marketable title to, all of the Assets, wherever located, free and clear of all
Liens and no other person, firm or corporation has or will have at the Closing
any interest whatsoever in any of the Assets.
3.7 Significant Customers; Material Contracts and Commitments. Unidyne has
---------------------------------------------------------
(i) delivered to DoveBid an accurate list (Schedule 3.7) of all significant
customers (i.e., those customers representing five percent (5%) or more of
----
Unidyne's revenues for the 12 months prior to the date of this Agreement), and
(ii) delivered or made available to DoveBid complete and accurate copies of all
contracts requiring payment or performance by Unidyne in an amount or with a
value in excess of $25,000 ("Material Contracts") to which Unidyne is a party or
by which Unidyne or any of its respective properties are bound (including, but
not limited to, contracts with significant customers, joint venture or
partnership agreements, contracts with any labor organizations, loan agreements,
indemnity or guaranty agreements, bonds, mortgages, options to purchase land,
leases, liens, pledges or other security agreements) as of the Closing, and in
each case has delivered or shall deliver true, complete and correct copies of
such agreements to DoveBid following DoveBid's request therefor. None of
Unidyne's significant customers has cancelled or substantially reduced or, to
the knowledge of Unidyne, is currently attempting or threatening to cancel any
Material Contract or substantially reduce utilization of the services provided
by Unidyne, and Unidyne has complied with all material commitments and
obligations pertaining to any Material Contract, and is not in default under any
such Material Contract, and no notice of default has been received, and no
Stockholder nor any affiliate of any Stockholder a
5
<PAGE>
party to any such Material Contract. Unidyne has not been the subject of any
election in respect of union representation of employees and is not bound by or
subject to (and none of its respective assets or properties is bound by or
subject to) any arrangement with any labor union. No employees of Unidyne are
represented by any labor union or covered by any collective bargaining agreement
and no campaign to establish such representation has ever occurred or, to the
knowledge of Unidyne, is in progress. There is no pending or, to Unidyne's
knowledge, threatened labor dispute involving Unidyne and any group of its
employees, nor has Unidyne experienced any labor interruptions over the past
three years, and Unidyne considers its relationship with employees to be good.
3.8 Insurance. Unidyne historically has maintained and currently maintains
---------
reasonable and adequate casualty, general liability and workers' compensation
insurance coverage, and Unidyne will keep such insurance policies in full force
and effect for three years after the Closing to cover any claims made against
Unidyne after the Closing pertaining to any losses or casualties occurring prior
to the Closing. Upon request by DoveBid annually during such three-year period,
Unidyne or the Stockholders shall furnish evidence that such coverage remains in
full force and effect.
3.9 Employee Plans; Compliance with Laws. To the extent that Unidyne now
------------------------------------
maintains or sponsors or contributes to, or has ever maintained or sponsored or
contributed to, any one or more employee benefit plans, employee welfare benefit
plans, employee pension benefit plans, multi-employer plans or multi-employer
welfare arrangements, including, without limitation, plans or arrangements as
defined in Sections 3(3), (1), (2), (37) and (40), respectively, of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and including,
without limitation, benefit plans or arrangements that are not subject to ERISA,
such as employment agreements and any other agreements containing "golden
parachute" provisions and deferred compensation agreements (each and all of the
foregoing being hereinafter individually referred to as a "Plan" and
collectively referred to as the "Plans"), all Plans have been and are presently
in material compliance with all applicable provisions of ERISA and the
regulations issued thereunder, the Internal Revenue Code of 1986, as amended
(the "Code") and the regulations issued thereunder, as well as with all other
applicable laws, and have been administered, operated and managed in all
material respects in accordance with their governing documents, if any. All
reports and other documents required to be filed with any governmental agency or
distributed to Plan participants or beneficiaries (including, but not limited
to, annual reports, summary annual reports, actuarial reports, PBGC-1 Forms,
audits or tax returns) have been timely filed or distributed. None of (i) the
Stockholders, (ii) any Plan or (iii) Unidyne has engaged in any transaction
prohibited under the provisions of Section 4975 of the Code or Section 406 of
ERISA. No Plan has incurred an accumulated funding deficiency, as defined in
Section 412(a) of the Code and Section 302(1) of ERISA; and no circumstances
exist pursuant to which Unidyne could have any direct or indirect liability
whatsoever (including being subject to any statutory lien to secure payment of
any such liability), to the Pension Benefit Guaranty Corporation under Title IV
of ERISA or to the Internal Revenue Service for any excise tax or penalty with
respect to any Plan now or hereinafter maintained or contributed to by Unidyne
or any member of a "controlled group" (as defined in Section 4001(a)(14) of
ERISA) that includes Unidyne; and neither Unidyne nor any member of a
"controlled group" (as defined above) that includes Unidyne currently has (or at
the Closing will have) any obligation whatsoever to contribute to any "multi-
employer pension plan" (as defined in ERISA Section 4001(a)(14)), nor
6
<PAGE>
has any withdrawal liability whatsoever (whether or not yet assessed) arising
under or capable of assertion under Title IV of ERISA (including, but not
limited to, Sections 4201, 4202, 4203, 4204, or 4205 thereof). Both before and
after the Closing, Unidyne and the Stockholders will be and remain solely
responsible for dealing with any and all matters pertaining to any Plan and any
liabilities in respect thereof, and the consummation of the transactions
contemplated hereby will not result in any liability of DoveBid to any person or
entity in respect of any Plan (including, without limitation, any liability to
any Plan, any governmental entity, any employee of Unidyne, or Unidyne).
3.10 Conformity with Law. Unidyne is not in violation of any law or
-------------------
regulation applicable to Unidyne or any order applicable to Unidyne of any court
or federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over it which would
have a Material Adverse Effect; there are no claims, actions, suits or
proceedings pending or, to the knowledge of Unidyne, threatened, against or
affecting Unidyne, at law or in equity, or before or by any federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over it which would have a Material Adverse
Effect, and no notice of any such claim, action, suit or proceeding, whether
pending or threatened, has been received by Unidyne. Unidyne has conducted and
is conducting its business in compliance with the requirements, standards,
criteria and conditions set forth in applicable federal, state and local
statutes, ordinances, orders, approvals, variances, rules and regulations and is
not in violation of any of the foregoing which would have a Material Adverse
Effect.
3.11 Taxes.
-----
(i) All Tax Returns (as hereinafter defined) required to have been
filed by or with respect to Unidyne with any Taxing Authority (as hereinafter
defined) have been duly filed, and each such Tax Return accurately, correctly
and completely reflects the income, franchise or other Tax liability and all
other information, including the tax basis and recovery periods for assets,
required to be reported thereon. Unidyne has furnished or made available to
DoveBid complete and accurate copies of all income and franchise tax returns,
and any amendments thereto, filed by Unidyne for all taxable years ending on or
after December 31, 1993. All Taxes (whether or not shown on any Tax Return and
whether or not assessed) owed by Unidyne have been paid. There are no Liens of
any kind upon or with respect to any Asset, including without limitation, any
Lien for any Tax.
(ii) Unidyne is not and has not since January 1, 1995 been a member
of any affiliated, combined, consolidated, unitary or similar group.
(iii) Unidyne has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
creditor, independent contractor or other third party.
(iv) Unidyne does not expect any Taxing Authority to assess any
additional Taxes against or in respect of it for any past period. There is no
dispute or claim concerning any Tax liability of Unidyne either (i) claimed or
raised by any Taxing Authority or (ii) otherwise known to Unidyne. No issues
have been raised in any examination by any Taxing Authority with
7
<PAGE>
respect to Unidyne which, by application of similar principles, reasonably could
be expected to result in a proposed deficiency for any other period not so
examined. Unidyne has delivered to DoveBid complete and correct copies of all
federal, state, local and foreign income Tax Returns filed by, and all Tax
examination reports and statements of deficiencies assessed against or agreed to
by, Unidyne since January 1, 1996.
(v) Unidyne does not own any subsidiary corporation.
For all purposes of this Agreement related to any Tax matters:
"Tax" means any federal, state, local, or foreign income, gross
receipts, ad valorem, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes under
Section 59A of the Code), customs duties, capital stock, net worth, franchise,
profits, withholding, social security (or similar), unemployment, disability,
real property, personal property, sales, use, transfer, registration, value
added, workers compensation, alternative or add-on minimum, estimated, or other
tax of any kind whatsoever imposed by any federal, state, local or foreign
government or any agency or political subdivision of any such government,
including any interest, penalty, or addition thereto, without regard to whether
such tax is disputed or not or arose before, on or after the Closing.
"Tax Returns" means all reports, elections, declarations, claims for
refund, estimates, information statements and returns (including any schedules
and attachments thereto) relating to, or required to be filed in connection
with, any Taxes pursuant to the statutes, rules and regulations of any federal,
state, local or foreign government taxing authority.
"Taxing Authority" means any governmental agency, board, bureau, body,
department or authority of any United States federal, state or local
jurisdiction, having or purporting to have jurisdiction with respect to any Tax.
3.12 No Violations. Neither Unidyne nor, to the knowledge of Unidyne, any
-------------
other party thereto is (i) in violation of any Charter Document or (ii) in
default under any material lease, instrument, agreement, license, or permit to
which it is a party or by which its properties are bound (the "Material
Documents"); and, except as set forth in the schedules and documents attached to
this Agreement, (a) the transactions contemplated hereby will not have a
Material Adverse Effect on the rights and benefits of Unidyne under the Material
Documents and the ability of Unidyne to assign Unidyne's rights under such
Material Documents to DoveBid, and (b) the execution of this Agreement and the
performance of the obligations hereunder and the consummation of the
transactions contemplated hereby will not result in any material violation or
breach or constitute a default under any of the terms or provisions of the
Material Documents or the Charter Documents. None of the Material Documents
requires notice to, or the consent or approval of, any governmental agency or
other third party to any of the transactions contemplated hereby to remain in
full force and effect or give rise to any right to termination, cancellation or
acceleration or loss of any right or benefit.
3.13 Government Contracts. Unidyne is not a party to any governmental
--------------------
contracts subject to price redetermination or renegotiation.
8
<PAGE>
3.14 No Powers of Attorney. Neither Unidyne nor either of the Stockholders
---------------------
has granted a power of attorney to any person or entity for any reason or
purpose., except for the Power of Attorney granted by Rick Adams to Jack Saggau
dated December 23, 1999 in connection with the negotiation, execution and
closing of this Agreement and the ancillary documents contemplated under this
Agreement.
3.15 Validity of Obligations. The execution and delivery of this Agreement
-----------------------
by Unidyne and the Stockholders and the performance of the transactions
contemplated herein have been duly and validly authorized by the Board of
Directors of Unidyne and the Stockholders and this Agreement has been duly and
validly authorized by all necessary corporate action and, assuming due
authorization, execution and delivery by DoveBid, is a legal, valid and binding
obligation of Unidyne and the Stockholders, enforceable against Unidyne and the
Stockholders in accordance with its terms, except as may be limited by
applicable bankruptcy, insolvency or similar laws affecting creditors' rights
generally or the availability of equitable remedies.
3.16 Relations with Governments. Unidyne has not made, offered or agreed
--------------------------
to offer anything of value to any governmental official, political party or
candidate for government office which would cause Unidyne to be in violation of
the Foreign Corrupt Practices Act of 1977, as amended or any law of similar
effect.
3.17 WARN Act. As of the date hereof, Unidyne has not taken any action so
--------
as to require any compliance under the Worker Adjustment and Retraining
Notification Act (the "WARN Act"). Unidyne shall comply with its obligations
under the WARN Act, and if applicable, make the appropriate notifications
thereunder sixty (60) or more days prior to the Closing. Unidyne shall be solely
liable and responsible for any debt, obligation, contribution or other liability
arising from any failure by Unidyne to comply fully with its WARN Act
obligations.
3.18 Entire Business. At the Closing, Unidyne will sell and transfer to
---------------
DoveBid good, valid and marketable title to all of the Assets except for the
Excluded Assets.
3.19 Stockholders' Authority; Ownership. The Stockholders are the sole
----------------------------------
owners of Unidyne and each of the Stockholders has the full legal right, power
and authority to enter into this Agreement.
4. REPRESENTATIONS OF DOVEBID.
DoveBid represents and warrants that all of the following
representations and warranties are true at the date of this Agreement and shall
be true at the time of the Closing and that such representations and warranties
shall survive the Closing until the Expiration Date.
4.1 Due Organization. DoveBid is duly organized, validly existing and in
----------------
good standing under the laws of the State of Delaware, and is duly authorized
and qualified under all applicable laws, regulations, ordinances and orders of
public authorities to carry on its business in the places and in the manner as
now conducted except for where the failure to be so authorized or qualified
would not have a material adverse effect on the business, operations, affairs,
properties, assets or condition (financial or otherwise), of DoveBid and on
DoveBid's subsidiaries, taken as a whole (a "DoveBid Material Adverse Effect").
9
<PAGE>
4.2 Validity of Obligations. The execution and delivery of this Agreement,
-----------------------
the Employment Agreements (as defined in Section 6.6), the Lease (as defined in
Section 6.7) and the Convertible Subordinated Promissory Note, by DoveBid and
the performance by DoveBid of the transactions contemplated herein or therein
have been duly and validly authorized by the Board of Directors of DoveBid and
this Agreement, the Convertible Subordinated Promissory Note, the Employment
Agreements and the Lease have been duly and validly authorized by all necessary
corporate action, duly executed and delivered and are legal, valid and binding
obligations of DoveBid, enforceable against DoveBid in accordance with their
respective terms, except as may be limited by applicable bankruptcy, insolvency
or similar laws affecting creditors' rights generally or the availability of
equitable remedies.
4.3 Authorization. The representatives of DoveBid executing this Agreement
-------------
have the requisite authority to enter into and bind DoveBid to the terms of this
Agreement. DoveBid has the full legal right, power and authority to enter into
this Agreement and no other action is necessary for the authorization,
execution, delivery and performance by DoveBid of the Agreement and any other
agreements contemplated by the Agreement.
4.4 No Conflicts. The execution, delivery and performance of this
------------
Agreement, the consummation of any transactions herein referred to or
contemplated by and the fulfillment of the terms hereof and thereof will not:
(i) conflict with, or result in a breach or violation of, the
Certificate of Incorporation or Bylaws of DoveBid;
(ii) materially conflict with, or result in a material default
(or would constitute a default but for any requirement of notice or lapse of
time or both) under any document, agreement or other instrument to which DoveBid
is a party, or result in the creation or imposition of any Lien on any of
DoveBid's properties pursuant to (A) any law or regulation to which DoveBid or
any of its property is subject, or (B) any judgment, order or decree to which
DoveBid is bound or any of its property is subject; or
(iii) result in termination or any impairment of any material
permit, license, franchise, contractual right or other authorization of DoveBid.
4.5 WARN Act. DoveBid will not take any action which would cause Unidyne
--------
to violate the WARN Act.
5. COVENANTS.
5.1 Bulk Sales Compliance. The parties agree to waive compliance with any
---------------------
applicable bulk sales statutes with respect to the sale and transfer of the
Assets hereunder; provided, that notwithstanding anything to the contrary
--------
contained in this Agreement, Unidyne and the Stockholders will jointly and
severally indemnify and hold DoveBid harmless from and against any and all
liabilities, including liability for any Taxes, imposed upon, or asserted
against DoveBid as a result of Unidyne's noncompliance with any such bulk sales
or bulk transfer laws.
10
<PAGE>
5.2 Payment of Employment Liabilities. Unidyne agrees to pay all accrued
---------------------------------
and unpaid liabilities and obligations with respect to Unidyne's employees
relating to the period prior to the Closing in accordance with all applicable
laws.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDERS AND UNIDYNE.
The obligations of the Stockholders and Unidyne with respect to
actions to be taken at Closing are subject to the satisfaction or waiver on or
prior to Closing of all of the following conditions.
6.1 Representations and Warranties; Performance of Obligations. All
----------------------------------------------------------
representations and warranties of DoveBid contained in Section 4 shall be true
and correct in all material respects at the Closing with the same effect as
though such representations and warranties had been made as of that date; each
and all of the terms, covenants and conditions of this Agreement to be complied
with and performed by DoveBid on or before the Closing shall have been duly
complied with and performed in all material respects.
6.2 Satisfaction. All actions, proceedings, instruments and documents
------------
required to carry out this Agreement or incidental hereto and all other related
legal matters shall be reasonably satisfactory to Unidyne and its counsel.
6.3 No Litigation. No action or proceeding before a court or any other
-------------
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the transactions contemplated herein and no governmental agency or
body shall have taken any other action or made any request of Unidyne as a
result of which the management of Unidyne deems it inadvisable to proceed with
the transactions hereunder.
6.4 Consents and Approvals. All necessary consents of and filings with any
----------------------
governmental authority or agency relating to the consummation of the transaction
contemplated herein shall have been obtained and made and no action or
proceeding shall have been instituted or threatened to restrain or prohibit the
transactions contemplated herein and no governmental agency or body shall have
taken any other action or made any request of Unidyne as a result of which
Unidyne deems it inadvisable to proceed with the transactions hereunder.
6.5 Employment Agreement. Rick Adams shall have entered into an employment
--------------------
agreement with DoveBid substantially in the form of Annex I hereto (the
"Employment Agreement").
6.6 Leases. DoveBid shall have entered into a lease substantially in the
------
form of Annex II (the "Lease").
6.7 Convertible Subordinated Promissory Note. DoveBid shall have executed
----------------------------------------
the subordinated convertible promissory note substantially in the form of Annex
III (the "Convertible Subordinated Promissory Note").
11
<PAGE>
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF DOVEBID.
The obligations of DoveBid with respect to actions to be taken at the
Closing are subject to the satisfaction or waiver on or prior to the Closing of
all of the following conditions.
7.1 Representations and Warranties; Performance of Obligations. All the
----------------------------------------------------------
representations and warranties of the Stockholders and Unidyne contained in this
Agreement shall be true and correct in all material respects at the Closing;
each and all of the terms, covenants and conditions of this Agreement to be
complied with or performed by the Stockholders and Unidyne on or before the
Closing, as the case may be, shall have been duly performed or complied with in
all material respects; and the Stockholders and Unidyne shall have delivered to
DoveBid a certificate dated the date of the Closing signed by the Stockholders
and certified by the Secretary or Assistant Secretary of Unidyne to such effect.
7.2 No Litigation. No action or proceeding before a court or any other
-------------
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the transactions contemplated herein and no governmental agency or
body shall have taken any other action or made any request of DoveBid as a
result of which the management of DoveBid deems it inadvisable to proceed with
the transactions hereunder.
7.3 Intentionally Blank.
-------------------
7.4 No Material Adverse Effect. No event or circumstance shall have
--------------------------
occurred between the execution of this Agreement and the Closing which would
constitute a Material Adverse Effect; and DoveBid shall have received a
certificate signed by the Stockholders and certified by the Secretary or
Assistant Secretary of Unidyne dated the date of Closing to such effect.
7.5 Satisfaction. All actions, proceedings, instruments and documents
------------
required to carry out the transactions contemplated by this Agreement or
incidental hereto and all other related legal matters shall have been executed
by Unidyne and approved by DoveBid. Such instruments and documents shall
include, without limitation, the Bill of Sale (as defined in Section 7.10) and
other instruments and documents sufficient to convey to DoveBid good, valid and
marketable fee simple title to all Assets free and clear of all Liens,
including, without limitation, any documents or certificates of title for motor
vehicles or any other Assets for which documents or certificates of title are
issued under applicable law. Unidyne shall deliver to DoveBid full possession
and control of the Assets.
7.6 Consents and Approvals. All necessary consents of and filings with any
----------------------
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made; Unidyne
shall have obtained and delivered to DoveBid such additional consents to the
transactions contemplated herein as DoveBid may reasonably request including,
without limitation, DoveBid's receipt on or prior to Closing of (a) consents of
third parties to those Material Contracts listed on Schedule 3.7 and (b) those
licenses, franchises, permits or governmental authorizations set forth on
Schedule 3.4 pursuant to the last sentence of Section 3.4, or assurances
reasonably acceptable to it that such licenses, franchises, permits or
governmental authorizations will be received at Closing or that the failure to
receive such licenses, franchises, permits or governmental authorizations at
Closing will not adversely affect
12
<PAGE>
its ability to conduct the business of Unidyne as conducted prior to Closing;
and no action or proceeding shall have been instituted or threatened to restrain
or prohibit the transactions contemplated herein and no governmental agency or
body shall have taken any other action or made any request of DoveBid as a
result of which DoveBid deems it inadvisable to proceed with the transactions
hereunder.
7.7 Good Standing Certificate or Equivalent. At it sole discretion,
---------------------------------------
DoveBid shall have received evidence satisfactory to it that Unidyne is validly
existing, in good standing and authorized to do business and that all state
franchise and/or income tax returns and taxes due by Unidyne for all periods
prior to the Closing have been filed and paid. DoveBid's failure to require or
receive such evidence in no way vitiates or affects Unidyne's or the
Stockholders' representations and warranties regarding such matters and
DoveBid's reliance on such representations or warranties.
7.8 Employment Agreements. Rick Adams shall have entered into the
---------------------
Employment Agreement with DoveBid.
7.9 Lease. 577 Burke Street Associates, a California general partnership
-----
in which the Stockholders are directly or indirectly two of the general
partners, shall have entered into the Lease with DoveBid.
7.10 Bill of Sale. The Stockholders and Unidyne shall have executed the
------------
Bill of Sale substantially in the form of Annex IV (the "Bill of Sale").
7.11 Convertible Subordinated Promissory Note and Subordination Agreement.
--------------------------------------------------------------------
Unidyne shall have executed the Convertible Subordinated Promissory Note and the
Subordination Agreement attached thereto as Annex A.
7.12 Name Change. Because Unidyne's corporate name and the name "Unidyne"
-----------
are part of the Assets being sold to DoveBid, Unidyne shall have changed its
name from Unidyne International, Inc. to a name which does not have "Unidyne" in
it and which is reasonably satisfactory to DoveBid, or, if DoveBid proceeds to
Closing before such name change has taken place, Unidyne as a post-closing
covenant will effect such name change no later than ten (10) days after the
Closing.
8. SPECIAL TAX MATTERS.
8.1 Cooperation in Tax Return Preparation. Each party hereto shall at its
-------------------------------------
own expense cooperate with each other and make available to each other such Tax
data and other information as may be reasonably required in connection with (i)
the preparation or filing of any Tax Return, election, consent or certification,
or any claim for refund, (ii) any determinations of liability for Taxes, or
(iii) an audit, examination or other proceeding with respect to Taxes ("Tax
Data"). Such cooperation shall include, without limitation, making their
respective employees and independent auditors reasonably available on a mutually
convenient basis for all reasonable purposes, including, without limitation, to
provide explanations and background information and to permit the copying of
books, records, schedules, workpapers, notices, revenue agent reports,
settlement or closing agreements and other documents containing the Tax Data
("Tax Documentation"). The Tax Data and the Tax Documentation shall be retained
until one year
13
<PAGE>
after the expiration of all applicable statutes of limitations (including
extensions thereof); provided, however, that in the event an audit, examination,
-------- -------
investigation or other proceeding has been instituted prior to the expiration of
an applicable statute of limitations, the Tax Data and Tax Documentation
relating thereto shall be retained until there is a final determination thereof
(and the time for any appeal has expired).
8.2 Tax Return Preparation and Filing. The Stockholders and Unidyne will
---------------------------------
be responsible for preparing and filing (or causing the preparation and filing
of) all income Tax Returns for Unidyne.
8.3 Treatment of Transaction for Tax Purposes. The parties agree that for
-----------------------------------------
all purposes, including income tax and tax information reporting purposes, the
exchange of assets for cash and the assumption of liabilities by DoveBid as
provided for in this Agreement is a sale of assets from Unidyne to DoveBid to
which Code Section 1001 applies.
9. INDEMNIFICATION.
The Stockholders, Unidyne and DoveBid each make the following
covenants that are applicable to them, respectively:
9.1 General Indemnification by the Stockholders and Unidyne. The
-------------------------------------------------------
Stockholders and Unidyne, jointly and severally, covenant and agree that they
will indemnify, defend, protect and hold harmless DoveBid, at all times from and
after the date of this Agreement until the Expiration Date as defined in Section
3 above, from and against all claims, damages, actions, suits, proceedings,
demands, assessments, adjustments, costs and expenses (including specifically,
but without limitation, reasonable attorneys' fees and expenses of
investigation) incurred by DoveBid as a result of or arising from (i) any breach
of the representations and warranties of the Stockholders or Unidyne set forth
herein or on the schedules or certificates delivered in connection herewith,
(ii) any breach or nonfulfillment of any covenant or agreement on the part of
the Stockholders or Unidyne under this Agreement, (iii) any third party claim
arising from the conduct of Unidyne or either of the Stockholders, (iv) any
breach of the representations and warranties of B&B or the stockholders of B&B
set forth in the B&B Agreement or on the schedules or certificates delivered in
connection with the B&B Agreement, (v) any breach or nonfulfillment of any
covenant or agreement on the part of B&B or the stockholders of B&B under the
B&B Agreement, or (vi) any third party claim arising from the conduct of B&B or
either of the stockholders of B&B.
9.2 Indemnification by DoveBid. DoveBid covenants and agrees that it will
--------------------------
indemnify, defend, protect and hold harmless Unidyne and the Stockholders at all
times from and after the date of this Agreement until the Expiration Date, from
and against all claims, damages, actions, suits, proceedings, demands,
assessments, adjustments, costs and expenses (including specifically, but
without limitation, reasonable attorneys' fees and expenses of investigation)
incurred by Unidyne and the Stockholders as a result of or arising from (i) any
breach by DoveBid of their representations and warranties set forth herein or on
the schedules or certificates attached hereto, or (ii) any nonfulfillment of any
covenant or agreement on the part of DoveBid under this Agreement.
14
<PAGE>
9.3 Third Person Claims.
-------------------
(i) Promptly after any party hereto (hereinafter the
"Indemnified Party") has received notice of or has knowledge of any claim by a
person not a party to this Agreement ("Third Person"), or the commencement of
any action or proceeding by a Third Person (such claim or commencement of such
action or proceeding being a "Third Party Claim") that could give rise to a
right of indemnification under this Agreement, the Indemnified Party shall, as a
condition precedent to a claim with respect thereto being made against any party
obligated to provide indemnification pursuant to Section 9.1 or Section 9.2
hereof (hereinafter the "Indemnifying Party"), give the Indemnifying Party
written notice of such Third Party Claim describing in reasonable detail the
nature of such Third Party Claim, a copy of all papers served with respect to
that Third Party Claim (if any), an estimate of the amount of damages
attributable to the Third Party Claim to the extent feasible (which estimate
shall not be conclusive of the final amount of such claim) and the basis for the
Indemnified Party's request for indemnification under this Agreement; provided,
--------
however, that the failure of the Indemnified Party to give timely notice
- -------
hereunder shall relieve the Indemnifying Party of its indemnification
obligations under this Agreement to the extent, but only to the extent that,
such failure materially prejudices the Indemnifying Party's ability to defend
such claim. Within fifteen (15) days after receipt of such notice (the
"Election Period"), the Indemnifying Party shall notify the Indemnified Party
(a) whether the Indemnifying Party disputes its potential liability to the
Indemnified Party under this Section 9 with respect to that Third Party Claim
and (b) if the Indemnifying Party does not dispute its potential liability to
the Indemnified Party with respect to that Third Party Claim, whether the
Indemnifying Party desires, at the sole cost and expense of the Indemnifying
Party, to defend the Indemnified Party against that Third Party Claim.
(ii) If the Indemnifying Party does not dispute its potential
liability to the Indemnified Party and notifies the Indemnified Party within the
Election Period that the Indemnifying Party elects to assume the defense of the
Third Party Claim through counsel of its own choosing which is consented to by
the Indemnified Party (which consent shall not be unreasonably delayed or
withheld), then the Indemnifying Party shall have the right to defend, at its
sole cost and expense, that Third Party Claim by all appropriate proceedings,
which proceedings shall be prosecuted diligently by the Indemnifying Party to a
final conclusion or settled at the discretion of the Indemnifying Party in
accordance with this Section 9.3(ii) and the Indemnified Party will furnish the
Indemnifying Party with all information in its possession with respect to that
Third Party Claim and otherwise cooperate with the Indemnifying Party in the
defense of that Third Party Claim; provided, however, that the Indemnifying
-------- -------
Party shall not enter into any settlement with respect to any Third Party Claim
that purports to limit the activities of, or otherwise restrict in any way, any
Indemnified Party or any affiliate of any Indemnified Party without the prior
consent of that Indemnified Party (which consent may be withheld in the sole
discretion of that Indemnified Party). The Indemnified Party is hereby
authorized, at the sole cost and expense of the Indemnifying Party, to file,
during the Election Period, any motion, answer or other pleadings that the
Indemnified Party shall deem necessary or appropriate to protect its interests
or those of the Indemnifying Party. The Indemnified Party may participate in,
but not control, any defense or settlement of any Third Party Claim controlled
by the Indemnifying Party pursuant to this Section 9.3(ii) and will bear its own
costs and expenses with respect to that participation; provided, however, that
-------- -------
if the named parties to any such action (including any impleaded parties)
include both the Indemnifying Party and the Indemnified
15
<PAGE>
Party, and the Indemnified Party has been advised by counsel that there may be
one or more legal defenses available to it which are different from or
additional to those available to the Indemnifying Party, then the Indemnified
Party may employ separate counsel at the expense of the Indemnifying Party, and,
on its written notification of that employment, the Indemnifying Party shall not
have the right to assume or continue the defense of such action on behalf of the
Indemnified Party.
(iii) If the Indemnifying Party (a) within the Election Period
(1) disputes its potential liability to the Indemnified Party under this Section
9, (2) elects not to defend the Indemnified Party pursuant to Section 9.3(ii) or
(3) fails to notify the Indemnified Party that the Indemnifying Party elects to
defend the Indemnified Party pursuant to Section 9.3(ii) or (b) elects to defend
the Indemnified Party pursuant to Section 9.3(ii) but fails diligently and
promptly to prosecute or settle the Third Party Claim, then the Indemnified
Party shall have the right to defend, at the sole cost and expense of the
Indemnifying Party (if the Indemnified Party is entitled to indemnification
hereunder), the Third Party Claim by all appropriate proceedings, which
proceedings shall be promptly and vigorously prosecuted by the Indemnified Party
to a final conclusion or settled, but any settlement shall require the consent
of the Indemnifying party, which consent shall not be unreasonably delayed or
withheld. The Indemnified Party shall have full control of such defense and
proceedings. Notwithstanding the foregoing, if the Indemnifying Party has
delivered a written notice to the Indemnified Party to the effect that the
Indemnifying Party disputes its potential liability to the Indemnified Party
under this Section 9 and if such dispute is resolved in favor of the
Indemnifying Party, the Indemnifying Party shall not be required to bear the
costs and expenses of the Indemnified Party's defense pursuant to this Section
9.3 or of the Indemnifying Party's participation therein at the Indemnified
Party's request, and the Indemnified Party shall reimburse the Indemnifying
Party in full for all reasonable costs and expenses of such litigation. The
Indemnifying Party may participate in, but not control, any defense or
settlement controlled by the Indemnified Party pursuant to this Section
9.3(iii), and the Indemnifying Party shall bear its own costs and expenses with
respect to such participation.
(iv) The parties hereto will make appropriate adjustments for
any Tax benefits, Tax detriments or insurance proceeds in determining the amount
of any indemnification obligation under this Section 9. All indemnification
payments under this Section 9 shall be deemed adjustments to the consideration
provided for herein.
9.4 Exclusive Remedy. The indemnification provided for in this Section 9
----------------
shall be the exclusive remedy in any action seeking damages or any other form of
monetary relief brought by any party to this Agreement against another party,
provided that nothing herein shall be construed to limit the right of a party,
- --------
in a proper case, to seek injunctive relief for a breach of this Agreement.
9.5 Limitations on Indemnification.
------------------------------
(i) DoveBid and the other persons or entities indemnified
pursuant to Section 9.1(i) shall not assert any claim for indemnification
hereunder against the Stockholders or Unidyne until such time as the aggregate
of all claims which such persons may have against the Unidyne and/or the
Stockholders (including, without limitation, all indemnification claims for
16
<PAGE>
attorney's fees and costs) shall exceed $50,000 (the "Indemnification
Threshold"), provided that once the aggregate of all claims against Unidyne
and/or the Stockholders collectively exceed the Indemnification Threshold,
Unidyne and the Stockholders shall be responsible for only those claims in
excess of the Indemnification Threshold, and provided further that this Section
9.5(i) shall not apply to limit claims for indemnification pursuant to Sections
3.5, 3.11, 9.1(ii) or 9.1(iii).
(ii) The Stockholders and Unidyne shall not assert any claim
(other than a Third Party Claim) pursuant to Section 9.2(i) for indemnification
hereunder against DoveBid until such time as the aggregate of all such claims
which the Stockholders or Unidyne may have against DoveBid shall exceed the
Indemnification Threshold, provided that once the aggregate of all claims
exceeds the Indemnification Threshold, DoveBid shall be responsible for only
those claims in excess of the Indemnification Threshold and provided further
that this Section 9.5(ii) shall not apply to limit claims for indemnification
pursuant to Sections 9.2(ii) or 9.2(iii).
(iii) Notwithstanding any other term of this Agreement, in no
event shall the Stockholders or Unidyne be liable under this Agreement,
including this Section 9, for an amount which exceeds the sum of (a) the Cash
Consideration and (b) the amount of the Convertible Subordinated Promissory
Note.
10. NONCOMPETITION.
10.1 Prohibited Activities. The Stockholders and Unidyne will not, for a
---------------------
period of four (4) years following the date of Closing, for any reason
whatsoever, directly or indirectly, for themselves or on behalf of or in
conjunction with any other person, persons, company, partnership, corporation or
business of whatever nature:
(i) engage directly or as an officer, director, stockholder,
owner, partner, joint venturer, or in a managerial capacity, whether as an
employee, independent contractor, consultant or advisor, or as a sales
representative, in any business selling any products or services in direct
competition with DoveBid (including its subsidiaries);
(ii) call upon any person who is, at that time, an employee of
DoveBid (including the subsidiaries thereof) in a managerial capacity for the
purpose or with the intent of enticing such employee away from or out of the
employ of DoveBid (including the subsidiaries thereof), provided that the
-------------
Stockholders shall be permitted to call upon and hire any member of his or her
immediate family;
(iii) call upon any person or entity which is, at that time, or
which has been, within one (1) year prior to that time, a customer of DoveBid
(including the subsidiaries thereof) for the purpose of soliciting or selling
products or services in direct competition with DoveBid;
(iv) call upon any prospective acquisition candidate, on the
Stockholders' or Unidyne's own behalf or on behalf of any competitor of DoveBid,
which candidate was either called upon by DoveBid (including the subsidiaries
thereof) or for which DoveBid (or any subsidiary thereof) made an acquisition
analysis, for the purpose of acquiring such entity, provided that the
--------
Stockholders or Unidyne shall not be charged with a violation of this Section
unless and until a Stockholder or Unidyne shall have knowledge or notice that
such prospective
17
<PAGE>
acquisition candidate was called upon, or that an acquisition analysis was made,
for the purpose of acquiring such entity; or
(v) except in furtherance of DoveBid's business, disclose customers,
whether in existence or proposed, of the Stockholders or Unidyne to any person,
firm, partnership, corporation or business for any reason or purpose whatsoever
excluding disclosure to DoveBid or any of DoveBid's Subsidiaries and Affiliates.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit the Stockholders or Unidyne from acquiring as an investment not more
than three percent (3%) of the capital stock of any business whose stock is
traded on a national securities exchange or over-the-counter.
10.2 Damages. Because of the difficulty of measuring economic losses to
-------
DoveBid as a result of a breach of the foregoing covenants, and because of the
immediate and irreparable damage that could be caused to DoveBid for which it
would have no other adequate remedy, the Stockholders and Unidyne agree that the
foregoing covenants may be enforced by DoveBid, in the event of breach by the
Stockholders or Unidyne, by injunctions and restraining orders.
10.3 Reasonable Restraint. It is agreed by the parties hereto that the
--------------------
foregoing covenants in this Section 10 impose a reasonable restraint on the
Stockholders and Unidyne in light of the activities and business of DoveBid
(including the subsidiaries thereof) on the date of the execution of this
Agreement and the current plans of DoveBid; but it is also the intent of
DoveBid, the Stockholders and Unidyne that such covenants be construed and
enforced in accordance with the changing activities and business of DoveBid
(including the subsidiaries thereof) throughout the term of this covenant.
It is further agreed by the parties hereto that, in the event that the
Stockholders who have entered into an Employment Agreement shall thereafter
cease to be employed thereunder, and the Stockholders shall enter into a
business or pursue other activities not in competition with DoveBid and/or any
subsidiary thereof, or similar activities or business in locations the operation
of which, under such circumstances, does not violate clause (i) of Section 10.1,
and in any event such new business, activities or location are not in violation
of this Section 10 or of such Stockholders' obligations under this Section 10,
if any, such Stockholder shall not be chargeable with a violation of this
Section 10 if DoveBid and/or any subsidiary thereof shall thereafter enter the
same, similar or a competitive (i) business, (ii) course of activities or (iii)
location, as applicable.
10.4 Severability; Reformation. The covenants in this Section 10 are
-------------------------
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and the Agreement shall thereby be reformed.
10.5 Independent Covenant. All of the covenants in this Section 10 shall be
--------------------
construed as an agreement independent of any other provision in this Agreement,
and the existence of any
18
<PAGE>
claim or cause of action of the Stockholders or Unidyne against DoveBid
(including the subsidiaries thereof), whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by DoveBid of such
covenants. It is specifically agreed that the period of four (4) years stated at
the beginning of this Section 10, during which the agreements and covenants of
the Stockholders and Unidyne made in this Section 10 shall be effective, shall
be computed by excluding from such computation any time during which any
STOCKHOLDER or Unidyne is in violation of any provision of this Section 10. The
covenants contained in this Section 10 shall not be affected by any breach of
any other provision hereof by any party hereto and shall have no effect if the
transactions contemplated by this Agreement are not consummated.
10.6 Materiality. Unidyne and the Stockholders hereby agree that the
-----------
covenants in this Section 10 are a material and substantial part of this
transaction.
11. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.
11.1 Stockholders and Unidyne. The Stockholders and Unidyne recognize and
------------------------
acknowledge that they had in the past, currently have, and in the future may
possibly have, access to certain confidential information of Unidyne and/or
DoveBid, such as lists of customers, operational policies, computer software,
and pricing and cost policies that are valuable, special and unique assets of
Unidyne's and/or DoveBid's respective businesses. The Stockholders and Unidyne
agree that they will not disclose such confidential information to any person,
firm, corporation, association or other entity for any purpose or reason
whatsoever, except (a) to authorized representatives of DoveBid, (b) following
the Closing, as required in the course of performing any duties for DoveBid, and
(c) to counsel and other advisers, provided that such advisers (other than
--------
counsel and certified public accountants) agree to the confidentiality
provisions of this Section 11.1; provided, further, that confidential
-------- -------
information shall not include (i) such information which becomes known to the
public generally through no fault of the Stockholders or Unidyne, (ii) such
information required to be disclosed by law or the order of any governmental
authority under color of law, provided that prior to disclosing any information
--------
pursuant to this clause (ii), the Stockholders and Unidyne shall, if possible,
give prior written notice thereof to DoveBid and provide DoveBid with the
opportunity to contest such disclosure, or (iii) such information the disclosing
party reasonably believes it is required to disclose in connection with the
defense of a lawsuit against the disclosing party. In the event of a breach or
threatened breach by any Stockholder or Unidyne of the provisions of this
section, DoveBid shall be entitled to an injunction restraining such Stockholder
or Unidyne from disclosing, in whole or in part, such confidential information.
Notwithstanding anything contained in this Agreement, nothing herein shall be
construed as prohibiting DoveBid from pursuing any other available remedy for
such breach or threatened breach, including the recovery of damages. To the
extent (and only to the extent) that (i) DoveBid has received any confidential
information from Unidyne in connection with the negotiation of this Agreement,
and (ii) this Agreement does not close so that the asset purchase contemplated
- ---
by this Agreement is not consummated, DoveBid agrees that it will not disclose
such confidential information to any person, firm, corporation, association or
other entity for any purpose or reason whatsoever, except (a) to authorized
representatives of Unidyne, (b) to DoveBid's counsel and other advisers,
provided that such advisers (other than counsel and certified public
- --------
accountants) agree to the confidentiality provisions of this sentence); and
provided, further, that confidential information shall not include
- -------- -------
19
<PAGE>
(x) such information which becomes known to the public generally through no
fault of DoveBid, (y) such information required to be disclosed by law or the
order of any governmental authority under color of law, provided that prior to
--------
disclosing any information pursuant to this clause (y), DoveBid shall, if
possible, give prior written notice thereof to Unidyne and provide Unidyne with
the opportunity to contest such disclosure, or (z) such information which the
disclosing party reasonably believes it is required to disclose in connection
with the defense of a lawsuit against the disclosing party.
11.2 Damages. Because of the difficulty of measuring economic losses as a
-------
result of the breach of the foregoing covenants in Section 11.1 and because of
the immediate and irreparable damage that would be caused for which they would
have no other adequate remedy, the parties hereto agree that, in the event of a
breach by any of them of the foregoing covenants, the covenant may be enforced
against the other parties by injunctions and restraining orders.
11.3 Survival. The obligations of the parties under this Section 11 shall
--------
survive the termination of this Agreement.
12. GENERAL.
12.1 Cooperation. Unidyne, the Stockholders and DoveBid shall each deliver
-----------
or cause to be delivered to the other, at such other times and places as shall
be reasonably agreed to, such additional instruments, and take such additional
actions as can be taken without unreasonable expense, as any other may
reasonably request for the purpose of carrying out this Agreement. The
Stockholders and Unidyne will cooperate and use their reasonable efforts to have
the present officers, directors and employees of Unidyne cooperate with DoveBid
on and after Closing in furnishing information, evidence, testimony and other
assistance in connection with any Tax Return filing obligations, actions,
proceedings, arrangements or disputes of any nature with respect to matters
pertaining to all periods prior to Closing.
12.2 Successors and Assigns. This Agreement and the rights of the parties
----------------------
hereunder may not be assigned (except by operation of law) and shall be binding
upon and shall inure to the benefit of the parties hereto, the successors of
DoveBid, the successors of Unidyne, and the heirs and legal representatives of
the Stockholders. This provision does not govern the assignment of the
Convertible Subordinated Promissory Note after the Closing. Any restrictions on
the assignment of the Convertible Subordinated Promissory Note are found in and
governed solely by the provisions of the Convertible Subordinated Promissory
Note.
12.3 Entire Agreement. This Agreement (including the schedules, exhibits
----------------
and annexes attached hereto) and the documents delivered pursuant hereto
constitute the entire agreement and understanding among the Stockholders,
Unidyne and DoveBid and supersede any prior agreement, understanding or
discussions relating to DoveBid or the transactions contemplated by this
Agreement. This Agreement, upon execution, constitutes a valid and binding
agreement of the parties hereto enforceable in accordance with its terms. Except
as otherwise stated herein, this Agreement and the Annexes hereto may be
modified or amended only by a written instrument executed by the Stockholders,
Unidyne and DoveBid, acting through their respective officers, duly authorized
by their respective Boards of Directors. Any disclosure made on any
20
<PAGE>
Schedule delivered pursuant hereto shall be deemed to have been disclosed for
purposes of any other Schedule required hereby.
12.4 Counterparts. This Agreement may be executed simultaneously in two (2)
------------
or more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
12.5 Brokers and Agents. Each party represents and warrants that it employed
------------------
no broker or agent in connection with this transaction and agrees to indemnify
the other against all loss, cost, damages or expense arising out of claims for
fees or commission of brokers employed or alleged to have been employed by such
indemnifying party.
12.6 Expenses. Whether or not the transactions herein contemplated shall be
--------
consummated, (i) DoveBid will pay the fees, expenses and disbursements of
DoveBid and its agents, representatives, accountants and counsel incurred in
connection with the subject matter of this Agreement and any amendments thereto,
including all costs and expenses incurred in the performance and compliance with
all conditions to be performed by DoveBid under this Agreement and (ii) the
Stockholders and Unidyne will pay their respective fees, expenses and
disbursements of counsel and accountants incurred in connection with the subject
matter of this Agreement. Unidyne and the Stockholders shall pay all sales,
use, transfer, real property transfer, recording, gains, stock transfer and
other similar taxes and fees ("Transfer Taxes") incurred in connection with the
transactions contemplated by this Agreement. Unidyne shall file, and the
Stockholders shall cause Unidyne to file, all necessary documentation and Tax
Returns with respect to such Transfer Taxes. In addition, Unidyne and the
Stockholders acknowledge that they, and not DoveBid, will pay all taxes due upon
the receipt of the Converted Subordinated Promissory Note and cash consideration
payable to Unidyne pursuant to this Agreement.
12.7 Notices. All notices and other communications required or permitted
-------
hereunder shall be effective upon receipt (or refusal of receipt) and shall be
in writing and delivered by depositing the same in United States mail, addressed
to the party to be notified, postage prepaid and registered or certified with
return receipt requested, by delivering the same in person to such party or to
an officer or agent of such party or by facsimile transmission, as follows:
21
<PAGE>
(i) If mailed, delivered or faxed to DoveBid , to each of the
following, using two separate mailings, deliveries or faxes:
DoveBid, Inc.
1241 East Hillsdale Blvd.
Foster City, CA 94404
Attn: Cory Ravid, Chief Financial Officer
Fax: 650/571-5980
DoveBid, Inc.
1241 East Hillsdale Blvd.
Foster City, CA 94404
Attn: Anthony Capobianco, General Counsel
Fax: 650/571-5980
(ii) If mailed, delivered or faxed to the Stockholders, addressed or
faxed to them at their respective addresses or fax numbers set forth on Annex V
hereto.
(iii) If mailed, delivered or faxed to Unidyne, addressed or faxed to
it at its address or fax number set forth on Annex V hereto,
or to such other address or fax number as any party hereto shall specify in
writing to the other parties hereto pursuant to this Section 12.7 from time to
time. A notice shall be deemed received by the party to whom it is addressed
(a) if by U.S. mail, three business days after it is deposited in the United
States mail, postage prepaid, by registered or certified mail, with return
receipt requested, (b) if by hand delivery (including via courier), at the time
it is personally delivered to the person to whom the notice is to be given, or
(c) if by facsimile transmission, at the time it is received by the party to
whom notice is to be given, provided that if the transmitting party has a
facsimile-machine-generated written confirmation of receipt by the facsimile
machine of the party to whom notice is given, a facsimile shall be deemed
received no later than 24 hours after the date and time evidenced by such
written confirmation; provided, however, in the case of each and every facsimile
transmission, in order for such facsimile transmission to qualify as notice
under this paragraph (c), the facsimile transmission must be followed by
promptly mailing a copy of such notice to the party to whom the facsimile
transmission was addressed.
12.8 Governing Law; Forum. This Agreement shall be governed by and construed
--------------------
in accordance with the laws of the State of California, without giving effect to
laws concerning choice of law or conflicts of law. All disputes arising out of
this Agreement or the obligations of the parties hereunder, including disputes
that may arise following termination of this Agreement, shall be subject to the
exclusive jurisdiction and venue of the California State courts of San Mateo
County, California (or, if there is federal jurisdiction, then the exclusive
jurisdiction and venue of the United States District Court having jurisdiction
over San Mateo County). Each party hereby irrevocably and unconditionally
consents to the personal and exclusive jurisdiction and venue of said courts and
waives trial by jury and any objection that it may now or hereafter
22
<PAGE>
have to the venue of any such action or proceeding in any such court or that
such action or proceeding was brought in an inconvenient court and agrees not to
plead or claim the same.
12.9 Survival of Representations and Warranties. The representations,
------------------------------------------
warranties, covenants and agreements of the parties made herein, or in writing
delivered pursuant to the provisions of this Agreement shall survive the
consummation of the transactions contemplated hereby and any examination on
behalf of the parties until the applicable Expiration Date.
12.10 Exercise of Rights and Remedies. Except as otherwise provided herein,
-------------------------------
no delay of or omission in the exercise of any right, power or remedy accruing
to any party as a result of any breach or default by any other party under this
Agreement shall impair any such right, power, or remedy, nor shall it be
construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
12.11 Time. Time is of the essence with respect to this Agreement.
----
12.12 Reformation and Severability. In case any provision of this Agreement
----------------------------
shall be invalid, illegal or unenforceable, it shall, to the extent possible, be
modified in such manner as to be valid, legal and enforceable but so as to most
nearly retain the intent of the parties, and if such modification is not
possible, such provision shall be severed from this Agreement, and in either
case the validity, legality and enforceability of the remaining provisions of
this Agreement shall not in any way be affected or impaired thereby.
12.13 Remedies Cumulative. No right, remedy or election given by any term of
-------------------
this Agreement shall be deemed exclusive but each shall be cumulative with all
other rights, remedies and elections available at law or in equity.
12.14 Construction. This Agreement has been negotiated among DoveBid,
------------
Unidyne, the Stockholders and their respective legal counsel, and legal or
equitable principles that might require the construction of this Agreement or
any provision of this Agreement against the party drafting this Agreement will
not apply in any construction or interpretation of this Agreement.
12.15 Captions. The headings of this Agreement are inserted for convenience
--------
only, shall not constitute a part of this Agreement or be used to construe or
interpret any provision hereof.
23
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
DOVEBID, INC.
By /s/ Anthony Capobianco
--------------------------------------
Name: Anthony Capobianco
Title: General Counsel
UNIDYNE INTERNATIONAL, INC.
By /s/ Jack L. Saggau
--------------------------------------
Name: Jack Saggau
Title: Vice President
STOCKHOLDERS:
/s/ Rick Adam by Jack L. Saggau
-----------------------------------------
RICK ADAMS - Attorney-in-Fact
/s/ Jack Saggau
------------------------------------------
JACK SAGGAU
24
<PAGE>
EXHIBIT 2.02
ASSET PURCHASE AGREEMENT
dated as of the 30th day of December, 1999
by and among
DOVEBID, INC.,
B&B CUSTOM CIRCUIT SUPPLIES
ROBERT ALLIE
AND
WILLIAM T. ARKLEY
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement") is made as of December
30, 1999, by and among DoveBid, Inc., a California corporation, and/or any
assignee of same (collectively, "DoveBid"), B&B Custom Circuit Supplies, a
California corporation ("B&B"), and Robert Allie and William T. Arkley
(together, the "Stockholders").
WHEREAS, concurrently herewith, DoveBid also is entering into a
substantially similar Asset Purchase Agreement with B&B Custom Circuit Supplies,
Inc. ("B&B") and the shareholders of B&B (the "B&B Shareholders) covering
DoveBid's purchase of substantially all of the assets of B&B (the "B&B
Agreement"); and
WHEREAS, the Board of Directors of Unidyne and DoveBid deem it
advisable and in the best interests of Unidyne and DoveBid, respectively, that
Unidyne sell to DoveBid, and that DoveBid purchase from Unidyne, certain assets
in consideration for cash and a promissory note on the terms and subject to the
conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and of the
agreements, representations, warranties, provisions and covenants herein
contained, and intending to be legally bound, the parties hereto hereby agree as
follows:
1. PURCHASE AND SALE.
1.1 Sale of Assets. B&B hereby undertakes to transfer to DoveBid
--------------
substantially all of B&B's assets (other than the Excluded Assets described in
Section 1.2 immediately below), including all of B&B's right, title and interest
in and to the assets described in Schedule 1.1 (each an "Asset" and collectively
the "Assets") and DoveBid agrees to purchase the Assets from B&B. Except as
expressly provided in Section 1.3 below, the Assets will be transferred to
DoveBid free and clear of all liens, security interests, mortgages, indentures,
pledges, options, attachments, charges, voting trusts, restrictions,
encumbrances and claims of every kind (collectively, "Liens"). In return for
its sale of the Assets, B&B will receive from DoveBid (i) the Convertible
Subordinated Promissory Note (as defined in Section 6.8 below), and (ii) cash
consideration equal to $2,250,000 (the "Cash Consideration") payable as set
forth in Sections 2.2 and 2.3 below, subject to DoveBid's right to retain
$500,000 of the Cash Consideration as a holdback as more specifically set forth
in Section 2.3 below.
1.2 Excluded Assets. B&B is not selling to DoveBid, and DoveBid is not
---------------
purchasing from B&B, the following assets (collectively, the "Excluded Assets"):
(i) the cash and accounts receivable of B&B at Closing, except cash and accounts
receivable that are the proceeds of Pending Sale Assets (as defined in Section
3.3 below), which cash and accounts receivable do constitute part of the Assets
being purchased by DoveBid, and (ii) B&B's rights as lessor with respect to the
equipment leased by B&B to third parties as specifically listed on Schedule 1.2
hereto.
1.3 Pending Sale Assets. The Pending Sale Assets (as defined in Section 3.3
-------------------
below) and the proceeds thereof constitute part of the Assets being sold to
DoveBid under this Agreement, and DoveBid shall succeed to all of B&B's rights
with respect thereto, including the right to be paid the purchase price for the
Pending Sale Assets by the third-party purchasers of the Pending
1
<PAGE>
Sale Assets. The Pending Sales Assets, like all of the other Assets, shall be
turned over to DoveBid's ownership, possession and control at the Closing, and
DoveBid will transfer and release the applicable Pending Sale Asset to the
applicable purchaser thereof upon DoveBid being paid in full the purchase price
for such Pending Sale Asset(s) as specified on Part II of Schedule 3.3 hereto.
Any and all amounts due or payable by any purchaser or any other person or
entity in connection with any Pending Sale Assets shall be remitted to DoveBid
upon (i) the Closing, if due or payable from the purchaser or any other person
or entity prior to the Closing, or (ii) promptly when due or payable from the
purchaser or any other person or entity, if due or payable from such purchaser
or other person or entity after the Closing.
1.4 No Assumed Obligations and Liabilities. Without regard to whether any
--------------------------------------
law, governmental authority, or other third party may impose or attempt to
impose any liability of B&B, in whole or in part, on DoveBid, DoveBid does not
assume, and B&B shall continue to be solely liable for, all liabilities and
obligations, fixed or contingent, known or unknown, of B&B. Without limiting
the generality of the foregoing, DoveBid shall neither assume nor have any
liability for any obligation of B&B under any contract, whether oral or written
(including, without limitation, any employment contract of B&B).
1.5 DoveBid's Hiring Rights. Although DoveBid shall have no obligation or
-----------------------
liability with respect to any employee of B&B, DoveBid shall have the right, in
its sole discretion, to hire any employee or employees of B&B as DoveBid may
elect. This provision does not benefit and is not intended to inure to the
benefit of any third parties, including, without limitation, any employees of
B&B.
2. CLOSING.
2.1 Closing. The closing of the transactions contemplated by this Agreement
-------
(the "Closing") will take place at DoveBid's corporate headquarters in Foster
City, California, when all of the conditions set forth in Sections 6 and 7 have
either been satisfied or waived in writing by the party entitled to the benefit
of such condition.
2.2 Delivery of Consideration. At the Closing, DoveBid shall deliver to B&B
-------------------------
the Cash Consideration minus $500,000 (such net amount being hereinafter
referred to as the "Closing Cash Payment") and the Convertible Subordinated
Promissory Note duly executed by DoveBid. The Closing Cash Payment shall be made
via wire transfer of immediately available funds to B&B per wire transfer
instructions provided by B&B in writing, or by delivery of a cashier's check
made payable to B&B.
2.3 Holdback Amount. DoveBid shall retain $500,000 of the Cash
---------------
Consideration (the "Holdback Amount") as security for (i) the indemnification
and other obligations of B&B and the Stockholders under this Agreement
(including any claim for damages by DoveBid for breach of any obligations,
representations or warranties of B&B or the Stockholders under this Agreement),
and (ii) the indemnification and other obligations of B&B and the B&B
Shareholders under the B&B Agreement (including any claim for damages by DoveBid
for breach of any obligations, representations or warranties of B&B or the B&B
Shareholders under the B&B Agreement); and B&B hereby grants DoveBid a security
interest in such $500,000 and any accrued interest thereon in order to secure
all such indemnity and other obligations and
2
<PAGE>
claims. Because there is a substantially identical holdback provision in the B&B
Agreement, B&B and the Stockholders acknowledge and agree that there effectively
is an aggregate $1,000,000 holdback amount when both Section 2.3 of this
Agreement and Section 2.3 of the B&B Agreement are taken into account (the
"Combined Holdback Amount"), and that DoveBid may proceed against all or any
portion of the Combined Holdback Amount to the extent necessary to make DoveBid
whole on its claims arising and asserted before January 3, 2001. Accordingly,
B&B and the Stockholders here expressly acknowledge and agree that claims of
DoveBid against B&B or the B&B Shareholders arising under or in connection with
the B&B Agreement may be satisfied from all or a portion of the Holdback Amount
under this Agreement. DoveBid shall pay the Holdback Amount jointly to the
Stockholders (by a check made payable to both Stockholders) on January 3, 2001
unless exhausted or depleted due to indemnification claims by DoveBid or another
Indemnified Party (as defined in Section 9.3(i) below) or by any claim for
damages by DoveBid against (i) B&B or the Stockholders for breach of any of
their respective obligations, representations or warranties under this
Agreement, or (ii) B&B or the B&B Shareholders for breach of any of their
respective obligations , representation or warranties under the B&B Agreement.
To the extent the Holdback Amount is depleted but not entirely exhausted by such
claims, DoveBid shall so pay on such date only the portion of the Holdback
Amount that has not been depleted by such claims. Any payment of all or any
portion of the Holdback Amount to the Stockholders on January 3, 2001 or
thereafter shall not preclude or prejudice any claims that DoveBid then or
thereafter might have against B&B or the Stockholders.
3. REPRESENTATIONS AND WARRANTIES OF B&B AND STOCKHOLDER.
(A) Representations and Warranties of B&B and the Stockholders. B&B and
----------------------------------------------------------
the Stockholders jointly and severally represent and warrant that all of the
following representations and warranties in this Section 3(A) are true at the
time of Closing, and that such representations and warranties shall survive the
Closing for a period of three (3) years (the last day of such period being
hereinafter called the "Expiration Date"), except that (i) the warranties and
representations set forth in Sections 3.5 (Environmental Matters) and 3.9
(Employee Plans) hereof shall survive until such date as the limitations period
has run for each act, inaction, fact, event or circumstance which constitutes a
breach thereof, which date shall be deemed to be the Expiration Date for
Sections 3.5 (Environmental Matters) and 3.9 (Employee Plans),and (ii) the
warranties and representations set forth in Section 3.11 (Taxes) hereof shall
survive until such date as the limitations period has run for all tax periods
ended on or prior to the Closing, which date shall be deemed to be the
Expiration Date for Section 3.11 (Taxes).
3.1 Due Organization. B&B is a corporation duly organized, validly existing
----------------
and in good standing under the laws of the state of its incorporation, and is
duly authorized and qualified to own and lease the Assets and to do business
under all applicable laws, regulations, ordinances and orders of public
authorities and to carry on its business in the places and in the manner as now
conducted, except where the failure to be so authorized or qualified would not
have a material adverse effect on the business, operations, properties, assets
or condition (financial or otherwise), of B&B (a "Material Adverse Effect").
True, complete and correct copies of the Articles of Incorporation and Bylaws,
each as amended, of B&B (collectively, the "Charter Documents"), have been made
available to DoveBid.
3
<PAGE>
3.2 Authorization. (i) The representatives of B&B executing this Agreement
-------------
have the corporate authority to enter into and bind B&B to the terms of this
Agreement, (ii) B&B has the full legal right, power and authority to enter into
this Agreement and (iii) no other corporate action is necessary for the
authorization, execution, delivery and performance by B&B of this Agreement and
any other agreements contemplated by this Agreement.
3.3 Inventory/Equipment Lists; Pending Sale Assets. Part I of Schedule 3.3
----------------------------------------------
hereto contains a true and correct specific list of the Assets constituting
inventory and equipment ("Inventory/Equipment Assets") and the book value of
such Assets. Part II of Schedule 3.3 hereto contains a true and correct
specific list of those Inventory/Equipment Assets which B&B, as of the Closing,
has previously contracted to sell to third parties other than DoveBid (each a
"Pending Sale Asset" and collectively the "Pending Sale Assets"), and which
sales remains pending and unconsummated as of the Closing. For each Pending
Sale Asset, Part II of Schedule 3.3 hereto also contains the price at which B&B
has so contracted to sell such Pending Sale Asset (including an itemization of
any and all cash and non-cash consideration to be paid by the purchaser of such
Pending Sale Asset) and which remains due and payable from the purchaser
thereof. B&B and the Stockholders represent and warrant that no sales tax shall
be collectible, due or payable in connection with the consummation of the sale
of any Pending Sale Asset because B&B and the Stockholders have determined that
each purchaser of a Pending Sale Asset is a qualified reseller exempt from sales
tax.
3.4 Permits and Intangibles. B&B holds all licenses, franchises, permits
-----------------------
and other governmental authorizations including permits, titles (including motor
vehicle titles and current registrations), fuel permits, licenses, franchises,
certificates, trademarks (or applications therefor), trade names (or
applications therefor), patents (or applications therefor), and copyrights, the
absence of any of which would have a Material Adverse Effect. Schedule 3.4
contains an accurate list and summary description of all such copyrights,
trademarks (or applications therefor), trade names (or applications therefor),
patents (or applications therefor), licenses, franchises, permits and other
governmental authorizations. To the knowledge of B&B, the copyrights, trademarks
(or applications therefor), trade names (or applications therefor), patents (or
applications therefor), licenses, franchises, permits and other governmental
authorizations listed on Schedule 3.4 are valid, and B&B has not received any
notice that any governmental authority intends to cancel, terminate or not renew
any such item. B&B has conducted and is conducting its business in compliance
with the requirements, standards, criteria and conditions set forth in
applicable permits, licenses, orders, approvals, variances, rules and
regulations and is not in violation of any of the foregoing except where such
non-compliance or violation would not have a Material Adverse Effect. The
transactions contemplated by this Agreement will not result in a default under
or a breach or violation of, or have a Material Adverse Effect upon the rights
and benefits afforded by, any such licenses, franchises, permits or government
authorizations.
3.5 Environmental Matters. Except to the extent that noncompliance with any
---------------------
Environmental Law (as defined below), either singly or in the aggregate, does
not have a Material Adverse Effect, (i) B&B has complied with and is in
compliance with all federal, state, local and foreign statutes (civil and
criminal), laws, ordinances, regulations, rules, notices, permits, judgments,
orders and decrees applicable to any of them or any of their respective
properties, assets, operations and businesses relating to environmental
protection (collectively
4
<PAGE>
"Environmental Laws") including, without limitation, Environmental Laws relating
to protection of the air, water or land or to the generation, storage, use,
handling, transportation, treatment or disposal of Solid Wastes, Hazardous
Wastes or Hazardous Substances (as such terms are defined in any applicable
Environmental Law), (ii) B&B has obtained and complied with all necessary
permits and other approvals necessary to treat, transport, store, dispose of or
otherwise handle Solid Wastes, Hazardous Wastes or Hazardous Substances and has
reported, to the extent required by all Environmental Laws, all past and present
sites owned and operated by B&B where Solid Wastes, Hazardous Wastes or
Hazardous Substances have been treated, stored, used, disposed of or otherwise
handled, (iii) there have been no releases (as defined in Environmental Laws)
at, from, under, in or on any property owned or operated by B&B except as
permitted by Environmental Laws, (iv) to the knowledge of B&B there is no on-
site or off-site location to which B&B has transported or disposed of Solid
Wastes, Hazardous Wastes or Hazardous Substances or arranged for the
transportation of Solid Wastes, Hazardous Wastes or Hazardous Substances, which
site is the subject of any federal, state, local or foreign enforcement action
or any other investigation which could lead to any claim against B&B or DoveBid
for any clean-up cost, remedial work, damage to natural resources or personal
injury, including, but not limited to, any claim under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended and
(v) B&B has no contingent liability in connection with any release of any Solid
Waste, Hazardous Waste or Hazardous Substance into the environment. There have
been no material releases of Hazardous Wastes or Hazardous Substances by B&B.
3.6 Title and Condition of Assets. The Assets consisting of equipment and
-----------------------------
other material fixed Assets may be in need of repair and are being purchased by
DoveBid in "AS IS" condition. All fixed Assets are either owned by B&B or
leased under an agreement indicated in Schedule 3.6. Except as set forth in
Schedule 3.6, B&B is the sole and exclusive owner of, and has good and
marketable title to, all of the Assets, wherever located, free and clear of all
Liens and no other person, firm or corporation has or will have at the Closing
any interest whatsoever in any of the Assets.
3.7 Significant Customers; Material Contracts and Commitments. B&B has (i)
---------------------------------------------------------
delivered to DoveBid an accurate list (Schedule 3.7) of all significant
customers (i.e., those customers representing five percent (5%) or more of B&B's
----
revenues for the 12 months prior to the date of this Agreement), and (ii)
delivered or made available to DoveBid complete and accurate copies of all
contracts requiring payment or performance by B&B in an amount or with a value
in excess of $25,000 ("Material Contracts") to which B&B is a party or by which
B&B or any of its respective properties are bound (including, but not limited
to, contracts with significant customers, joint venture or partnership
agreements, contracts with any labor organizations, loan agreements, indemnity
or guaranty agreements, bonds, mortgages, options to purchase land, leases,
liens, pledges or other security agreements) as of the Closing, and in each case
has delivered or shall deliver true, complete and correct copies of such
agreements to DoveBid following DoveBid's request therefor. None of B&B's
significant customers has cancelled or substantially reduced or, to the
knowledge of B&B, is currently attempting or threatening to cancel any Material
Contract or substantially reduce utilization of the services provided by B&B,
and B&B has complied with all material commitments and obligations pertaining to
any Material Contract, and is not in default under any such Material Contract,
and no notice of default has been received, and no Stockholder nor any affiliate
of any Stockholder a party to any such Material Contract. B&B has not been the
subject of any election in respect of union
5
<PAGE>
representation of employees and is not bound by or subject to (and none of its
respective assets or properties is bound by or subject to) any arrangement with
any labor union. No employees of B&B are represented by any labor union or
covered by any collective bargaining agreement and no campaign to establish such
representation has ever occurred or, to the knowledge of B&B, is in progress.
There is no pending or, to B&B's knowledge, threatened labor dispute involving
B&B and any group of its employees, nor has B&B experienced any labor
interruptions over the past three years, and B&B considers its relationship with
employees to be good.
3.8 Insurance. B&B historically has maintained and currently maintains
---------
reasonable and adequate casualty, general liability and workers' compensation
insurance coverage, and B&B will keep such insurance policies in full force and
effect for three years after the Closing to cover any claims made against B&B
after the Closing pertaining to any losses or casualties occurring prior to the
Closing. Upon request by DoveBid annually during such three-year period, B&B or
the Stockholders shall furnish evidence that such coverage remains in full force
and effect.
3.9 Employee Plans; Compliance with Laws. To the extent that B&B now
------------------------------------
maintains or sponsors or contributes to, or has ever maintained or sponsored or
contributed to, any one or more employee benefit plans, employee welfare benefit
plans, employee pension benefit plans, multi-employer plans or multi-employer
welfare arrangements, including, without limitation, plans or arrangements as
defined in Sections 3(3), (1), (2), (37) and (40), respectively, of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and including,
without limitation, benefit plans or arrangements that are not subject to ERISA,
such as employment agreements and any other agreements containing "golden
parachute" provisions and deferred compensation agreements (each and all of the
foregoing being hereinafter individually referred to as a "Plan" and
collectively referred to as the "Plans"), all Plans have been and are presently
in material compliance with all applicable provisions of ERISA and the
regulations issued thereunder, the Internal Revenue Code of 1986, as amended
(the "Code") and the regulations issued thereunder, as well as with all other
applicable laws, and have been administered, operated and managed in all
material respects in accordance with their governing documents, if any. All
reports and other documents required to be filed with any governmental agency or
distributed to Plan participants or beneficiaries (including, but not limited
to, annual reports, summary annual reports, actuarial reports, PBGC-1 Forms,
audits or tax returns) have been timely filed or distributed. None of (i) the
Stockholders, (ii) any Plan or (iii) B&B has engaged in any transaction
prohibited under the provisions of Section 4975 of the Code or Section 406 of
ERISA. No Plan has incurred an accumulated funding deficiency, as defined in
Section 412(a) of the Code and Section 302(1) of ERISA; and no circumstances
exist pursuant to which B&B could have any direct or indirect liability
whatsoever (including being subject to any statutory lien to secure payment of
any such liability), to the Pension Benefit Guaranty Corporation under Title IV
of ERISA or to the Internal Revenue Service for any excise tax or penalty with
respect to any Plan now or hereinafter maintained or contributed to by B&B or
any member of a "controlled group" (as defined in Section 4001(a)(14) of ERISA)
that includes B&B; and neither B&B nor any member of a "controlled group" (as
defined above) that includes B&B currently has (or at the Closing will have) any
obligation whatsoever to contribute to any "multi-employer pension plan" (as
defined in ERISA Section 4001(a)(14)), nor has any withdrawal liability
whatsoever (whether or not yet assessed) arising under or capable of assertion
under Title IV of ERISA (including, but not limited to, Sections 4201, 4202,
4203, 4204, or 4205 thereof). Both before and after the Closing, B&B and the
Stockholders will be
6
<PAGE>
and remain solely responsible for dealing with any and all matters pertaining to
any Plan and any liabilities in respect thereof, and the consummation of the
transactions contemplated hereby will not result in any liability of DoveBid to
any person or entity in respect of any Plan (including, without limitation, any
liability to any Plan, any governmental entity, any employee of B&B, or B&B).
3.10 Conformity with Law. B&B is not in violation of any law or regulation
-------------------
applicable to B&B or any order applicable to B&B of any court or federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over it which would have a Material Adverse
Effect; there are no claims, actions, suits or proceedings pending or, to the
knowledge of B&B, threatened, against or affecting B&B, at law or in equity, or
before or by any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality having jurisdiction over it
which would have a Material Adverse Effect, and no notice of any such claim,
action, suit or proceeding, whether pending or threatened, has been received by
B&B. B&B has conducted and is conducting its business in compliance with the
requirements, standards, criteria and conditions set forth in applicable
federal, state and local statutes, ordinances, orders, approvals, variances,
rules and regulations and is not in violation of any of the foregoing which
would have a Material Adverse Effect.
3.11 Taxes.
-----
(i) All Tax Returns (as hereinafter defined) required to have been
filed by or with respect to B&B with any Taxing Authority (as hereinafter
defined) have been duly filed, and each such Tax Return accurately, correctly
and completely reflects the income, franchise or other Tax liability and all
other information, including the tax basis and recovery periods for assets,
required to be reported thereon. B&B has furnished or made available to DoveBid
complete and accurate copies of all income and franchise tax returns, and any
amendments thereto, filed by B&B for all taxable years ending on or after
December 31, 1993. All Taxes (whether or not shown on any Tax Return and
whether or not assessed) owed by B&B have been paid. There are no Liens of any
kind upon or with respect to any Asset, including without limitation, any Lien
for any Tax.
(ii) B&B is not and has not since January 1, 1995 been a member of
any affiliated, combined, consolidated, unitary or similar group.
(iii) B&B has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
creditor, independent contractor or other third party.
(iv) B&B does not expect any Taxing Authority to assess any
additional Taxes against or in respect of it for any past period. There is no
dispute or claim concerning any Tax liability of B&B either (i) claimed or
raised by any Taxing Authority or (ii) otherwise known to B&B. No issues have
been raised in any examination by any Taxing Authority with respect to B&B
which, by application of similar principles, reasonably could be expected to
result in a proposed deficiency for any other period not so examined. B&B has
delivered to DoveBid complete and correct copies of all federal, state, local
and foreign income Tax Returns filed by,
7
<PAGE>
and all Tax examination reports and statements of deficiencies assessed against
or agreed to by, B&B since January 1, 1996.
(v) B&B does not own any subsidiary corporation.
For all purposes of this Agreement related to any Tax matters:
"Tax" means any federal, state, local, or foreign income, gross
receipts, ad valorem, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes under
Section 59A of the Code), customs duties, capital stock, net worth, franchise,
profits, withholding, social security (or similar), unemployment, disability,
real property, personal property, sales, use, transfer, registration, value
added, workers compensation, alternative or add-on minimum, estimated, or other
tax of any kind whatsoever imposed by any federal, state, local or foreign
government or any agency or political subdivision of any such government,
including any interest, penalty, or addition thereto, without regard to whether
such tax is disputed or not or arose before, on or after the Closing.
"Tax Returns" means all reports, elections, declarations, claims for
refund, estimates, information statements and returns (including any schedules
and attachments thereto) relating to, or required to be filed in connection
with, any Taxes pursuant to the statutes, rules and regulations of any federal,
state, local or foreign government taxing authority.
"Taxing Authority" means any governmental agency, board, bureau, body,
department or authority of any United States federal, state or local
jurisdiction, having or purporting to have jurisdiction with respect to any Tax.
3.12 No Violations. Neither B&B nor, to the knowledge of B&B, any other
-------------
party thereto is (i) in violation of any Charter Document or (ii) in default
under any material lease, instrument, agreement, license, or permit to which it
is a party or by which its properties are bound (the "Material Documents"); and,
except as set forth in the schedules and documents attached to this Agreement,
(a) the transactions contemplated hereby will not have a Material Adverse Effect
on the rights and benefits of B&B under the Material Documents and the ability
of B&B to assign B&B's rights under such Material Documents to DoveBid, and (b)
the execution of this Agreement and the performance of the obligations hereunder
and the consummation of the transactions contemplated hereby will not result in
any material violation or breach or constitute a default under any of the terms
or provisions of the Material Documents or the Charter Documents. None of the
Material Documents requires notice to, or the consent or approval of, any
governmental agency or other third party to any of the transactions contemplated
hereby to remain in full force and effect or give rise to any right to
termination, cancellation or acceleration or loss of any right or benefit.
3.13 Government Contracts. B&B is not a party to any governmental contracts
--------------------
subject to price redetermination or renegotiation.
3.14 No Powers of Attorney. Neither B&B nor either of the Stockholders has
---------------------
granted a power of attorney to any person or entity for any reason or purpose.,
except for the Power of Attorney granted by Rick Adams to Jack Saggau dated
December 23, 1999 in connection with
8
<PAGE>
the negotiation, execution and closing of this Agreement and the ancillary
documents contemplated under this Agreement.
3.15 Validity of Obligations. The execution and delivery of this Agreement
-----------------------
by B&B and the Stockholders and the performance of the transactions contemplated
herein have been duly and validly authorized by the Board of Directors of B&B
and the Stockholders and this Agreement has been duly and validly authorized by
all necessary corporate action and, assuming due authorization, execution and
delivery by DoveBid, is a legal, valid and binding obligation of B&B and the
Stockholders, enforceable against B&B and the Stockholders in accordance with
its terms, except as may be limited by applicable bankruptcy, insolvency or
similar laws affecting creditors' rights generally or the availability of
equitable remedies.
3.16 Relations with Governments. B&B has not made, offered or agreed to
--------------------------
offer anything of value to any governmental official, political party or
candidate for government office which would cause B&B to be in violation of the
Foreign Corrupt Practices Act of 1977, as amended or any law of similar effect.
3.17 WARN Act. As of the date hereof, B&B has not taken any action so as
--------
to require any compliance under the Worker Adjustment and Retraining
Notification Act (the "WARN Act"). B&B shall comply with its obligations under
the WARN Act, and if applicable, make the appropriate notifications thereunder
sixty (60) or more days prior to the Closing. B&B shall be solely liable and
responsible for any debt, obligation, contribution or other liability arising
from any failure by B&B to comply fully with its WARN Act obligations.
3.18 Entire Business. At the Closing, B&B will sell and transfer to
---------------
DoveBid good, valid and marketable title to all of the Assets except for the
Excluded Assets.
3.19 Stockholders' Authority; Ownership. The Stockholders are the sole
----------------------------------
owners of B&B and each of the Stockholders has the full legal right, power and
authority to enter into this Agreement.
4. REPRESENTATIONS OF DOVEBID.
DoveBid represents and warrants that all of the following
representations and warranties are true at the date of this Agreement and shall
be true at the time of the Closing and that such representations and warranties
shall survive the Closing until the Expiration Date.
4.1 Due Organization. DoveBid is duly organized, validly existing and in
----------------
good standing under the laws of the State of Delaware, and is duly authorized
and qualified under all applicable laws, regulations, ordinances and orders of
public authorities to carry on its business in the places and in the manner as
now conducted except for where the failure to be so authorized or qualified
would not have a material adverse effect on the business, operations, affairs,
properties, assets or condition (financial or otherwise), of DoveBid and on
DoveBid's subsidiaries, taken as a whole (a "DoveBid Material Adverse Effect").
4.2 Validity of Obligations. The execution and delivery of this
-----------------------
Agreement, the Employment Agreements (as defined in Section 6.6), the Lease (as
defined in Section 6.7) and the Convertible Subordinated Promissory Note, by
DoveBid and the performance by DoveBid of
9
<PAGE>
the transactions contemplated herein or therein have been duly and validly
authorized by the Board of Directors of DoveBid and this Agreement, the
Convertible Subordinated Promissory Note, the Employment Agreements and the
Lease have been duly and validly authorized by all necessary corporate action,
duly executed and delivered and are legal, valid and binding obligations of
DoveBid, enforceable against DoveBid in accordance with their respective terms,
except as may be limited by applicable bankruptcy, insolvency or similar laws
affecting creditors' rights generally or the availability of equitable remedies.
4.3 Authorization. The representatives of DoveBid executing this Agreement
-------------
have the requisite authority to enter into and bind DoveBid to the terms of this
Agreement. DoveBid has the full legal right, power and authority to enter into
this Agreement and no other action is necessary for the authorization,
execution, delivery and performance by DoveBid of the Agreement and any other
agreements contemplated by the Agreement.
4.4 No Conflicts. The execution, delivery and performance of this
------------
Agreement, the consummation of any transactions herein referred to or
contemplated by and the fulfillment of the terms hereof and thereof will not:
(i) conflict with, or result in a breach or violation of, the
Certificate of Incorporation or Bylaws of DoveBid;
(ii) materially conflict with, or result in a material default
(or would constitute a default but for any requirement of notice or lapse of
time or both) under any document, agreement or other instrument to which DoveBid
is a party, or result in the creation or imposition of any Lien on any of
DoveBid's properties pursuant to (A) any law or regulation to which DoveBid or
any of its property is subject, or (B) any judgment, order or decree to which
DoveBid is bound or any of its property is subject; or
(iii) result in termination or any impairment of any material
permit, license, franchise, contractual right or other authorization of DoveBid.
4.5 WARN Act. DoveBid will not take any action which would cause B&B to
--------
violate the WARN Act.
5. COVENANTS.
5.1 Bulk Sales Compliance. The parties agree to waive compliance with any
---------------------
applicable bulk sales statutes with respect to the sale and transfer of the
Assets hereunder; provided, that notwithstanding anything to the contrary
--------
contained in this Agreement, B&B and the Stockholders will jointly and severally
indemnify and hold DoveBid harmless from and against any and all liabilities,
including liability for any Taxes, imposed upon, or asserted against DoveBid as
a result of B&B's noncompliance with any such bulk sales or bulk transfer laws.
5.2 Payment of Employment Liabilities. B&B agrees to pay all accrued and
---------------------------------
unpaid liabilities and obligations with respect to B&B's employees relating to
the period prior to the Closing in accordance with all applicable laws.
10
<PAGE>
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDERS AND B&B.
The obligations of the Stockholders and B&B with respect to actions to
be taken at Closing are subject to the satisfaction or waiver on or prior to
Closing of all of the following conditions.
6.1 Representations and Warranties; Performance of Obligations. All
----------------------------------------------------------
representations and warranties of DoveBid contained in Section 4 shall be true
and correct in all material respects at the Closing with the same effect as
though such representations and warranties had been made as of that date; each
and all of the terms, covenants and conditions of this Agreement to be complied
with and performed by DoveBid on or before the Closing shall have been duly
complied with and performed in all material respects.
6.2 Satisfaction. All actions, proceedings, instruments and documents
------------
required to carry out this Agreement or incidental hereto and all other related
legal matters shall be reasonably satisfactory to B&B and its counsel.
6.3 No Litigation. No action or proceeding before a court or any other
-------------
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the transactions contemplated herein and no governmental agency or
body shall have taken any other action or made any request of B&B as a result of
which the management of B&B deems it inadvisable to proceed with the
transactions hereunder.
6.4 Consents and Approvals. All necessary consents of and filings with any
----------------------
governmental authority or agency relating to the consummation of the transaction
contemplated herein shall have been obtained and made and no action or
proceeding shall have been instituted or threatened to restrain or prohibit the
transactions contemplated herein and no governmental agency or body shall have
taken any other action or made any request of B&B as a result of which B&B deems
it inadvisable to proceed with the transactions hereunder.
6.5 Employment Agreement. Rick Adams shall have entered into an employment
--------------------
agreement with DoveBid substantially in the form of Annex I hereto (the
"Employment Agreement").
6.6 Leases. DoveBid shall have entered into a lease substantially in the
------
form of Annex II (the "Lease").
6.7 Convertible Subordinated Promissory Note. DoveBid shall have executed
----------------------------------------
the subordinated convertible promissory note substantially in the form of Annex
III (the "Convertible Subordinated Promissory Note").
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF DOVEBID.
The obligations of DoveBid with respect to actions to be taken at the
Closing are subject to the satisfaction or waiver on or prior to the Closing of
all of the following conditions.
11
<PAGE>
7.1 Representations and Warranties; Performance of Obligations. All the
----------------------------------------------------------
representations and warranties of the Stockholders and B&B contained in this
Agreement shall be true and correct in all material respects at the Closing;
each and all of the terms, covenants and conditions of this Agreement to be
complied with or performed by the Stockholders and B&B on or before the Closing,
as the case may be, shall have been duly performed or complied with in all
material respects; and the Stockholders and B&B shall have delivered to DoveBid
a certificate dated the date of the Closing signed by the Stockholders and
certified by the Secretary or Assistant Secretary of B&B to such effect.
7.2 No Litigation. No action or proceeding before a court or any other
-------------
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the transactions contemplated herein and no governmental agency or
body shall have taken any other action or made any request of DoveBid as a
result of which the management of DoveBid deems it inadvisable to proceed with
the transactions hereunder.
7.3 Intentionally Blank.
-------------------
7.4 No Material Adverse Effect. No event or circumstance shall have occurred
--------------------------
between the execution of this Agreement and the Closing which would constitute a
Material Adverse Effect; and DoveBid shall have received a certificate signed by
the Stockholders and certified by the Secretary or Assistant Secretary of B&B
dated the date of Closing to such effect.
7.5 Satisfaction. All actions, proceedings, instruments and documents
------------
required to carry out the transactions contemplated by this Agreement or
incidental hereto and all other related legal matters shall have been executed
by B&B and approved by DoveBid. Such instruments and documents shall include,
without limitation, the Bill of Sale (as defined in Section 7.10) and other
instruments and documents sufficient to convey to DoveBid good, valid and
marketable fee simple title to all Assets free and clear of all Liens,
including, without limitation, any documents or certificates of title for motor
vehicles or any other Assets for which documents or certificates of title are
issued under applicable law. B&B shall deliver to DoveBid full possession and
control of the Assets.
7.6 Consents and Approvals. All necessary consents of and filings with any
----------------------
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made; B&B shall
have obtained and delivered to DoveBid such additional consents to the
transactions contemplated herein as DoveBid may reasonably request including,
without limitation, DoveBid's receipt on or prior to Closing of (a) consents of
third parties to those Material Contracts listed on Schedule 3.7 and (b) those
licenses, franchises, permits or governmental authorizations set forth on
Schedule 3.4 pursuant to the last sentence of Section 3.4, or assurances
reasonably acceptable to it that such licenses, franchises, permits or
governmental authorizations will be received at Closing or that the failure to
receive such licenses, franchises, permits or governmental authorizations at
Closing will not adversely affect its ability to conduct the business of B&B as
conducted prior to Closing; and no action or proceeding shall have been
instituted or threatened to restrain or prohibit the transactions contemplated
herein and no governmental agency or body shall have taken any other action or
made any request of DoveBid as a result of which DoveBid deems it inadvisable to
proceed with the transactions hereunder.
12
<PAGE>
7.7 Good Standing Certificate or Equivalent. At it sole discretion,
---------------------------------------
DoveBid shall have received evidence satisfactory to it that B&B is validly
existing, in good standing and authorized to do business and that all state
franchise and/or income tax returns and taxes due by B&B for all periods prior
to the Closing have been filed and paid. DoveBid's failure to require or receive
such evidence in no way vitiates or affects B&B's or the Stockholders'
representations and warranties regarding such matters and DoveBid's reliance on
such representations or warranties.
7.8 Employment Agreements. Rick Adams shall have entered into the
---------------------
Employment Agreement with DoveBid.
7.9 Lease. 577 Burke Street Associates, a California general partnership
-----
in which the Stockholders are directly or indirectly two of the general
partners, shall have entered into the Lease with DoveBid.
7.10 Bill of Sale. The Stockholders and B&B shall have executed the Bill
------------
of Sale substantially in the form of Annex IV (the "Bill of Sale").
7.11 Convertible Subordinated Promissory Note and Subordination Agreement.
--------------------------------------------------------------------
B&B shall have executed the Convertible Subordinated Promissory Note and the
Subordination Agreement attached thereto as Annex A.
7.12 Name Change. Because B&B's corporate name and the name "B&B" are part
-----------
of the Assets being sold to DoveBid, B&B shall have changed its name from B&B
Custom Circuit Supplies to a name which does not have "B&B" in it and which is
reasonably satisfactory to DoveBid, or, if DoveBid proceeds to Closing before
such name change has taken place, B&B as a post-closing covenant will effect
such name change no later than ten (10) days after the Closing.
8. SPECIAL TAX MATTERS.
8.1 Cooperation in Tax Return Preparation. Each party hereto shall at its
-------------------------------------
own expense cooperate with each other and make available to each other such Tax
data and other information as may be reasonably required in connection with (i)
the preparation or filing of any Tax Return, election, consent or certification,
or any claim for refund, (ii) any determinations of liability for Taxes, or
(iii) an audit, examination or other proceeding with respect to Taxes ("Tax
Data"). Such cooperation shall include, without limitation, making their
respective employees and independent auditors reasonably available on a mutually
convenient basis for all reasonable purposes, including, without limitation, to
provide explanations and background information and to permit the copying of
books, records, schedules, workpapers, notices, revenue agent reports,
settlement or closing agreements and other documents containing the Tax Data
("Tax Documentation"). The Tax Data and the Tax Documentation shall be retained
until one year after the expiration of all applicable statutes of limitations
(including extensions thereof); provided, however, that in the event an audit,
-------- -------
examination, investigation or other proceeding has been instituted prior to the
expiration of an applicable statute of limitations, the Tax Data and Tax
Documentation relating thereto shall be retained until there is a final
determination thereof (and the time for any appeal has expired).
13
<PAGE>
8.2 Tax Return Preparation and Filing. The Stockholders and B&B will be
---------------------------------
responsible for preparing and filing (or causing the preparation and filing of)
all income Tax Returns for B&B.
8.3 Treatment of Transaction for Tax Purposes. The parties agree that for
-----------------------------------------
all purposes, including income tax and tax information reporting purposes, the
exchange of assets for cash and the assumption of liabilities by DoveBid as
provided for in this Agreement is a sale of assets from B&B to DoveBid to which
Code Section 1001 applies.
9. INDEMNIFICATION.
The Stockholders, B&B and DoveBid each make the following covenants
that are applicable to them, respectively:
9.1 General Indemnification by the Stockholders and B&B. The Stockholders
---------------------------------------------------
and B&B, jointly and severally, covenant and agree that they will indemnify,
defend, protect and hold harmless DoveBid, at all times from and after the date
of this Agreement until the Expiration Date as defined in Section 3 above, from
and against all claims, damages, actions, suits, proceedings, demands,
assessments, adjustments, costs and expenses (including specifically, but
without limitation, reasonable attorneys' fees and expenses of investigation)
incurred by DoveBid as a result of or arising from (i) any breach of the
representations and warranties of the Stockholders or B&B set forth herein or on
the schedules or certificates delivered in connection herewith, (ii) any breach
or nonfulfillment of any covenant or agreement on the part of the Stockholders
or B&B under this Agreement, (iii) any third party claim arising from the
conduct of B&B or either of the Stockholders, (iv) any breach of the
representations and warranties of B&B or the stockholders of B&B set forth in
the B&B Agreement or on the schedules or certificates delivered in connection
with the B&B Agreement, (v) any breach or nonfulfillment of any covenant or
agreement on the part of B&B or the stockholders of B&B under the B&B Agreement,
or (vi) any third party claim arising from the conduct of B&B or either of the
stockholders of B&B.
9.2 Indemnification by DoveBid. DoveBid covenants and agrees that it will
--------------------------
indemnify, defend, protect and hold harmless B&B and the Stockholders at all
times from and after the date of this Agreement until the Expiration Date, from
and against all claims, damages, actions, suits, proceedings, demands,
assessments, adjustments, costs and expenses (including specifically, but
without limitation, reasonable attorneys' fees and expenses of investigation)
incurred by B&B and the Stockholders as a result of or arising from (i) any
breach by DoveBid of their representations and warranties set forth herein or on
the schedules or certificates attached hereto, or (ii) any nonfulfillment of any
covenant or agreement on the part of DoveBid under this Agreement.
9.3 Third Person Claims.
-------------------
(i) Promptly after any party hereto (hereinafter the "Indemnified
Party") has received notice of or has knowledge of any claim by a person not a
party to this Agreement ("Third Person"), or the commencement of any action or
proceeding by a Third Person (such claim or commencement of such action or
proceeding being a "Third Party Claim") that could give rise to a right of
indemnification under this Agreement, the Indemnified Party shall, as a
14
<PAGE>
condition precedent to a claim with respect thereto being made against any party
obligated to provide indemnification pursuant to Section 9.1 or Section 9.2
hereof (hereinafter the "Indemnifying Party"), give the Indemnifying Party
written notice of such Third Party Claim describing in reasonable detail the
nature of such Third Party Claim, a copy of all papers served with respect to
that Third Party Claim (if any), an estimate of the amount of damages
attributable to the Third Party Claim to the extent feasible (which estimate
shall not be conclusive of the final amount of such claim) and the basis for the
Indemnified Party's request for indemnification under this Agreement; provided,
--------
however, that the failure of the Indemnified Party to give timely notice
- -------
hereunder shall relieve the Indemnifying Party of its indemnification
obligations under this Agreement to the extent, but only to the extent that,
such failure materially prejudices the Indemnifying Party's ability to defend
such claim. Within fifteen (15) days after receipt of such notice (the
"Election Period"), the Indemnifying Party shall notify the Indemnified Party
(a) whether the Indemnifying Party disputes its potential liability to the
Indemnified Party under this Section 9 with respect to that Third Party Claim
and (b) if the Indemnifying Party does not dispute its potential liability to
the Indemnified Party with respect to that Third Party Claim, whether the
Indemnifying Party desires, at the sole cost and expense of the Indemnifying
Party, to defend the Indemnified Party against that Third Party Claim.
(ii) If the Indemnifying Party does not dispute its potential liability
to the Indemnified Party and notifies the Indemnified Party within the Election
Period that the Indemnifying Party elects to assume the defense of the Third
Party Claim through counsel of its own choosing which is consented to by the
Indemnified Party (which consent shall not be unreasonably delayed or withheld),
then the Indemnifying Party shall have the right to defend, at its sole cost and
expense, that Third Party Claim by all appropriate proceedings, which
proceedings shall be prosecuted diligently by the Indemnifying Party to a final
conclusion or settled at the discretion of the Indemnifying Party in accordance
with this Section 9.3(ii) and the Indemnified Party will furnish the
Indemnifying Party with all information in its possession with respect to that
Third Party Claim and otherwise cooperate with the Indemnifying Party in the
defense of that Third Party Claim; provided, however, that the Indemnifying
-------- -------
Party shall not enter into any settlement with respect to any Third Party Claim
that purports to limit the activities of, or otherwise restrict in any way, any
Indemnified Party or any affiliate of any Indemnified Party without the prior
consent of that Indemnified Party (which consent may be withheld in the sole
discretion of that Indemnified Party). The Indemnified Party is hereby
authorized, at the sole cost and expense of the Indemnifying Party, to file,
during the Election Period, any motion, answer or other pleadings that the
Indemnified Party shall deem necessary or appropriate to protect its interests
or those of the Indemnifying Party. The Indemnified Party may participate in,
but not control, any defense or settlement of any Third Party Claim controlled
by the Indemnifying Party pursuant to this Section 9.3(ii) and will bear its own
costs and expenses with respect to that participation; provided, however, that
-------- -------
if the named parties to any such action (including any impleaded parties)
include both the Indemnifying Party and the Indemnified Party, and the
Indemnified Party has been advised by counsel that there may be one or more
legal defenses available to it which are different from or additional to those
available to the Indemnifying Party, then the Indemnified Party may employ
separate counsel at the expense of the Indemnifying Party, and, on its written
notification of that employment, the Indemnifying Party shall not have the right
to assume or continue the defense of such action on behalf of the Indemnified
Party.
15
<PAGE>
(iii) If the Indemnifying Party (a) within the Election Period
(1) disputes its potential liability to the Indemnified Party under this Section
9, (2) elects not to defend the Indemnified Party pursuant to Section 9.3(ii) or
(3) fails to notify the Indemnified Party that the Indemnifying Party elects to
defend the Indemnified Party pursuant to Section 9.3(ii) or (b) elects to defend
the Indemnified Party pursuant to Section 9.3(ii) but fails diligently and
promptly to prosecute or settle the Third Party Claim, then the Indemnified
Party shall have the right to defend, at the sole cost and expense of the
Indemnifying Party (if the Indemnified Party is entitled to indemnification
hereunder), the Third Party Claim by all appropriate proceedings, which
proceedings shall be promptly and vigorously prosecuted by the Indemnified Party
to a final conclusion or settled, but any settlement shall require the consent
of the Indemnifying party, which consent shall not be unreasonably delayed or
withheld. The Indemnified Party shall have full control of such defense and
proceedings. Notwithstanding the foregoing, if the Indemnifying Party has
delivered a written notice to the Indemnified Party to the effect that the
Indemnifying Party disputes its potential liability to the Indemnified Party
under this Section 9 and if such dispute is resolved in favor of the
Indemnifying Party, the Indemnifying Party shall not be required to bear the
costs and expenses of the Indemnified Party's defense pursuant to this Section
9.3 or of the Indemnifying Party's participation therein at the Indemnified
Party's request, and the Indemnified Party shall reimburse the Indemnifying
Party in full for all reasonable costs and expenses of such litigation. The
Indemnifying Party may participate in, but not control, any defense or
settlement controlled by the Indemnified Party pursuant to this Section
9.3(iii), and the Indemnifying Party shall bear its own costs and expenses with
respect to such participation.
(iv) The parties hereto will make appropriate adjustments for
any Tax benefits, Tax detriments or insurance proceeds in determining the amount
of any indemnification obligation under this Section 9. All indemnification
payments under this Section 9 shall be deemed adjustments to the consideration
provided for herein.
9.4 Exclusive Remedy. The indemnification provided for in this Section 9
----------------
shall be the exclusive remedy in any action seeking damages or any other form of
monetary relief brought by any party to this Agreement against another party,
provided that nothing herein shall be construed to limit the right of a party,
- --------
in a proper case, to seek injunctive relief for a breach of this Agreement.
9.5 Limitations on Indemnification.
------------------------------
(i) DoveBid and the other persons or entities indemnified
pursuant to Section 9.1(i) shall not assert any claim for indemnification
hereunder against the Stockholders or B&B until such time as the aggregate of
all claims which such persons may have against the B&B and/or the Stockholders
(including, without limitation, all indemnification claims for attorney's fees
and costs) shall exceed $50,000 (the "Indemnification Threshold"), provided that
once the aggregate of all claims against B&B and/or the Stockholders
collectively exceed the Indemnification Threshold, B&B and the Stockholders
shall be responsible for only those claims in excess of the Indemnification
Threshold, and provided further that this Section 9.5(i) shall not apply to
limit claims for indemnification pursuant to Sections 3.5, 3.11, 9.1(ii) or
9.1(iii).
16
<PAGE>
(ii) The Stockholders and B&B shall not assert any claim (other
than a Third Party Claim) pursuant to Section 9.2(i) for indemnification
hereunder against DoveBid until such time as the aggregate of all such claims
which the Stockholders or B&B may have against DoveBid shall exceed the
Indemnification Threshold, provided that once the aggregate of all claims
exceeds the Indemnification Threshold, DoveBid shall be responsible for only
those claims in excess of the Indemnification Threshold and provided further
that this Section 9.5(ii) shall not apply to limit claims for indemnification
pursuant to Sections 9.2(ii) or 9.2(iii).
(iii) Notwithstanding any other term of this Agreement, in no
event shall the Stockholders or B&B be liable under this Agreement, including
this Section 9, for an amount which exceeds the sum of (a) the Cash
Consideration and (b) the amount of the Convertible Subordinated Promissory
Note.
10. NONCOMPETITION.
10.1 Prohibited Activities. The Stockholders and B&B will not, for a
---------------------
period of four (4) years following the date of Closing, for any reason
whatsoever, directly or indirectly, for themselves or on behalf of or in
conjunction with any other person, persons, company, partnership, corporation or
business of whatever nature:
(i) engage directly or as an officer, director, stockholder,
owner, partner, joint venturer, or in a managerial capacity, whether as an
employee, independent contractor, consultant or advisor, or as a sales
representative, in any business selling any products or services in direct
competition with DoveBid (including its subsidiaries);
(ii) call upon any person who is, at that time, an employee of
DoveBid (including the subsidiaries thereof) in a managerial capacity for the
purpose or with the intent of enticing such employee away from or out of the
employ of DoveBid (including the subsidiaries thereof), provided that the
-------------
Stockholders shall be permitted to call upon and hire any member of his or her
immediate family;
(iii) call upon any person or entity which is, at that time, or
which has been, within one (1) year prior to that time, a customer of DoveBid
(including the subsidiaries thereof) for the purpose of soliciting or selling
products or services in direct competition with DoveBid;
(iv) call upon any prospective acquisition candidate, on the
Stockholders' or B&B's own behalf or on behalf of any competitor of DoveBid,
which candidate was either called upon by DoveBid (including the subsidiaries
thereof) or for which DoveBid (or any subsidiary thereof) made an acquisition
analysis, for the purpose of acquiring such entity, provided that the
--------
Stockholders or B&B shall not be charged with a violation of this Section unless
and until a Stockholder or B&B shall have knowledge or notice that such
prospective acquisition candidate was called upon, or that an acquisition
analysis was made, for the purpose of acquiring such entity; or
(v) except in furtherance of DoveBid's business, disclose
customers, whether in existence or proposed, of the Stockholders or B&B to any
person, firm, partnership, corporation or business for any reason or purpose
whatsoever excluding disclosure to DoveBid or any of DoveBid's Subsidiaries and
Affiliates.
17
<PAGE>
Notwithstanding the above, the foregoing covenant shall not be deemed
to prohibit the Stockholders or B&B from acquiring as an investment not more
than three percent (3%) of the capital stock of any business whose stock is
traded on a national securities exchange or over-the-counter.
10.2 Damages. Because of the difficulty of measuring economic losses to
-------
DoveBid as a result of a breach of the foregoing covenants, and because of the
immediate and irreparable damage that could be caused to DoveBid for which it
would have no other adequate remedy, the Stockholders and B&B agree that the
foregoing covenants may be enforced by DoveBid, in the event of breach by the
Stockholders or B&B, by injunctions and restraining orders.
10.3 Reasonable Restraint. It is agreed by the parties hereto that the
--------------------
foregoing covenants in this Section 10 impose a reasonable restraint on the
Stockholders and B&B in light of the activities and business of DoveBid
(including the subsidiaries thereof) on the date of the execution of this
Agreement and the current plans of DoveBid; but it is also the intent of
DoveBid, the Stockholders and B&B that such covenants be construed and enforced
in accordance with the changing activities and business of DoveBid (including
the subsidiaries thereof) throughout the term of this covenant.
It is further agreed by the parties hereto that, in the event that the
Stockholders who have entered into an Employment Agreement shall thereafter
cease to be employed thereunder, and the Stockholders shall enter into a
business or pursue other activities not in competition with DoveBid and/or any
subsidiary thereof, or similar activities or business in locations the operation
of which, under such circumstances, does not violate clause (i) of Section 10.1,
and in any event such new business, activities or location are not in violation
of this Section 10 or of such Stockholders' obligations under this Section 10,
if any, such Stockholder shall not be chargeable with a violation of this
Section 10 if DoveBid and/or any subsidiary thereof shall thereafter enter the
same, similar or a competitive (i) business, (ii) course of activities or (iii)
location, as applicable.
10.4 Severability; Reformation. The covenants in this Section 10 are
-------------------------
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and the Agreement shall thereby be reformed.
10.5 Independent Covenant. All of the covenants in this Section 10 shall be
--------------------
construed as an agreement independent of any other provision in this Agreement,
and the existence of any claim or cause of action of the Stockholders or B&B
against DoveBid (including the subsidiaries thereof), whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by
DoveBid of such covenants. It is specifically agreed that the period of four
(4) years stated at the beginning of this Section 10, during which the
agreements and covenants of the Stockholders and B&B made in this Section 10
shall be effective, shall be computed by excluding from such computation any
time during which any STOCKHOLDER or B&B is in violation of any provision of
this Section 10. The covenants contained in this Section 10 shall
18
<PAGE>
not be affected by any breach of any other provision hereof by any party hereto
and shall have no effect if the transactions contemplated by this Agreement are
not consummated.
10.6 Materiality. B&B and the Stockholders hereby agree that the covenants
-----------
in this Section 10 are a material and substantial part of this transaction.
11. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.
11.1 Stockholders and B&B. The Stockholders and B&B recognize and
--------------------
acknowledge that they had in the past, currently have, and in the future may
possibly have, access to certain confidential information of B&B and/or DoveBid,
such as lists of customers, operational policies, computer software, and pricing
and cost policies that are valuable, special and unique assets of B&B's and/or
DoveBid's respective businesses. The Stockholders and B&B agree that they will
not disclose such confidential information to any person, firm, corporation,
association or other entity for any purpose or reason whatsoever, except (a) to
authorized representatives of DoveBid, (b) following the Closing, as required in
the course of performing any duties for DoveBid, and (c) to counsel and other
advisers, provided that such advisers (other than counsel and certified public
--------
accountants) agree to the confidentiality provisions of this Section 11.1;
provided, further, that confidential information shall not include (i) such
- -------- -------
information which becomes known to the public generally through no fault of the
Stockholders or B&B, (ii) such information required to be disclosed by law or
the order of any governmental authority under color of law, provided that prior
--------
to disclosing any information pursuant to this clause (ii), the Stockholders and
B&B shall, if possible, give prior written notice thereof to DoveBid and provide
DoveBid with the opportunity to contest such disclosure, or (iii) such
information the disclosing party reasonably believes it is required to disclose
in connection with the defense of a lawsuit against the disclosing party. In
the event of a breach or threatened breach by any Stockholder or B&B of the
provisions of this section, DoveBid shall be entitled to an injunction
restraining such Stockholder or B&B from disclosing, in whole or in part, such
confidential information. Notwithstanding anything contained in this Agreement,
nothing herein shall be construed as prohibiting DoveBid from pursuing any other
available remedy for such breach or threatened breach, including the recovery of
damages. To the extent (and only to the extent) that (i) DoveBid has received
any confidential information from B&B in connection with the negotiation of this
Agreement, and (ii) this Agreement does not close so that the asset purchase
---
contemplated by this Agreement is not consummated, DoveBid agrees that it will
not disclose such confidential information to any person, firm, corporation,
association or other entity for any purpose or reason whatsoever, except (a) to
authorized representatives of B&B, (b) to DoveBid's counsel and other advisers,
provided that such advisers (other than counsel and certified public
- --------
accountants) agree to the confidentiality provisions of this sentence); and
provided, further, that confidential information shall not include (x) such
- -------- -------
information which becomes known to the public generally through no fault of
DoveBid, (y) such information required to be disclosed by law or the order of
any governmental authority under color of law, provided that prior to disclosing
--------
any information pursuant to this clause (y), DoveBid shall, if possible, give
prior written notice thereof to B&B and provide B&B with the opportunity to
contest such disclosure, or (z) such information which the disclosing party
reasonably believes it is required to disclose in connection with the defense of
a lawsuit against the disclosing party.
19
<PAGE>
11.2 Damages. Because of the difficulty of measuring economic losses as a
-------
result of the breach of the foregoing covenants in Section 11.1 and because of
the immediate and irreparable damage that would be caused for which they would
have no other adequate remedy, the parties hereto agree that, in the event of a
breach by any of them of the foregoing covenants, the covenant may be enforced
against the other parties by injunctions and restraining orders.
11.3 Survival. The obligations of the parties under this Section 11 shall
--------
survive the termination of this Agreement.
12. GENERAL.
12.1 Cooperation. B&B, the Stockholders and DoveBid shall each deliver or
-----------
cause to be delivered to the other, at such other times and places as shall be
reasonably agreed to, such additional instruments, and take such additional
actions as can be taken without unreasonable expense, as any other may
reasonably request for the purpose of carrying out this Agreement. The
Stockholders and B&B will cooperate and use their reasonable efforts to have the
present officers, directors and employees of B&B cooperate with DoveBid on and
after Closing in furnishing information, evidence, testimony and other
assistance in connection with any Tax Return filing obligations, actions,
proceedings, arrangements or disputes of any nature with respect to matters
pertaining to all periods prior to Closing.
12.2 Successors and Assigns. This Agreement and the rights of the parties
----------------------
hereunder may not be assigned (except by operation of law) and shall be binding
upon and shall inure to the benefit of the parties hereto, the successors of
DoveBid, the successors of B&B, and the heirs and legal representatives of the
Stockholders. This provision does not govern the assignment of the Convertible
Subordinated Promissory Note after the Closing. Any restrictions on the
assignment of the Convertible Subordinated Promissory Note are found in and
governed solely by the provisions of the Convertible Subordinated Promissory
Note.
12.3 Entire Agreement. This Agreement (including the schedules, exhibits
----------------
and annexes attached hereto) and the documents delivered pursuant hereto
constitute the entire agreement and understanding among the Stockholders, B&B
and DoveBid and supersede any prior agreement, understanding or discussions
relating to DoveBid or the transactions contemplated by this Agreement. This
Agreement, upon execution, constitutes a valid and binding agreement of the
parties hereto enforceable in accordance with its terms. Except as otherwise
stated herein, this Agreement and the Annexes hereto may be modified or amended
only by a written instrument executed by the Stockholders, B&B and DoveBid,
acting through their respective officers, duly authorized by their respective
Boards of Directors. Any disclosure made on any Schedule delivered pursuant
hereto shall be deemed to have been disclosed for purposes of any other Schedule
required hereby.
12.4 Counterparts. This Agreement may be executed simultaneously in two
------------
(2) or more counterparts, each of which shall be deemed an original and all of
which together shall constitute but one and the same instrument.
12.5 Brokers and Agents. Each party represents and warrants that it
------------------
employed no broker or agent in connection with this transaction and agrees to
indemnify the other against all loss,
20
<PAGE>
cost, damages or expense arising out of claims for fees or commission of brokers
employed or alleged to have been employed by such indemnifying party.
12.6 Expenses. Whether or not the transactions herein contemplated shall be
--------
consummated, (i) DoveBid will pay the fees, expenses and disbursements of
DoveBid and its agents, representatives, accountants and counsel incurred in
connection with the subject matter of this Agreement and any amendments thereto,
including all costs and expenses incurred in the performance and compliance with
all conditions to be performed by DoveBid under this Agreement and (ii) the
Stockholders and B&B will pay their respective fees, expenses and disbursements
of counsel and accountants incurred in connection with the subject matter of
this Agreement. B&B and the Stockholders shall pay all sales, use, transfer,
real property transfer, recording, gains, stock transfer and other similar taxes
and fees ("Transfer Taxes") incurred in connection with the transactions
contemplated by this Agreement. B&B shall file, and the Stockholders shall
cause B&B to file, all necessary documentation and Tax Returns with respect to
such Transfer Taxes. In addition, B&B and the Stockholders acknowledge that
they, and not DoveBid, will pay all taxes due upon the receipt of the Converted
Subordinated Promissory Note and cash consideration payable to B&B pursuant to
this Agreement.
12.7 Notices. All notices and other communications required or permitted
-------
hereunder shall be effective upon receipt (or refusal of receipt) and shall be
in writing and delivered by depositing the same in United States mail, addressed
to the party to be notified, postage prepaid and registered or certified with
return receipt requested, by delivering the same in person to such party or to
an officer or agent of such party or by facsimile transmission, as follows:
(i) If mailed, delivered or faxed to DoveBid, to each of the
following, using two separate mailings, deliveries or faxes:
DoveBid, Inc.
1241 East Hillsdale Blvd.
Foster City, CA 94404
Attn: Cory Ravid, Chief Financial Officer
Fax: 650/571-5980
DoveBid, Inc.
1241 East Hillsdale Blvd.
Foster City, CA 94404
Attn: Anthony Capobianco, General Counsel
Fax: 650/571-5980
(ii) If mailed, delivered or faxed to the Stockholders, addressed or
faxed to them at their respective addresses or fax numbers set forth on Annex V
hereto.
(iii) If mailed, delivered or faxed to B&B, addressed or faxed to it
at its address or fax number set forth on Annex V hereto,
or to such other address or fax number as any party hereto shall specify in
writing to the other
21
<PAGE>
parties hereto pursuant to this Section 12.7 from time to time. A notice shall
be deemed received by the party to whom it is addressed (a) if by U.S. mail,
three business days after it is deposited in the United States mail, postage
prepaid, by registered or certified mail, with return receipt requested, (b) if
by hand delivery (including via courier), at the time it is personally delivered
to the person to whom the notice is to be given, or (c) if by facsimile
transmission, at the time it is received by the party to whom notice is to be
given, provided that if the transmitting party has a facsimile-machine-generated
written confirmation of receipt by the facsimile machine of the party to whom
notice is given, a facsimile shall be deemed received no later than 24 hours
after the date and time evidenced by such written confirmation; provided,
however, in the case of each and every facsimile transmission, in order for such
facsimile transmission to qualify as notice under this paragraph (c), the
facsimile transmission must be followed by promptly mailing a copy of such
notice to the party to whom the facsimile transmission was addressed.
12.8 Governing Law; Forum. This Agreement shall be governed by and construed
--------------------
in accordance with the laws of the State of California, without giving effect to
laws concerning choice of law or conflicts of law. All disputes arising out of
this Agreement or the obligations of the parties hereunder, including disputes
that may arise following termination of this Agreement, shall be subject to the
exclusive jurisdiction and venue of the California State courts of San Mateo
County, California (or, if there is federal jurisdiction, then the exclusive
jurisdiction and venue of the United States District Court having jurisdiction
over San Mateo County). Each party hereby irrevocably and unconditionally
consents to the personal and exclusive jurisdiction and venue of said courts and
waives trial by jury and any objection that it may now or hereafter have to the
venue of any such action or proceeding in any such court or that such action or
proceeding was brought in an inconvenient court and agrees not to plead or claim
the same.
12.9 Survival of Representations and Warranties. The representations,
------------------------------------------
warranties, covenants and agreements of the parties made herein, or in writing
delivered pursuant to the provisions of this Agreement shall survive the
consummation of the transactions contemplated hereby and any examination on
behalf of the parties until the applicable Expiration Date.
12.10 Exercise of Rights and Remedies. Except as otherwise provided herein,
------------------------------
no delay of or omission in the exercise of any right, power or remedy accruing
to any party as a result of any breach or default by any other party under this
Agreement shall impair any such right, power, or remedy, nor shall it be
construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
12.11 Time. Time is of the essence with respect to this Agreement.
----
12.12 Reformation and Severability. In case any provision of this Agreement
----------------------------
shall be invalid, illegal or unenforceable, it shall, to the extent possible, be
modified in such manner as to be valid, legal and enforceable but so as to most
nearly retain the intent of the parties, and if such modification is not
possible, such provision shall be severed from this Agreement, and in either
case the validity, legality and enforceability of the remaining provisions of
this Agreement shall not in any way be affected or impaired thereby.
22
<PAGE>
12.13 Remedies Cumulative. No right, remedy or election given by any term
-------------------
of this Agreement shall be deemed exclusive but each shall be cumulative with
all other rights, remedies and elections available at law or in equity.
12.14 Construction. This Agreement has been negotiated among DoveBid, B&B,
------------
the Stockholders and their respective legal counsel, and legal or equitable
principles that might require the construction of this Agreement or any
provision of this Agreement against the party drafting this Agreement will not
apply in any construction or interpretation of this Agreement.
12.15 Captions. The headings of this Agreement are inserted for
--------
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
23
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
DOVEBID, INC.
By /s/ Anthony Capobianco
----------------------------------
Name: Anthony Capobianco
Title: General Counsel
B&B CUSTOM CIRCUIT SUPPLIES
By /s/ Robert Allie, President
----------------------------------
Name: Robert Allie
Title: President
STOCKHOLDERS:
/s/ Robert Allie
------------------------------------
ROBERT ALLIE
/s/ William T. Arkley
------------------------------------
WILLIAM T. ARKLEY
24
<PAGE>
EXHIBIT 2.03
MEMBERSHIP INTEREST PURCHASE AGREEMENT
This MEMBERSHIP INTEREST PURCHASE AGREEMENT, dated as of February 29, 2000
(the "Agreement"), is entered into by and among Greenwich Industrial Services,
LLC, a Connecticut limited liability company ("Greenwich"), DoveBid, Inc., a
Delaware corporation, its affiliates, subsidiaries and assigns ("DoveBid") and
William J. Gardner, James F. Gardner, Scott Lonkart and Michael DiProspero, each
in his individual capacity (each, individually, a "Member" and, collectively,
the "Members").
WHEREAS, the Members own beneficially and of record all of the issued and
outstanding membership interests of Greenwich; and
WHEREAS, DoveBid desires to purchase from the Members, and each Member
desires to sell to DoveBid, all equity interests of Greenwich owned by the
Members on the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual agreements
contained herein, the parties hereto hereby agree as follows:
ARTICLE I
PURCHASE AND SALE
1.1 Agreement to Sell and Purchase Interests. At the Closing, each Member
----------------------------------------
shall sell, transfer and deliver to DoveBid, and DoveBid shall purchase and
accept from each Member, all of the Interests (as defined below) owned by such
Member, free and clear of all security interests, liens, pledges, charges,
escrows, options, rights of first refusal, mortgages, indentures, security
agreements or other claims, encumbrances, agreements, arrangements or
commitments of any kind or character (collectively, "Liens") in exchange for the
following aggregate consideration (the "Purchase Price"), which shall be subject
to reduction in accordance with Section 1.2 and allocated among the Members in
proportion to the Interest owned by such Member in proportion to the Interests
owned by all Members:
(i) a convertible subordinated promissory note substantially in the
in the form attached hereto as Exhibit A (each a "Convertible Subordinated
---------
Promissory Note") in the principal amount of $2,000,000;
(ii) a cash payment equal to $3,250,000; and
(iii) pursuant to the terms of the Escrow Agreement attached hereto
as Exhibit B (the Escrow Agreement") which agreement shall require that DoveBid
---------
deposit $1,000,000 with Chase Manhattan Bank and Trust Company, N.A. as the
escrow agent on the Closing (the "Escrow Funds"), in the event that William J.
Gardner, Jr. remains employed by DoveBid on each annual distribution date set
forth below and either (A) generates leads for at least five (5) auctions per
year or (B) successfully manages at least three (3) full-time salespeople, a
cash payment equal to $500,000 on the first anniversary of the Closing, $250,000
on the second anniversary of the Closing and $250,000 on the third anniversary
of the Closing
<PAGE>
(each, an "Earn-Out Payment" and collectively, the "Earn-Out Payments");
provided, however, that in the event that William J. Gardner terminates his
employment for Good Reason or is terminated other than for Cause, as defined in
clause (ii) of the definition of Cause set forth below, the payments described
in the immediately preceding sentence shall be payable to the Members on the
dates set forth in this Section 1.1(iii). In the event that a Member other than
William Gardner terminates his employment for Good Reason or is terminated other
than for Cause, the Member terminating his employment shall receive within
thirty (30) days of any such termination his pro rata portion of the aggregate
maximum future Earn-Out Payment payable. For purposes of this agreement, "Good
Reason" shall mean the occurrence of any of the following events without such
Member's consent: (i) being required by DoveBid to relocate more than twenty-
five (25) miles from Greenwich's current location in order to perform his
duties; (ii) a reduction in his base salary during from the Effective Time until
the second anniversary thereof; (iii) a material reduction in his employee
benefits other than a reduction which applies to all DoveBid employees of
comparable position and experience; (iv) a material reduction in
responsibilities; or (v) death or disability. "Cause" shall mean, in DoveBid's
reasonable and good faith determination, such Member's: (i) for Members other
than William J. Gardner only, failure to meet specific written performance goals
set reasonably and in good faith and in writing by DoveBid; (ii) for William J.
Gardner, Jr. only, any failure to generate at least five (5) auctions per year
or successfully manage at least three (3) full-time sales people; (iii) willful
or material breaches or habitual neglect of the duties he is required to perform
under the terms and conditions of his Employment Agreement and as may be
assigned from time to time by the Company; (iv) engaging in willful misconduct
materially and demonstrably injurious to DoveBid; or (v) committing any acts of
a criminal or illegal nature, fraud, dishonesty, misrepresentation,
insubordination, or any acts of moral turpitude in connection with DoveBid's
business. DoveBid shall provide the respective Member with a forty-five (45)
business day opportunity to cure any circumstances that it believes could
constitute "Cause" pursuant to clauses (i), (ii) or (iii) in the immediately
preceding sentence if, in DoveBid's reasonable and good faith determination, it
believes providing such an opportunity would not subject DoveBid to significant
further harm in the event such circumstances were not cured. In addition,
notwithstanding anything to the contrary in this Section 1.1, the Earn-Out
Payments will be immediately due and payable in the event the stock option
grants set forth in each Employment Agreement and the additional 30,000 options
for employees other than the Members (with the exact allocation to be agreed to
by the Members and DoveBid) are not issued pursuant to the terms contained in
each Employment Agreement within 30 days of the Closing.
1.2 Purchase Price Adjustments. The Purchase Price shall be subject to
adjustment prior to the Closing Date (as defined below) as follows:
1.2.1 As promptly as possible after the Closing (but in any event not
later than 45 days thereafter), the Members shall prepare and deliver to DoveBid
a consolidated balance sheet of Greenwich, including a statement of Net Book
Value (as defined below) (together, the "Closing Balance Sheet"), as of the
close of business on the Closing Date (without giving effect to the transactions
contemplated by this Agreement). For purposes of this Agreement, "Net Book
Value" means the excess of (i) the tangible assets (including without limitation
accounts receivable and prepaid expenses) of Greenwich less (ii) all liabilities
of Greenwich. Except as set forth below in this Section 1.2.1, the Members shall
prepare the Closing Balance Sheet in accordance with generally accepted
accounting principles. The inventory set forth in the Closing
<PAGE>
Balance Sheet, net of the reserve for unusable inventory and valued at lower of
cost or market, shall not include any inventory that is obsolete, of below
standard quality, unusable or unsaleable or not saleable within the ordinary
course of business within six (6) months after the Closing Date. All property,
plant and equipment shown, directly or indirectly, on the Closing Balance Sheet
shall be net of all applicable depreciation and amortization.
1.2.2 DoveBid shall be given reasonable access during normal business
hours to all work papers, accounting records and personnel related to Greenwich
and such other materials as are reasonably necessary for DoveBid's independent
evaluation of the Closing Balance Sheet. DoveBid shall deliver to the Members
within 45 days after receiving the Closing Balance Sheet a detailed written
statement describing any objections thereto. Failure of DoveBid to so object to
the Closing Balance Sheet shall constitute acceptance thereof by DoveBid,
whereupon the Closing Balance Sheet shall be deemed to be the "Closing
Statement." The DoveBid and the Members shall use reasonable efforts to resolve
any such objections, but if they do not reach a final resolution within 15 days
after notice given of DoveBid's objections, a "Big 5" international accounting
firm shall be selected to serve as the Neutral Accountants by mutual agreement
of the parties or, if the parties are unable to so agree within 15 days after
the Members have received DoveBid's written statement of objections, then an
accounting firm shall be selected pursuant to the Commercial Arbitration Rules
of the American Arbitration Association ("AAA Rules"). The DoveBid and the
Members shall jointly instruct the Neutral Accountants to resolve any unresolved
objections of DoveBid and deliver the Closing Statement within 30 days after the
date of their appointment. The Neutral Accountants shall, in making their
determination, follow the definitions and provisions of Section 1.2.1 of this
Agreement. The Closing Balance Sheet shall be adjusted only as needed to conform
with the requirements of Section 1.2.1 and, as so adjusted, shall be the
"Closing Statement." The determination by the Neutral Accountants shall be
conclusive and binding upon DoveBid and the Members, absent fraud or manifest
error. Nothing herein shall be construed to authorize or permit the Neutral
Accountants to determine (i) any questions or matter whatever under or in
connection with this Agreement except the determination of what adjustments, if
any, must be made in one or more of the items reflected in the Closing Balance
Sheet or (ii) an adjustment to an item on the Closing Balance Sheet that is
outside of the range defined by amounts as finally proposed by the Members and
DoveBid, respectively.
1.2.3 If the Net Book Value as shown on the Closing Statement is less
than $1,027,500 the difference shall be deducted from the Escrow Funds (which
shall equal $3,250,000 less the amount by which the Net Book Value as shown on
the Closing Statement is less than $1,027,500 (the resulting deficiency being
hereinafter referred to as the "Post-Closing Adjustment")). The Members shall
pay to DoveBid an amount equal to the Post-Closing Adjustment. Such amount shall
be payable by each Member in proportion to the Interest owned by each such
Member in proportion to the Interests owned by all Members. Such amount shall be
due and payable no later than 30 days after Net Book Value is determined as
provided above. In the event of any reduction in Purchase Price, the cash
portion of the Purchase Price
<PAGE>
shall be reduced and such reduced aggregate consideration shall constitute the
"Purchase Price" for all purposes under this Agreement.
1.3 THE CLOSING. Subject to termination of this Agreement as provided in
article vii below, the closing will take place at the offices of DoveBid at 1241
East Hillsdale Blvd., Foster City, Ca 94404 at 10:00 a.m., Pacific Standard Time
on February 29, 2000 or, if all conditions to closing have not been satisfied or
waived by such date, such other place, time and date as Greenwich and DoveBid
may mutually select (the "Closing Date").
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF GREENWICH AND THE MEMBERS
Except as specifically set forth in the disclosure schedule provided by
Greenwich to DoveBid simultaneously with the signing of this Agreement, dated as
of the date of this Agreement (the "Greenwich Disclosure Schedule"), the parts
of which are numbered to correspond to the Section numbers of this Agreement,
(i) Greenwich and William Gardner hereby jointly and severally represent and
warrant to DoveBid and (ii) each Member other than William Gardner hereby
severally and not jointly represents and warrants to DoveBid as follows.
2.1 Organization and Good Standing. Greenwich is a limited liability
company duly organized, validly existing and in good standing under the laws of
the State of Connecticut, has the power and authority to own, operate and lease
its properties and to carry on its business as now conducted and as proposed to
be conducted, and is qualified to conduct business in each jurisdiction in which
it is required to do so, except where the failure to do so would have a material
adverse effect on Greenwich, its business, prospects or financial condition.
2.2 Power, Authorization and Validity.
2.2.1 Greenwich and each Member has the right, power, legal capacity
and authority to enter into and perform its obligations under this Agreement,
and all agreements to which Greenwich and each Member is or will be a party that
are required to be executed pursuant to this Agreement (the "Greenwich Ancillary
Agreements"). Any and all approvals required by the Operating Agreement or
other governing documents of Greenwich or applicable law with respect to the due
authorization and approval of this Agreement, the Greenwich Ancillary Agreements
or the transactions contemplated hereby or thereby have been obtained.
2.2.2 No filing, authorization or approval, governmental or
otherwise, is necessary to enable Greenwich to enter into, and to perform its
obligations under, this Agreement and the Greenwich Ancillary Agreements, except
for such filings as may be required to comply with federal and state securities
laws. All such qualifications and filings will, in the case of qualifications,
be effective on the Closing, and will, in the case of filings, be made within
the time prescribed below.
2.2.3 This Agreement and the Greenwich Ancillary Agreements are, or
when executed by Greenwich and the Members will be, valid and binding
obligations of Greenwich and the Members enforceable against Greenwich and the
Members in accordance with their
<PAGE>
respective terms, except as to the effect, if any, of (a) applicable bankruptcy
and other similar laws affecting the rights of creditors generally, (b) rules of
law governing specific performance, injunctive relief and other equitable
remedies and (c) the enforceability of provisions requiring indemnification in
connection with the offering, issuance or sale of securities.
2.3 Capitalization. The outstanding equity interests of Greenwich consist
solely of 100% of percentage interests (the "Interests"). All such Interests
have been duly authorized and validly issued, are fully paid and nonassessable,
are not subject to any right of rescission, and have been offered, issued, sold
and delivered by Greenwich in compliance with all registration or qualification
requirements (or applicable exemptions therefrom) of applicable federal and
state securities laws. A list of all holders of such Interests is set forth in
Section 2.3 to the Greenwich Disclosure Schedule. Except as set forth in this
Section 2.3, there are no options, warrants, calls, commitments, conversion
privileges or preemptive or other rights or agreements outstanding to purchase
any of equity or voting interest in Greenwich or any securities convertible into
or exchangeable for equity or voting interests of Greenwich or obligating
Greenwich to grant, extend, or enter into any such option, warrant, call, right,
commitment, conversion privilege or other right or agreement. There is no voting
agreement, right of first refusal or other restriction (other than normal
restrictions on transfer under applicable federal and state securities laws)
applicable to any of Greenwich's outstanding securities. Greenwich is not under
any obligation to register under the Securities Act of 1933, as amended (the
"Securities Act") any of its presently outstanding securities or any securities
that may be subsequently issued. Each Member owns in the aggregate (including
Interests held both beneficially and of record and other equity instruments held
either beneficially or of record) the number of Interests set forth below
Member's name on the signature page of this Agreement, and does not directly or
indirectly own, either beneficially or of record, any other equity interests of
Greenwich. All Interests held by such Member are, and at all times until and
through the Closing will be, free and clear of any Liens. Interests held by
Members constitute collectively all of the outstanding equity and voting
interests of Greenwich. On the date of this Agreement, there are no, and on the
Closing Date there will be, no, options, warrants, calls, commitments,
conversion privileges or preemptive or other rights or agreements outstanding to
purchase any equity interest of Greenwich or any securities convertible into or
exchangeable for any equity interest of Greenwich or obligating Greenwich to
grant, extend, or enter into any such option, warrant, call, right, commitment,
conversion privilege or other right or agreement. There is no voting agreement,
right of first refusal or other restriction (other than normal restrictions on
transfer under applicable federal and state securities laws and as set forth in
the Operating Agreement) applicable to any of Greenwich's outstanding
securities.
2.4 Subsidiaries. Greenwich does not have any subsidiaries or any
interest, direct or indirect, in any corporation, partnership, joint venture or
other business entity.
2.5 No Conflict. Neither the execution and delivery of this Agreement nor
any Greenwich Ancillary Agreement, nor the consummation of the transactions
contemplated hereby, will conflict with, or (with or without notice or lapse of
time, or both) result in a termination, breach, impairment or violation of (a)
any provision of the Operating Agreement or other governance document, as
currently in effect, (b) any instrument or contract to which Greenwich or any
Member is a party or by which Greenwich or any Member is bound, or (c) any
federal, state, local or foreign judgment, writ, decree, order, statute, rule or
regulation applicable to
<PAGE>
Greenwich or any Member or their respective assets or properties. The
consummation of the transactions contemplated by this Agreement does not and
will not require the consent of any third party other than as specifically
provided for in this Agreement.
2.6 Litigation. There is no action, proceeding, claim or investigation
pending against Greenwich before any court or administrative agency, nor has any
such action, proceeding, claim or investigation been threatened. There is no
reasonable basis for any member or former member of Greenwich, or any other
person, firm, corporation, or entity, to assert a claim against Greenwich, or
any Member or DoveBid based upon: (a) ownership or rights to ownership of any
Interests or other ownership interest in Greenwich, (b) any rights as a
Greenwich Member, including any option or preemptive rights or rights to notice
or to vote, or (c) any rights under any agreement among Greenwich and its
members.
2.7 Taxes. Greenwich has filed all federal, state, local and foreign tax
returns required to be filed, has paid all taxes required to be paid in respect
of all periods for which returns have been filed, has established an adequate
accrual or reserve for the payment of all taxes payable in respect of the
periods subsequent to the periods covered by the most recent applicable tax
returns, has made all necessary estimated tax payments, and has no liability for
taxes in excess of the amount so paid or accruals or reserves so established.
Greenwich is not delinquent in the payment of any tax or in the filing of any
tax returns, and no deficiencies for any tax have been threatened, claimed,
proposed or assessed. No tax return of Greenwich has ever been audited by the
Internal Revenue Service or any state taxing agency or authority. Greenwich has
never made a "check-the-box" election to be characterized as a corporation for
tax purposes. For the purposes of this Section, the terms "tax" and "taxes"
include all federal, state, local and foreign income, gains, franchise, excise,
property, sales, use, employment, license, payroll, occupation, recording, value
added or transfer taxes, governmental charges, fees, levies or assessments
(whether payable directly or by withholding), and, with respect to such taxes,
any estimated tax, interest and penalties or additions to tax and interest on
such penalties and additions to tax.
2.8 Greenwich Financial Statements. Greenwich has delivered to DoveBid,
hereto attached as Exhibit C, copies of: (a) Greenwich's audited consolidated
---------
balance sheet as of December 31, 1999 (the "Balance Sheet"); (b) Greenwich's
audited consolidated income statement and statement of cash flows for the twelve
months ended December 31, 1999; (c) Greenwich's unaudited consolidated balance
sheet as of January 31, 2000, and (d) Greenwich's unaudited consolidated income
statement and cash flows for the one month ended January 31, 2000 (collectively,
with the Balance Sheet, the "Financial Statements"). The Financial Statements
(a) are in accordance with the books and records of Greenwich, (b) fairly
present the financial condition of Greenwich at the date therein indicated and
the results of operations for the period therein specified and (c) have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis. Greenwich has no debt, liability or obligation of any
nature, whether accrued, absolute, contingent or otherwise, and whether due or
to become due, that is not reflected or reserved against in the Financial
Statements, except for those contained in agreements and arrangements listed in
the Greenwich Disclosure Schedule and for those that may have been incurred
after the date of the Financial Statements in the ordinary course of its
business, consistent with past practice in individual amounts less than $25,000.
<PAGE>
2.9 Title to Properties. Greenwich has good and marketable title to all of
its assets as shown on the Balance Sheet, free and clear of all liens, charges,
restrictions or encumbrances (other than for taxes not yet due and payable). All
machinery and equipment included in such properties is in good condition and
repair, normal wear and tear excepted, and all leases of real or personal
property to which Greenwich is a party are fully effective and afford Greenwich
peaceful and undisturbed possession of the subject matter of the lease.
Greenwich is not in violation of any zoning, building, safety or environmental
ordinance, regulation or requirement or other law or regulation applicable to
the operation of owned or leased properties, or has received any notice of
violation with which it has not complied.
2.10 Absence of Certain Changes. Since January 31, 2000, there has not
been with respect to Greenwich:
(a) any change in the financial condition, properties, assets,
liabilities, business or operations thereof which change by itself or in
conjunction with all other such changes, whether or not arising in the ordinary
course of business, has had or will have a material adverse effect thereon;
(b) any contingent liability incurred thereby as guarantor or
otherwise with respect to the obligations of others;
(c) any mortgage, encumbrance or lien placed on any of the properties
thereof;
(d) any material obligation or liability incurred thereby other than
obligations and liabilities incurred in the ordinary course of business in
individual amounts less than $25,000;
(e) any purchase or sale or other disposition, or any agreement or
other arrangement for the purchase, sale or other disposition, of any of the
properties or assets thereof other than in the ordinary course of business in
individual amounts less than $25,000;
(f) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the properties, assets or business
thereof;
(g) any declaration, setting aside or payment of any dividend on, or
the making of any other distribution in respect of, the capital stock thereof,
any split, combination or recapitalization of the capital stock thereof or any
direct or indirect redemption, purchase or other acquisition of the percentage
interests thereof;
(h) any labor dispute or claim of unfair labor practices, any change
in the compensation payable or to become payable to any of its officers,
managers, employees or agents, or any bonus payment or arrangement made to or
with any of such officers, managers, employees or agents;
(i) any change with respect to the management, supervisory or other
key personnel thereof;
<PAGE>
(j) any payment or discharge of a material lien or liability thereof
which lien was not either shown on the Balance Sheet or incurred in the ordinary
course of business thereafter; or
(k) any obligation or liability incurred thereby to any of its
officers, employees, managers or members or any loans or advances made thereby
to any of its officers, employees, managers or members except normal
compensation and expense allowances payable to officers and employees.
2.11 Contracts and Commitments. Except as set forth in Section 2.11 to the
Greenwich Disclosure Schedule, Greenwich has no contract, obligation or
commitment which involves a potential future commitment in excess of $25,000 or
any percentage interest redemption or purchase agreement, financing agreement,
license, lease or franchise. A true and complete copy of each agreement or
document listed in Section 2.11 to the Greenwich Disclosure Schedule has been
delivered to DoveBid. Greenwich is not in default under any contract, obligation
or commitment listed in Section 2.11 to the Greenwich Disclosure Schedule or
otherwise. Greenwich does not have any liability for renegotiation of government
contracts or subcontracts, if any.
2.12 Intellectual Property. Greenwich owns, or has the right to use, sell
or license all Intellectual Property Rights (as defined below) necessary or
required for the conduct of business as presently conducted, including but not
limited to all Intellectual Property Rights to the name Greenwich Industrial
Services (such Intellectual Property Rights being hereinafter collectively
referred to as the "Greenwich IP Rights") and such rights to use, sell or
license are reasonably sufficient for the conduct of its business. The
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby do not and will not constitute a breach of
any instrument or agreement governing any Greenwich IP Right (the "Greenwich IP
Rights Agreements"), do not and will not cause the forfeiture or termination or
give rise to a right of forfeiture or termination of any Greenwich IP Right or
impair the right of Greenwich to use, sell or license any Greenwich IP Right or
portion thereof. There is no royalty, honoraria, fee or other payment payable by
Greenwich to any person by reason of the ownership, use, license, sale or
disposition of any Greenwich IP Right (other than as set forth in the Greenwich
IP Rights Agreements listed in Section 2.12 to the Greenwich Disclosure
Schedule). Neither the manufacture, marketing, license, sale or intended use of
any product currently licensed or sold by Greenwich or currently under
development by Greenwich violates any license or agreement between Greenwich and
any third party or infringes any Intellectual Property Right of any other person
or entity; and there is no pending or threatened claim or litigation contesting
the validity, ownership or right to use, sell, license or dispose of any
Greenwich IP Right nor is there any basis for any such claim, nor has Greenwich
received any notice asserting that any Greenwich IP Right or the proposed use,
sale, license or disposition thereof conflicts, or will conflict, with the
rights of any other person or entity, nor is there any basis for any such
assertion. Greenwich has taken reasonable and practicable steps designed to
safeguard and maintain the secrecy and confidentiality of, and its proprietary
rights in, all Greenwich IP Rights. Each officer, employee and consultant of
Greenwich has executed and delivered to Greenwich an agreement regarding the
protection of proprietary information and the assignment to Greenwich of all
Intellectual Property Rights arising from the services performed for Greenwich
by such person. Section 2.12 to the Greenwich Disclosure Schedule contains a
list
<PAGE>
of all applications, registrations, filings and other formal actions made or
taken pursuant to federal, state and foreign laws by Greenwich to perfect or
protect its interest in Greenwich IP Rights, including, without limitation, all
patents, patent applications, trademarks, trademark applications and service
marks. As used herein, the term "Intellectual Property Rights" shall mean all
worldwide industrial or intellectual property rights, including, without
limitation, patents, patent applications, patent rights, trademarks, trademark
applications, trade names, service marks, service mark applications, copyright,
copyright applications, franchises, licenses, inventories, know-how, trade
secrets, customer lists, proprietary processes and formulae, all source and
object code, algorithms, architecture, structure, display screens, layouts,
inventions, development tools and all documentation and media constituting,
describing or relating to the above, including, without limitation, manuals,
memoranda and records.
2.13 Compliance with Laws. Greenwich has complied, or prior to the Closing
Date will have complied, and is or will be at the Closing in full compliance
with all applicable laws, ordinances, regulations, and rules, and all orders,
writs, injunctions, awards, judgments, and decrees applicable to it or to the
assets, properties, and business thereof, including, without limitation: (a) all
applicable federal and state securities laws and regulations, (b) all applicable
federal, state, and local laws, ordinances, regulations, and all orders, writs,
injunctions, awards, judgments, and decrees pertaining to (i) the sale,
licensing, leasing, ownership, or management of its owned, leased or licensed
real or personal property, products and technical data, (ii) employment and
employment practices, terms and conditions of employment, and wages and hours
and (iii) safety, health, fire prevention, environmental protection, toxic waste
disposal, building standards, zoning and other similar matters (c) the Export
Administration Act and regulations promulgated thereunder and all other laws,
regulations, rules, orders, writs, injunctions, judgments and decrees applicable
to the export or re-export of controlled commodities or technical data and (d)
the Immigration Reform and Control Act. Greenwich has received all permits and
approvals from, and has made all filings with, third parties, including
government agencies and authorities, that are necessary in connection with its
present business. There are no legal or administrative proceedings or
investigations pending or threatened, that, could be expected to be enacted or
determined adversely to Greenwich.
2.14 Certain Transactions and Agreements. None of the officers, managers,
Members or employees of Greenwich, nor any member of their immediate families,
has any direct or indirect ownership interest in any firm or corporation that
competes with Greenwich (except with respect to any interest in less than one
percent of the stock of any corporation whose stock is publicly traded). None of
said officers managers, Members or employees, or any member of their immediate
families, is directly or indirectly interested in any contract or informal
arrangement with Greenwich, except for normal compensation for services as an
officer, manager, Member or employee thereof. None of said officers, managers,
Members or employees or any member of their immediate families has any interest
in any property, real or personal, tangible or intangible, including inventions,
patents, copyrights, trademarks or trade names or trade secrets, used in or
pertaining to the business of Greenwich, except for the normal rights of a
holder of a percentage interest.
<PAGE>
2.15. Employees, ERISA and Other Compliance.
2.15.1 Greenwich does not have any employment contract or consulting
agreement currently in effect that is not terminable at will (other than
agreements with the sole purpose of providing for the confidentiality of
proprietary information or assignment of inventions). All officers, managers,
employees and consultants of Greenwich having access to proprietary information
have executed and delivered to Greenwich an agreement regarding the protection
of such proprietary information and the assignment of inventions to Greenwich;
true and complete copies of the form of all such agreements have been delivered
to DoveBid's counsel.
2.15.2 Greenwich (i) has not ever been nor is now subject to a union
organizing effort, (ii) is not subject to any collective bargaining agreement
with respect to any of its employees, (iii) is not subject to any other
contract, written or oral, with any trade or labor union, employees' association
or similar organization, or (iv) has no current labor disputes. Greenwich has
good labor relations, and has no knowledge of any facts indicating that the
consummation of the transactions contemplated hereby will have a material
adverse effect on such labor relations, and has no knowledge that any of its key
employees intends to leave its employ.
2.15.3 Section 2.15.1 to the Greenwich Disclosure Schedule identifies
(i) each "employee benefit plan," as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and (ii) all other
written or formal plans or agreements involving direct or indirect compensation
or benefits (including any employment agreements entered into between Greenwich
and any employee of Greenwich, but excluding workers' compensation, unemployment
compensation and other government-mandated programs) currently or previously
maintained, contributed to or entered into by Greenwich under which Greenwich or
any ERISA Affiliate (as defined below) thereof has any present or future
obligation or liability (collectively, the "Greenwich Employee Plans"). For
purposes of this Section 2.8, "ERISA Affiliate" shall mean any entity which is a
member of (A) a "controlled group of corporations," as defined in Section 414(b)
of the Internal Revenue Code of 1986, as amended (the "Code"), (B) a group of
entities under "common control," as defined in Section 414(c) of the Code, or
(C) an "affiliated service group," as defined in Section 414(m) of the Code, or
treasury regulations promulgated under Section 414(o) of the Code, any of which
includes Greenwich. Copies of all Greenwich Employee Plans (and, if applicable,
related trust agreements) and all amendments thereto and written interpretations
thereof (including summary plan descriptions) have been delivered to DoveBid or
its counsel, together with the three most recent annual reports (Form 5500,
including, if applicable, Schedule B thereto) prepared in connection with any
such Greenwich Employee Plan. All Greenwich Employee Plans which individually or
collectively would constitute an "employee pension benefit plan," as defined in
Section 3(2) of ERISA (collectively, the "Greenwich Pension Plans"), are
identified as such in Section 2.15.1 to the Greenwich Disclosure Schedule. All
contributions due from Greenwich with respect to any of the Greenwich Employee
Plans have been made as required under ERISA or have been accrued on the
Financial Statements. Each Greenwich Employee Plan has been maintained
substantially in compliance with its terms and with the requirements prescribed
by any and all statutes, orders, rules and regulations, including, without
limitation, ERISA and the Code, which are applicable to such Greenwich Employee
Plans.
<PAGE>
2.15.4 No Greenwich Pension Plan constitutes, or has since the
enactment of ERISA constituted, a "multiemployer plan," as defined in Section
3(37) of ERISA. No Greenwich Pension Plans are subject to Title IV of ERISA. No
"prohibited transaction," as defined in Section 406 of ERISA or Section 4975 of
the Code, has occurred with respect to any Greenwich Employee Plan which is
covered by Title I of ERISA which would result in a liability to Greenwich taken
as a whole, excluding transactions effected pursuant to a statutory or
administrative exemption. Nothing done or omitted to be done and no transaction
or holding of any asset under or in connection with any Greenwich Employee Plan
has or will make Greenwich or any officer or director of Greenwich subject to
any liability under Title I of ERISA or liable for any tax (as defined in
Section 2.7 hereof) or penalty pursuant to Sections 4972, 4975, 4976 or 4979 of
the Code or Section 502 of ERISA.
2.15.5 Any Greenwich Pension Plan which is intended to be qualified
under Section 401(a) of the Code (a "Greenwich 401(a) Plan") is so qualified and
has been so qualified during the period from its adoption to date, and the trust
forming a part thereof is exempt from tax pursuant to Section 501(a) of the
Code. Greenwich has delivered to DoveBid or its counsel a complete and correct
copy of the most recent Internal Revenue Service determination letter with
respect to each Greenwich 401(a) Plan.
2.15.6 Section 2.15.6 to the Greenwich Disclosure Schedule lists each
employment, severance or other similar contract, arrangement or policy and each
plan or arrangement (written or oral) providing for insurance coverage
(including any self-insured arrangements), workers' benefits, vacation benefits,
severance benefits, disability benefits, death benefits, hospitalization
benefits, retirement benefits, deferred compensation, profit-sharing, bonuses
and all forms of incentive compensation or post-retirement insurance,
compensation or benefits for employees, consultants or managers which (A) is not
a Greenwich Employee Plan, (B) is entered into, maintained or contributed to, as
the case may be, by Greenwich and (C) covers any employee or former employee of
Greenwich. Such contracts, plans and arrangements as are described in this
Section 2.15.6 are herein referred to collectively as the "Greenwich Benefit
Arrangements." Each Greenwich Benefit Arrangement has been maintained in
substantial compliance with its terms and with the requirements prescribed by
any and all statutes, orders, rules and regulations which are applicable to such
Greenwich Benefit Arrangement. Greenwich has delivered to DoveBid or its counsel
a complete and correct copy or description of each Greenwich Benefit
Arrangement.
2.15.7 There has been no amendment to, written interpretation or
announcement (whether or not written) by Greenwich relating to, or change in
employee participation or coverage under, any Greenwich Employee Plan or
Greenwich Benefit Arrangement that would increase the expense of maintaining
such Greenwich Employee Plan or Greenwich Benefit Arrangement above the level of
the expense incurred in respect thereof since the date of the Balance Sheet.
2.15.8 Greenwich has provided, or will have provided prior to the
Closing, to individuals entitled thereto all required notices and coverage
pursuant to Section 4980B of the Code and the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended ("COBRA"), with respect to any
"qualifying event" (as defined in Section 4980B(f)(3) of the Code) occurring
prior to and including the Closing Date, and no tax payable on account of
<PAGE>
Section 4980B of the Code has been incurred with respect to any current or
former employees (or their beneficiaries) of Greenwich.
2.15.9 No benefit payable or which may become payable by Greenwich
pursuant to any Greenwich Employee Plan or any Greenwich Benefit Arrangement or
as a result of or arising under this Agreement shall constitute an "excess
parachute payment" (as defined in Section 280G(b)(1) of the Code) which is
subject to the imposition of an excise tax under Section 4999 of the Code or
which would not be deductible by reason of Section 280G of the Code.
2.15.10 Greenwich is in compliance with all applicable laws,
agreements and contracts relating to employment, employment practices, wages,
hours, and terms and conditions of employment, including, but not limited to,
employee compensation matters, but not including ERISA.
2.15.11 No employee of Greenwich is in violation of any term of any
employment contract, patent disclosure agreement, noncompetition agreement, or
any other contract or agreement, or any restrictive covenant relating to the
right of any such employee to be employed thereby, or to use trade secrets or
proprietary information of others, and the employment of such employees does not
subject Greenwich to any liability.
2.15.12 A list of all employees, officers, managers and consultants
of Greenwich and their current compensation has been delivered by Greenwich to
DoveBid and such writing shall be deemed to be part of the Greenwich Disclosure
Schedule.
2.15.13 Greenwich is not a party to any (a) agreement with any
officer, manager, Member or other employee thereof (i) the benefits of which are
contingent, or the terms of which are altered, upon the occurrence of a
transaction involving Greenwich in the nature of any of the transactions
contemplated by this Agreement, (ii) providing any term of employment or
compensation guarantee, or (iii) providing severance benefits or other benefits
after the termination of employment of such employee regardless of the reason
for such termination of employment, or (b) agreement or plan, any of the
benefits of which will be increased, or the vesting of benefits of which will be
accelerated, by the occurrence of any of the transactions contemplated by this
Agreement or the value of any of the benefits of which will be calculated on the
basis of any of the transactions contemplated by this Agreement.
2.16 Company Documents. Greenwich has made available to DoveBid for
examination true and complete copies of all documents and information listed in
the Greenwich Disclosure Schedule or other Exhibits called for by this Agreement
which has been requested by DoveBid's legal counsel, including, without
limitation, the following: (a) copies of Greenwich's Operating Agreement and
other governance documents as currently in effect; (b) all records of all
proceedings, consents, actions, and meetings of the Members, the board of
managers and any committees thereof; (c) its journal reflecting all equity
issuances and transfers; and (d) all permits, orders, and consents issued by any
regulatory agency with respect to Greenwich, or any securities of Greenwich, and
all applications for such permits, orders, and consents.
<PAGE>
2.17 No Brokers. Greenwich is not obligated for the payment of fees or
expenses of any investment banker, broker or finder in connection with the
origin, negotiation or execution of this Agreement or in connection with any
transaction contemplated hereby.
2.18 Certain Material Agreements. Greenwich is not a party or subject to
any oral or written contracts, agreements or other understanding or arrangement,
including, but not limited to any:
(a) Contract, agreement or other understanding or arrangement
providing for payments by or to Greenwich in an aggregate amount of $25,000 or
more;
(b) Contract, agreement or other understanding or arrangement as
licensor or licensee (except for standard non-exclusive hardware and software
licenses granted to end-user customers in the ordinary course of business the
form of which has been provided to DoveBid's counsel);
(c) Contract, agreement or other understanding or arrangement
for the lease of real or personal property;
(d) Joint venture contract or arrangement or any other agreement
that involves a sharing of profits with other persons;
(e) Instrument evidencing or related in any way to indebtedness
for borrowed money by way of direct loan, sale of debt securities, purchase
money obligation, conditional sale, guarantee, or otherwise, except for trade
indebtedness incurred in the ordinary course of business and for no more than
$25,000 in amount, and except as disclosed in the Financial Statements; or
(f) Contract, agreement or other understanding or arrangement
containing covenants purporting to limit Greenwich's freedom to compete in any
line of business in any geographic area.
All agreements, contracts, plans, leases, instruments, arrangements, licenses
and commitments listed in the Greenwich Disclosure Schedule identified to this
Section 2.18 are valid and in full force and effect. Greenwich is not, nor, to
the knowledge of Greenwich, is any other party thereto, in breach or default
under the terms of any such agreement, contract, plan, lease, instrument,
arrangement, license or commitment.
2.19 Books and Records.
2.19.1 The books, records and accounts of Greenwich (a) are in true,
complete and correct, (b) have been maintained in accordance with good business
practices on a basis consistent with prior years, (c) are stated in reasonable
detail and accurately and fairly reflect the transactions and dispositions of
the assets of Greenwich, and (d) accurately and fairly reflect the basis for the
Financial Statements.
2.19.2 Greenwich has devised and maintains a system of internal
accounting controls sufficient to provide reasonable assurances that (a)
transactions are executed in
<PAGE>
accordance with management's general or specific authorization; (b) transactions
are recorded as necessary (i) to permit preparation of financial statements in
conformity with generally accepted accounting principles or any other criteria
applicable to such statements, and (ii) to maintain accountability for assets,
and (c) the amount recorded for assets on the books and records of Greenwich is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
2.20 Insurance. Greenwich maintain and at all times during the prior three
years have maintained fire and casualty, general liability, business
interruption, product liability, and sprinkler and water damage insurance which
it believes to be reasonably prudent for similarly sized and similarly situated
businesses.
2.21 Securities Law Representations of Members. Each Member hereby
represents and warrants to, and agrees with, DoveBid as follows:
(i) The Convertible Subordinated Promissory Notes to be issued to
such Member hereunder and any securities issuable upon conversion thereof
(collectively, with the Convertible Subordinated Promissory Note, the "DoveBid
Securities") will be acquired for investment for such Member's own account, not
as a nominee or agent, and not with a view to the public resale or distribution
thereof within the meaning of the Securities Act, and such Member has no present
intention of selling, granting any participation in, or otherwise distributing
the same.
(ii) Such Member has received or has had full access to all the
information it considers necessary or appropriate to make an informed investment
decision with respect to the DoveBid Securities. Such Member further has had an
opportunity to ask questions and receive answers from DoveBid regarding the
terms and conditions of the offering of the DoveBid Securities and to obtain
additional information (to the extent DoveBid possessed such information or
could acquire it without unreasonable effort or expense) necessary to verify any
information furnished to such Member or to which such Member had access.
(iii) Such Member understands that the purchase of the DoveBid
Securities involves substantial risk. Such Member: (i) has experience as an
investor in securities of companies in the development stage and acknowledges
that such Member is able to fend for itself, can bear the economic risk of such
Member's investment in the DoveBid Securities and has such knowledge and
experience in financial or business matters that such Member is capable of
evaluating the merits and risks of this investment in the DoveBid Securities and
protecting its own interests in connection with this investment and/or (ii) has
a preexisting personal or business relationship with DoveBid and certain of its
officers, directors or controlling persons of a nature and duration that enables
such Member to be aware of the character, business acumen and financial
circumstances of such persons.
(iv) Such Member is an "accredited investor" within the meaning of
Regulation D promulgated under the Securities Act.
(v) Such Member understands that the DoveBid Securities are
characterized as "restricted securities" under the Securities Act inasmuch as
they are being acquired from
<PAGE>
DoveBid in a transaction not involving a public offering and that under the
Securities Act and applicable regulations thereunder such securities may be
resold without registration under the Securities Act only in certain limited
circumstances. In this connection, such Member represents that such Member is
familiar with Rule 144 of the U.S. Securities and Exchange Commission, as
presently in effect, and understands the resale limitations imposed thereby and
by the Securities Act. Such Member understands that DoveBid is under no
obligation to register any of the securities sold hereunder. Such Member
understands that no public market now exists for any of the DoveBid Securities
and that it is uncertain whether a public market will ever exist for the DoveBid
Securities.
2.22 Truth and Completeness of Disclosure. Neither the Greenwich
Disclosure Schedule, this Agreement, its exhibits and schedules, nor any of the
certificates or documents to be delivered by Greenwich to DoveBid pursuant to
this Agreement, taken together, contains or will contain any untrue statement of
a fact or omits or will omit to state any fact necessary in order to make the
statements contained herein and therein, in light of the circumstances under
which such statements were made, not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF DOVEBID
DoveBid hereby represents and warrants to Greenwich as follows:
3.1 Organization and Good Standing. DoveBid is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and has the corporate power and authority to own, operate and lease
its properties and to carry on its business as now conducted and as proposed to
be conducted.
3.2 Power, Authorization and Validity.
3.2.1 DoveBid has the corporate right, power, legal capacity and
authority to enter into and perform its obligations under this Agreement, and
all agreements to which DoveBid is or will be a party that are required to be
executed pursuant to this Agreement (the "DoveBid Ancillary Agreements"). The
execution, delivery and performance of this Agreement and the DoveBid Ancillary
Agreements have been duly and validly approved and authorized by DoveBid's Board
of Directors.
3.2.2 No filing, authorization or approval, governmental or
otherwise, is necessary to enable DoveBid to enter into, and to perform its
obligations under, this Agreement and the DoveBid Ancillary Agreements, except
for such filings as may be required to comply with federal and state securities
laws.
3.2.3 This Agreement and the DoveBid Ancillary Agreements are, or
when executed by DoveBid will be, valid and binding obligations of DoveBid
enforceable against DoveBid in accordance with their respective terms, except as
to the effect, if any, of (a) applicable bankruptcy and other similar laws
affecting the rights of creditors generally, (b) rules of law governing specific
performance, injunctive relief and other equitable remedies
<PAGE>
and (c) the enforceability of provisions requiring indemnification in connection
with the offering, issuance or sale of securities.
3.3 No Conflict . Neither the execution and delivery of this Agreement nor
any DoveBid Ancillary Agreement, nor the consummation of the transactions
contemplated hereby, will conflict with, or (with or without notice or lapse of
time, or both) result in a termination, breach, impairment or violation of (a)
any provision of the Certificate of Incorporation or Bylaws of DoveBid, as
currently in effect, (b) any instrument or contract to which DoveBid is a party
or by which DoveBid is bound, or (c) any federal, state, local or foreign
judgment, writ, decree, order, statute, rule or regulation applicable to DoveBid
or its assets or properties.
3.4 No Brokers. DoveBid is not obligated for the payment of fees or
expenses of any investment banker, broker or finder in connection with the
origin, negotiation or execution of this Agreement or in connection with any
transaction contemplated hereby or thereby.
ARTICLE IV
ADDITIONAL AGREEMENTS
During the period from the date of this Agreement until the Effective Time
(except for Section 4.11, which shall survive until the earlier of the
termination of this Agreement or the termination of Greenwich's 401(k) Plan),
Greenwich covenants and agrees as follows:
4.1 Advice of Changes. Greenwich will promptly advise DoveBid in writing
(a) of any event occurring subsequent to the date of this Agreement that would
render any representation or warranty of Greenwich contained in this Agreement,
if made on or as of the date of such event or at the Closing untrue or
inaccurate in any material respect and (b) of any material adverse change in
Greenwich's business, prospects, results of operations or financial condition.
To ensure compliance with this Section 4.1, Greenwich shall deliver to DoveBid
within twenty (20) days after the end of each monthly accounting period ending
after the date of this Agreement and before the Closing Date, an unaudited
balance sheet and statement of operations, which financial statements shall be
prepared in the ordinary course of business, in accordance with Greenwich's
books and records and generally accepted accounting principles and shall fairly
present the financial position of Greenwich as of their respective dates and the
results of Greenwich's operations for the periods then ended.
4.2 Maintenance of Business. Greenwich will use its commercially
reasonable efforts to carry on and preserve its business and its relationships
with customers, suppliers, employees and others in substantially the same manner
as it has prior to the date hereof. If Greenwich becomes aware of a material
deterioration in the relationship with any customer, supplier or key employee,
it will promptly bring such information to the attention of DoveBid in writing
and, if requested by DoveBid, will exert its commercially reasonable efforts to
restore the relationship.
4.3 Conduct of Business. Greenwich will continue to conduct its business
and maintain its business relationships in the ordinary and usual course and
will not, without the prior written consent of the President of DoveBid:
<PAGE>
(a) borrow any money, except if such borrowing is permitted under
Section 4.3(c) below;
(b) enter into any transaction not in the ordinary course of
business;
(c) take positions in assets greater than $1,000,000 without
DoveBid's prior written consent, not to be unreasonably withheld; provided,
however, that Greenwich may proceed with any completed proposals that are
pending as of the date of this Agreement and set forth in Section 4.3(c) of the
Greenwich Disclosure Schedule hereto;
(d) make any expenditure or sale of fixed or other non-current assets
in excess of $25,000 in the aggregate, outside the normal course of business,
without the prior approval of DoveBid;
(e) encumber or permit to be encumbered any of its assets except in
the ordinary course of its business consistent with past practice and to an
extent that is not material to its business;
(f) dispose of any of its assets except in the ordinary course of
business consistent with past practice;
(g) enter into any material lease or contract for the purchase or
sale of any property, real or personal, except in the ordinary course of
business consistent with past practice;
(h) fail to maintain its equipment and other assets in good working
condition and repair according to the standards it has maintained to the date of
this Agreement, subject only to ordinary wear and tear;
(i) fail to use its commercially reasonable efforts to maintain and
preserve its business organization intact, retain its present employees and
maintain its relationships and present agreements with suppliers, customers and
others having business relations with Greenwich;
(j) pay any bonus, increased salary or special remuneration to any
officer, manager, member employee or consultant or enter into any new employment
or consulting agreement with any such person, except as has been described in
writing by Greenwich to DoveBid and such writing shall be deemed to be part of
the Greenwich Disclosure Schedule.;
(k) change accounting methods;
(l) introduce any material new method of management or operations;
(m) declare, set aside or pay any cash or stock dividend or other
distribution in respect of any percentage interest, or redeem or otherwise
acquire any of its percentage interests; provided, however, that Greenwich shall
be permitted to make normal distributions to Members in the ordinary course of
business in an amount equal to the Members' income tax liabilities on their
respective shares of Greenwich's taxable income for 1999, to the extent (and
only to the extent) that such amount has not been previously distributed to
them;
<PAGE>
(n) amend or terminate any contract, agreement or license to which it
is a party, except those amended or terminated in the ordinary course of
business, consistent with past practice, and which are not material in amount or
effect;
(o) lend any amount to any person or entity, other than (i) advances
for travel and expenses which are incurred in the ordinary course of business
consistent with past practice, not material in amount and documented by receipts
for the claimed amounts or (ii) any loans pursuant to the Greenwich 401(k) Plan;
(p) guarantee or act as a surety for any obligation, except for the
endorsement of checks and other negotiable instruments in the ordinary course of
business, consistent with past practice, which are not material in amount;
(q) waive or release any material right or claim except in the
ordinary course of business, consistent with past practice;
(r) issue or sell any percentage interest (except upon the exercise
of an option or warrant currently outstanding), or any other of its securities,
or issue or create any warrants, obligations, subscriptions, options,
convertible securities, or other commitments to issue any percentage interest,
or accelerate the vesting of any outstanding option or other security;
(s) split or combine the outstanding percentage interest of any class
or enter into any recapitalization affecting the number of Interests or
affecting any other of its securities;
(t) merge, consolidate or reorganize with, or acquire any entity;
(u) amend its Operating Agreement or any other governance document;
(v) license any of its technology or intellectual property except in
the ordinary course of business consistent with past practice;
(w) agree to any audit assessment by any tax authority or file any
federal or state income or franchise tax return unless copies of such returns
have been delivered to DoveBid for its review and approval prior to filing;
(x) change any insurance coverage or issue any certificates of
insurance; or
(y) agree to do any of the things described in the preceding clauses
4.3(a) through 4.3(x).
4.4 Regulatory Approvals. Greenwich and each Member will execute and file,
or join in the execution and filing, of any application or other document that
may be necessary in order to obtain the authorization, approval or consent of
any governmental body, federal, state, local or foreign that may be reasonably
required, or that DoveBid may reasonably request, in connection with the
consummation of the transactions contemplated by this Agreement. Greenwich and
each Member will use their respective commercially reasonable efforts to obtain
all such authorizations, approvals and consents.
<PAGE>
4.5 Necessary Consents. Greenwich and each Member will use their
respective commercially reasonable efforts to obtain such written consents and
take such other actions as may be necessary or appropriate in DoveBid's judgment
to allow the consummation of the transactions contemplated hereby and to allow
DoveBid to carry on Greenwich's business after the Closing.
4.6 Litigation. Greenwich will notify DoveBid in writing promptly after
learning of any material actions, suits, proceedings or investigations by or
before any court, board or governmental agency, initiated by or against it, or
known by it to be threatened against it.
4.7 No Other Negotiations. From the date hereof until the earlier of
termination of this Agreement or consummation of the transactions contemplated
by this Agreement, Greenwich will not, and will not authorize or permit any
officer, Member, manager, director, employee or affiliate of Greenwich, or any
other person or entity, on its behalf to, directly or indirectly, solicit or
encourage any offer from any person or entity or consider any inquiries or
proposals received from any other person or entity, participate in any
negotiations regarding, or furnish to any person or entity any information with
respect to, or otherwise cooperate with, facilitate or encourage any effort or
attempt by any person or entity (other than DoveBid), concerning the possible
disposition of all or any substantial portion of Greenwich's business, assets or
percentage interests by merger, sale or any other means. Greenwich will promptly
notify DoveBid orally and in writing of any such inquiry or proposal.
4.8 Access to Information. Until the Closing, Greenwich will allow DoveBid
and its agents reasonable access the files, books, records and offices of
Greenwich, including, without limitation, any and all information relating to
Greenwich's taxes, commitments, contracts, leases, licenses, and real, personal
and intangible property and financial condition. Greenwich will cause its
accountants to cooperate with DoveBid and its agents in making available all
financial information reasonably requested, including without limitation the
right to examine all working papers pertaining to all financial statements
prepared or audited by such accountants.
4.9 Satisfaction of Conditions Precedent. Greenwich will use its
commercially reasonable efforts to satisfy or cause to be satisfied all the
conditions precedent that are set forth in Article VI, and Greenwich will use
its commercially reasonable efforts to cause the transactions contemplated by
this Agreement to be consummated, and, without limiting the generality of the
foregoing, to obtain all consents and authorizations of third parties and to
make all filings with, and give all notices to, third parties that may be
necessary or reasonably required on its part in order to effect the transactions
contemplated hereby.
4.10 Blue Sky Laws. Greenwich shall use its commercially reasonable
efforts to assist DoveBid to the extent necessary to comply with the securities
and Blue Sky laws of all jurisdictions that are applicable in connection with
the transactions contemplated hereby.
4.11 401(k) Plan. Greenwich and the Members shall use their respective
commercially reasonable efforts to terminate Greenwich's 401(k) plan as promptly
as practicable in amanner mutually acceptable to DoveBid and Members
representing a majority of the Interests.
<PAGE>
ARTICLE V
CONDITIONS PRECEDENT TO OBLIGATIONS
OF THE MEMBERS AND GREENWICH
The obligations of the Members and Greenwich with respect to actions to be
taken at Closing are subject to the satisfaction or waiver by Greenwich at or
prior to Closing of all of the following conditions.
5.1 Representations and Warranties; Performance of Obligations. All
representations and warranties of DoveBid contained in this Agreement shall be
true and complete in all material respects at the Closing with the same effect
as though such representations and warranties had been made as of that time;
each and all of the terms, covenants and conditions of this Agreement to be
complied with and performed by DoveBid at or before the Closing shall have been
duly complied with and performed in all material respects.
5.2 Satisfaction. All actions, proceedings, instruments and documents
required to carry out the transactions contemplated by this Agreement or
incidental hereto and all other related legal matters shall have been executed
by DoveBid and approved by Greenwich.
5.3 No Litigation. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the transactions contemplated herein and no governmental agency or
body shall have taken any other action or made any request of Greenwich as a
result of which the management of Greenwich deems it materially detrimental to
Greenwich to proceed with the transactions hereunder.
5.4 Consents and Approvals. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the transaction
contemplated herein shall have been obtained and made and no action or
proceeding shall have been instituted or threatened to restrain or prohibit the
transactions contemplated herein.
5.5 Promissory Note, Convertible Subordinated Promissory Note and
Subordination Agreement. DoveBid shall have executed and delivered to each
Member a Convertible Subordinated Promissory Note in substantially the form of
Exhibit A attached hereto and Subordination Agreement attached as Annex A
- ---------
thereto.
5.6 Escrow Agreements. DoveBid and the Escrow Agent shall have executed
and delivered to each Member an Escrow Agreement in substantially the form of
Exhibit B attached hereto.
- ---------
5.7 Employment Agreements. DoveBid shall have executed and delivered to
each Member an Employment Agreement in substantially the forms of Exhibits E-1
------------
through E-4 attached hereto.
- -----------
<PAGE>
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF DOVEBID
The obligations of DoveBid with respect to actions to be taken at the
Closing are subject to the satisfaction or waiver by DoveBid at or prior to the
Closing of all of the following conditions.
6.1 Representations and Warranties; Performance of Obligations. All the
representations and warranties of Greenwich contained in this Agreement shall be
true and complete in all material respects at the Closing; each and all of the
terms, covenants and conditions of this Agreement to be complied with or
performed by the Members and Greenwich on or before the Closing, as the case may
be, shall have been duly performed or complied with in all material respects;
and the Members and Greenwich shall have delivered to DoveBid a certificate
dated the date of the Closing signed by each of the Members and the [President
and Chief Financial Officer] of Greenwich.
6.2 No Litigation. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the transactions contemplated herein and no governmental agency or
body shall have taken any other action or made any request of DoveBid as a
result of which the management of DoveBid deems it inadvisable to proceed with
the transactions hereunder.
6.3 No Material Adverse Effect. No event or circumstance shall have
occurred between the execution of this Agreement and the Closing which would
constitute a material adverse effect on Greenwich's business, prospects,
financial condition or operating results; and DoveBid shall have received a
certificate signed by the Members and certified by the Secretary or Assistant
Secretary of Greenwich dated the date of Closing to such effect.
6.4 Satisfaction. All actions, proceedings, instruments and documents
required to carry out the transactions contemplated by this Agreement or
incidental hereto and all other related legal matters shall have been executed
by Greenwich and approved by DoveBid.
6.5 Consents and Approvals. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made; Greenwich
shall have obtained and delivered to DoveBid such additional consents to the
transactions contemplated herein as DoveBid may reasonably request including,
without limitation, DoveBid's receipt on or prior to Closing of (a) consents of
third parties listed in Section 2.5 to, or elsewhere in, the Greenwich
Disclosure Schedule and (b) those licenses, franchises, permits or governmental
authorizations set forth on Schedule 2.13 to, or elsewhere in, the Greenwich
Disclosure Schedule; and no action or proceeding shall have been instituted or
threatened to restrain or prohibit the transactions contemplated herein.
6.6 Good Standing Certificate or Equivalent. At it sole discretion,
DoveBid shall have received evidence satisfactory to it that Greenwich is
validly existing, in good standing and authorized to do business and that all
state franchise and/or income tax returns and taxes due by
<PAGE>
Greenwich for all periods prior to the Closing have been filed and paid.
DoveBid's failure to require or receive such evidence in no way vitiates or
affects Greenwich's or the Members' representations and warranties regarding
such matters and DoveBid's reliance on such representations or warranties.
6.7 Convertible Subordinated Promissory Note Subordination Agreement.
Greenwich shall have executed the Convertible Subordinated Promissory Note
Subordination Agreement attached thereto as Annex A.
6.8 Escrow Agreement. DoveBid shall have received copies of Escrow
Agreement executed by the Escrow Agent and each Member in substantially the form
of Exhibit B attached hereto.
---------
6.9 Employment Agreements. DoveBid shall have received copies of
Employment Agreements executed by DoveBid and each Member in substantially the
form of Exhibits E-1 through E-4 attached hereto.
------------------------
6.10 Release of Claims. DoveBid shall have received copies of a Release of
Claims executed by DoveBid and each Member in substantially the form of Exhibit
-------
F attached hereto.
- -
6.11 Lease Matters. Greenwich shall have terminated its existing real
estate lease at 896 Main Street, Branford, Connecticut and DoveBid shall have
executed a lease at the location pursuant to terms deemed acceptable to DoveBid.
6.12 Insurance Matters. The Members shall have obtained, and fully prepaid
all premiums associated with, a "claims made" insurance policy for Greenwich for
activities of Greenwich prior of the Closing that will be assigned to DoveBid at
the Closing, that expires no earlier than the first anniversary of the Closing
and that contains coverage that is customary for Greenwich's industry and is
reasonably acceptable to DoveBid.
6.13 Due Diligence. The completion of a due diligence review by DoveBid
and/or its designated representatives of Greenwich's businesses, finances,
practices and procedures including, but not limited to (i) ensuring that the
Financial Statements and all subsequent financial statements disclose no
material adverse changes in Greenwich's business or financial condition since
December 31, 1999, (ii) a review of Greenwich's books, records, contracts,
operations and affairs to ensure compliance with federal, state and local laws
and regulations governing Greenwich's operations, the absence of any material
actual or probable violations, environmental or other compliance problems or
issues, and the absence of any required material capital expenditures or any
other substantive concerns, any or all of which shall be satisfactory to DoveBid
in its sole discretion. The results of DoveBid's due diligence review in no way
vitiates or affects Greenwich's or the Members' representations and warranties
regarding such matters and DoveBid's reliance on such representations or
warranties.
6.14 Satisfactory Form of Legal and Accounting Matters. The form, scope
and substance of all legal and accounting matters contemplated hereby and all
closing documents and other papers delivered hereunder shall be acceptable to
DoveBid and its counsel.
<PAGE>
6.15 Termination of Fleet National Bank Agreements. Each agreement
between Greenwich and Fleet National Bank shall have been terminated.
ARTICLE VII
TERMINATION
7.1 Right to Terminate. This Agreement may be terminated by DoveBid and/or
Greenwich and the transactions contemplated hereby abandoned at any time prior
to the Closing, whether before or after approval by the Members: (i) by the
mutual written consent of both parties; (ii) by either party, if such party is
not in material breach of any representation, warranty, covenant or agreement
contained in this Agreement, and such other party is in material breach of any
representation, warranty, covenant or agreement contained in this Agreement and
such breaching party fails to cure such material breach within fifteen (15) days
after written notice of such material breach from the non-breaching party; (iii)
by either party, if any of the conditions precedent to such party's obligations
set forth in Article V (if Greenwich) or Article VI (if DoveBid) have not been
fulfilled or waived at and as of the Closing; (iv) by either party, if there is
a final nonappealable Order of a federal or state court in effect preventing
consummation of the transactions contemplated hereby, or if any statute, rule,
regulation or Order is enacted, promulgated or issued or deemed applicable to
the transactions contemplated hereby by any governmental body that would make
consummation of the transactions contemplated hereby illegal; or (v) by a party
that is not then in breach of this Agreement if the Closing has not occurred by
March 10, 2000.
7.2 Termination Procedures. If either party wishes to terminate this
Agreement pursuant to Section 7.1, such party shall deliver to the other party a
written notice stating that such party is terminating this Agreement and setting
forth a brief description of the basis of such termination. Termination of this
Agreement will be effective upon the receipt of such notice.
7.3 Continuing Obligations. Following any termination of this Agreement
pursuant to this Article VII, the parties to this Agreement will continue to be
liable for breaches of this Agreement and any representation, warranty or
covenant set forth herein prior to such termination and will continue to perform
their respective obligations under Section 8.2 and Article X. Except for the
continuing obligations set forth in the preceding sentence, the parties to this
Agreement will be without any further obligation or liability upon any party in
favor of the other party. However, nothing in this Section 7.3 will limit the
obligations of Greenwich to use its commercially reasonable efforts to cause the
transactions contemplated hereby to be consummated, as set forth in Section
10.1.
ARTICLE VIII
SURVIVAL OF REPRESENTATIONS, INDEMNIFICATION AND REMEDIES
8.1 Survival of Representations. All representations, warranties,
covenants and agreements contained in this Agreement will remain operative and
in full force and effect from the date of this Agreement until the earlier of
the termination of this Agreement or the first
<PAGE>
anniversary of the Closing (except for covenants and other provisions that by
their terms survive for a longer period).
8.2 Agreements to Indemnify.
(a) The following terms shall have the following definitions:
(i) "Damages" shall mean any and all claims, demands, actions,
causes of actions, losses, costs, damages, liabilities and expenses including,
without limitation, reasonable legal fees and expenses.
(ii) "Indemnified Person" shall mean any person that is
entitled to indemnification or being held harmless under this Article VIII.
(b) Subject to the limitations set forth in this Article VIII,
William Gardner, jointly and severally, and each Member other than William
Gardner, severally and not jointly, hereby agree to indemnify and hold harmless
DoveBid and its officers, directors, agents and employees, and each person, if
any, who controls or may control DoveBid within the meaning of the Securities
Act (each a "DoveBid Indemnitee") from and against Damages:
(i) arising out of any misrepresentation, or breach of, or
default in connection with, any of the representations, warranties, covenants
and agreements given or made by Greenwich or any Member in this Agreement or any
certificate, document or instrument delivered by or on behalf of Greenwich
pursuant to this Agreement;
(ii) resulting from any failure of any Member: (i) to have
good, valid and marketable title to the issued and outstanding Interests held by
such Member, free and clear of Encumbrances, or (ii) to have full right,
capacity and authority to transfer such Interests to DoveBid as contemplated by
this Agreement;
(iii) any claim by a current or former Member, or any other
person, firm, corporation or entity, seeking to assert or based upon: ownership
or rights to ownership of percentage interest of Greenwich (or the Cash Purchase
Price and/or Convertible Subordinated Promissory Notes and/or any Earn-Out
Payments), any rights of a Member, including any options, dissenter's or
preemptive rights or rights to notice or to vote, any rights under Greenwich's
Operating Agreement or other charter documents, any right under any agreement
among Greenwich and the Members or any claim that his or her percentage
interests or other securities were wrongfully repurchased by Greenwich;
(iv) any claim by any investment banker, broker, finder or
other agent in connection with the origin, negotiation or execution of this
Agreement or in connection with any transaction contemplated hereby or thereby
resulting from any action or omission of Greenwich or any Member.
(c) Subject to the limitations set forth in this Article VIII,
DoveBid hereby agrees to indemnify and hold harmless each Member from and
against Damages arising out of any misrepresentation, or breach of, or default
in connection with, any of the representations, warranties, covenants and
agreements given or made by DoveBid in this Agreement or any
<PAGE>
certificate, document or instrument delivered by or on behalf of DoveBid
pursuant to this Agreement.
8.3 Limitations on Liability; Exceptions.
8.3.1 Limitations on Liability. Notwithstanding any other term of
this Agreement, in no event shall the Members on one hand or DoveBid on the
other hand be liable under this Agreement, including this Article VIII, for an
amount which exceeds the sum of (a) the Cash Purchase Price, (b) the aggregate
amount of principal and accrued interest related to the Convertible Subordinated
Promissory Notes and (c) the aggregate amount of all Earn-Out Payments that
actually become payable hereunder. In addition, in no event shall any Member
other than William Gardner be liable under this Agreement, including this
Article VIII, for an amount which exceeds the sum of (a) the Cash Purchase
Price, (b) the aggregate amount of principal and accrued interest related to the
Convertible Subordinated Promissory Notes and (c) the aggregate amount of all
Earn-Out Payments that would otherwise be payable to such Member pursuant to the
terms of this Agreement. In addition, in no event shall any Member other than
William Gardner be liable under this Agreement, including this Article VIII, for
an amount which exceeds the Damages multiplied by such Member's Interest as a
percentage of all Members' Interests.
8.3.2 Exceptions to Limitations on Liability. None of the limitations
set forth in Section 8.3.1 shall in any manner limit the liability or
indemnification obligations of the Members with respect to: (i) intentional
fraud or willful misconduct or (ii) any breach of the representations and
warranties made in Sections 2.3, 2.7 and 2.17 hereof.
8.3.3 Basket. The indemnification provided for in this Article VIII
shall not apply unless the aggregate Damages for which one or more Indemnified
Persons seeks indemnification exceeds $25,000. In the event that Damages do
exceed $25,000, the Indemnifying Person will indemnify the Indemnified Persons
for the entire amount of Damages (including the initially excluded $25,000 of
Damages). This Section 8.3.3 shall not apply to any liability described in
Section 8.3.2 above.
8.4 Third Person Claims.
8.4.1 Promptly after any party hereto an Indemnified Person has
received notice of or has knowledge of any claim by a person not a party to this
Agreement ("Third Person"), or the commencement of any action or proceeding by a
Third Person (such claim or commencement of such action or proceeding being a
"Third Person Claim") that could give rise to a right of indemnification under
this Agreement, the Indemnified Person shall, as a condition precedent to a
claim with respect thereto being made against an Indemnifying Person, give the
Indemnifying Person written notice of such Third Person Claim describing in
reasonable detail the nature of such Third Person Claim, a copy of all papers
served with respect to that Third Person Claim (if any), an estimate of the
amount of damages attributable to the Third Person Claim to the extent feasible
(which estimate shall not be conclusive of the final amount of such claim) and
the basis for the Indemnified Person's request for indemnification under this
Agreement; provided, however, that the failure of the Indemnified Person to give
timely notice hereunder shall relieve the Indemnifying Person of its
indemnification obligations under this Agreement to the extent,
<PAGE>
but only to the extent that, such failure materially prejudices the Indemnifying
Person's ability to defend such claim. Within fifteen (15) days after receipt of
such notice (the "Election Period"), the Indemnifying Person shall notify the
Indemnified Person whether the Indemnifying Person disputes its potential
liability to the Indemnified Person under this Article VIII with respect to that
Third Person Claim.
8.4.2 DoveBid shall defend any Third Person Claim, and the costs and
expenses incurred by DoveBid in connection with such defense (including but not
limited to reasonable attorneys' fees, other professionals' and experts' fees
and court or arbitration costs) shall be included in the Damages for which
DoveBid may seek indemnity pursuant to a Claim made by any DoveBid Indemnitee
hereunder. The Representative shall have the right to receive copies of all
pleadings, notices and communications with respect to the Third Person Claim to
the extent that receipt of such documents by the Representative does not affect
any attorney-client or work-product privilege relating to the DoveBid
Indemnitee, and may participate in settlement negotiations with respect to the
Third Person Claim. No DoveBid Indemnitee shall enter into any settlement of a
Third Person Claim without the prior written consent of the Representative
(which consent shall not be unreasonably withheld), provided, that if the
Representative shall have consented in writing to any such settlement, then the
Representative shall have no power or authority to object to any Claim by any
DoveBid Indemnitee for indemnity under Article VIII for the amount of such
settlement; and the Members will remain responsible to indemnify the DoveBid
Indemnitee for all Damages they may incur arising out of, resulting from or
caused by the Third-Party Claim to the fullest extent provided in Article VIII.
8.5 Representative. Each of the Members approves the designation of and
designates the Representative as the representative of the Members and as the
attorney-in-fact and agent for and on behalf of each Members with respect to
claims for indemnification under this Article VIII and the taking by the
Representative of any and all actions and the making of any decisions required
or permitted to be taken by the Representative under this Agreement, including,
without limitation, the exercise of the power to: (a) agree to, negotiate, enter
into settlements and compromises of, demand arbitration of, and comply with
orders of courts and awards of arbitrators with respect to, such claims; (b)
arbitrate, resolve, settle or compromise any claim for indemnity made pursuant
to Article VIII; and (d) take all actions necessary in the judgment of the
Representative for the accomplishment of the foregoing. The Representative will
have authority and power to act on behalf of each Member with respect to the
disposition, settlement or other handling of all claims under Article VIII and
all rights or obligations arising under Article VIII. The Members will be bound
by all actions taken and documents executed by the Representative in connection
with Article VIII, and DoveBid will be entitled to rely on any action or
decision of the Representative. In performing the functions specified in this
Agreement, the Representative will not be liable to any Member in the absence of
gross negligence or willful misconduct on the part of the Representative. The
Members shall severally indemnify the Representative and hold him harmless
against any loss, liability or expense incurred without gross negligence or
willful misconduct on the part of the Representative and arising out of or in
connection with the acceptance or administration of his duties hereunder. Any
out-of-pocket costs and expenses reasonably incurred by the Representative in
connection with actions taken by the Representative pursuant to the terms of
Article VIII (including without limitation the hiring of legal counsel and the
incurring of legal fees and costs) will be paid by the Members to
<PAGE>
the Representative pro rata in proportion to their respective percentage equity
interests in the Companies.
8.6 Notice of Claim. As used herein, the term "Claim" means a claim for
indemnification for Damages under Article VIII. A party may give notice of a
Claim under this Agreement whether for its own Damages or for Damages incurred
by any other indemnitee, and such party will give written notice of a Claim (a
"Notice of Claim") promptly such party becomes aware of the existence of any
potential claim for indemnity for Damages under Article VIII, including in
connection with any Third Person Claim.
8.7 Contents of Notice of Claim. Each Notice of Claim a party will contain
the following information:
(a) that such party has incurred, paid or properly accrued (in
accordance with GAAP) or, in good faith, believes it will have to incur, pay or
accrue (in accordance with GAAP), Damages in an aggregate stated amount arising
from such Claim (which amount may be the amount of damages claimed by a third
party, which if true, would give rise to liability for Damages under Article
VIII); and
a brief description, in reasonable detail (to the extent reasonably
available to such party), of the facts, circumstances or events giving rise to
the alleged Damages based on such party's good faith belief thereof, including,
without limitation, the identity and address of any third-party claimant (to the
extent reasonably available to such party) and copies of any formal demand or
complaint, the amount of Damages, the date each such item was incurred, paid or
properly accrued, or the basis for such anticipated liability, and the specific
nature of the breach to which such item is related.
8.8 Resolution of Notice of Claim. Any Notice of Claim will be resolved as
follows:
(a) Contested Claims. In the event that written notice is given
contesting all or any portion of a Notice of Claim (a "Contested Claim") within
the fifteen day period, then: (i) such Contested Claim will be resolved by
either (A) a written settlement agreement executed by DoveBid and the
Representative or (B) in the absence of such a written settlement agreement, by
binding arbitration between DoveBid and the Representative in accordance with
the terms and provisions of Section 8.8(c).
(b) Arbitration of Contested Claims. Each of DoveBid and the Members
agree that any Contested Claim will be submitted to mandatory, final and binding
arbitration in accordance with the AAA Rules and that any such arbitration will
be conducted in San Mateo County, California. Either DoveBid or the
Representative may commence the arbitration process called for by this Agreement
by filing a written demand for arbitration with the American Arbitration
Association. and giving a copy of such demand to each of the other parties to
this Agreement. The arbitration will be conducted in accordance with the
provisions of the AAA Rules in effect at the time of filing of the demand for
arbitration, subject to the provisions of Section 8.8(b) of this Agreement. In
the absence of agreement by the parties, the American Arbitration Association
will have the authority to select an arbitrator from a list of arbitrators who
are lawyers familiar with contract law; provided, however, that such lawyers
cannot have
<PAGE>
provided or be providing services for, or working for a firm then performing
services for, any party hereto. The parties will cooperate with the American
Arbitration Association and with each other in scheduling the arbitration
proceedings in order to fulfill the provisions, purposes and intent of this
Agreement. The parties covenant that they will participate in the arbitration in
good faith, and that they will share in its costs in accordance with
subparagraph (i) below. The provisions of this Section 8.8(b) may be enforced by
any court of competent jurisdiction, and the party seeking enforcement will be
entitled to an award of all costs, fees and expenses, including attorneys' fees,
to be paid by the party against whom enforcement is ordered. Judgment upon the
award rendered by the arbitrator may be entered in any court having competent
jurisdiction.
(i) Payment of Costs. DoveBid on the one hand, and the Members
(through the Representative), on the other hand, will bear the expense of
deposits and advances required by the arbitrator in equal proportions, but
either party may advance such amounts, subject to recovery as an addition
or offset to any award. The arbitrator shall determine the party who is the
Prevailing Party and the party who is the Non-Prevailing Party. The Non-
Prevailing Party shall pay all reasonable costs, fees and expenses related
to the arbitration, including reasonable fees and expenses of attorneys,
accountants and other professionals incurred by the prevailing party, the
fees of each arbitrator and the administrative fee of the arbitration
proceedings. If such an award would result in manifest injustice, however,
the arbitrator may apportion such costs, fees and expenses between the
parties in such a manner as the arbitrator deems just and equitable.
(ii) Burden of Proof. Except as may be otherwise expressly provided
herein, for any Contested Claim submitted to arbitration, the burden of
proof will be as it would be if the claim were litigated in a judicial
proceeding governed by California law exclusively.
(iii) Award. Upon the conclusion of any arbitration proceedings
hereunder, the arbitrator will render findings of fact and conclusions of
law and a final written arbitration award setting forth the basis and
reasons for any decision reached (the "Final Award") and will deliver such
documents to the Representative and DoveBid, together with a signed copy of
the Final Award. The Final Award will constitute a conclusive determination
of all issues in question, binding upon the Members, the Representative and
DoveBid, and will include an affirmative statement to such effect.
(iv) Timing. The Representative, DoveBid and the arbitrator will
conclude each arbitration pursuant to this Section 8.8 as promptly as
possible for the Contested Claim being arbitrated.
(v) Terms of Arbitration. The arbitrator chosen in accordance with
these provisions will not have the power to alter, amend or otherwise
affect the terms of these arbitration provisions or the provisions of this
Agreement.
<PAGE>
ARTICLE IX
NONCOMPETITION
9.1 Prohibited Activities. The Members will not, for any reason
whatsoever, directly or indirectly, for themselves or on behalf of or in
conjunction with any other person, persons, company, partnership, corporation or
business of whatever nature other than DoveBid:
(a) engage directly or as an officer, director, stockholder, owner,
partner, joint venturer, or in a managerial capacity, whether as an employee,
independent contractor, consultant or advisor, or as a sales representative, in
any business selling any products or services in competition with DoveBid
(including its subsidiaries);
(b) call upon any person who is, at that time, an employee of DoveBid
(including the subsidiaries thereof) for the purpose or with the intent of
enticing such employee away from or out of the employ of DoveBid (including the
subsidiaries thereof), provided that the Members shall be permitted to call upon
-------------
and hire any member of his or her immediate family;
(c) call upon any person or entity which is, at that time, or that
has been, within one (1) year prior to that time, a customer of DoveBid
(including the subsidiaries thereof) for the purpose of soliciting or selling
products or services in competition with DoveBid;
(d) call upon any prospective acquisition candidate, on the Members'
own behalf or on behalf of any competitor of DoveBid, which candidate was either
called upon by DoveBid or Greenwich (including the subsidiaries thereof) or for
which DoveBid (or any subsidiary thereof) made an acquisition analysis, for the
purpose of acquiring such entity, provided that the Members shall not be charged
--------
with a violation of this Section unless and until a Member shall have knowledge
or notice that such prospective acquisition candidate was called upon, or that
an acquisition analysis was made, for the purpose of acquiring such entity; or
(e) except in furtherance of DoveBid's business, disclose customers,
whether in existence or proposed, of DoveBid or Greenwich to any person, firm,
partnership, corporation or business for any reason or purpose whatsoever
excluding disclosure to DoveBid.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit the Members from acquiring as an investment not more than one percent
(1%) of the capital stock of any business whose stock is traded on a national
securities exchange or over-the-counter market.
9.2 Term.
(a) For William J. Gardner, Jr. the obligations set forth in this
Article IX shall not terminate until the third (3rd) anniversary of the Closing
Date, except that such obligations shall terminate on the first (1st)
anniversary of the Closing Date in the event that DoveBid has received written
notice from William J. Gardner, Jr. that it has breached its payment obligations
under the Earn-Out Payments as set forth in Section 1.1(iii) hereof, under
William J. Gardner, Jr.'s Employment Agreement with DoveBid or under William J.
Gardner, Jr.'s Convertible Subordinated Promissory Note and, in each case, such
breach has not been remedied within
<PAGE>
thirty (30) days of receiving written notice of such breach from William J.
Gardner, Jr.
(b) For every Member other than William J. Gardner, Jr. the
obligations set forth in this Article IX shall not terminate until the earlier
of (i) the third (3rd) anniversary of the Closing Date or (ii) in the event that
DoveBid has received written notice from such Member that it has breached its
payment obligations under the Earn-Out Payments as set forth in Section 1.1(iii)
hereof, under such Member's Employment Agreement with DoveBid or under such
Member's Convertible Subordinated Promissory Note and such breach has not been
remedied within thirty (30) days of receiving written notice of such breach from
such Member, the end of such thirty (30) day period or (iii) the date on which
such Member terminates his employment for Good Reason or is terminated other
than for Cause.
9.3 Damages. Because of the difficulty of measuring economic losses to
DoveBid as a result of a breach of the foregoing covenants, and because of the
immediate and irreparable damage that could be caused to DoveBid for which it
would have no other adequate remedy, the Members agree that the foregoing
covenants may be enforced by DoveBid, in the event of breach by the Members by
injunctions and restraining orders.
9.4 Reasonable Restraint. It is agreed by the parties hereto that the
foregoing covenants in this Article IX impose a reasonable restraint on the
Members in light of the activities and business of DoveBid (including the
subsidiaries thereof) on the date of the execution of this Agreement and the
current plans of DoveBid; but it is also the intent of DoveBid and the Members
that such covenants be construed and enforced in accordance with the changing
activities and business of DoveBid (including the subsidiaries thereof)
throughout the term of this covenant.
9.5 Independent Covenant. All of the covenants in this Article IX shall be
construed as an agreement independent of any other provision in this Agreement,
and the existence of any claim or cause of action of the Members against DoveBid
(including the subsidiaries thereof), whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by DoveBid of such
covenants. It is specifically agreed that the period of three (3) years stated
at the beginning of this Article IX, during which the agreements and covenants
of the Members made in this Article IX shall be effective, shall be computed by
excluding from such computation any time during which any Member or Greenwich is
in violation of any provision of this Article IX. The covenants contained in
this Article IX shall not be affected by any breach of any other provision
hereof by any party hereto and shall have no effect if the transactions
contemplated by this Agreement are not consummated.
9.6 Materiality. Greenwich and the Members hereby agree that the covenants
in this Article IX are a material and substantial part of this transaction.
ARTICLE X
NONDISCLOSURE OF CONFIDENTIAL INFORMATION
10.1 Obligations of the Parties. Greenwich, the Members and DoveBid each
recognize that they have received and will receive confidential information
concerning the other during the
<PAGE>
course of the negotiations and preparations of this Agreement and the
transactions contemplated hereby. Accordingly, Greenwich, the Members and
DoveBid each agrees (a) to use their respective commercially reasonable efforts
to prevent the unauthorized disclosure of any confidential information
concerning the other that was or is disclosed during the course of such
negotiations and preparations, and (b) to not make use of or permit to be used
any such confidential information other than for the purpose of effectuating the
Closing and related transactions. Greenwich and DoveBid each also agree to use
their respective commercially reasonable efforts to have their respective
representatives or agents take any action that would be inconsistent with the
obligations set forth in the second sentence of this Section 10.1. The
obligations of this Article X will not apply to information that (i) is or
becomes part of the public domain, (ii) is disclosed by the disclosing party to
third parties without restrictions on its further disclosure, (iii) is received
by the receiving party from a third party without breach of a nondisclosure
obligation to the other party or (iv) is required to be disclosed by statute, or
governmental rule or regulation; provided, however, that if disclosure is
required in connection with any litigation or arbitration with any third party,
the disclosing party shall use reasonable efforts to obtain a protective or
other order to avoid or minimize the extent of the disclosure. If this Agreement
is terminated, all copies of documents containing confidential information shall
be returned by the receiving party to the disclosing party.
10.2 Damages. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Section 10.1 and because of
the immediate and irreparable damage that would be caused for which they would
have no other adequate remedy, the parties hereto agree that, in the event of a
breach by any of them of the foregoing covenants, the covenant may be enforced
against the other parties by injunctions and restraining orders.
10.3 Survival and Termination. The obligations of the parties under this
Article X shall survive the termination of this Agreement.
ARTICLE XI
GENERAL
11.1 Cooperation. Greenwich, the Members and DoveBid shall each deliver or
cause to be delivered to the other, at such other times and places as shall be
reasonably agreed, such additional instruments, and take such additional actions
as can be taken without unreasonable expense, as any other may reasonably
request for the purpose of carrying out this Agreement. The Members and
Greenwich will cooperate and use their reasonable efforts to have the present
officers, managers and employees of Greenwich cooperate with DoveBid on and
after Closing in furnishing information, evidence, testimony and other
assistance in connection with any tax return filing obligations, actions,
proceedings, arrangements or disputes of any nature with respect to matters
pertaining to all periods prior to Closing.
11.2 Successors and Assigns. Neither Greenwich nor any Member may assign
any of its rights or obligations hereunder without the prior written consent of
DoveBid, except that a Member may assign its rights and obligations hereunder to
any trust, corporation, partnership or other entity in which such Member holds
all of the voting power and equity or due to death in accordance with the laws
of wills, succession and intestacy (provided that such transferee
<PAGE>
executes an agreement pursuant to which such transferee agrees to be bound by
the terms of this Agreement, such agreement to be in form and substance
reasonably satisfactory to the Company). DoveBid may not assign any of its
rights or obligations hereunder without the prior written consent of Members
holding not less than a majority of the voting power in Greenwich, except that
DoveBid may assign its rights and obligations hereunder without the prior
written consent of any Member in connection with a merger, consolidation or sale
of all or substantially all of DoveBid's assets or in connection with a
reincorporation, reorganization or other corporate recapitalization, provided
that the acquiring or surviving corporation or entity agrees to assume all of
DoveBid's obligations under this Agreement and that such acquiring or surviving
corporation or entity has a market capitalization or net assets in excess of
$75.0 million at the time of such assignment. This Agreement will be binding
upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns. This provision does not govern the assignment
of the Convertible Subordinated Promissory Notes, which shall be governed solely
by the provisions thereof.
11.3 Entire Agreement. This Agreement (including the schedules and
exhibits attached hereto) and the documents delivered pursuant hereto constitute
the entire agreement and understanding among the Members, Greenwich and DoveBid
and supersede any prior agreement, understanding or discussions relating to
DoveBid or the transactions contemplated by this Agreement. Except as otherwise
stated herein, this Agreement and the Annexes hereto may be modified or amended
only by a written instrument executed by the Members, Greenwich and DoveBid,
acting through their respective officers, duly authorized by their Board of
Directors and Board of Managers, respectively.
11.4 Counterparts. This Agreement may be executed simultaneously in two
(2) or more counterparts, each of which shall be deemed an original and all of
which together shall constitute but one and the same agreement.
11.5 Expenses. DoveBid will pay the fees, expenses and disbursements of
DoveBid and its agents, representatives, accountants and counsel incurred in
connection with the subject matter of this Agreement and any amendments thereto,
including all costs and expenses incurred in the performance and compliance with
all conditions to be performed by DoveBid under this Agreement. The Members will
pay their and Greenwich's respective fees, expenses and disbursements of counsel
and accountants incurred in connection with the subject matter of this
Agreement. The Members shall pay all sales, use, transfer, real property
transfer, recording, gains, stock transfer and other similar taxes and fees
("Transfer Taxes") incurred in connection with the transactions contemplated by
this Agreement. Greenwich shall file, and the Members shall cause Greenwich to
file, all necessary documentation and tax returns with respect to such Transfer
Taxes. In addition, the Members acknowledge that they, and not DoveBid or
Greenwich, will pay all taxes due upon the receipt of the Converted Subordinated
Promissory Note and cash consideration payable to the Members pursuant to this
Agreement.
11.6 Notices. All notices and other communications required or permitted
hereunder shall be effective upon receipt (or refusal of receipt) and shall be
in writing and delivered by a nationally recognized overnight courier service or
by depositing the same in United States mail, addressed to the party to be
notified, postage prepaid and registered or certified with return
<PAGE>
receipt requested, by delivering the same in person to such party or to an
officer or agent of such party, as follows:
(i) If mailed or delivered to DoveBid, to each of the
following, using two separate mailings or deliveries:
DoveBid, Inc.
1241 East Hillsdale Blvd.
Foster City, CA 94404
Attn: Cory Ravid, Chief Financial Officer
DoveBid, Inc.
1241 East Hillsdale Blvd.
Foster City, CA 94404
Attn: Anthony Capobianco, General Counsel
(ii) If mailed or delivered to the Members, addressed to them
at their respective addresses set forth on Exhibit G hereto,
---------
(iii) If mailed or delivered to Greenwich, addressed to it at
its address set forth on Exhibit G hereto,
---------
or to such other address as any party hereto shall specify in writing to the
other parties hereto pursuant to this Section 11.6 from time to time. Such
notice shall be effective only upon actual receipt.
11.7 Governing Law; Forum. This Agreement shall be governed by and
construed in accordance with the laws of the State of California, without giving
effect to laws concerning choice of law or conflicts of law. All disputes
arising out of this Agreement or the obligations of the parties hereunder,
including disputes that may arise following termination of this Agreement, shall
be subject to the exclusive jurisdiction and venue of the California State
courts of San Mateo County, California (or, if there is federal jurisdiction,
then the exclusive jurisdiction and venue of the United States District Court
having jurisdiction over San Mateo County). Each party hereby irrevocably and
unconditionally consents to the personal and exclusive jurisdiction and venue of
said courts and waives trial by jury and any objection that it may now or
hereafter have to the venue of any such action or proceeding in any such court
or that such action or proceeding was brought in an inconvenient court and
agrees not to plead or claim the same.
11.8 Exercise of Rights and Remedies. Except as otherwise provided herein,
no delay of, or omission in the exercise of any right, power or remedy accruing
to any party as a result of any breach or default by any other party under this
Agreement shall impair any such right, power, or remedy, nor shall it be
construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
11.9 Time. Time is of the essence with respect to this Agreement.
<PAGE>
11.10 Reformation and Severability. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
11.11 Remedies Cumulative. No right, remedy or election given by any term
of this Agreement shall be deemed exclusive but each shall be cumulative with
all other rights, remedies and elections available at law, or in equity or by
contract.
11.12 Construction. This Agreement has been negotiated among DoveBid,
Greenwich, the Members and their respective legal counsel, and legal or
equitable principles that might require the construction of this Agreement or
any provision of this Agreement against the party drafting this Agreement will
not apply in any construction or interpretation of this Agreement.
11.13 Captions. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by the respective authorized representatives of DoveBid and
Greenwich and by each Member as of the day and year first above written.
GREENWICH INDUSTRIAL SERVICES LLC,
a Connecticut limited liability company
By: /s/ WILLIAM J. GARDNER
____________________________________
a Member
/S/ WILLIAM J. GARDNER
_________________________________________
William J. Gardner, Jr.
/S/ JAMES F. GARDNER
_________________________________________
James F. Gardner
/S/ SCOTT LONKART
_________________________________________
Scott Lonkart
/S/ MICHAEL DIPROSPERO
_________________________________________
Michael DiProspero
DOVEBID, INC.,
a Delaware corporation
By /S/ ANTHONY CAPOBIANCO
____________________________________
Name: Anthony Capobianco
Title: Vice President & General Counsel
<PAGE>
EXHIBIT 2.04
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this "Agreement") is made and entered into
as of March 2, 2000 by and among DoveBid, Inc., a Delaware corporation
("DoveBid"), Philip Pollack & Co., Inc., an Illinois corporation, (the
"Company"), Ross J. Pollack ("R.Pollack") and Philip Pollack ("P.Pollack") (each
of R.Pollack and P.Pollack hereinafter individually referred to as a
"Shareholder" and collectively referred to as the "Shareholders").
R.Pollack and P.Pollack own beneficially and of record all of the issued
and outstanding capital stock of the Company.
DoveBid desires to purchase from the Shareholders, and each Shareholder
desires to sell to DoveBid, all shares of the capital stock of the Company owned
by the Shareholders (collectively, the "Shares") on the terms and conditions set
forth in this Agreement.
Now, therefore, the parties agree as follows:
ARTICLE I
STOCK SALE AND PURCHASE
1.1 Agreement to Sell and Purchase Stock. At the Closing, each
-------------------------------------
Shareholder shall sell, transfer and deliver to DoveBid, and DoveBid shall
purchase and accept from each Shareholder, all of the Shares owned by such
Shareholder, free and clear of all security interests, liens, pledges, charges,
escrows, options, rights of first refusal, mortgages, indentures, security
agreements or other claims, encumbrances, agreements, arrangements or
commitments of any kind or character (collectively, "Liens") in exchange for the
following aggregate consideration (the "Purchase Price"), which shall be subject
to reduction in accordance with Section 1.2:
(i) cash in the amount of $1,307,808.30 (the "Closing Payment"),
of which $653,904.15 shall be paid to P.Pollack and $653,904.15 shall be paid to
R.Pollack, in each case, subject to reduction in accordance with Section 1.2;
(ii) cash in the amount of $225,000, to be paid to the
Shareholders as provided in Section 1.4 below (the "Deferred Payment");
(iii) two convertible subordinated promissory notes, one payable to
P.Pollack in the principal amount of $1,375,000 and one payable to R.Pollack in
the principal amount of $1,375,000, each in the form attached hereto as Exhibit
-------
A (each, a "Convertible Subordinated Promissory Note"); and
- -
(iv) cash in the amount of $217,191.70 to be paid to the
Shareholders as provided in Section 1.5 below (the "Judgment Amount").
<PAGE>
1.2 Purchase Price Adjustment. At the Closing, the Shareholders shall
-------------------------
deliver a balance sheet of the Company as of the business day immediately
preceding the date of the Closing (the "Closing Balance Sheet"), in each case,
prepared in accordance with United States generally accepted accounting
principles ("GAAP") excluding notes, together with a detailed list of all
accrued expenses and liabilities of the Company as of the Closing Date as
determined in accordance with GAAP (the "Closing Liabilities Schedule"). In the
event that the aggregate book value of stockholders' equity of the Company,
determined in accordance with GAAP, consistently applied with prior periods, set
forth on the Closing Balance Sheet (such amount, the "Closing Stockholders'
Equity") is less than $450,000, the initial aggregate Purchase Price of
$4,500,000 shall be reduced by one dollar for each dollar that Closing
Stockholders' Equity is less than $450,000. In the event of any reduction in
the Purchase Price, the respective Closing Payments to the Shareholders shall be
proportionately reduced, and such reduced aggregate consideration shall
constitute the "Purchase Price" for all purposes under this Agreement.
1.3 Closing. The purchase and sale of the Shares, and the consummation
-------
of the other transactions contemplated hereby (the "Closing"), will take place
at the offices of DoveBid at 1241 East Hillsdale Boulevard, Foster City,
California at 10:00 a.m. Pacific Time, on March 2, 2000 or, if all conditions to
closing have not been satisfied or waived by said date, at such other time and
place as DoveBid and Shareholders shall mutually agree upon. At the Closing, the
Shareholders will deliver to DoveBid certificates representing all of the
Shares, duly endorsed for transfer to DoveBid, against delivery to the
Shareholders by DoveBid of the Purchase Price. The date on which the Closing
occurs is referred to herein as the "Closing Date."
1.4 Deferred Payment.
----------------
(a) Closing Stockholders' Equity. On or prior to the 90th calendar day
-----------------------------
following the Closing Date, DoveBid shall provide Ross J. Pollack as
representative of the Shareholders (the "Representative") with a certificate,
signed by an officer of DoveBid, stating whether Purchaser believes that the
amount of Closing Stockholders' Equity used to determine the Purchase Price
pursuant to Section 1.2 hereof ("Original CSE") was correct or incorrect, and if
incorrect, DoveBid's revised calculation of Closing Stockholders' Equity
("Revised CSE"), together with detailed calculations substantiating such revised
calculation. In the event that such certificate states that the Original CSE
was correct, DoveBid shall pay to the Representative (for distribution by him to
the Shareholders) $112,500. In the event that such certificate sets forth a
Revised CSE, within five business days of the Representative's receipt of such
certificate, Representative shall either (a) agree with such revised calculation
by countersigning such certificate and delivering a copy thereof to DoveBid,
whereupon DoveBid shall (i) retain an amount of the Deferred Payment (which
amount shall not be capped at $112,500) equal to the amount by which the
Original CSE exceeds the Revised CSE (such excess, the "CSE True-Up") and (ii)
pay to the Representative an amount (for distribution by him to the
Shareholders) equal to (x) $112,500 minus (y) the CSE True-Up, or (b) disagree
with such revised calculation, whereupon DoveBid and the Representative shall
submit such dispute to arbitration as if it were a Contested Claim, as defined
in Article VIII hereof, in accordance with Section 8.7 hereof. If the
Representative shall not have responded within such five business day period,
the Representative shall be deemed to have agreed with such revised calculation
and the payments set forth in clause (a) of the preceding sentence.
<PAGE>
(b) Deferred Payment Balance. On the six month anniversary of the
------------------------
Closing Date, DoveBid shall pay the balance of the Deferred Payment, if any, to
the Representative (for distribution by him to the Shareholders) provided that,
if on such date, there is outstanding an unresolved Notice of Claim or Contested
Claim (as defined in Article VIII hereof), an amount equal to the amount of
Damages (as defined in Article VIII hereof), claimed in such Notice of Claim or
Contested Claim shall be withheld from such payment to the Representative,
pending resolution of the Notice of Claim or Contested Claim pursuant to the
Article VIII hereof.
1.5 Judgment Amount. The Judgment Amount shall be deposited by DoveBid
----------------
into an interest bearing bank account pending the resolution of the matter of
the default judgment (the "Default Judgment") entered against the Company in
Rangen, Inc. v. Philip Pollack & Co., Inc. (Case No. CV-97-1619) (the "Rangen
- ------------------------------------------
Litigation") in the District Court of the Fifth Judicial District of the State
of Idaho on August 4, 1999. The Shareholders shall use best efforts to have the
Default Judgment vacated or otherwise settled and DoveBid agrees to promptly pay
the Judgment Amount, together with all interest paid thereon, to the
Representative (for distribution by him to the Shareholders) (i) in the event
that the Default Judgment is vacated, the Rangen Litigation is dismissed with
prejudice and the Company is released of all claims thereunder, or (ii) upon
receipt of satisfactory evidence of the settlement of the Rangen Litigation and
the release of all claims against the Company thereunder.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF THE SHAREHOLDERS AND THE COMPANIES
Except as specifically set forth in the disclosure letter provided by the
Shareholders and the Company to DoveBid simultaneously with the signing of this
Agreement, dated as of the date of this Agreement (the "Company Disclosure
Letter"), the parts of which are numbered to correspond to the sections of this
Agreement, each of the Shareholders and the Company hereby jointly and severally
represent and warrant to DoveBid as follows:
2.1 Organization and Good Standing. The Company is a corporation duly
------------------------------
organized, validly existing and in good standing under the laws of the State of
Illinois, has the corporate power and authority to own, operate and lease its
properties and to carry on its business as now conducted and as proposed to be
conducted, and is qualified to conduct business in each jurisdiction in which
the character of the properties owned, leased or licensed by it or the nature of
such activities makes such qualification necessary.
2.2 Power, Authorization and Validity.
---------------------------------
2.2.1 The Company and each Shareholder has the right, power, legal
capacity and authority to enter into and perform its obligations under this
Agreement, and all agreements to which the Company and each Shareholder is or
will be a party that are required to be executed pursuant to this Agreement (the
"Ancillary Agreements"). The execution, delivery and performance of this
Agreement and the Ancillary Agreements have been duly and validly approved and
authorized by the Company's Board of Directors and the Shareholders. Each
<PAGE>
Shareholder is an "accredited investor" as such term is defined in Rule 501
promulgated under the Securities Act of 1933, as amended (the "Securities Act").
2.2.2 No filing, authorization or approval, governmental or
otherwise, is necessary to enable the Company or the Shareholders to enter into,
and to perform their respective obligations under, this Agreement and the
Ancillary Agreements, except for such qualifications and filings as may be
required to comply with federal and state securities laws as may be required in
connection with the transactions contemplated by this Agreement. All such
qualifications and filings will, in the case of qualifications, be effective on
the Closing, and will, in the case of filings, be made within the time
prescribed by applicable law.
2.2.3 This Agreement and the Ancillary Agreements are, or when
executed by the Company and the Shareholders will be, valid and binding
obligations of the Company and the Shareholders enforceable against the Company
and the Shareholders in accordance with their respective terms, except as to the
effect, if any, of (a) applicable bankruptcy and other similar laws affecting
the rights of creditors generally, (b) rules of law governing specific
performance, injunctive relief and other equitable remedies and (c) the
enforceability of provisions requiring indemnification in connection with the
offering, issuance or sale of securities.
2.3 Capitalization. The authorized capital stock of the Company
--------------
consists entirely of 10,000 shares of common stock, no par value, and 1,000
shares of preferred stock, no par value, of which a total of 1,000 shares of
common stock are issued and outstanding, and of which 500 shares are owned
beneficially and of record by R.Pollack and 500 shares are owned beneficially
and of record by P.Pollack, and no other entity or individual owns either
beneficially or of record, any other equity interest of the Company. On the date
of this Agreement each Shareholder has, and on the Closing Date each Shareholder
will have, good and marketable title to that number of shares of capital stock
of the Company set forth in this Section 2.3, free and clear of any and all
Liens, which shares do and shall constitute collectively all of the outstanding
shares of the Company's capital stock. On the date of this Agreement, there are
no, and on the Closing Date, there will be no, options, warrants, calls,
commitments, conversion privileges or preemptive or other rights or agreements
outstanding to purchase any of shares of the Company's capital stock or any
securities convertible into or exchangeable for shares of the Company's capital
stock or obligating the Company to grant, extend, or enter into any such option,
warrant, call, right, commitment, conversion privilege or other right or
agreement. There is no voting agreement, right of first refusal or other
restriction (other than normal restrictions on transfer under applicable federal
and state securities laws) applicable to any of the Company's outstanding
securities. Each share of the Company's capital stock has been duly authorized
and validly issued, is fully paid and nonassessable, is not subject to any right
of rescission, and has been offered, issued, sold and delivered by the Company
in compliance with all registration or qualification requirements (or applicable
exemptions therefrom) of applicable federal and state securities laws, other
laws and requirements set forth in applicable agreements or instruments. The
Company is not under any obligation to register under the Securities Act, any of
its presently outstanding securities or any securities that may be subsequently
issued.
2.4 Subsidiaries. The Company does not have any subsidiaries or any
-------------
interest, direct or indirect, in any corporation, partnership, joint venture or
other business entity.
<PAGE>
2.5 No Conflict. Neither the execution and delivery of this Agreement
-----------
nor any Ancillary Agreement, nor the consummation of the transactions
contemplated hereby, will conflict with, or (with or without notice or lapse of
time, or both) result in a termination, breach, default, impairment or violation
of (a) any provision of the Articles of Incorporation, bylaws or other
governance document of either of the Company, (b) any instrument or contract to
which the Company or any Shareholder is a party or by which either of the
Company or either Shareholder is a party, or any of the Company' or
Shareholders' assets or properties are bound or affected, or (c) any federal,
state, local or foreign judgment, writ, decree, order, statute, rule or
regulation applicable to either of the Company or either Shareholder or their
respective assets or properties. The consummation of the transactions
contemplated by this Agreement does not and will not require the consent,
waiver, release or approval of any third party.
2.6 Litigation. There is no action, proceeding, claim or investigation
-----------
pending against the Company before any court or administrative agency, nor has
any such action, proceeding, claim or investigation been threatened. There is
no reasonable basis for any shareholder or former shareholder of the Company, or
any other person, firm, corporation, or entity, to assert a claim against the
Company, any Shareholder or DoveBid based upon: (a) ownership or rights to
ownership of any shares or other ownership interest in the Company, (b) any
rights as a shareholder of the Company, including any option or preemptive
rights or rights to notice or to vote, or (c) any rights under any agreement
among the Company and its shareholders. There are no outstanding orders,
awards, judgments, injunctions, decrees or other requirements of any court,
arbitrator or governmental or regulatory body against the Company or their
assets, properties or securities.
2.7 Taxes. The Company has timely filed all federal, state, local and
-----
foreign tax returns required to be filed, have paid all taxes required to be
paid in respect of all periods for which returns have been filed, have
established an adequate accrual or reserve for the payment of all taxes payable
in respect of the periods subsequent to the periods covered by the most recent
applicable tax returns, have made all necessary estimated tax payments, and have
no liability for taxes in excess of the amount so paid or accruals or reserves
so established. All accruals or reserves for taxes on the Closing Balance
Sheets will be established in the ordinary course of business. The Company is
not delinquent in the payment of any tax or in the filing of any tax returns,
and no deficiencies for any tax have been threatened, claimed, proposed or
assessed. The Company has not received any notification from the Internal
Revenue Service or any other taxing authority regarding any material issues
that: (a) are currently pending before the Internal Revenue Service or any
other taxing authority (including but not limited to any sales or use tax
authority) regarding the Company or (b) have been raised by the Internal Revenue
Service or other taxing authority and not yet finally resolved. No tax return
of the Company has ever been audited by the Internal Revenue Service or any
state taxing agency or authority. There is not in effect any waiver by the
Company of any statute of limitations with respect to any taxes; and the Company
has not consented to extend to a date later than the date hereof the period in
which any tax may be assessed or collected by any taxing authority. The Company
is not a "personal holding company" within the meaning of the Internal Revenue
Code of 1986, as amended (the "Code"). The Company has not filed any election
under Section 341(f) of the Code. The Company has withheld with respect to each
of its employees and independent contractors all taxes, including but not
limited to federal and state income taxes, FICA, Medicare, FUTA and
<PAGE>
other taxes, required to be withheld, and paid such withheld amounts to the
appropriate tax authority within the time prescribed by law.
For the purposes of this Agreement, the terms "tax" and "taxes" include all
federal, state, local and foreign income, gains, franchise, excise, property,
sales, use, employment, license, payroll, occupation, recording, value added or
transfer taxes, governmental charges, fees, levies or assessments (whether
payable directly or by withholding), and, with respect to such taxes, any
estimated tax, interest and penalties or additions to tax and interest on such
penalties and additions to tax.
2.8 Financial Statements. The Company has delivered to DoveBid, attached
--------------------
hereto as Exhibit B, copies of: (a) the Company's unaudited consolidated balance
---------
sheet as of December 31, 1999 (the "Balance Sheet") and (b) the Company's
unaudited consolidated income statement and statement of cash flows for the ten
months ended December 31, 1999 (together, with the Balance Sheet and the Closing
Balance Sheet, the "Financial Statements"). The Financial Statements (a) are in
accordance with the books and records of the Company, (b) fairly present the
financial condition of the Company at the date therein indicated and the results
of operations for the period therein specified and (c) have been prepared in
accordance with GAAP excluding notes. The Company has no debt, liability or
obligation of any nature, whether accrued, absolute, contingent or otherwise,
and whether due or to become due, that is not reflected or reserved against in
the Financial Statements and the Closing Liabilities Schedule.
2.9 Title to Assets and Properties. The Company has good and marketable
-------------------------------
title to all of its assets as shown on the Balance Sheets and Closing Balance
Sheets, free and clear of all Liens (other than for taxes not yet due and
payable). All machinery and equipment included in such assets is in good
condition and repair, normal wear and tear excepted, and all leases of real or
personal property to which the Company is a party are fully effective and afford
the Company peaceful and undisturbed possession of the subject matter of the
lease. The Company is not in violation of any zoning, building, safety or
environmental ordinance, regulation or requirement or other law or regulation
applicable to the operation of owned or leased properties, or has received any
notice of violation with which it has not complied.
2.10 Absence of Certain Changes. Since December 31, 1999, there has not
--------------------------
been with respect to the Company:
(a) any change in the financial condition, properties, assets,
liabilities, business or operations thereof which change by itself or in
conjunction with all other such changes, whether or not arising in the ordinary
course of business, has had or will have a material adverse effect thereon;
(b) any contingent liability incurred thereby as guarantor or
otherwise with respect to the obligations of others;
(c) any mortgage, encumbrance or Lien placed on any of the
properties thereof;
<PAGE>
(d) any material obligation or liability incurred thereby other
than obligations and liabilities incurred in the ordinary course of business in
individual amounts less than $25,000;
(e) any purchase or sale or other disposition, or any agreement
or other arrangement for the purchase, sale or other disposition, of any of the
properties or assets thereof other than in the ordinary course of business in
individual amounts less than $25,000;
(f) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the properties, assets or business
thereof;
(g) any declaration, setting aside or payment of any dividend on,
or the making of any other distribution in respect of, the capital stock
thereof, any split, combination or recapitalization of the capital stock thereof
or any direct or indirect redemption, purchase or other acquisition of the
membership interests thereof;
(h) any labor dispute or claim of unfair labor practices, any
change in the compensation payable or to become payable to any of its officers,
managers, employees or agents, or any bonus payment or arrangement made to or
with any of such officers, managers, employees or agents;
(i) any change with respect to the management, supervisory or
other key personnel thereof;
(j) any payment or discharge of a Lien or liability thereof which
Lien was not either shown on the Balance Sheet or incurred in the ordinary
course of business thereafter;
(k) any obligation or liability incurred thereby to any of its
officers, employees, directors or shareholders or any loans or advances made
thereby to any of its officers, employees, directors or shareholders except
normal compensation and expense allowances payable to officers and employees;
(l) any amendment or change in the Articles of Incorporation,
bylaws or other governing documents of the Company; or
(m) any change in the accounting policies or procedures of the
Company.
2.11 Contracts and Commitments. Section 2.11 of the Company Disclosure
-------------------------
Letter sets forth a list of each of the following oral or written contracts,
agreements, understandings and arrangements, a true and complete copy of each
(or, in the case of an oral agreement, a written summary of all of the material
terms of which) has been provided to DoveBid:
(a) Contract, agreement or other understanding or arrangement
providing for payments by or to the Company in an aggregate amount of $25,000 or
more in any year;
(b) Company IP Rights Agreement (as defined in Section 2.12), and
contract, license, agreement or other understanding or arrangement as licensor
or licensee;
<PAGE>
(c) Contract, lease, license, agreement or other understanding or
arrangement for the lease of real or personal property;
(d) Joint venture contract or arrangement or any other agreement
that involves or could involve a sharing of profits, expenses or losses with any
other party;
(e) Instrument evidencing or related in any way to indebtedness
for borrowed money by way of direct loan, sale of debt securities, purchase
money obligation, conditional sale, guarantee, or otherwise, except for trade
indebtedness incurred in the ordinary course of business and for no more than
$25,000 in amount, and except as disclosed in the Financial Statements;
(f) Contract, agreement or other understanding or arrangement
containing covenants purporting to limit the Company's freedom to compete in any
line of business in any geographic area, or which grants any exclusive rights or
obligations;
(g) Contract, agreement or other understanding or arrangement for
or relating to the employment of any officer, employee, contractor, or
consultant of the Company; or
(h) Any other agreement not specified above which is material to
the business of the Company.
All agreements, contracts, plans, leases, instruments, arrangements,
licenses and commitments identified in this Section 2.11 are valid and in full
force and effect. The Company is not, nor, to the knowledge of the Company, is
any other party thereto, in material breach or default under the terms of any
such agreement, contract, plan, lease, instrument, arrangement, license or
commitment. The Company does not have any liability for renegotiation of
government contracts or subcontracts, if any.
2.12 Intellectual Property. The Company owns, or has a valid right to
---------------------
use, sell or license all Intellectual Property Rights (as defined below)
necessary or required for the conduct of business as presently conducted (such
Intellectual Property Rights being hereinafter collectively referred to as the
"Company IP Rights") and such rights to use, sell or license are sufficient for
the conduct of the Company's businesses as presently conducted. The execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby do not and will not constitute a breach of any
instrument or agreement governing or affecting any Company IP Rights (the
"Company IP Rights Agreements"), do not and will not cause the forfeiture or
termination or give rise to a right of forfeiture or termination of any Company
IP Right or impair the right of the Company to use, sell or license any Company
IP Right or portion thereof. There is no royalty, honoraria, fee or other
payment payable by the Company to any person by reason of the ownership, use,
license, sale or disposition of any Company IP Right (other than as set forth in
the Company IP Rights Agreements listed in Section 2.11 to the Company
Disclosure Schedule). Neither the manufacture, marketing, license, sale or
intended use of any product currently licensed or sold by the Company or
currently under development by the Company or the provision of any service
currently provided by the Company or currently planned to be provided by the
Company violates any license or agreement between
<PAGE>
the Company and any third party or infringes any Intellectual Property Right of
any other person or entity; and there is no pending or threatened claim or
litigation contesting the validity, ownership or right to use, sell, license or
dispose of any Company IP Right nor is there any basis for any such claim, nor
has the Company received any notice asserting that any Company IP Right or the
proposed use, sale, license or disposition thereof conflicts, or will conflict,
with the rights of any other person or entity, nor is there any basis for any
such assertion. The Company has taken reasonable and necessary steps designed to
safeguard and maintain the secrecy and confidentiality of, and their proprietary
rights in, all Company IP Rights. Each officer, employee and consultant of the
Company has executed and delivered to the Company an agreement in the form
provided to DoveBid regarding the protection of proprietary information and the
assignment to the Company of all Intellectual Property Rights arising from the
services performed for the Company by such person. Section 2.12 to the Company
Disclosure Schedule contains a list of all applications, registrations, filings
and other formal actions made or taken pursuant to federal, state and foreign
laws by the Company to perfect or protect its interest in Company IP Rights,
including, without limitation, all patents, patent applications, trademarks,
trademark applications and service marks. As used herein, the term "Intellectual
Property Rights" shall mean all worldwide industrial or intellectual property
rights, including, without limitation, patents, patent applications, patent
rights, trademarks, trademark applications, trade names, service marks, service
mark applications, Internet domain names, Internet or World Wide Web URLs or
addresses, copyright, copyright applications, franchises, licenses, inventories,
know-how, trade secrets, customer lists, proprietary processes and formulae, all
source and object code, algorithms, architecture, structure, display screens,
layouts, inventions, development tools and all documentation and media
constituting, describing or relating to the above, including, without
limitation, manuals, memoranda and records.
2.13 Compliance with Laws. The Company has complied, or prior to the
--------------------
Closing Date will have complied, and is or will be at the Closing in material
compliance with, all applicable laws, ordinances, regulations, and rules, and
all orders, writs, injunctions, awards, judgments, and decrees applicable to it
or to the assets, properties, and business thereof, including, without
limitation: (a) all applicable federal and state securities laws and
regulations, (b) all applicable federal, state, and local laws, ordinances,
regulations, and all orders, writs, injunctions, awards, judgments, and decrees
pertaining to (i) the sale, licensing, leasing, ownership, or management of its
owned, leased or licensed real or personal property, products and technical
data, (ii) employment and employment practices, terms and conditions of
employment, and wages and hours and (iii) safety, health, fire prevention,
environmental protection, hazardous materials, toxic waste disposal, building
standards, zoning and other similar matters (c) the Export Administration Act
and regulations promulgated thereunder and all other laws, regulations, rules,
orders, writs, injunctions, judgments and decrees applicable to the export or
re-export of controlled commodities or technical data and (d) the Immigration
Reform and Control Act. The Company has received all material permits and
approvals from, and has made all material filings with, third parties, including
government agencies and authorities, that are necessary in connection with its
present business. There are no legal or administrative proceedings or
investigations involving the Company pending or threatened before any
governmental entity.
2.14 Certain Transactions and Agreements. None of the officers,
-----------------------------------
directors, shareholders or employees of the Company, nor any member of their
immediate families, has any direct or indirect ownership interest in any firm or
corporation that competes with the
<PAGE>
Company (except with respect to any interest in less than one percent of the
stock of any corporation whose stock is publicly traded). None of said officers
directors, shareholders or employees, nor any member of their immediate
families, is directly or indirectly interested in any contract or informal
arrangement with the Company, except for normal compensation for services as an
officer, director, shareholder or employee thereof. None of said officers,
directors, shareholders or employees nor any member of their immediate families
has any interest in any property, real or personal, tangible or intangible,
including any Intellectual Property Rights, used in or pertaining to the
business of the Company, except for the normal rights of a shareholder of the
Company.
2.15. Employees, ERISA and Other Compliance.
-------------------------------------
2.15.1 The Company does not have any employment contract or
consulting agreement currently in effect that is not terminable at will (other
than agreements with the sole purpose of providing for the confidentiality of
proprietary information or assignment of inventions). All officers, directors,
employees and consultants of the Company having access to proprietary
information have executed and delivered to the Company an agreement regarding
the protection of such proprietary information and the assignment of inventions
to the Company; true and complete copies of the form of all such agreements have
been delivered to DoveBid.
2.15.2 The Company (i) has not ever been nor are now subject to a
union organizing effort, (ii) is not subject to any collective bargaining
agreement with respect to any of its employees, (iii) is not subject to any
other contract, written or oral, with any trade or labor union, employees'
association or similar organization, or (iv) has no current labor disputes. The
Company has good labor relations, and have no knowledge of any facts indicating
that the consummation of the transactions contemplated hereby will have a
material adverse effect on such labor relations, and has no knowledge that any
of their key employees intends to leave its employ.
2.15.3 Section 2.15.1 to the Company Disclosure Schedule identifies
(i) each "employee benefit plan," as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and (ii) all other
written or formal plans or agreements involving direct or indirect compensation
or benefits (including any employment agreements entered into between the
Company and any employee of the Company, but excluding workers' compensation,
unemployment compensation and other government-mandated programs) currently or
previously maintained, contributed to or entered into by the Company under which
the Company or any ERISA Affiliate (as defined below) thereof has any present or
future obligation or liability (collectively, the "Company Employee Plans").
For purposes of this Section 2.15, "ERISA Affiliate" shall mean any entity which
is a member of (A) a "controlled group of corporations," as defined in Section
414(b) of the Code, (B) a group of entities under "common control," as defined
in Section 414(c) of the Code, or (C) an "affiliated service group," as defined
in Section 414(m) of the Code, or treasury regulations promulgated under Section
414(o) of the Code, any of which includes the Company. Copies of all Company
Employee Plans (and, if applicable, related trust agreements) and all amendments
thereto and written interpretations thereof (including summary plan
descriptions) have been delivered to DoveBid, together with the three most
recent annual reports (Form 5500, including, if applicable, Schedule B thereto)
prepared in connection with any such Company Employee Plan. All
<PAGE>
Company Employee Plans which individually or collectively would constitute an
"employee pension benefit plan," as defined in Section 3(2) of ERISA
(collectively, the "Company Pension Plans"), are identified as such in Section
2.15.3 to the Company Disclosure Schedule. All contributions due from the
Company with respect to any of the Company Employee Plans have been made as
required under ERISA or have been accrued on the Financial Statements. Each
Company Employee Plan has been maintained substantially in compliance with its
terms and with the requirements prescribed by any and all statutes, orders,
rules and regulations, including, without limitation, ERISA and the Code, which
are applicable to such Company Employee Plans.
2.15.4 No Company Pension Plan constitutes, or has since the
enactment of ERISA constituted, a "multiemployer plan," as defined in Section
3(37) of ERISA. No Company Pension Plans are subject to Title IV of ERISA. No
"prohibited transaction," as defined in Section 406 of ERISA or Section 4975 of
the Code, has occurred with respect to any Company Employee Plan which is
covered by Title I of ERISA which would result in a liability to the Company,
excluding transactions effected pursuant to a statutory or administrative
exemption. Nothing done or omitted to be done and no transaction or holding of
any asset under or in connection with any Company Employee Plan has or will make
the Company or any officer or director of the Company subject to any liability
under Title I of ERISA or liable for any tax (as defined in Section 2.7 hereof)
or penalty pursuant to Sections 4972, 4975, 4976 or 4979 of the Code or Section
502 of ERISA.
2.15.5 Any Company Pension Plan which is intended to be qualified
under Section 401(a) of the Code (a "Company 401(a) Plan") is so qualified and
has been so qualified during the period from its adoption to date, and the trust
forming a part thereof is exempt from tax pursuant to Section 501(a) of the
Code. The Company has delivered to DoveBid a complete and correct copy of the
most recent Internal Revenue Service determination letter with respect to each
Company 401(a) Plan.
2.15.6 Section 2.15.6 to the Company Disclosure Schedule lists each
employment, severance or other similar contract, arrangement or policy and each
plan or arrangement (written or oral) providing for insurance coverage
(including any self-insured arrangements), workers' benefits, vacation benefits,
severance benefits, disability benefits, death benefits, hospitalization
benefits, retirement benefits, deferred compensation, profit-sharing, bonuses
and all forms of incentive compensation or post-retirement insurance,
compensation or benefits for employees, consultants or directors which (A) is
not a Company Employee Plan, (B) is entered into, maintained or contributed to,
as the case may be, by the Company and (C) covers any employee or former
employee of the Company. Such contracts, plans and arrangements as are
described in this Section 2.15.6 are herein referred to collectively as the
"Company Benefit Arrangements." Each Company Benefit Arrangement has been
maintained in substantial compliance with its terms and with the requirements
prescribed by any and all statutes, orders, rules and regulations which are
applicable to such Company Benefit Arrangement. The Company has delivered to
DoveBid a complete and correct copy or description of each Company Benefit
Arrangement.
2.15.7 There has been no amendment to, written interpretation or
announcement (whether or not written) by the Company relating to, or change in
employee participation or
<PAGE>
coverage under, any Company Employee Plan or Company Benefit Arrangement that
would increase the expense of maintaining such Company Employee Plan or Company
Benefit Arrangement above the level of the expense incurred in respect thereof
since the date of the Balance Sheet.
2.15.8 The Company has provided, or will have provided prior to the
Closing, to individuals entitled thereto all required notices and coverage
pursuant to Section 4980B of the Code and the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended ("COBRA"), with respect to any
"qualifying event" (as defined in Section 4980B(f)(3) of the Code) occurring
prior to and including the Closing Date, and no tax payable on account of
Section 4980B of the Code has been incurred with respect to any current or
former employees (or their beneficiaries) of the Company.
2.15.9 No benefit payable or which may become payable by the
Company pursuant to any Company Employee Plan or any Company Benefit Arrangement
or as a result of or arising under this Agreement shall constitute an "excess
parachute payment" (as defined in Section 280G(b)(1) of the Code) which is
subject to the imposition of an excise tax under Section 4999 of the Code or
which would not be deductible by reason of Section 280G of the Code.
2.15.10 The Company is in compliance with all applicable laws,
agreements and contracts relating to employment, employment practices, wages,
hours, and terms and conditions of employment, including, but not limited to,
employee compensation matters, but not including ERISA.
2.15.11 No employee of the Company is in violation of any term of
any employment contract, patent disclosure agreement, noncompetition agreement,
or any other contract or agreement, or any restrictive covenant relating to the
right of any such employee to be employed thereby, or to use trade secrets or
proprietary information of others, and the employment of such employees does not
subject the Company to any liability.
2.15.12 A list of all employees, officers, directors and consultants
of the Company and their current compensation is set forth on Section 2.15.12 to
the Company Disclosure Schedule.
2.15.13 The Company is not a party to any (a) agreement with any
officer, director, shareholder or other employee thereof (i) the benefits of
which are contingent, or the terms of which are altered, upon the occurrence of
a transaction involving the Company in the nature of any of the transactions
contemplated by this Agreement, (ii) providing any term of employment or
compensation guarantee, or (iii) providing severance benefits or other benefits
after the termination of employment of such employee regardless of the reason
for such termination of employment, or (b) agreement or plan, any of the
benefits of which will be increased, or the vesting of benefits of which will be
accelerated, by the occurrence of any of the transactions contemplated by this
Agreement or the value of any of the benefits of which will be calculated on the
basis of any of the transactions contemplated by this Agreement.
<PAGE>
2.16 Company Documents. The Company has made available to DoveBid for
-----------------
examination true and complete copies of all documents and information listed in
the Company Disclosure Schedule or other exhibits called for by this Agreement
which has been requested by DoveBid and/or its legal counsel, including, without
limitation, the following: (a) copies of the Company' Articles of Incorporation,
bylaws and other governance documents as currently in effect; (b) all records of
all proceedings, consents, actions, and meetings of the shareholders, the board
of directors and any committees thereof; (c) its journal reflecting all equity
issuances and transfers; and (d) all permits, orders, and consents issued by any
regulatory agency with respect to the Company, or any securities of the Company,
and all applications for such permits, orders, and consents.
2.17 No Brokers. Neither the Company nor the Shareholders are or will be
----------
obligated for the payment of fees or expenses of any investment banker, broker
or finder in connection with the origin, negotiation or execution of this
Agreement or in connection with any transaction contemplated hereby.
2.18 Accounts Receivable. Subject to the reserves set forth on the
-------------------
Balance Sheets, if any, all accounts receivable of the Company set forth on the
Balance Sheets have arisen in the ordinary course of the Company's businesses,
represent valid, enforceable and fully collectible obligations due to the
Company, and have been and are not subject to any set-off, counterclaim or
future performance obligation on the part of the Company.
2.19 Books and Records.
-----------------
2.19.1 The books, records and accounts of the Company (a) are in
true, complete and correct, (b) have been maintained in accordance with good
business practices on a basis consistent with prior years, (c) are stated in
reasonable detail and accurately and fairly reflect the transactions and
dispositions of the assets of the Company, and (d) accurately and fairly reflect
the basis for the Financial Statements.
2.19.2 The Company has devised and maintain a system of internal
accounting controls sufficient to provide reasonable assurances that (a)
transactions are executed in accordance with management's general or specific
authorization, (b) transactions are recorded as necessary (i) to permit
preparation of financial statements in conformity with generally accepted
accounting principles or any other criteria applicable to such statements, and
(ii) to maintain accountability for assets, and (c) the amount recorded for
assets on the books and records of the Company is compared with the existing
assets at reasonable intervals and appropriate action is taken with respect to
any differences.
2.20 Insurance. The Company maintains and at all times during the prior
----------
three years have maintained policies of insurance and bonds of the type and in
amounts customarily carried by persons conducting businesses or owning assets
similar in type and size to those of Company, including all legally required
workers' compensation insurance and errors and omissions, casualty, fire and
general liability insurance. There is no claim pending under any of such
policies or bonds as to which coverage has been questioned, denied or disputed
by the underwriters of such policies or bonds. All premiums due and payable
under all such policies and bonds have been timely paid and the Company are
otherwise in compliance with the terms of
<PAGE>
such policies and bonds. The Company has no knowledge of any threatened
termination of, or premium increase with respect to, any of such policies. Prior
to the Closing, the Shareholders shall have obtained, and fully prepaid all
premiums associated with, "claims made" insurance for the Company for activities
of the Company prior to the Closing, which insurance shall be assignable to
DoveBid at the Closing, shall expire no earlier than the third anniversary of
the Closing and shall contain coverage that is customary for the Company's
industry and be reasonably acceptable to DoveBid. All policies of insurance now
held by the Company are set forth in Section 2.20 of the Company Disclosure
Letter, together with the name of the insurer under each policy, the type of
policy, the policy coverage amount and any applicable deductible.
2.21 Disclosure. Neither the Company Disclosure Schedule, this Agreement,
----------
its exhibits and schedules, nor any of the certificates or documents to be
delivered by the Company to DoveBid pursuant to this Agreement, taken together,
contains or will contain any untrue statement of a fact or omits or will omit to
state any fact necessary in order to make the statements contained herein and
therein, in light of the circumstances under which such statements were made,
not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF DOVEBID
Except as specifically set forth in the disclosure letter provided by
DoveBid to the Company simultaneously with the signing of this Agreement, dated
as of the date of this Agreement (the "DoveBid Disclosure Letter"), the parts of
which are numbered to correspond to the sections of this Agreement, DoveBid
hereby represents and warrants to the Company as follows:
3.1 Organization and Good Standing. DoveBid is a corporation duly
------------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware, and has the corporate power and authority to own, operate and lease
its properties and to carry on its business as now conducted and as proposed to
be conducted, and is qualified to conduct business in each jurisdiction in which
the character of the properties owned, leased or licensed by it or the nature of
such activities makes such qualification necessary except where the failure to
be qualified will not have a material adverse effect on the business, operations
or financial condition of DoveBid.
3.2 Power, Authorization and Validity.
---------------------------------
3.2.1 DoveBid has the corporate right, power and authority to enter
into and perform its obligations under this Agreement, and all agreements to
which DoveBid is or will be a party that are required to be executed pursuant to
this Agreement (the "DoveBid Ancillary Agreements"). The execution, delivery
and performance of this Agreement and the DoveBid Ancillary Agreements have been
duly and validly approved and authorized by DoveBid's Board of Directors. No
vote of the shareholders of DoveBid is required by the Certificate of
Incorporation, bylaws, other governing documents of DoveBid or applicable law
with respect to
<PAGE>
the due authorization and approval of this Agreement, the DoveBid Ancillary
Documents or the transactions contemplated hereby and thereby.
3.2.2 No filing, authorization or approval, governmental or
otherwise, is necessary to enable DoveBid to enter into, and to perform its
obligations under, this Agreement and the DoveBid Ancillary Agreements, except
for (a) the filing of appropriate documents with the relevant authorities of
California and Delaware and other states in which DoveBid is qualified to do
business, if any, and (b) such qualifications and filings as may be required to
comply with federal and state securities laws as may be required in connection
with the transactions contemplated by this Agreement. All such qualifications
and filings will, in the case of qualifications, be effective on the Closing,
and will, in the case of filings be made within the time prescribed by
applicable law.
3.2.3 This Agreement and the DoveBid Ancillary Agreements are, or
when executed by DoveBid will be, valid and binding obligations of DoveBid
enforceable against DoveBid in accordance with their respective terms, except as
to the effect, if any, of (a) applicable bankruptcy and other similar laws
affecting the rights of creditors generally, (b) rules of law governing specific
performance, injunctive relief and other equitable remedies and (c) the
enforceability of provisions requiring indemnification in connection with the
offering, issuance or sale of securities.
3.3 No Conflict. Neither the execution and delivery of this Agreement
-----------
nor any DoveBid Ancillary Agreement, nor the consummation of the transactions
contemplated hereby, will conflict with, or (with or without notice or lapse of
time, or both) result in a termination, breach, impairment or violation of (a)
any provision of the Articles of Incorporation or bylaws of DoveBid, as
currently in effect, (b) any instrument or contract to which DoveBid is a party
or by which DoveBid's assets or properties are bound or affected, or (c) any
federal, state, local or foreign judgment, writ, decree, order, statute, rule or
regulation applicable to DoveBid or its assets or properties. DoveBid has
received all necessary consents, waivers, approvals or releases of third parties
in connection with the consummation of the transactions contemplated hereunder.
3.4 Financial Condition. DoveBid has made available to the Company
-------------------
copies of: (a) DoveBid's unaudited consolidated balance sheet as of December 31,
1999 (the "DoveBid Balance Sheet") and (b) DoveBid's unaudited consolidated
income statement and statement of cash flows for the twelve months ended
December 31, 1999 (together, with the DoveBid Balance Sheet, the "DoveBid
Financial Statements"). The DoveBid Financial Statements (a) are in accordance
with the books and records of the Company at the date therein indicated and the
results of operations for the period therein specified. Since December 31, 1999,
there has not been any change in the financial condition, properties, assets,
liabilities, business or operations of DoveBid which change by itself or in
conjunction with all other such changes, whether or not arising in the ordinary
course of business, has had or will have a material adverse effect on the
business, operations or financial condition of DoveBid.
<PAGE>
ARTICLE IV
ADDITIONAL AGREEMENTS
4.1 Advice of Changes. During the period from the date of this Agreement
-----------------
until the earlier of the Closing or the termination of this Agreement, the
Company will promptly advise DoveBid in writing (a) of any event occurring
subsequent to the date of this Agreement that would render any representation or
warranty of the Company contained in this Agreement, if made on or as of the
date of such event or at the Closing untrue or inaccurate in any material
respect and (b) of any material adverse change in the Company's business,
prospects, results of operations or financial condition. The Company agrees to
cooperate with DoveBid's auditors in order to book financial entries in
accordance with GAAP and in a manner acceptable to DoveBid and its auditors.
4.2 Maintenance of Business. During the period from the date of this
-----------------------
Agreement until the earlier of the Closing or the termination of this Agreement,
the Company will use its best efforts to carry on and preserve its business and
its relationships with customers, suppliers, employees and others in
substantially the same manner as it has prior to the date hereof. If the
Company becomes aware of a material deterioration in the relationship with any
customer, supplier or key employee, it will promptly bring such information to
the attention of DoveBid in writing and, if requested by DoveBid, will exert its
best efforts to restore the relationship.
4.3 Conduct of Business. During the period from the date of this
-------------------
Agreement until the earlier of the Closing or the termination of this Agreement,
the Company will continue to conduct its business and maintain its business
relationships in the ordinary and usual course and will not, without the prior
written consent of an officer of DoveBid:
(a) borrow any money, or otherwise incur any indebtedness;
(b) enter into any transaction not in the ordinary course of
business;
(c) take positions in assets greater than $1,000,000 without
DoveBid's prior written consent, not to be unreasonably withheld;
(d) make any expenditure or sale of fixed or other non-current
assets in excess of $25,000 in the aggregate, outside the normal course of
business;
(e) encumber or permit to be encumbered any of its assets except
in the ordinary course of its business consistent with past practice and to an
extent that is not material to its business;
(f) dispose of any of its assets except in the ordinary course of
business consistent with past practice;
(g) enter into any material lease or contract for the purchase or
sale of any property, real or personal, except in the ordinary course of
business consistent with past practice;
<PAGE>
(h) fail to maintain its equipment and other assets in good
working condition and repair according to the standards it has maintained to the
date of this Agreement, subject only to ordinary wear and tear;
(i) fail to use its best efforts to maintain and preserve its
business organization intact, retain its present employees and maintain its
relationships and present agreements with suppliers, customers and others having
business relations with the Company, or fail to maintain its current debt and
lease instruments;
(j) pay any bonus, increased salary or special remuneration to
any officer, director, employee or consultant or enter into any new employment
or consulting agreement with any such person, except as set forth in Section
4.3(j) of the Company Disclosure Schedule;
(k) change accounting methods, policies or procedures;
(l) introduce any material new method of management or
operations;
(m) declare, set aside or pay any cash or stock dividend or other
distribution in respect of any equity interest, or redeem or otherwise acquire
any of its equity interests;
(n) amend or terminate any contract, agreement or license to
which it is a party, except those amended or terminated in the ordinary course
of business, consistent with past practice, and which are not material in amount
or effect;
(o) lend any amount to any person or entity, other than (i)
advances for travel and expenses which are incurred in the ordinary course of
business consistent with past practice, not material in amount and documented by
receipts for the claimed amounts or (ii) any loans pursuant to the Company
401(k) Plan;
(p) guarantee or act as a surety for any obligation, except for
the endorsement of checks and other negotiable instruments in the ordinary
course of business, consistent with past practice, which are not material in
amount;
(q) waive or release any material right or claim except in the
ordinary course of business, consistent with past practice;
(r) issue or sell any shares of its capital stock or any other of
its securities, or issue or create any warrants, obligations, subscriptions,
options, convertible securities, or other commitments to issue any securities,
or accelerate the vesting of any outstanding option or other security;
(s) split or combine its outstanding securities or enter into any
recapitalization affecting the number of shares outstanding or affecting any
other of its securities;
(t) merge, consolidate or reorganize with, or acquire any entity;
(u) amend its Articles of Incorporation, bylaws or any other
governance document;
<PAGE>
(v) license any of its technology or Intellectual Property Rights
except in the ordinary course of business consistent with past practice;
(w) agree to any audit assessment by any tax authority or file
any federal or state income or franchise tax return;
(x) change any insurance coverage or issue any certificates of
insurance; or
(y) agree to do any of the things described in the preceding
clauses 4.3(a) through 4.3(x).
4.4 Satisfaction of Conditions Precedent. From the date of this
------------------------------------
Agreement until the earlier of termination of this Agreement or the Closing, the
Company will use its best efforts to satisfy or cause to be satisfied all the
conditions precedent that are set forth in Article VI, and the Company will use
its best efforts to cause the transactions contemplated by this Agreement to be
consummated, and, without limiting the generality of the foregoing, to obtain
all consents and authorizations of third parties and to make all filings with,
and give all notices to, third parties that may be necessary or reasonably
required on its part in order to effect the transactions contemplated hereby.
4.5 Regulatory Approvals. DoveBid, the Company and each Shareholder will
--------------------
execute and file, or join in the execution and filing, of any application or
other document that may be necessary in order to obtain the authorization,
approval or consent of any governmental body, federal, state, local or foreign
that may be reasonably required, or that DoveBid may reasonably request, in
connection with the consummation of the transactions contemplated by this
Agreement. The Company and each Shareholder will use their best efforts to
obtain all such authorizations, approvals and consents.
4.6 Necessary Consents. The Company and each Shareholder will use their
------------------
best efforts to obtain such written consents and take such other actions as may
be necessary or appropriate in DoveBid's judgment to allow the consummation of
the transactions contemplated hereby and to allow DoveBid to carry on the
Company' business after the Closing.
4.7 Litigation. The Company will notify DoveBid in writing promptly
----------
after learning of any material actions, suits, proceedings or investigations by
or before any court, board or governmental agency, initiated by or against it,
or known by it to be threatened against it.
4.8 No Other Negotiations. From the date of this Agreement until the
---------------------
earlier of termination of this Agreement or the Closing, the Company and the
Shareholders will not, and will not authorize or permit any officer,
shareholder, director, employee, investment banker, attorney, agent,
representative or affiliate of the Company, or any other person or entity, on
its behalf to, directly or indirectly, solicit, initiate or encourage any offer
from any person or entity or consider any inquiries or proposals received from
any other person or entity, participate in any negotiations or discussions
regarding, furnish to any person or entity any information with respect to, or
enter into any agreement, commitment, letter of intent or understanding
concerning, the possible disposition of all or any substantial portion of the
Company's business, assets or equity interests by merger, sale or any other
means (other than the transactions contemplated hereby with DoveBid). The
Company will promptly and in any event within 24
<PAGE>
hours notify DoveBid orally and in writing of any such inquiry or proposal,
including the name of the persons making such proposal and all of the terms
thereof. Any violation of the restrictions set forth in this section by any
officer, director or employee of the Company or any investment banker, attorney
or other advisor or representative of the Company shall be deemed to be a breach
of this Section 4.8 by the Company.
4.9 Access to Information. From the date of this Agreement until the
---------------------
earlier of termination of this Agreement or the Closing, the Company will allow
DoveBid and its agents reasonable access the files, books, records and offices
of the Company, including, without limitation, any and all information relating
to the Company's taxes, commitments, contracts, leases, licenses, and real,
personal and intangible property and financial condition. The Company will
cause its accountants to cooperate with DoveBid and its agents in making
available all financial information reasonably requested, including without
limitation the right to examine all working papers pertaining to all financial
statements prepared or audited by such accountants.
4.10 Blue Sky Laws. From the date of this Agreement until the earlier of
-------------
termination of this Agreement or the Closing, the Company shall use its best
efforts to assist DoveBid to the extent necessary to comply with the securities
and Blue Sky laws of all jurisdictions that are applicable in connection with
the transactions contemplated herein.
4.11 Further Assurances. The Company, the Shareholders and DoveBid shall
------------------
each deliver or cause to be delivered to the other, at such other times and
places as shall be reasonably agreed, such additional instruments, and take such
additional actions as can be taken without unreasonable expense, as any other
may reasonably request for the purpose of carrying out this Agreement and the
transactions contemplated hereby. The Shareholders and the Company will
cooperate and use their reasonable efforts to have the present officers,
directors and employees of the Company cooperate with DoveBid on and after
Closing in furnishing information, evidence, testimony and other assistance in
connection with any tax return filing obligations, actions, proceedings,
arrangements or disputes of any nature with respect to matters pertaining to all
periods prior to Closing. Following the Closing, the Shareholders agree to
cooperate with DoveBid in terminating the Business Loan Agreement between the
Company and LaSalle Bank, N.A. dated as of January 18, 2000, and paying off all
amounts borrowed by the Company thereunder; provided, that the obligation to
fund such payoff shall be DoveBid's not the Shareholders.
ARTICLE V
CONDITIONS PRECEDENT TO OBLIGATIONS
OF THE SHAREHOLDERS AND THE COMPANIES
The obligations of the Shareholders and the Company with respect to actions
to be taken at Closing are subject to the satisfaction, or waiver by the
Shareholders, at or prior to Closing of all of the following conditions.
<PAGE>
5.1 Representations and Warranties; Covenants. The representations and
-----------------------------------------
warranties of DoveBid set forth in this Agreement shall be true and correct at
the Closing with the same effect as though such representations and warranties
had been made as of that time. The covenants set forth in this Agreement to be
performed by DoveBid at or before the Closing shall have been duly performed.
DoveBid shall have delivered to the Company a certificate to such effect dated
the Closing Date signed by an authorized officer of DoveBid.
5.2 Satisfaction. All actions, proceedings, instruments and documents
------------
required to carry out the transactions contemplated by this Agreement or
incidental hereto and all other related legal matters shall have been executed
by DoveBid and shall be acceptable to the Shareholders.
5.3 No Litigation. No action or proceeding before a court or any other
-------------
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the transactions contemplated herein and no governmental agency or
body shall have taken any other action or made any request of the Company as a
result of which the management of the Company deems it materially detrimental to
the Company to proceed with the transactions hereunder.
5.4 Consents and Approvals. All necessary consents of and filings with
----------------------
any governmental authority or agency relating to the consummation of the
transaction contemplated herein shall have been obtained and made and no action
or proceeding shall have been instituted or threatened to restrain or prohibit
the transactions contemplated herein.
5.5 Convertible Subordinated Promissory Note and Subordination
----------------------------------------------------------
Agreement. DoveBid shall have executed and delivered each Convertible
- ---------
Subordinated Promissory Note and the Subordination Agreement attached as Annex A
thereto.
5.6 Employment Agreement. DoveBid shall have executed and delivered to
--------------------
Ross J. Pollack an Employment Agreement in substantially the form of Exhibit C
---------
attached hereto ("Employment Agreement").
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF DOVEBID
The obligations of DoveBid with respect to actions to be taken at the
Closing are subject to the satisfaction, or waiver by DoveBid, at or prior to
the Closing of all of the following conditions.
6.1 Representations and Warranties; Covenants. The representations and
-----------------------------------------
warranties of the Shareholders and the Company set forth in this Agreement shall
be true and correct at the Closing with the same effect as though such
representations and warranties had been made as of that time. The covenants set
forth in this Agreement to be performed by the Shareholders and the Company on
or before the Closing shall have been duly performed. The Shareholders and the
Company shall have delivered to DoveBid a certificate to such effect dated the
Closing Date signed by each of the Shareholders and the President of the
Company.
<PAGE>
6.2 No Litigation. No action or proceeding before a court or any other
-------------
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the transactions contemplated herein and no governmental agency or
body shall have taken any other action or made any request of DoveBid as a
result of which the management of DoveBid deems it materially detrimental to
DoveBid to proceed with the transactions hereunder.
6.3 No Material Adverse Effect. No event or circumstance shall have
--------------------------
occurred between the execution of this Agreement and the Closing which would
constitute a material adverse effect on the Company's business, prospects,
financial condition or operating results; and DoveBid shall have received a
certificate to such effect dated the Closing Date signed by the Shareholders and
the President of the Company.
6.4 Satisfaction. All actions, proceedings, instruments and documents
------------
required to carry out the transactions contemplated by this Agreement or
incidental hereto and all other related legal matters shall have been executed
by the Company and shall be acceptable to DoveBid.
6.5 Consents and Approvals. All necessary consents of and filings with
----------------------
any governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made; the Company
shall have obtained and delivered to DoveBid such additional consents to the
transactions contemplated herein as DoveBid may reasonably request including,
without limitation, DoveBid's receipt on or prior to Closing of consents of
third parties listed in Section 2.5 of the Company Disclosure Schedule; and no
action or proceeding shall have been instituted or threatened to restrain or
prohibit the transactions contemplated herein.
6.6 Good Standing Certificate or Equivalent. DoveBid shall have received
---------------------------------------
evidence satisfactory to it that the Company is validly existing, in good
standing and authorized to do business and that all state franchise and/or
income tax returns and taxes due by the Company for all periods prior to the
Closing have been filed and paid. DoveBid's failure to require or receive such
evidence in no way vitiates or affects the Company's or the Shareholders'
representations and warranties regarding such matters and DoveBid's reliance on
such representations or warranties.
6.7 Convertible Subordinated Promissory Note and Subordination
----------------------------------------------------------
Agreement. Each Shareholder shall have executed and delivered to DoveBid his
- ---------
Convertible Subordinated Promissory Note and the Subordination Agreement
attached as Annex A thereto.
6.8 Employment Agreements. Ross J. Pollack shall have executed and
---------------------
delivered to DoveBid his Employment Agreement.
6.9 Release of Claims. DoveBid shall have received copies of a Release
-----------------
of Claims executed by each Shareholder in substantially the form of Exhibit D
attached hereto. ---------
6.10 Lease Matters. The lessor of the Company's Wheeling, Illinois
-------------
facility shall have consented to the assignment of the lease relating to the
premises from the Company to DoveBid.
<PAGE>
6.11 Insurance Matters. The Shareholders shall have obtained, and fully
-----------------
prepaid all premiums associated with, "claims made" insurance for the Company
for activities of the Company prior of the Closing that will be assigned to
DoveBid at the Closing, that expire no earlier than the third anniversary of the
Closing and that contain coverage that is customary for the Company's industry
and is reasonably acceptable to DoveBid.
6.12 Due Diligence. The results of DoveBid's due diligence review of the
-------------
Company's businesses, finances, practices and procedures shall be satisfactory
to DoveBid in its sole discretion.
6.13 Closing of DoveBid's Series C Financing. DoveBid shall have closed
---------------------------------------
the sale of shares of its Series C Preferred Stock to investors on terms
satisfactory to DoveBid in its sole discretion.
ARTICLE VII
TERMINATION
7.1 Right to Terminate. This Agreement may be terminated and the
------------------
transactions contemplated herein abandoned at any time prior to the Closing: (i)
by the mutual written consent of the parties hereto (which, for purposes of this
Article, DoveBid shall be considered one party and both Company and both
Shareholders collectively shall be considered one party); (ii) by either party,
if such party is not in material breach of any representation, warranty,
covenant or agreement contained in this Agreement, and such other party is in
material breach of any representation, warranty, covenant or agreement contained
in this Agreement and such breaching party fails to cure such material breach
within fifteen days after written notice of such material breach from the non-
breaching party; (iii) by either party, if there is a final nonappealable order
of a federal or state court in effect preventing consummation of the
transactions contemplated herein, or if any statute, rule, regulation or order
is enacted, promulgated or issued or deemed applicable to the transactions
contemplated herein by any governmental body that would make consummation of the
transactions contemplated herein illegal; or (iv) by either party if the
transactions contemplated herein have not occurred by March 2, 2000.
7.2 Termination Procedures. If either party wishes to terminate this
----------------------
Agreement pursuant to Section 7.1, such party shall deliver to the other party a
written notice stating that such party is terminating this Agreement and setting
forth a brief description of the basis of such termination. Termination of this
Agreement will be effective upon the receipt of such notice.
7.3 Continuing Obligations. Following any termination of this Agreement
----------------------
pursuant to this Article VII, the parties to this Agreement will continue to be
liable for breaches of this Agreement prior to such termination and will
continue to perform their respective obligations under Article IX. Except for
the continuing obligations set forth in the preceding sentence, the parties to
this Agreement will be without any further obligation or liability upon any
party in favor of the other party.
<PAGE>
ARTICLE VIII
SURVIVAL OF REPRESENTATIONS, INDEMNIFICATION AND REMEDIES
8.1 Survival of Representations. The representations, warranties,
---------------------------
covenants and agreements of DoveBid contained in this Agreement will remain
operative and in full force and effect, regardless of any investigation made by
or on behalf of the parties to this Agreement, until the earlier of the
termination of this Agreement or the Closing Date, whereupon such
representations, warranties, covenants and agreements will expire (except for
covenants that by their terms survive for a longer period). All
representations, warranties, covenants and agreements of the Company and the
Shareholders contained in this Agreement will remain operative and in full force
and effect from the date of this Agreement until the earlier of the termination
of this Agreement or the three year anniversary of the Closing, (except for
covenants that by their terms survive for a longer period, and for the
representations and warranties set forth in Sections 2.3 and 2.7, which shall
survive for the statute of limitations period applicable to any claim which
would constitute a breach thereof).
8.2 Agreement to Indemnify. Subject to the limitations set forth in this
----------------------
Article VIII, each of the Shareholders, jointly and severally, hereby indemnify
and hold harmless DoveBid and its officers, directors, agents and employees, and
each person, if any, who controls or may control DoveBid within the meaning of
the Securities Act (individually, a "DoveBid Indemnitee" and collectively,
"DoveBid Indemnitees") from and against any and all claims, demands, actions,
causes of actions, losses, costs, damages, liabilities and expenses including,
without limitation, reasonable legal fees and expenses ("Damages"):
(a) arising out of any misrepresentation, or breach of, or
default in connection with, any of the representations, warranties, covenants
and agreements given or made by the Company or any Shareholder in this Agreement
or any certificate, document or instrument delivered by or on behalf of the
Company or the Shareholders pursuant to this Agreement;
(b) resulting from any failure of any Shareholder to have good,
valid and marketable title to the issued and outstanding shares held by such
Shareholder, free and clear of Liens, or any claim by a current or former
shareholder, or any other person, firm, corporation or entity, seeking to assert
or based upon ownership or rights to ownership of equity interest of the Company
(or the Purchase Price), any rights of a shareholder of the Company, including
any options, or preemptive rights or rights to notice or to vote, any rights
under the Company's Articles of Incorporation, bylaws or other charter
documents, any right under any agreement among the Company and the Shareholders
or any claim that his or her equity interests or other securities were
wrongfully repurchased by the Company;
(c) in connection with a liability of the Company arising out of
any acts, events, omissions or transactions occurring prior to the Closing Date,
which liabilities were not disclosed to DoveBid in this Agreement or the Company
Disclosure Letter and were either known or should have been known by the
Shareholders at the time of the Closing, or any breach of any agreement entered
into by the Company or the Shareholders prior to the Closing;
<PAGE>
(d) resulting from any claim by any investment banker, broker,
finder or other agent in connection with the origin, negotiation or execution of
this Agreement or in connection with any transaction contemplated hereby; or
(e) arising out of the Rangen Litigation and/or the Default
Judgment.
The Shareholders agree that any Damages arising under Section 8.2(e)
above shall be an Uncontested Claim for the purposes of this Article VIII and
the Representative will be conclusively deemed to have consented, on behalf of
all Shareholders, to the recovery by the DoveBid Indemnitees of the full amount
of such Damages, including the offset of any such amount against the Judgment
Amount, provided that the recovery of such Damages shall not be limited to the
Judgment Amount.
A Dovebid Indemnitee shall not be entitled to indemnification
hereunder when the aggregate amount of Damages with respect to such Claim or
Claims, together with all prior Claims by any DoveBid Indemnitee, exceeds
$45,000 (the "Threshold Amount"), provided that once the aggregate of all Claims
exceed the Threshold Amount, all such Claims may be made without deducting the
Threshold Amount. The maximum aggregate liability of the Shareholder for Claims
for indemnification under this Article VIII shall not exceed the Purchase Price.
The obligation of indemnity shall terminate on the three-year anniversary of the
Closing Date; provided, that if, on or prior to such date, written notice of the
occurrence of a matter giving rise to a Claim is given by a DoveBid Indemnitee
or a suit or action is commenced against a Shareholder by a DoveBid Indemnitee,
the relevant DoveBid Indemnitee shall not be precluded from pursuing such Claim
or suit or action or from recovering from the Shareholder on the Claim, suit or
action by reason of the termination otherwise provided for above. The
limitations on indemnification set forth in this paragraph shall not apply to
the indemnification of Damages incurred by DoveBid with respect to the Rangen
Litigation and/or the Default Judgment.
8.3 Third Person Claims.
-------------------
8.3.1 Promptly after a DoveBid Indemnitee has received notice of or
has knowledge of any claim by a person not a party to this Agreement ("Third
Person"), or the commencement of any action or proceeding by a Third Person
(such claim or commencement of such action or proceeding being a "Third Person
Claim") that could give rise to a right of indemnification under this Agreement,
the DoveBid Indemnitee shall, as a condition precedent to a claim with respect
thereto being made against the Shareholders, give the Representative written
notice of such Third Person Claim describing in reasonable detail the nature of
such Third Person Claim, a copy of all papers served with respect to that Third
Person Claim (if any), an estimate of the amount of Damages attributable to the
Third Person Claim to the extent feasible (which estimate shall not be
conclusive of the final amount of such claim) and the basis for the DoveBid
Indemnitee's request for indemnification under this Agreement; provided,
however, that the failure of the DoveBid Indemnitee to give timely notice
hereunder shall relieve the Shareholders of their indemnification obligations
under this Agreement to the extent, but only to the extent that, such failure
materially prejudices the Shareholders' ability to defend such claim.
8.3.2 DoveBid shall defend any Third Person Claim, and the costs
and expenses incurred by DoveBid in connection with such defense (including but
not limited to reasonable
<PAGE>
attorneys' fees, other professionals' and experts' fees and court or arbitration
costs) shall be included in the Damages for which DoveBid may seek indemnity
pursuant to a Claim made by any DoveBid Indemnitee hereunder. If DoveBid fails
to defend such Third Person Claim, the Shareholders shall have the right to
assume the defense thereof. The Representative shall have the right to receive
copies of all pleadings, notices and communications with respect to the Third
Person Claim to the extent that receipt of such documents by the Representative
does not affect any privilege relating to the DoveBid Indemnitee, and may
participate in settlement negotiations with respect to the Third Person Claim.
No DoveBid Indemnitee shall enter into any settlement of a Third Person Claim
without the prior written consent of the Representative (which consent shall not
be unreasonably withheld), provided, that if the Representative shall have
consented in writing to any such settlement, then the Representative shall have
no power or authority to object to any Claim by any DoveBid Indemnitee for
indemnity under Article VIII for the amount of such settlement; and the
Shareholders will remain responsible to indemnify the DoveBid Indemnitee for all
Damages they may incur arising out of, resulting from or caused by the Third-
Party Claim to the fullest extent provided in Article VIII.
8.4 Representative. Each of the Shareholders approves the designation of
--------------
and designates the Representative as the representative of the Shareholders and
as the attorney-in-fact and agent for and on behalf of each Shareholder with
respect to the certification of Closing Stockholders' Equity under Section 1.4
hereof and claims for indemnification under this Article VIII and the taking by
the Representative of any and all actions and the making of any decisions
required or permitted to be taken by the Representative under this Agreement,
including, without limitation, the exercise of the power to: (a) agree to,
negotiate, enter into settlements and compromises of, demand arbitration of, and
comply with orders of courts and awards of arbitrators with respect to, such
claims; (b) arbitrate, resolve, settle or compromise any claim for indemnity
made pursuant to Article VIII; and (c) take all actions necessary in the
judgment of the Representative for the accomplishment of the foregoing. The
Representative will have authority and power to act on behalf of each
Shareholder with respect to the disposition, settlement or other handling of all
claims under Article VIII and all rights or obligations arising under Article
VIII. The Shareholders will be bound by all actions taken and documents executed
by the Representative in connection with Article VIII, and DoveBid will be
entitled to rely on any action or decision of the Representative. In performing
the functions specified in this Agreement, the Representative will not be liable
to any Shareholder in the absence of gross negligence or willful misconduct on
the part of the Representative. The Shareholders shall severally indemnify the
Representative and hold him harmless against any loss, liability or expense
incurred without gross negligence or willful misconduct on the part of the
Representative and arising out of or in connection with the acceptance or
administration of his duties hereunder. Any out-of-pocket costs and expenses
reasonably incurred by the Representative in connection with actions taken by
the Representative pursuant to the terms of Article VIII (including without
limitation the hiring of legal counsel and the incurring of legal fees and
costs) will be paid by the Shareholders to the Representative pro rata in
proportion to their respective percentage equity interests in the Company.
8.5 Notice of Claim. As used herein, the term "Claim" means a claim for
---------------
indemnification of a DoveBid Indemnitee for Damages under Article VIII. DoveBid
may give notice of a Claim under this Agreement whether for its own Damages or
for Damages incurred by any other DoveBid Indemnitee, and DoveBid will give
written notice of a Claim executed by
<PAGE>
an officer of DoveBid (a "Notice of Claim") to the Representative promptly after
DoveBid becomes aware of the existence of any potential claim by a DoveBid
Indemnitee Person for indemnity for Damages under Article VIII, including in
connection with any Third Person Claim .
8.6 Contents of Notice of Claim. Each Notice of Claim by DoveBid will
---------------------------
contain the following information:
(a) that DoveBid has incurred, paid or properly accrued (in
accordance with GAAP) or, in good faith, believes it will have to incur, pay or
accrue (in accordance with GAAP), Damages in an aggregate stated amount arising
from such Claim (which amount may be the amount of damages claimed by a third
party in an action brought against any DoveBid Indemnitee based on alleged
facts, which if true, would give rise to liability for Damages to such DoveBid
Indemnitee under Article VIII); and
(b) a brief description, in reasonable detail (to the extent
reasonably available to DoveBid), of the facts, circumstances or events giving
rise to the alleged Damages based on DoveBid's good faith belief thereof,
including, without limitation, the identity and address of any third-party
claimant (to the extent reasonably available to DoveBid) and copies of any
formal demand or complaint, the amount of Damages, the date each such item was
incurred, paid or properly accrued, or the basis for such anticipated liability,
and the specific nature of the breach to which such item is related.
8.7 Resolution of Notice of Claim. Any Notice of Claim received by the
-----------------------------
Representative will be resolved as follows:
(a) Uncontested Claims. In the event that, within fifteen
------------------
calendar days after a Notice of Claim is received by the Representative, the
Representative does not contest such Notice of Claim in writing to DoveBid (an
"Uncontested Claim"), the Representative will be conclusively deemed to have
consented, on behalf of all Shareholders, to the recovery by the DoveBid
Indemnitee of the full amount of Damages specified in the Notice of Claim in
accordance with this Article VIII, including the offset of any such amount
against the Deferred Payment or against amounts owed by DoveBid to the
Shareholders pursuant to the Convertible Promissory Notes or otherwise, and,
without further notice, to have stipulated to the entry of a final judgment for
damages against the Shareholders for such amount in any court having
jurisdiction over the matter where venue is proper.
(b) Contested Claims. In the event that the Representative gives
----------------
DoveBid written notice contesting all or any portion of a Notice of Claim (a
"Contested Claim") within the fifteen day period, then: (i) such Contested Claim
will be resolved by either (A) a written settlement agreement executed by
DoveBid and the Representative or (B) in the absence of such a written
settlement agreement, by binding arbitration between DoveBid and the
Representative in accordance with the terms and provisions of Section 8.7(c).
(c) Arbitration of Contested Claims. Each of DoveBid, and the
-------------------------------
Shareholders agree that any Contested Claim will be submitted to mandatory,
final and binding arbitration before J.A.M.S./ENDISPUTE or its successor
("J.A.M.S."), pursuant to the United States
<PAGE>
Arbitration Act, 9 U.S.C., Section 1 et seq. and that any such arbitration will
be conducted in San Mateo County, California. Either DoveBid or the
Representative may commence the arbitration process called for by this Agreement
by filing a written demand for arbitration with J.A.M.S. and giving a copy of
such demand to each of the other parties to this Agreement. The arbitration will
be conducted in accordance with the provisions of J.A.M.S.' Streamlined
Arbitration Rules and Procedures in effect at the time of filing of the demand
for arbitration, subject to the provisions of Section 8.7(c) of this Agreement.
The parties will cooperate with J.A.M.S. and with each other in promptly
selecting an arbitrator from J.A.M.S.' panel of neutrals, and in scheduling the
arbitration proceedings in order to fulfill the provisions, purposes and intent
of this Agreement. The parties covenant that they will participate in the
arbitration in good faith, and that they will share in its costs in accordance
with subparagraph (i) below. A Contested Claim finally resolved in favor of
DoveBid may be satisfied as if such Claim were an Uncontested Claim pursuant to
Section 8.7(a). The provisions of this Section 8.7(c) may be enforced by any
court of competent jurisdiction, and the party seeking enforcement will be
entitled to an award of all costs, fees and expenses, including attorneys' fees,
to be paid by the party against whom enforcement is ordered. Judgment upon the
award rendered by the arbitrator may be entered in any court having competent
jurisdiction.
(i) Payment of Costs. DoveBid on the one hand, and the
----------------
Shareholders (through the Representative), on the other hand, will bear the
expense of deposits and advances required by the arbitrator in equal
proportions, but either party may advance such amounts, subject to recovery as
an addition or offset to any award. The arbitrator shall determine the party who
is the Prevailing Party and the party who is the Non-Prevailing Party. The Non-
Prevailing Party shall pay all reasonable costs, fees and expenses related to
the arbitration, including reasonable fees and expenses of attorneys,
accountants and other professionals incurred by the prevailing party, the fees
of each arbitrator and the administrative fee of the arbitration proceedings. If
such an award would result in manifest injustice, however, the arbitrator may
apportion such costs, fees and expenses between the parties in such a manner as
the arbitrator deems just and equitable.
(ii) Burden of Proof. Except as may be otherwise expressly
---------------
provided herein, for any Contested Claim submitted to arbitration, the burden of
proof will be as it would be if the claim were litigated in a judicial
proceeding governed by California law exclusively.
(iii) Award. Upon the conclusion of any arbitration proceedings
-----
hereunder, the arbitrator will render findings of fact and conclusions of law
and a final written arbitration award setting forth the basis and reasons for
any decision reached (the "Final Award") and will deliver such documents to the
Representative and DoveBid, together with a signed copy of the Final Award. The
Final Award will constitute a conclusive determination of all issues in
question, binding upon the Shareholders, the Representative and DoveBid, and
will include an affirmative statement to such effect.
(iv) Timing. The Representative, DoveBid and the arbitrator will
------
conclude each arbitration pursuant to this Section 8.7 as promptly as possible
for the Contested Claim being arbitrated.
<PAGE>
(v) Terms of Arbitration. The arbitrator chosen in accordance
--------------------
with these provisions will not have the power to alter, amend or otherwise
affect the terms of these arbitration provisions or the provisions of this
Agreement.
ARTICLE IX
GENERAL
9.1 Confidentiality. The Company, the Shareholders and DoveBid each
---------------
recognize that they have received and will receive confidential information
concerning the other during the course of the negotiations and preparations of
this Agreement and the transactions contemplated herein. Accordingly, the
Company, the Shareholders and DoveBid each agree (a) to use their respective
best efforts to prevent the unauthorized disclosure of any confidential
information concerning the other that was or is disclosed during the course of
such negotiations and preparations, and is clearly designated in writing as
confidential at the time of disclosure, and (b) to not make use of or permit to
be used any such confidential information other than for the purpose of
effectuating the Closing and related transactions. The obligations of this
Section 9.1 will not apply to information that is required, in the opinion of
counsel to a party hereto, to be disclosed by statute, or governmental rule or
regulation, or, following the Closing, to the disclosure of information
regarding the Company by DoveBid. If this Agreement is terminated, all copies
of documents containing confidential information shall be returned by the
receiving party to the disclosing party. Because of the difficulty of measuring
economic losses as a result of the breach of the foregoing covenants in Section
9.1 and because of the immediate and irreparable damage that would be caused for
which they would have no other adequate remedy, the parties hereto agree that,
in the event of a breach by any of them of the foregoing covenants, the covenant
may be enforced against the other parties by injunctions and restraining orders.
9.2 Successors and Assigns. Neither the Company nor any Shareholder may
----------------------
assign any of its rights or obligations hereunder without the prior written
consent of DoveBid. DoveBid may not assign any of its rights or obligations
hereunder without the prior written consent of Shareholders holding not less
than a majority of the voting power in the Company, except that DoveBid may
assign its rights and obligations hereunder without the prior written consent of
any Shareholder in connection with a merger, consolidation or sale of all or
substantially all of DoveBid's assets or in connection with a reincorporation,
reorganization or other corporate recapitalization, provided that the acquiring
or surviving corporation or entity agrees to assume all of DoveBid's obligations
under this Agreement. This provision does not govern the assignment of the
Convertible Subordinated Promissory Notes, which shall be governed solely by the
provisions thereof. This Agreement will be binding upon and inure to the
benefit of the parties hereto and their respective successors and permitted
assigns.
9.3 Entire Agreement; Amendments. This Agreement (including the
----------------------------
schedules and exhibits attached hereto) and the documents delivered pursuant
hereto constitute the entire agreement and understanding among the Shareholders,
the Company and DoveBid and supersede any prior agreement, understanding or
discussions relating to DoveBid or the transactions contemplated by this
Agreement. Except as otherwise stated herein, this Agreement and the exhibits
hereto may be modified or amended only by a written instrument executed by the
<PAGE>
Shareholders, the Company and DoveBid, acting through their respective officers,
and duly authorized by each of their Board of Directors.
9.4 Counterparts. This Agreement may be executed simultaneously in two
------------
or more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same agreement.
9.5 Expenses; Taxes. DoveBid will pay the fees, expenses and
---------------
disbursements of DoveBid and its agents, representatives, accountants and
counsel incurred in connection with the subject matter of this Agreement and any
amendments thereto, including all costs and expenses incurred in the performance
and compliance with all conditions to be performed by DoveBid under this
Agreement. The Shareholders will pay their and the Company's respective fees,
expenses and disbursements of counsel and accountants incurred in connection
with the subject matter of this Agreement and any amendments thereto, including
all costs and expenses incurred in the performance and compliance with all
conditions to be performed by them under this Agreement, provided, however, that
DoveBid shall pay all reasonable costs incurred for the preparation of the
financial statements and report of independent certified public accountants
thereon with respect to the Company for the periods ended February 28, 1998,
February 28, 1999 and December 31, 1999 or otherwise required by DoveBid in
connection with any registration of DoveBid's securities pursuant to the
Securities Act. Any expenses of the Shareholders and the Company not paid by
the Shareholders at or prior to the Closing shall be treated as Damages under
Article VIII. The Shareholders shall pay all sales, use, transfer, real
property transfer, recording, gains, stock transfer and other similar taxes and
fees ("Transfer Taxes") incurred in connection with the transactions
contemplated by this Agreement. The Company shall file, and the Shareholders
shall cause the Company to file, all necessary documentation and tax returns
with respect to such Transfer Taxes. In addition, the Shareholders acknowledge
that they, and not DoveBid or the Company, will pay all taxes due upon the
receipt by the Shareholders of each element of the Purchase Price pursuant to
this Agreement.
9.6 Notices. All notices and other communications required or permitted
-------
hereunder shall be effective upon receipt (or refusal of receipt) and shall be
in writing and delivered by depositing the same in United States mail or a
nationally recognized overnight courier service, addressed to the party to be
notified, postage prepaid and registered or certified with return receipt
requested, by delivering the same in person to such party or to an officer or
agent of such party (or in the case of the Shareholders by facsimile), as
follows:
(i) If mailed or delivered to DoveBid, to each of the following,
using two separate mailings or deliveries:
DoveBid, Inc.
1241 East Hillsdale Blvd.
Foster City, CA 94404
Attn: Cory Ravid, Chief Financial Officer
<PAGE>
DoveBid, Inc.
1241 East Hillsdale Blvd.
Foster City, CA 94404
Attn: Anthony Capobianco, General Counsel
(ii) If mailed, delivered or faxed to the Representative, the
Company or the Shareholders, to:
Philip Pollack & Co., Inc.
9945 Capitol Drive
Wheeling, Illinois 60090-7206
Attn: Ross J. Pollack
Fax No.: (847) 520-0707
with a copy to:
Horwood Marcus & Berk Chartered
333 West Wacker Drive, Suite 2800
Chicago, IL 60606
Attn: Jeffrey A. Hechtman
Fax No.: (312) 606-3232
or to such other address (or in the case of the Shareholder's, the fax number)
as any party hereto shall specify in writing to the other parties hereto
pursuant to this Section 9.7 from time to time. Such notice shall be effective
only upon actual receipt.
9.7 Governing Law; Forum. This Agreement shall be governed by and
--------------------
construed in accordance with the laws of the State of California, without giving
effect to laws concerning choice of law or conflicts of law. Except as set
forth in Article VIII regarding the arbitration of Contested Claims, all
disputes arising out of this Agreement or the obligations of the parties
hereunder, including disputes that may arise following termination of this
Agreement, shall be subject to the exclusive jurisdiction and venue of the
California state courts of San Mateo County, California (or, if there is federal
jurisdiction, then the exclusive jurisdiction and venue of the United States
District Court having jurisdiction over San Mateo County). EACH PARTY HEREBY
IRREVOCABLY AND UNCONDITIONALLY CONSENTS TO THE PERSONAL AND EXCLUSIVE
JURISDICTION AND VENUE OF SAID COURTS AND WAIVES TRIAL BY JURY AND ANY OBJECTION
THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING
IN ANY SUCH COURT OR THAT SUCH ACTION OR PROCEEDING WAS BROUGHT IN AN
INCONVENIENT COURT AND AGREES NOT TO PLEAD OR CLAIM THE SAME. The non-
prevailing party in any such dispute shall pay all reasonable costs, fees and
expenses related to the dispute, including reasonable fees and expenses of
attorneys, accountants and other professionals incurred by the prevailing party
in such dispute.
<PAGE>
9.8 Exercise of Rights and Remedies. Except as otherwise provided
-------------------------------
herein, no delay of, or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power, or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
9.9 Time. Time is of the essence with respect to this Agreement.
----
9.10 Reformation and Severability. In case any provision of this
----------------------------
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
9.11 Remedies Cumulative. No right, remedy or election given by any term
-------------------
of this Agreement shall be deemed exclusive but each shall be cumulative with
all other rights, remedies and elections available at law, or in equity or by
contract.
9.12 Construction. This Agreement has been negotiated among DoveBid, the
------------
Company, the Shareholders and their respective legal counsel, and legal or
equitable principles that might require the construction of this Agreement or
any provision of this Agreement against the party drafting this Agreement will
not apply in any construction or interpretation of this Agreement.
9.13 Captions. The headings of this Agreement are inserted for
--------
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
[The Remainder Of This Page Intentionally Left Blank]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Stock Purchase
Agreement to be duly executed by the respective authorized representatives of
DoveBid and the Company and by each Shareholder as of the day and year first
above written.
DOVEBID, INC.
By: /s/ Anthony Capobianco
---------------------------------------
Name: Anthony Capobianco
Title: Vice President and General Counsel
PHILIP POLLACK & CO., INC.
By: /s/ Ross J. Pollack
----------------------------------------
Name: Ross J. Pollack
Title: President
/s/ Ross J. Pollack
-------------------------------------------
Ross J. Pollack
/s/ Philip Pollack
-------------------------------------------
Philip Pollack
<PAGE>
EXHIBIT 2.05
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this "Agreement") is made and entered into
as of March 2, 2000 by and among DoveBid, Inc., a Delaware corporation
("DoveBid"), Haltek Electronics d/b/a Test Lab Company, a California corporation
(the "Company"), the Manford and Audrey Trees Living Trust Dated March 3, 1980
(the "Trees Trust"), Manford J. Trees, Audrey Trees, the Michael P. Megown and
Darcy E. Megown Trust Dated November 7, 1995 (the "Megown Trust"), Michael
Megown and Darcy Megown (each of the Trees Trust and the Megown Trust
hereinafter individually referred to as a "Shareholder" and collectively
referred to as the "Shareholders", and each of Manford J. Trees, Audrey Trees,
Michael Megown and Darcy Megown hereinafter individually referred to as a
"Beneficiary" and collectively referred to as the "Beneficiaries").
The Trees Trust and the Megown Trust own beneficially and of record all of
the issued and outstanding capital stock of the Company.
DoveBid desires to purchase from the Shareholders, and each Shareholder
desires to sell to DoveBid, all shares of the capital stock of the Company owned
by the Shareholders (collectively, the "Shares") on the terms and conditions set
forth in this Agreement.
Now, therefore, the parties agree as follows:
ARTICLE I
STOCK SALE AND PURCHASE
1.1 Agreement to Sell and Purchase Stock. At the Closing, each
-------------------------------------
Shareholder shall sell, transfer and deliver to DoveBid, and DoveBid shall
purchase and accept from each Shareholder, all of the Shares owned by such
Shareholder, free and clear of all security interests, liens, pledges, charges,
escrows, options, rights of first refusal, mortgages, indentures, security
agreements or other claims, encumbrances, agreements, arrangements or
commitments of any kind or character (collectively, "Liens") in exchange for the
following aggregate consideration (the "Purchase Price"):
(i) cash in the amount of $6,750,000, payable at the Closing, of which
$5,084,542 shall be payable to the Trees Trust and $1,665,458 shall be payable
to the Megown Trust, which payments shall be subject to reduction in accordance
with Section 1.2 (the "Closing Payment"); and
(ii) cash in the amount of $250,000, payable 120 days following the
Closing Date, of which $188,316 shall be payable to the Trees Trust and $61,684
shall be payable to the Megown Trust (the "Deferred Payment"), which payments
shall be subject to offset pursuant to Section 1.4 and Article VIII.
<PAGE>
1.2 Purchase Price Adjustment. At the Closing, the Shareholders shall
-------------------------
deliver a balance sheet of the Company as of the business day immediately
preceding the date of the Closing (the "Closing Balance Sheet"), prepared in
accordance with United States Other Comprehensive Basis of Accounting ("OCBOA"),
consistently applied with prior periods, together with a detailed list of all
accrued expenses and liabilities of the Company as of the Closing Date (the
"Closing Liabilities Schedule"). In the event that the sum of (a) the aggregate
book value of stockholders' equity of the Company, determined in accordance with
OCBOA, consistently applied with prior periods, set forth on the Closing Balance
Sheet (such amount, the "Closing Stockholders' Equity") plus (b) an amount equal
to one-half of the total amount of state and federal income taxes in respect of
the Stub Period (as defined in Section 2.7) payable as calculated on the Income
Tax Schedule to the Closing Balance Sheet (the "Shareholders' Tax Deposit"), is
less than $3,017,632, the Closing Payment shall be reduced by one dollar for
each dollar that the sum of Closing Stockholders' Equity plus the Shareholders'
Tax Deposit is less than $3,017,632. In the event that the aggregate book value
of the inventory of the Company, determined in accordance with OCBOA,
consistently applied with prior periods, set forth on the Closing Balance Sheet
(such amount, the "Closing Inventory") is less than $2,724,658, the Closing
Payment shall be reduced by one dollar for each dollar that Closing Inventory is
less than the $2,724,658. In the event of any reduction in the Purchase Price,
the respective portions of the Closing Payment payable to the Shareholders shall
be proportionately reduced between them, and such reduced aggregate
consideration shall constitute the "Purchase Price" for all purposes under this
Agreement.
1.3 Closing. The purchase and sale of the Shares, and the consummation of
-------
the other transactions contemplated hereby (the "Closing"), will take place at
the offices of DoveBid at 1241 East Hillsdale Boulevard, Foster City, California
at 10:00 a.m. Pacific Time, on March 2, 2000 or, if all conditions to closing
have not been satisfied or waived by said date, at such other time and place as
DoveBid and Shareholders shall mutually agree upon. At the Closing, the
Shareholders will deliver to DoveBid certificates representing all of the
Shares, duly endorsed for transfer to DoveBid, against delivery to the
Shareholders by DoveBid of the Closing Payment. The date on which the Closing
occurs is referred to herein as the "Closing Date."
1.4 Taxes True-Up. If, upon preparation of the Company's federal and
-------------
state income tax returns for the Stub Period, DoveBid determines that the
Shareholders' Tax Deposit exceeded an amount equal to one-half of the total
amount of federal and state income taxes in respect of the Stub Period, DoveBid
shall promptly refund such difference to the Shareholders. If, upon preparation
of the Company's federal and state income tax returns for the Stub Period,
DoveBid determines that the Shareholders' Tax Deposit was less than an amount
equal to one-half of the total amount of state and federal income taxes in
respect of the Stub Period, DoveBid shall send a letter to the Shareholders'
requesting such difference, and the Shareholders agree to promptly pay in cash
such difference to DoveBid, or, in the event that the Deferred Payment has not
yet been made, to the offset of such difference against the Deferred Payment.
DoveBid agrees to make available to the Shareholders the federal and state
income tax returns of the Company in respect of the Stub Period, and to discuss
in good faith the calculations thereon, provided, that each party hereto agrees
that the preparation of such returns and final determination of all amounts
thereon shall be the sole right and responsibility of DoveBid.
<PAGE>
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF THE SHAREHOLDERS AND THE COMPANY
Except as specifically set forth in the disclosure letter provided by the
Shareholders and the Company to DoveBid simultaneously with the signing of this
Agreement, dated as of the date of this Agreement (the "Company Disclosure
Letter"), the parts of which are numbered to correspond to the sections of this
Agreement, each of the Shareholders and the Company hereby jointly and severally
represent and warrant to DoveBid as follows:
2.1 Organization and Good Standing. The Company is a corporation duly
------------------------------
organized, validly existing and in good standing under the laws of the State of
California, has the corporate power and authority to own, operate and lease its
properties and to carry on its business as now conducted and as proposed to be
conducted, and is qualified to conduct business in each jurisdiction in which
the character of the properties owned, leased or licensed by it or the nature of
such activities makes such qualification necessary.
2.2 Power, Authorization and Validity.
---------------------------------
2.2.1 The Company, each Shareholder and each Beneficiary has the
right, power, legal capacity and authority (corporate or trust) to enter into
and perform its obligations under this Agreement, and all agreements to which
the Company, such Shareholder or such Beneficiary is or will be a party that are
required to be executed pursuant to this Agreement (the "Ancillary Agreements").
The execution, delivery and performance of this Agreement and the Ancillary
Agreements have been duly and validly approved and authorized by the Company's
Board of Directors. No vote of the shareholders of the Company is required by
the Articles of Incorporation, bylaws, other governing documents of the Company
or applicable law with respect to the due authorization and approval of this
Agreement, the Ancillary Agreements or the transactions contemplated hereby or
thereby.
2.2.2 No filing, authorization or approval, governmental or
otherwise, is necessary to enable the Company, the Shareholders or the
Beneficiaries to enter into, and to perform their respective obligations under,
this Agreement and the Ancillary Agreements, except for such qualifications and
filings as may be required to comply with federal and state securities laws as
may be required in connection with the transactions contemplated by this
Agreement. All such qualifications and filings will, in the case of
qualifications, be effective on the Closing, and will, in the case of filings,
be made within the time prescribed below.
2.2.3 This Agreement and the Ancillary Agreements are, or when
executed by the Company, the Shareholders and the Beneficiaries will be, valid
and binding obligations of the Company, the Shareholders and the Beneficiaries
enforceable against the Company, the Shareholders and the Beneficiaries in
accordance with their respective terms, except as to the effect, if any, of (a)
applicable bankruptcy and other similar laws affecting the rights of creditors
generally, (b) rules of law governing specific performance, injunctive relief
and other equitable remedies and (c) the enforceability of provisions requiring
indemnification in connection with the offering, issuance or sale of securities.
<PAGE>
2.2.4 Trust Arrangements.
------------------
(a) Trust Instruments. The Trees Trust is a revocable trust duly
-----------------
created and validly existing under the laws of the State of California. The copy
of the Manford and Audrey Trees Declaration of Trust Dated March 3, 1980 (the
"Trees Trust Agreement") provided to DoveBid is a true and complete copy of the
currently effective operative trust agreement for the Trees Trust and remains in
full force and effect. No amendment, modification, restatement, termination or
revocation of the Trees Trust Agreement, in whole or in part, has been entered
into or has become effective since March 3, 1980. The name of the Trees Trust as
it appears on the signature page of this Agreement is the correct name of the
Trees Trust. The Megown Trust is a revocable trust duly created and validly
existing under the laws of the State of California. The copy of the Michael P.
Megown and Darcy E. Megown Declaration of Trust Dated November 7, 1995 (the
"Megown Trust Agreement") provided to DoveBid is a true and complete copy of the
currently effective operative trust agreement for the Megown Trust and remains
in full force and effect. No amendment, modification, restatement, termination
or revocation of the Megown Trust Agreement, in whole or in part, has been
entered into or has become effective since November 7, 1995. The name of the
Megown Trust as it appears on the signature page of this Agreement is the
correct name of the Megown Trust.
(b) Trustees. The authorized and acting co-trustees of the Trees Trust
--------
as of the date hereof are, and on the Closing Date will be, Manford J. Trees and
Audrey Trees (together, the "Trees Co-Trustees"). Neither Trees Co- Trustee has
resigned or become incapacitated. Each such Trees Co-Trustee is competent to act
as co-trustee of the Trees Trust and each such Trees Co-Trustee is authorized to
sign and deliver to DoveBid this Agreement and all Ancillary Agreements. The
authorized and acting co-trustees of the Megown Trust as of the date hereof are,
and on the Closing Date will be, Michael Megown and Darcy Megown (together, the
"Megown Co-Trustees"). Neither Megown Co-Trustee has resigned or become
incapacitated. Each such Megown Co-Trustee is competent to act as co-trustee of
the Megown Trust and each such Megown Co-Trustee is authorized to sign and
deliver to DoveBid this Agreement and all Ancillary Agreements.
(c) Trust Property. Each of the Trees Trust and the Megown Trust has
--------------
the power and authority to own the Shares described in Section 2.3 as being
owned by the Trees Trust and the Megown Trust, respectively. The Shares have
been duly contributed to the Trees Trust and the Megown Trust, respectively, and
constitute an asset of the Trees Trust and the Megown Trust, respectively, as of
the date hereof and will constitute an asset of the Trees Trust and the Megown
Trust, respectively, on the Closing Date.
(d) No Default. The Trees Co-Trustees are not in violation or default
----------
of any of the provisions of the Trees Trust Agreement, except for such
violations or defaults which would not prevent or delay the consummation of the
transactions contemplated by this Agreement and the performance and
enforceability of the obligations of the Company and the Trees Trust hereunder.
The terms of the Trees Trust have not and will not change or be amended by
virtue of execution of this Agreement, and the consummation of the transactions
contemplated hereby will not cause any change in, modification to or
acceleration of any of the terms of the Trees Trust Agreement. The Megown Co-
Trustees are not in violation or default of any of the provisions of the Megown
Trust Agreement, except for such violations or defaults
<PAGE>
which would not prevent or delay the consummation of the transactions
contemplated by this Agreement and the performance and enforceability of the
obligations of the Company and the Megown Trust hereunder. The terms of the
Megown Trust have not and will not change or be amended by virtue of execution
of this Agreement, and the consummation of the transactions contemplated hereby
will not cause any change in, modification to or acceleration of any of the
terms of the Megown Trust Agreement.
2.3 Capitalization. The authorized capital stock of the Company consists
--------------
entirely of 1,000,000 shares of common stock, of which a total of 267,494 are
issued and outstanding, and of which 201,494 are owned beneficially and of
record by the Trees Trust and 66,000 are owned beneficially and of record by the
Megown Trust, and no other entity or individual owns either beneficially or of
record, any other equity interest of the Company. On the date of this Agreement
each Shareholder has, and on the Closing Date each Shareholder will have, good
and marketable title to that number of shares of capital stock of the Company
set forth in this Section 2.3, free and clear of any and all Liens, which shares
do and shall constitute collectively all of the outstanding shares of the
Company's capital stock. On the date of this Agreement, there are no, and on
the Closing Date, there will be no, options, warrants, calls, commitments,
conversion privileges or preemptive or other rights or agreements outstanding to
purchase any of shares of the Company's capital stock or any securities
convertible into or exchangeable for shares of the Company's capital stock or
obligating the Company to grant, extend, or enter into any such option, warrant,
call, right, commitment, conversion privilege or other right or agreement.
There is no voting agreement, right of first refusal or other restriction (other
than normal restrictions on transfer under applicable federal and state
securities laws) applicable to any of the Company's outstanding securities.
Each share of each of the Company's capital stock has been duly authorized and
validly issued, is fully paid and nonassessable, is not subject to any right of
rescission, and has been offered, issued, sold and delivered by the Company in
compliance with all registration or qualification requirements (or applicable
exemptions therefrom) of applicable federal and state securities laws, other
laws, and requirements set forth in applicable agreements or instruments. The
Company is not under any obligation to register under the Securities Act, any of
its presently outstanding securities or any securities that may be subsequently
issued.
2.4 Subsidiaries. The Company does not have any subsidiaries or any
-------------
interest, direct or indirect, in any corporation, partnership, joint venture or
other business entity.
2.5 No Conflict. Neither the execution and delivery of this Agreement nor
-----------
any Ancillary Agreement, nor the consummation of the transactions contemplated
hereby, will conflict with, or (with or without notice or lapse of time, or
both) result in a termination, breach, default, impairment or violation of (a)
any provision of the Articles of Incorporation, bylaws or other governance
document of the Company, (b) any instrument or contract to which the Company,
any Shareholder or any Beneficiary is a party or by which the Company, the
Shareholder or a Beneficiary is a party, or any of the Company's, the
Shareholders' or the Beneficiaries' assets or properties are bound or affected,
or (c) any federal, state, local or foreign judgment, writ, decree, order,
statute, rule or regulation applicable to the Company, a Shareholder or a
Beneficiary or their respective assets or properties. The consummation of the
transactions contemplated by this Agreement does not and will not require the
consent, waiver, release or approval of any third party.
<PAGE>
2.6 Litigation. There is no action, proceeding, claim or investigation
-----------
pending against the Company before any court or administrative agency, nor has
any such action, proceeding, claim or investigation been threatened. There is
no reasonable basis for any shareholder or former shareholder of the Company, or
any other person, firm, corporation, or entity, to assert a claim against the
Company, any Shareholder or DoveBid based upon: (a) ownership or rights to
ownership of any shares or other ownership interest in the Company, (b) any
rights as a shareholder of the Company, including any option or preemptive
rights or rights to notice or to vote, or (c) any rights under any agreement
among the Company and its shareholders. There are no outstanding orders,
awards, judgments, injunctions, decrees or other requirements of any court,
arbitrator or governmental or regulatory body against the Company or its assets,
properties or securities.
2.7 Taxes. The Company has timely filed all federal, state, local and
-----
foreign tax returns required to be filed, has paid all taxes required to be paid
in respect of all periods for which returns have been filed, has established an
adequate accrual or reserve for the payment of all taxes, except taxes on income
payable in respect of the periods subsequent to the periods covered by the most
recent applicable tax returns through the Closing Date (the "Stub Period"), has
made all necessary estimated tax payments, and has no liability for taxes in
excess of the amount so paid or accruals or reserves so established, other than
taxes on income in respect of the Stub Period. All accruals or reserves for
taxes on the Closing Balance Sheet will be established in the ordinary course of
business and will be consistent with the Company's prior practices. The Company
is not delinquent in the payment of any tax or in the filing of any tax returns,
and no deficiencies for any tax have been threatened, claimed, proposed or
assessed. The Company has not received any notification from the Internal
Revenue Service or any other taxing authority regarding any material issues
that: (a) are currently pending before the Internal Revenue Service or any
other taxing authority (including but not limited to any sales or use tax
authority) regarding the Company or (b) have been raised by the Internal Revenue
Service or other taxing authority and not yet finally resolved. No tax return
of the Company has ever been audited by the Internal Revenue Service or any
state taxing agency or authority. There is not in effect any waiver by the
Company of any statute of limitations with respect to any taxes; and the Company
has not consented to extend to a date later than the date hereof the period in
which any tax may be assessed or collected by any taxing authority. The Company
is not a "personal holding company" within the meaning of the Internal Revenue
Code of 1986, as amended (the "Code"). The Company has not filed any election
under Section 341(f) of the Code. The Company has withheld with respect to each
of its employees and independent contractors all taxes, including but not
limited to federal and state income taxes, FICA, Medicare, FUTA and other taxes,
required to be withheld, and paid such withheld amounts to the appropriate tax
authority within the time prescribed by law. The Company has never made an
election under Section 1362 of the Code to be an S corporation within the
meaning of Sections 1361 and 1362 of the Code. For the purposes of this
Agreement, the terms "tax" and "taxes" include all federal, state, local and
foreign income, gains, franchise, excise, property, sales, use, employment,
license, payroll, occupation, recording, value added or transfer taxes,
governmental charges, fees, levies or assessments (whether payable directly or
by withholding), and, with respect to such taxes, any estimated tax, interest
and penalties or additions to tax and interest on such penalties and additions
to tax.
<PAGE>
2.8 Financial Statements. The Company has delivered to DoveBid, attached
--------------------
hereto as Exhibit A, copies of: (a) the Company's unaudited balance sheet as of
---------
December 31, 1999 (the "Balance Sheet") and (b) the Company's unaudited income
statements for the twelve months ended December 31, 1999 (together, with the
Balance Sheet and the Closing Balance Sheet, the "Financial Statements"). The
Financial Statements (a) are in accordance with the books and records of the
Company, (b) fairly present the financial condition of the Company at the dates
therein indicated, in the case of the Balance Sheet and Closing Balance Sheet,
and the results of operations for the period therein specified, in the case of
the income statements included in the Financial Statements, and (c) have been
prepared in accordance with OCBOA, applied on a consistent basis with prior
periods. Other than in respect of income taxes, the Company has no debt,
liability or obligation of any nature, whether accrued, absolute, contingent or
otherwise, and whether due or to become due, that is not reflected or reserved
against in the Financial Statements and the Closing Liabilities Schedule. As of
the date of this Agreement and as of the Closing Date, the Company's aggregate
indebtedness to Manford J. Trees, Audrey Trees and the Trees Trust ("Trees
Indebtedness") does not and will not exceed $792,203.84, and the Company has
provided to DoveBid each agreement and instrument evidencing any Trees
Indebtedness.
2.9 Title to Assets and Properties. The Company has good and marketable
-------------------------------
title to all of its assets as shown on the Balance Sheet and Closing Balance
Sheet, free and clear of all Liens (other than for taxes not yet due and
payable). All machinery and equipment included in such assets is in good
condition and repair, normal wear and tear excepted, and all leases of real or
personal property to which the Company is a party are fully effective and afford
the Company peaceful and undisturbed possession of the subject matter of the
lease. The Company is not in violation of any zoning, building, safety or
environmental ordinance, regulation or requirement or other law or regulation
applicable to the operation of owned or leased properties, or has received any
notice of violation with which it has not complied. Section 2.9 of the Company
Disclosure Letter sets forth a true and complete list of all property owned by
third parties and held by the Company for sale on consignment, none of which
appears on the Financial Statements as an asset of the Company.
2.10 Absence of Certain Changes. Since December 31, 1999, there has not
--------------------------
been with respect to the Company:
(a) any change in the financial condition, properties, assets,
liabilities, business or operations thereof which change by itself or in
conjunction with all other such changes, whether or not arising in the ordinary
course of business, has had or will have a material adverse effect thereon,
other than the payment of bonuses to officers;
(b) any contingent liability incurred thereby as guarantor or otherwise
with respect to the obligations of others;
(c) any mortgage, encumbrance or Lien placed on any of the properties
thereof;
(d) any material obligation or liability incurred thereby other than
obligations and liabilities incurred in the ordinary course of business in
individual amounts less than $25,000;
<PAGE>
(e) any purchase or sale or other disposition, or any agreement or
other arrangement for the purchase, sale or other disposition, of any of the
properties or assets thereof other than in the ordinary course of business in
individual amounts less than $25,000;
(f) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the properties, assets or business
thereof;
(g) any declaration, setting aside or payment of any dividend on, or
the making of any other distribution in respect of, the capital stock thereof,
any split, combination or recapitalization of the capital stock thereof or any
direct or indirect redemption, purchase or other acquisition of the membership
interests thereof;
(h) any labor dispute or claim of unfair labor practices, any change in
the compensation payable or to become payable to any of its non-officer
employees or agents, or any bonus payment or arrangement made to or with any of
such non-officer employees or agents;
(i) any change with respect to the management, supervisory or other key
personnel thereof;
(j) any payment or discharge of a material lien or liability thereof
which lien was not either shown on the Balance Sheet or incurred in the ordinary
course of business thereafter;
(k) any obligation or liability incurred thereby to any of its
officers, employees, shareholders, directors or agents or any loans or advances
made thereby to any of its officers, employees, shareholders, directors or
agents except normal compensation and expense allowances payable to officers and
employees, and obligations to the Company's attorneys and accountants incurred
in connection with transactions contemplated hereby;
(l) any amendment or change in the Articles of Incorporation, bylaws or
other governing documents of the Company; or
(m) any change in the accounting policies or procedures of the Company.
2.11 Contracts and Commitments. Section 2.11 of the Company Disclosure
-------------------------
Letter sets forth a list of each of the following oral or written contracts,
agreements, understandings and arrangements, a true and complete copy of each
(or, in the case of an oral agreement, a written summary of all of the material
terms of which) has been provided to DoveBid:
(a) Contract, agreement or other understanding or arrangement
providing for payments by or to the Company in an aggregate amount of $25,000 or
more in any year;
(b) Company IP Rights Agreement (as defined in Section 2.12), and
contract, license, agreement or other understanding or arrangement as licensor
or licensee;
(c) Contract, lease, license, agreement or other understanding or
arrangement for the lease of real or personal property;
<PAGE>
(d) Joint venture contract or arrangement or any other agreement
that involves or could involve a sharing of profits, expenses or losses with any
other party;
(e) Instrument evidencing or related in any way to indebtedness for
borrowed money by way of direct loan, sale of debt securities, purchase money
obligation, conditional sale, guarantee, or otherwise, except for trade
indebtedness incurred in the ordinary course of business and for no more than
$25,000 in amount, and except as disclosed in the Financial Statements;
(f) Contract, agreement or other understanding or arrangement
containing covenants purporting to limit the Company's freedom to compete in any
line of business in any geographic area, or which grants any exclusive rights or
obligations;
(g) Contract, agreement or other understanding or arrangement for
or relating to the employment of any officer, employee, contractor, or
consultant of the Company; or
(h) Any other agreement not specified above which is material to
the business of the Company.
All agreements, contracts, plans, leases, instruments, arrangements,
licenses and commitments identified in this Section 2.11 are valid and in full
force and effect. The Company is not, nor, to the knowledge of the Company, is
any other party thereto, in breach or default under the terms of any such
agreement, contract, plan, lease, instrument, arrangement, license or
commitment. The Company does not have any liability for renegotiation of
government contracts or subcontracts, if any.
2.12 Intellectual Property. The Company owns, or has a valid right to
---------------------
use, sell or license all Intellectual Property Rights (as defined below)
necessary or required for the conduct of business as presently conducted (such
Intellectual Property Rights being hereinafter collectively referred to as the
"Company IP Rights") and such rights to use, sell or license are sufficient for
the conduct of the Company's businesses as presently conducted. The execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby do not and will not constitute a breach of any
instrument or agreement governing or affecting any Company IP Rights (the
"Company IP Rights Agreements"), do not and will not cause the forfeiture or
termination or give rise to a right of forfeiture or termination of any Company
IP Right or impair the right of the Company to use, sell or license any Company
IP Right or portion thereof. There is no royalty, honoraria, fee or other
payment payable by the Company to any person by reason of the ownership, use,
license, sale or disposition of any Company IP Right (other than as set forth in
the Company IP Rights Agreements listed in Section 2.11 to the Company
Disclosure Schedule). Neither the manufacture, marketing, license, sale or
intended use of any product currently licensed or sold by the Company or
currently under development by the Company or the provision of any service
currently provided by the Company or currently planned to be provided by the
Company violates any license or agreement between the Company and any third
party or infringes any Intellectual Property Right of any other person or
entity; and there is no pending or threatened claim or litigation contesting the
validity, ownership or right to use, sell, license or dispose of any Company IP
Right nor is there any basis
<PAGE>
for any such claim, nor has the Company received any notice asserting that any
Company IP Right or the proposed use, sale, license or disposition thereof
conflicts, or will conflict, with the rights of any other person or entity, nor
is there any basis for any such assertion. Section 2.12 to the Company
Disclosure Schedule contains a list of all applications, registrations, filings
and other formal actions made or taken pursuant to federal, state and foreign
laws by the Company to perfect or protect its interest in Company IP Rights,
including, without limitation, all patents, patent applications, trademarks,
trademark applications, service marks, Internet domain names, Internet or World
Wide Web URLs or addresses. As used herein, the term "Intellectual Property
Rights" shall mean all worldwide industrial or intellectual property rights,
including, without limitation, patents, patent applications, patent rights,
trademarks, trademark applications, trade names, service marks, service mark
applications, Internet domain names, Internet or World Wide Web URLs or
addresses, copyright, copyright applications, franchises, licenses, inventories,
know-how, trade secrets, customer lists, proprietary processes and formulae, all
source and object code, algorithms, architecture, structure, display screens,
layouts, inventions, development tools and all documentation and media
constituting, describing or relating to the above, including, without
limitation, manuals, memoranda and records.
2.13 Compliance with Laws. The Company has complied, or prior to the
--------------------
Closing Date will have complied, and is or will be at the Closing in full
compliance with, all applicable laws, ordinances, regulations, and rules, and
all orders, writs, injunctions, awards, judgments, and decrees applicable to it
or to the assets, properties, and business thereof, including, without
limitation: (a) all applicable federal and state securities laws and
regulations, (b) all applicable federal, state, and local laws, ordinances,
regulations, and all orders, writs, injunctions, awards, judgments, and decrees
pertaining to (i) the sale, licensing, leasing, ownership, or management of its
owned, leased or licensed real or personal property, products and technical
data, (ii) employment and employment practices, terms and conditions of
employment, and wages and hours and (iii) safety, health, fire prevention,
environmental protection, hazardous materials, toxic waste disposal, building
standards, zoning and other similar matters, (c) the Export Administration Act
and regulations promulgated thereunder and all other laws, regulations, rules,
orders, writs, injunctions, judgments and decrees applicable to the export or
re-export of controlled commodities or technical data, and (d) the Immigration
Reform and Control Act. The Company has received all permits and approvals
from, and has made all filings with, third parties, including government
agencies and authorities, that are necessary in connection with its present
business. There are no legal or administrative proceedings or investigations
involving the Company pending or threatened before any governmental entity.
2.14 Certain Transactions and Agreements. None of the officers,
-----------------------------------
directors, shareholders or employees of the Company, nor any member of their
immediate families, has any direct or indirect ownership interest in any firm or
corporation that competes with the Company (except with respect to any interest
in less than one percent of the stock of any corporation whose stock is publicly
traded). None of said officers, directors, shareholders or employees, nor any
member of their immediate families, is directly or indirectly interested in any
contract or informal arrangement with the Company, except for (i) normal
compensation for services as an officer, director, shareholder or employee
thereof, and (ii) the Trees Indebtedness. None of said officers, directors,
shareholders or employees nor any member of their immediate families has any
interest in any property, real or personal, tangible or intangible, including
any Intellectual Property Rights, used in or pertaining to the business of the
Company, except for (i)
<PAGE>
the normal rights of a shareholder of the Company, and (ii) the Trees Trust owns
the real property, which it leases to the Company, in which the Company conducts
its business.
2.15. Employees, ERISA and Other Compliance.
-------------------------------------
2.15.1 The Company does not have any employment contract or
consulting agreement currently in effect that is not terminable at will (other
than agreements with the sole purpose of providing for the confidentiality of
proprietary information or assignment of inventions).
2.15.2 The Company (i) has not ever been nor are now subject to a
union organizing effort, (ii) is not subject to any collective bargaining
agreement with respect to any of its employees, (iii) is not subject to any
other contract, written or oral, with any trade or labor union, employees'
association or similar organization, or (iv) has no current labor disputes. The
Company has good labor relations, and has no knowledge of any facts indicating
that the consummation of the transactions contemplated hereby will have a
material adverse effect on such labor relations, and has no knowledge that any
of their key employees intends to leave its employ.
2.15.3 Section 2.15.1 to the Company Disclosure Schedule identifies
(i) each "employee benefit plan," as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and (ii) all other
written or formal plans or agreements involving direct or indirect compensation
or benefits (including any employment agreements entered into between the
Company and any employee of the Company, but excluding workers' compensation,
unemployment compensation and other government-mandated programs) currently or
previously maintained, contributed to or entered into by the Company under which
the Company or any ERISA Affiliate (as defined below) thereof has any present or
future obligation or liability (collectively, the "Company Employee Plans").
For purposes of this Section 2.15, "ERISA Affiliate" shall mean any entity which
is a member of (A) a "controlled group of corporations," as defined in Section
414(b) of the Code, (B) a group of entities under "common control," as defined
in Section 414(c) of the Code, or (C) an "affiliated service group," as defined
in Section 414(m) of the Code, or treasury regulations promulgated under Section
414(o) of the Code, any of which includes the Company. Copies of all Company
Employee Plans (and, if applicable, related trust agreements) and all amendments
thereto and written interpretations thereof (including summary plan
descriptions) have been delivered to DoveBid, together with the three most
recent annual reports (Form 5500, including, if applicable, Schedule B thereto)
prepared in connection with any such Company Employee Plan. All Company
Employee Plans which individually or collectively would constitute an "employee
pension benefit plan," as defined in Section 3(2) of ERISA (collectively, the
"Company Pension Plans"), are identified as such in Section 2.15.3 to the
Company Disclosure Schedule. All contributions due from the Company with
respect to any of the Company Employee Plans have been made as required under
ERISA or have been accrued on the Financial Statements. Each Company Employee
Plan has been maintained substantially in compliance with its terms and with the
requirements prescribed by any and all statutes, orders, rules and regulations,
including, without limitation, ERISA and the Code, which are applicable to such
Company Employee Plans.
<PAGE>
2.15.4 No Company Pension Plan constitutes, or has since the
enactment of ERISA constituted, a "multiemployer plan," as defined in Section
3(37) of ERISA. No Company Pension Plans are subject to Title IV of ERISA. No
"prohibited transaction," as defined in Section 406 of ERISA or Section 4975 of
the Code, has occurred with respect to any Company Employee Plan which is
covered by Title I of ERISA which would result in a liability to the Company,
excluding transactions effected pursuant to a statutory or administrative
exemption. Nothing done or omitted to be done and no transaction or holding of
any asset under or in connection with any Company Employee Plan has or will make
the Company or any officer or director of the Company subject to any liability
under Title I of ERISA or liable for any tax (as defined in Section 2.7 hereof)
or penalty pursuant to Sections 4972, 4975, 4976 or 4979 of the Code or Section
502 of ERISA.
2.15.5 Any Company Pension Plan which is intended to be qualified
under Section 401(a) of the Code (a "Company 401(a) Plan") is so qualified and
has been so qualified during the period from its adoption to date, and the trust
forming a part thereof is exempt from tax pursuant to Section 501(a) of the
Code. The Company has delivered to DoveBid a complete and correct copy of the
most recent Internal Revenue Service determination letter with respect to each
Company 401(a) Plan.
2.15.6 Section 2.15.6 to the Company Disclosure Schedule lists each
employment, severance or other similar contract, arrangement or policy and each
plan or arrangement (written or oral) providing for insurance coverage
(including any self-insured arrangements), workers' benefits, vacation benefits,
severance benefits, disability benefits, death benefits, hospitalization
benefits, retirement benefits, deferred compensation, profit-sharing, bonuses
and all forms of incentive compensation or post-retirement insurance,
compensation or benefits for employees, consultants or directors which (A) is
not a Company Employee Plan, (B) is entered into, maintained or contributed to,
as the case may be, by the Company and (C) covers any employee or former
employee of the Company. Such contracts, plans and arrangements as are
described in this Section 2.15.6 are herein referred to collectively as the
"Company Benefit Arrangements." Each Company Benefit Arrangement has been
maintained in substantial compliance with its terms and with the requirements
prescribed by any and all statutes, orders, rules and regulations which are
applicable to such Company Benefit Arrangement. The Company has delivered to
DoveBid a complete and correct copy or description of each Company Benefit
Arrangement.
2.15.7 There has been no amendment to, written interpretation or
announcement (whether or not written) by the Company relating to, or change in
employee participation or coverage under, any Company Employee Plan or Company
Benefit Arrangement that would increase the expense of maintaining such Company
Employee Plan or Company Benefit Arrangement above the level of the expense
incurred in respect thereof since the date of the Balance Sheet.
2.15.8 The Company has provided, or will have provided prior to the
Closing, to individuals entitled thereto all required notices and coverage
pursuant to Section 4980B of the Code and the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended ("COBRA"), with respect to any
"qualifying event" (as defined in Section 4980B(f)(3) of the Code) occurring
prior to and including the Closing Date, and no tax payable on account of
<PAGE>
Section 4980B of the Code has been incurred with respect to any current or
former employees (or their beneficiaries) of the Company.
2.15.9 No benefit payable or which may become payable by the Company
pursuant to any Company Employee Plan or any Company Benefit Arrangement or as a
result of or arising under this Agreement shall constitute an "excess parachute
payment" (as defined in Section 280G(b)(1) of the Code) which is subject to the
imposition of an excise tax under Section 4999 of the Code or which would not be
deductible by reason of Section 280G of the Code.
2.15.10 The Company is in compliance with all applicable laws,
agreements and contracts relating to employment, employment practices, wages,
hours, and terms and conditions of employment, including, but not limited to,
employee compensation matters, but not including ERISA.
2.15.11 No employee of the Company is in violation of any term of any
employment contract, patent disclosure agreement, noncompetition agreement, or
any other contract or agreement, or any restrictive covenant relating to the
right of any such employee to be employed thereby, or to use trade secrets or
proprietary information of others, and the employment of such employees does not
subject the Company to any liability.
2.15.12 A list of all employees, officers, directors and consultants
(other than the Company's attorneys and accountants) of the Company and their
current compensation is set forth on Section 2.15.12 to the Company Disclosure
Schedule.
2.15.13 The Company is not a party to any (a) agreement with any
officer, director, shareholder or other employee thereof (i) the benefits of
which are contingent, or the terms of which are altered, upon the occurrence of
a transaction involving the Company in the nature of any of the transactions
contemplated by this Agreement, (ii) providing any term of employment or
compensation guarantee, or (iii) providing severance benefits or other benefits
after the termination of employment of such employee regardless of the reason
for such termination of employment, or (b) agreement or plan, any of the
benefits of which will be increased, or the vesting of benefits of which will be
accelerated, by the occurrence of any of the transactions contemplated by this
Agreement or the value of any of the benefits of which will be calculated on the
basis of any of the transactions contemplated by this Agreement.
2.16 Company Documents. The Company has made available to DoveBid for
-----------------
examination true and complete copies of all documents and information listed in
the Company Disclosure Schedule or other exhibits called for by this Agreement
which has been requested by DoveBid and/or its legal counsel, including, without
limitation, the following: (a) copies of the Company's Articles of
Incorporation, bylaws and other governance documents as currently in effect; (b)
all records of all proceedings, consents, actions, and meetings of the
shareholders, the board of directors and any committees thereof; (c) its journal
reflecting all equity issuances and transfers; and (d) all permits, orders, and
consents issued by any regulatory agency with respect to the Company, or any
securities of the Company, and all applications for such permits, orders, and
consents.
<PAGE>
2.17 No Brokers. None of the Company, the Shareholders nor the
----------
Beneficiaries are or will be obligated for the payment of fees or expenses of
any investment banker, broker or finder in connection with the origin,
negotiation or execution of this Agreement or in connection with any transaction
contemplated hereby.
2.18 Accounts Receivable. Subject to the reserves set forth on the
-------------------
Balance Sheets, if any, all accounts receivable of the Company set forth on the
Balance Sheets have arisen in the ordinary course of the Company's businesses,
represent valid, enforceable and fully collectible obligations due to the
Company, and have been and are not subject to any set-off, counterclaim or
future performance obligation on the part of the Company.
2.19 Books and Records.
-----------------
2.19.1 The books, records and accounts of the Company (a) are in
true, complete and correct, (b) have been maintained in accordance with good
business practices on a basis consistent with prior years, (c) are stated in
reasonable detail and accurately and fairly reflect the transactions and
dispositions of the assets of the Company, and (d) accurately and fairly reflect
the basis for the Financial Statements on the basis of OCBOA.
2.19.2 The Company has devised and maintain a system of internal
accounting controls sufficient to provide reasonable assurances that (a)
transactions are executed in accordance with management's general or specific
authorization, and (b) transactions are recorded as necessary (i) to permit
preparation of financial statements in conformity with OCBOA, and (ii) to
maintain accountability for assets.
2.20 Insurance. The Company maintains and at all times during the prior
----------
three years has maintained policies of insurance of the type and in amounts
appropriate for the Company, including all legally required workers'
compensation insurance, casualty, fire and general liability insurance. There
is no claim pending under any of such policies as to which coverage has been
questioned, denied or disputed by the underwriters of such policies or bonds.
All premiums due and payable under all such policies and bonds have been timely
paid and the Company is otherwise in compliance with the terms of such policies
and bonds. The Company has no knowledge of any threatened termination of, or
premium increase with respect to, any of such policies. Prior to the Closing,
the Shareholders shall have obtained, and fully prepaid all premiums associated
with, "claims made" insurance for the Company for activities of the Company
prior to the Closing, which insurance shall name DoveBid as an additional
insured, which shall expire no earlier than the third anniversary of the Closing
and which shall contain coverage that is reasonably acceptable to DoveBid. All
policies of insurance now held by the Company are set forth in Section 2.20 of
the Company Disclosure Letter, together with the name of the insurer under each
policy, the type of policy, the policy coverage amount and any applicable
deductible. Any and all life insurance on any of the Shareholders shall be
cancelled as of the Closing Date.
2.21 Disclosure. Neither the Company Disclosure Schedule, this Agreement,
----------
its exhibits and schedules, nor any of the certificates or documents to be
delivered by the Company to DoveBid pursuant to this Agreement, taken together,
contains or will contain any untrue statement of a fact or omits or will omit to
state any fact necessary in order to make the
<PAGE>
statements contained herein and therein, in light of the circumstances under
which such statements were made, not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF DOVEBID
Except as specifically set forth in the disclosure letter provided by
DoveBid to the Company simultaneously with the signing of this Agreement, dated
as of the date of this Agreement (the "DoveBid Disclosure Letter"), the parts of
which are numbered to correspond to the sections of this Agreement, DoveBid
hereby represents and warrants to the Company as follows:
3.1 Organization and Good Standing. DoveBid is a corporation duly
------------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware, and has the corporate power and authority to own, operate and lease
its properties and to carry on its business as now conducted and as proposed to
be conducted.
3.2 Power, Authorization and Validity.
---------------------------------
3.2.1 DoveBid has the corporate right, power and authority to enter
into and perform its obligations under this Agreement, and all agreements to
which DoveBid is or will be a party that are required to be executed pursuant to
this Agreement (the "DoveBid Ancillary Agreements"). The execution, delivery
and performance of this Agreement and the DoveBid Ancillary Agreements have been
duly and validly approved and authorized by DoveBid's Board of Directors.
3.2.2 No filing, authorization or approval, governmental or
otherwise, is necessary to enable DoveBid to enter into, and to perform its
obligations under, this Agreement and the DoveBid Ancillary Agreements, except
for (a) the filing of appropriate documents with the relevant authorities of
California and Delaware and other states in which DoveBid is qualified to do
business, if any, and (b) such filings as may be required to comply with federal
and state securities laws.
3.2.3 This Agreement and the DoveBid Ancillary Agreements are, or
when executed by DoveBid will be, valid and binding obligations of DoveBid
enforceable against DoveBid in accordance with their respective terms, except as
to the effect, if any, of (a) applicable bankruptcy and other similar laws
affecting the rights of creditors generally, (b) rules of law governing specific
performance, injunctive relief and other equitable remedies and (c) the
enforceability of provisions requiring indemnification in connection with the
offering, issuance or sale of securities.
3.3 No Conflict. Neither the execution and delivery of this Agreement nor
-----------
any DoveBid Ancillary Agreement, nor the consummation of the transactions
contemplated hereby, will conflict with, or (with or without notice or lapse of
time, or both) result in a termination,
<PAGE>
breach, impairment or violation of (a) any provision of the Articles of
Incorporation or bylaws of DoveBid, as currently in effect, (b) any instrument
or contract to which DoveBid is a party or by which DoveBid's assets or
properties are bound or affected, or (c) any federal, state, local or foreign
judgment, writ, decree, order, statute, rule or regulation applicable to DoveBid
or its assets or properties.
ARTICLE IV
ADDITIONAL AGREEMENTS
4.1 Advice of Changes; Accounting Matters. During the period from the
-------------------------------------
date of this Agreement until the earlier of the Closing or the termination of
this Agreement, the Company will promptly advise DoveBid in writing (a) of any
event occurring subsequent to the date of this Agreement that would render any
representation or warranty of the Company contained in this Agreement, if made
on or as of the date of such event or at the Closing untrue or inaccurate in any
material respect and (b) of any material adverse change in the Company's
business, prospects, results of operations or financial condition. Promptly
following the execution of this Agreement and prior to the Closing, the Company
agrees to provide DoveBid and its auditors with detailed adjustments of the
Company's accounts to convert the financial entries therein from OCBOA basis to
United States generally accepted accounting principles ("GAAP") basis, together
with detailed written explanations of each such adjustment (such adjustments and
explanations, the "GAAP Adjustments").
4.2 Maintenance of Business. During the period from the date of this
-----------------------
Agreement until the earlier of the Closing or the termination of this Agreement,
the Company will use its best efforts to carry on and preserve its business and
its relationships with customers, suppliers, employees and others in
substantially the same manner as it has prior to the date hereof. If the
Company becomes aware of a material deterioration in the relationship with any
customer, supplier or key employee, it will promptly bring such information to
the attention of DoveBid in writing and, if requested by DoveBid, will exert its
best efforts to restore the relationship.
4.3 Conduct of Business. During the period from the date of this
-------------------
Agreement until the earlier of the Closing or the termination of this Agreement,
the Company will continue to conduct its business and maintain its business
relationships in the ordinary and usual course and will not, without the prior
written consent of an authorized officer of DoveBid:
(a) borrow any money or otherwise incur any indebtedness, other than
trade debt incurred in the ordinary course of business;
(b) except as otherwise contemplated hereby, enter into any
transaction not in the ordinary course of business;
(c) purchase or sell assets greater than $25,000 in aggregate value;
(d) [Intentionally omitted]
<PAGE>
(e) encumber or permit to be encumbered any of its assets except in
the ordinary course of its business consistent with past practice and to an
extent that is not material to its business;
(f) dispose of any of its assets except in the ordinary course of
business consistent with past practice;
(g) enter into any lease or contract for the purchase, sale or rental
of any property, real or personal, except in the ordinary course of business
consistent with past practice;
(h) fail to maintain its equipment and other assets in good working
condition and repair according to the standards it has maintained to the date of
this Agreement, subject only to ordinary wear and tear;
(i) fail to use its best efforts to maintain and preserve its business
organization intact, retain its present employees and maintain its relationships
and present agreements with suppliers, customers and others having business
relations with the Company, or fail to maintain its current debt and lease
instruments;
(j) pay any bonus, increased salary or special remuneration to any
non-officer employee or consultant or enter into any new employment or
consulting agreement with any such person, except as set forth in Section 4.3(j)
of the Company Disclosure Schedule (which disclosure may be updated by the
Company, but not within five business days prior to the Closing Date);
(k) change accounting methods, policies or procedures;
(l) introduce any material new method of management or operations;
(m) declare, set aside or pay any cash or stock dividend or other
distribution in respect of any equity interest, or redeem or otherwise acquire
any of its equity interests; provided, however, that the Company shall be
permitted to make distributions to the Shareholders which do not (i) cause a
reduction in the Closing Payment pursuant to Section 1.2, and (ii) reduce the
Company's Working Capital (as defined in Section 6.11) immediately prior to the
Closing below $850,000;
(n) amend or terminate any contract, agreement or license to which it
is a party, except those amended or terminated in the ordinary course of
business, consistent with past practice, and which are not material in amount or
effect;
(o) lend any amount to any person or entity, other than (i) advances
for travel and expenses which are incurred in the ordinary course of business
consistent with past practice, not material in amount and documented by receipts
for the claimed amounts or (ii) any loans pursuant to the Company 401(k) Plan;
(p) guarantee or act as a surety for any obligation, except for the
endorsement of checks and other negotiable instruments in the ordinary course of
business, consistent with past practice, which are not material in amount;
<PAGE>
(q) waive or release any material right or claim except in the
ordinary course of business, consistent with past practice;
(r) issue or sell any shares of its capital stock or any other of its
securities, or issue or create any warrants, obligations, subscriptions,
options, convertible securities, or other commitments to issue any securities,
or accelerate the vesting of any outstanding option or other security;
(s) split or combine its outstanding securities or enter into any
recapitalization affecting the number of shares outstanding or affecting any
other of its securities;
(t) merge, consolidate or reorganize with, or acquire any entity;
(u) amend its Articles of Incorporation, bylaws or any other
governance document;
(v) license any of its technology or Intellectual Property Rights
except in the ordinary course of business consistent with past practice;
(w) agree to any audit assessment by any tax authority or file any
federal or state income or franchise tax return;
(x) change any insurance coverage or issue any certificates of
insurance; provided, that the Company may redeem the current cash value of life
insurance policies in respect of Manford J. Trees, and pay the proceeds thereof
to the Shareholders or officers; or
(y) agree to do any of the things described in the preceding clauses
4.3(a) through 4.3(x), or take or fail to take any action which would cause a
representation or warranty of the Company to become untrue or inaccurate in any
material respect.
4.4 Payment of Accounts Receivable. Following the Closing, DoveBid agrees
------------------------------
to use its commercially reasonable efforts to collect outstanding accounts
receivable of the Company as of the Closing Date (such amounts, "Closing Company
Receivables"). On each successive two week anniversary of the Closing Date,
DoveBid agrees to pay to the Trees Trust in cash, all amounts received by
DoveBid or the Company during the prior two weeks in payment of Closing Company
Receivables until the aggregate amount of all such payments by DoveBid to the
Trees Trust equals the amount of Trees Indebtedness as of the Closing Date, plus
interest accrued under the notes evidencing the Trees Indebtedness. If, on the
one year anniversary of the Closing Date, the payments of Closing Company
Receivables have not satisfied the amount of Trees Indebtedness as of the
Closing Date, DoveBid shall promptly pay in full the remaining unpaid principal
and accrued interest of the Trees Indebtedness. Each of the Company, the Trees
Trust, Manford J. Trees and Audrey J. Trees hereby agree that (i) the provisions
of this Agreement regarding the satisfaction of the Trees Indebtedness supersede
and amend in all respects each and every instrument evidencing or regarding the
Trees Indebtedness, including, without limitation, the Secured Promissory Note
dated March 11, 1998 and the Promissory Note dated December 2, 1998, and that
the provisions thereof regarding the schedule of payments due thereunder and the
acceleration thereof are of no further force or effect, and (ii) the Security
<PAGE>
Agreement executed by the Company and the Trees Trust on March 18, 1998 (the
"Trees Security Agreement") is hereby terminated.
4.5 Regulatory Approvals. DoveBid, the Company and each Shareholder will
--------------------
execute and file, or join in the execution and filing, of any application or
other document that may be necessary in order to obtain the authorization,
approval or consent of any governmental body, federal, state, local or foreign
that may be reasonably required, or that DoveBid may reasonably request, in
connection with the consummation of the transactions contemplated by this
Agreement. The Company and each Shareholder will use their best efforts to
obtain all such authorizations, approvals and consents.
4.6 Necessary Consents. The Company and each Shareholder will use their
------------------
best efforts to obtain such written consents and take such other actions as may
be necessary or appropriate in DoveBid's judgment to allow the consummation of
the transactions contemplated hereby and to allow DoveBid to carry on the
Company's business after the Closing.
4.7 Litigation. The Company will notify DoveBid in writing promptly after
----------
learning of any material actions, suits, proceedings or investigations by or
before any court, board or governmental agency, initiated by or against it, or
known by it to be threatened against it.
4.8 No Other Negotiations. From the date of this Agreement until the
---------------------
earlier of termination of this Agreement or the Closing, none of the Company,
the Shareholders nor the Beneficiaries will, nor will they authorize or permit
any officer, shareholder, director, employee, investment banker, attorney,
agent, representative or affiliate of the Company, or any other person or
entity, on its behalf to, directly or indirectly, solicit, initiate or encourage
any offer from any person or entity or consider any inquiries or proposals
received from any other person or entity, participate in any negotiations or
discussions regarding, furnish to any person or entity any information with
respect to, or enter into any agreement, commitment, letter of intent or
understanding concerning, the possible disposition of all or any substantial
portion of the Company's business, assets or equity interests by merger, sale or
any other means (other than the transactions contemplated hereby with DoveBid).
The Company will promptly and in any event within 24 hours notify DoveBid orally
and in writing of any such inquiry or proposal, including the name of the
persons making such proposal and all of the terms thereof. Any violation of the
restrictions set forth in this section by any officer, director or employee of
the Company or any investment banker, attorney or other advisor or
representative of the Company shall be deemed to be a breach of this Section 4.8
by the Company.
4.9 Access to Information. From the date of this Agreement until the
---------------------
earlier of termination of this Agreement or the Closing, the Company will allow
DoveBid and its agents reasonable access the files, books, records and offices
of the Company, including, without limitation, any and all information relating
to the Company' taxes, commitments, contracts, leases, licenses, and real,
personal and intangible property and financial condition. The Company will
cause its accountants to cooperate with DoveBid and its agents in making
available all financial information reasonably requested, including without
limitation the right to examine all working papers pertaining to all financial
statements prepared or audited by such accountants.
<PAGE>
4.10 Satisfaction of Conditions Precedent. From the date of this
------------------------------------
Agreement until the earlier of termination of this Agreement or the Closing, the
Company will use its best efforts to satisfy or cause to be satisfied all the
conditions precedent that are set forth in Article VI, and the Company will use
its best efforts to cause the transactions contemplated by this Agreement to be
consummated, and, without limiting the generality of the foregoing, to obtain
all consents and authorizations of third parties and to make all filings with,
and give all notices to, third parties that may be necessary or reasonably
required on its part in order to effect the transactions contemplated hereby.
4.11 Further Assurances. The Company, the Shareholders, the Beneficiaries
------------------
and DoveBid shall each deliver or cause to be delivered to the other, at such
other times and places as shall be reasonably agreed, such additional
instruments, and take such additional actions as can be taken without
unreasonable expense, as any other may reasonably request for the purpose of
carrying out this Agreement and the transactions contemplated hereby. The
Shareholders, the Beneficiaries and the Company will cooperate and use their
reasonable efforts to have the present officers, directors and employees of the
Company cooperate with DoveBid on and after Closing in furnishing information,
evidence, testimony and other assistance in connection with any tax return
filing obligations, actions, proceedings, arrangements or disputes of any nature
with respect to matters pertaining to all periods prior to Closing.
4.12 Employee Vacation Accrual. Following the Closing, DoveBid agrees
-------------------------
that continuous service as an employee of the Company will be "tacked" to such
employees' service as employees of DoveBid in determining the vacation benefits
applicable to such employees under DoveBid's employee vacation policies.
4.13 Filing of UCC Termination Statement. Each of the Company and the
------------------------------------
Trees Trust shall execute all required termination statements of the UCC-1 filed
pursuant to the Trees Security Agreement.
ARTICLE V
CONDITIONS PRECEDENT TO OBLIGATIONS
OF THE SHAREHOLDERS, BENEFICIARIES AND THE COMPANY
The obligations of the Shareholders, Beneficiaries and the Company with
respect to actions to be taken at Closing are subject to the satisfaction or
waiver by DoveBid at or prior to Closing of all of the following conditions.
5.1 Representations and Warranties; Covenants. The representations and
-----------------------------------------
warranties of DoveBid set forth in this Agreement shall be true and correct at
the Closing with the same effect as though such representations and warranties
had been made as of that time. The covenants set forth in this Agreement to be
performed by DoveBid at or before the Closing shall have been duly performed.
DoveBid shall have delivered to the Company a certificate to such effect dated
the Closing Date signed by an authorized officer of DoveBid.
5.2 Satisfaction. All actions, proceedings, instruments and documents
------------
required to carry out the transactions contemplated by this Agreement or
incidental hereto and all other
<PAGE>
related legal matters shall have been executed by DoveBid and shall be
acceptable to the Shareholders.
5.3 No Litigation. No action or proceeding before a court or any other
-------------
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the transactions contemplated hereby.
5.4 Consents and Approvals. All necessary consents of and filings with
----------------------
any governmental authority or agency relating to the consummation of the
transaction contemplated herein shall have been obtained and made and no action
or proceeding shall have been instituted or threatened to restrain or prohibit
the transactions contemplated herein.
5.5 Employment Agreements. DoveBid shall have executed and delivered to
---------------------
Michael Megown an Employment Agreement in substantially the form of Exhibit B
---------
attached hereto (the "Employment Agreement").
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF DOVEBID
The obligations of DoveBid with respect to actions to be taken at the
Closing are subject to the satisfaction or waiver by DoveBid at or prior to the
Closing of all of the following conditions.
6.1 Representations and Warranties; Covenants. The representations and
-----------------------------------------
warranties of the Shareholders and the Company set forth in this Agreement shall
be true and correct at the Closing with the same effect as though such
representations and warranties had been made as of that time. The covenants set
forth in this Agreement to be performed by the Shareholders and the Company on
or before the Closing shall have been duly performed. The Shareholders and the
Company shall have delivered to DoveBid a certificate to such effect dated the
Closing Date signed by the Shareholders and the President of the Company.
6.2 No Litigation. No action or proceeding before a court or any other
-------------
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the transactions contemplated hereby.
6.3 No Material Adverse Effect. No event or circumstance shall have
--------------------------
occurred between the execution of this Agreement and the Closing which would
constitute a material adverse effect on the Company's business, prospects,
financial condition or operating results; and DoveBid shall have received a
certificate to such effect dated the Closing Date signed by the Shareholders and
the President of the Company.
6.4 Satisfaction. All actions, proceedings, instruments and documents
------------
required to carry out the transactions contemplated by this Agreement or
incidental hereto and all other related legal matters shall have been executed
by the Shareholders, the Beneficiaries and the Company and shall be acceptable
to DoveBid.
<PAGE>
6.5 Consents and Approvals. All necessary consents of and filings with
----------------------
any governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made; the Company
shall have obtained and delivered to DoveBid such additional consents to the
transactions contemplated herein as DoveBid may reasonably request including,
without limitation, DoveBid's receipt on or prior to Closing of consents of
third parties listed in Section 2.5 of the Company Disclosure Schedule; and no
action or proceeding shall have been instituted or threatened to restrain or
prohibit the transactions contemplated herein.
6.6 Good Standing Certificate or Equivalent. DoveBid shall have received
---------------------------------------
evidence satisfactory to it that the Company is validly existing, in good
standing and authorized to do business in California. DoveBid shall have
received a certificate dated the Closing Date signed by the Shareholders and the
President of the Company that all state franchise and/or income tax returns and
taxes due by the Company for all fiscal year periods prior to the Closing have
been filed and paid. DoveBid's failure to require or receive such evidence in
no way vitiates or affects the Company's or the Shareholders' representations
and warranties regarding such matters and DoveBid's reliance on such
representations or warranties.
6.7 Employment Agreements. Michael Megown shall have executed and
---------------------
delivered to DoveBid the Employment Agreement and the Confidentiality and
Employee Invention Assignment Agreement attached thereto.
6.8 Release of Claims. DoveBid shall have received copies of a Release of
-----------------
Claims executed by each Shareholder and each Beneficiary in substantially the
form of Exhibit C attached hereto.
---------
6.9 Lease Matters. DoveBid shall have executed a triple net lease of the
-------------
Company's facilities at 1066 and 1062 Linda Vista Avenue, Mountain View,
California having a term of two years at a fair market monthly rent not to
exceed $15,000 and $2812.50, respectively, and upon such other terms deemed
acceptable to DoveBid.
6.10 Insurance Matters. The Shareholders shall have obtained, and fully
-----------------
prepaid all premiums associated with, "claims made" insurance for the Company
for activities of the Company prior to the Closing, which insurance shall name
DoveBid as an additional insured, which shall expire no earlier than the third
anniversary of the Closing and which shall contain coverage that is reasonably
acceptable to DoveBid.
6.11 Working Capital; GAAP Adjustments. The Company shall have at least
---------------------------------
$850,000 in Working Capital, not less than $365,000 of which shall be cash, and
DoveBid shall have received a certificate to such effect dated the Closing Date
signed by the Shareholders and the President of the Company. "Working Capital"
means an amount equal to (x) the sum of (A) cash plus (B) accounts receivable,
minus (y) accounts payable and current other payables. DoveBid shall have
received the GAAP Adjustments.
6.12 SEP IRA. The Company shall have paid and satisfied in full all of
-------
its obligations under the Company's SEP IRA, and the Company shall have
terminated the SEP IRA.
<PAGE>
6.13 Due Diligence. The results of DoveBid's due diligence review of the
-------------
Company's businesses, finances, practices and procedures shall be satisfactory
to DoveBid in its sole discretion.
6.14 Closing of DoveBid's Series C Financing. DoveBid shall have closed
---------------------------------------
the sale of shares of its Series C Preferred Stock to investors on terms
satisfactory to DoveBid in its sole discretion.
6.15 UCC Termination Statements Each of the Company and the Trees Trust
--------------------------
shall have executed all required termination statements of the UCC-1 financing
statement filed pursuant to the Trees Security Agreement.
ARTICLE VII
TERMINATION
7.1 Right to Terminate. This Agreement may be terminated and the
------------------
transactions contemplated herein abandoned at any time prior to the Closing: (i)
by the mutual written consent of the parties hereto (which, for purposes of this
Article, DoveBid shall be considered one party and the Company, both
Shareholders and all Beneficiaries collectively shall be considered one party);
(ii) by either party, if such party is not in material breach of any
representation, warranty, covenant or agreement contained in this Agreement, and
such other party is in material breach of any representation, warranty, covenant
or agreement contained in this Agreement and such breaching party fails to cure
such material breach within fifteen days after written notice of such material
breach from the non-breaching party; (iii) by either party, if there is a final
nonappealable order of a federal or state court in effect preventing
consummation of the transactions contemplated herein, or if any statute, rule,
regulation or order is enacted, promulgated or issued or deemed applicable to
the transactions contemplated herein by any governmental body that would make
consummation of the transactions contemplated herein illegal; or (iv) by either
party if the transactions contemplated herein have not been consummated by March
3, 2000; provided, that if DoveBid believes, in good faith, that the filing of
its registration statement on Form S-1 will be delayed beyond DoveBid's current
expectations, DoveBid will so notify the Shareholders, and each of DoveBid, the
Shareholders and Beneficiaries shall proceed in good faith to agree upon an
appropriate later date.
7.2 Termination Procedures. If either party wishes to terminate this
----------------------
Agreement pursuant to Section 7.1, such party shall deliver to the other party a
written notice stating that such party is terminating this Agreement and setting
forth a brief description of the basis of such termination. Termination of this
Agreement will be effective upon the receipt of such notice if such notice
complies with the provisions of Section 7.1.
7.3 Continuing Obligations. Following any termination of this Agreement
----------------------
pursuant to this Article VII, the parties to this Agreement will continue to be
liable for breaches of this Agreement prior to such termination and will
continue to perform their respective obligations under Article IX. After
termination of this Agreement in accordance with this Article VII,
<PAGE>
except for the continuing obligations set forth in the preceding sentence, the
parties to this Agreement will be without any further obligation or liability
upon any party in favor of the other party.
ARTICLE VIII
SURVIVAL OF REPRESENTATIONS, INDEMNIFICATION AND REMEDIES
8.1 Survival of Representations. The representations, warranties,
---------------------------
covenants and agreements of DoveBid contained in this Agreement will remain
operative and in full force and effect, regardless of any investigation made by
or on behalf of the parties to this Agreement, until the earlier of the
termination of this Agreement or the Closing Date, whereupon such
representations, warranties, covenants and agreements will expire (except for
covenants that by their terms survive for a longer period). All
representations, warranties, covenants and agreements of the Company and the
Shareholders contained in this Agreement will remain operative and in full force
and effect from the date of this Agreement until the earlier of the termination
of this Agreement or the three year anniversary of the Closing (except for
covenants that by their terms survive for a longer or shorter period, and for
the representations and warranties set forth in Sections 2.3 and 2.7, which
shall survive for the statute of limitations period applicable to a claim which
would constitute a breach thereof).
8.2 Agreement to Indemnify. Subject to the limitations set forth in this
----------------------
Article VIII, each of the Shareholders and Beneficiaries, jointly and severally,
hereby indemnify and hold harmless DoveBid and its officers, directors, agents
and employees, and each person, if any, who controls or may control DoveBid
within the meaning of the Securities Act (individually, a "DoveBid Indemnitee"
and collectively, "DoveBid Indemnitees") from and against any and all claims,
demands, actions, causes of actions, losses, costs, damages, liabilities and
expenses including, without limitation, reasonable legal fees and expenses
("Damages"):
(a) arising out of any misrepresentation, or breach of, or default in
connection with, any of the representations, warranties, covenants and
agreements given or made by the Company, any Shareholder or any Beneficiary in
this Agreement or any certificate, document or instrument delivered by or on
behalf of the Company, a Shareholder or a Beneficiary pursuant to this
Agreement;
(b) resulting from any failure of any Shareholder to have good, valid
and marketable title to the issued and outstanding shares held by such
Shareholder, free and clear of Liens, or any claim by a current or former
shareholder, or any other person, firm, corporation or entity, seeking to assert
or based upon ownership or rights to ownership of equity interest of the Company
(or the Purchase Price), any rights of a shareholder of the Company, including
any options, or preemptive rights or rights to notice or to vote, any rights
under the Company's Articles of Incorporation, bylaws or other charter
documents, any right under any agreement among the Company and the Shareholders
or any claim that his or her equity interests or other securities were
wrongfully repurchased by the Company;
<PAGE>
(c) in connection with a liability of the Company arising out of any
acts, events, omissions or transactions occurring prior to the Closing Date,
which liabilities were not disclosed to DoveBid in this Agreement or the Company
Disclosure Letter and were either known or should have been known by the
Shareholders or Beneficiaries at the time of the Closing, or any breach of any
agreement entered into by the Company or the Shareholders prior to the Closing;
or
(d) resulting from any claim by any investment banker, broker, finder
or other agent claiming to represent or be the beneficiary of an agreement,
understanding or arrangement with the Company, Shareholders or Beneficiaries in
connection with the origin, negotiation or execution of this Agreement or in
connection with any transaction contemplated hereby.
8.3 Third Person Claims.
-------------------
8.3.1 Promptly after a DoveBid Indemnitee has received notice of or
has knowledge of any claim by a person not a party to this Agreement ("Third
Person"), or the commencement of any action or proceeding by a Third Person
(such claim or commencement of such action or proceeding being a "Third Person
Claim") that could give rise to a right of indemnification under this Agreement,
and before the DoveBid Indemnitee pays or settles any such claim, the DoveBid
Indemnitee shall give Manford J. Trees and Michael Megown, as representatives of
the Shareholders and Beneficiaries (the "Representatives"), written notice of
such Third Person Claim describing in reasonable detail the nature of such Third
Person Claim, a copy of all papers served with respect to that Third Person
Claim (if any), an estimate of the amount of damages attributable to the Third
Person Claim to the extent feasible (which estimate shall not be conclusive of
the final amount of such claim), the basis for the DoveBid Indemnitee's request
for indemnification under this Agreement, and whether DoveBid elects to defend
such claim or tender such claim to the Representatives; provided, however, that
the failure of the DoveBid Indemnitee to give timely notice hereunder shall
relieve the Shareholders and Beneficiaries of their indemnification obligations
under this Agreement to the extent, but only to the extent that, such failure
materially prejudices the defense of such claim.
8.3.2 In the event that DoveBid elects to defend such claim, DoveBid
shall defend, and the Representatives may, if they so elect by written notice
delivered to DoveBid within five business days of receiving notice of the Third
Person Claim, join in the defense of, any Third Person Claim, and if the
Representatives elect to join in such defense, and such defense is ultimately
unsuccessful, the Damages incurred by DoveBid in connection with such Third
Person Claim shall be treated as an Uncontested Claim hereunder. The costs and
expenses incurred by DoveBid in connection with such defense (including but not
limited to reasonable attorneys' fees, other professionals' and experts' fees
and court or arbitration costs) shall be included in the Damages for which
DoveBid may seek indemnity pursuant to a Claim (as defined in Section 8.5) made
by any DoveBid Indemnitee hereunder. The Representatives shall have the right
to receive copies of all pleadings, notices and communications with respect to
the Third Person Claim to the extent that receipt of such documents by the
Representatives do not affect any privilege relating to the DoveBid Indemnitee,
and may participate in settlement negotiations with respect to the Third Person
Claim. No DoveBid Indemnitee shall enter into any settlement of a Third Person
Claim without the prior written consent of the Representatives (which consent
shall not be unreasonably withheld); provided, that if the Representatives shall
have consented in
<PAGE>
writing to any such settlement, then the Representatives shall have no power or
authority to object to any Claim by any DoveBid Indemnitee for indemnity under
Article VIII for the amount of such settlement; such Claim shall be treated as
an Uncontested Claim hereunder, and the Shareholders and Beneficiaries will
remain responsible to indemnify the DoveBid Indemnitee for all Damages that may
be incurred arising out of, resulting from or caused by the Third Person Claim
to the fullest extent provided in Article VIII.
8.3.3 In the event that DoveBid elects to tender a Third Person Claim
to the Representatives, the Representatives shall defend such claim, and shall
have no power or authority to object to any Claim by any DoveBid Indemnitee for
indemnity under Article VIII for the amount of any Damages arising out of or in
connection with such Third Person Claim; such Claim shall be treated as an
Uncontested Claim hereunder, and the Shareholders and Beneficiaries will remain
responsible to indemnify the DoveBid Indemnitee for all Damages arising out of,
resulting from or caused by the Third Person Claim to the fullest extent
provided in Article VIII. The Representatives may not enter into any settlement
of a Third Person Claim tendered to the Representatives without the prior
written consent of DoveBid; provided, that the Representatives may settle such
claim without DoveBid's prior written consent if such settlement involves only
the payment of money damages by the Shareholders and Beneficiaries, and such
settlement provides for a complete release of all DoveBid Indemnitees from all
liabilities in connection with such Third Person Claim. DoveBid shall have the
right to receive copies of all pleadings, notices and communications with
respect to the tendered Third Person Claim, and the costs and expenses incurred
by DoveBid in connection with monitoring the Representatives' defense of such
claim shall be included in the Damages for which DoveBid shall receive
uncontested indemnity pursuant to this Section 8.3.3.
8.4 The Representatives. Each of the Shareholders and Beneficiaries
-------------------
approves the designation of and designates the Representatives as the
representatives of the Shareholders and Beneficiaries and as the attorneys-in-
fact and agents for and on behalf of each Shareholder and Beneficiary with
respect to claims for indemnification under this Article VIII and the taking by
the Representatives of any and all actions and the making of any decisions
required or permitted to be taken by the Representatives under this Agreement,
including, without limitation, the exercise of the power to: (a) agree to,
negotiate, enter into settlements and compromises of, demand arbitration of, and
comply with orders of courts and awards of arbitrators with respect to, such
claims; (b) arbitrate, resolve, settle or compromise any claim for indemnity
made pursuant to Article VIII; and (c) take all actions necessary in the
judgment of the Representatives for the accomplishment of the foregoing. The
Representatives will have authority and power to act on behalf of each
Shareholder and Beneficiary with respect to the disposition, settlement or other
handling of all claims under Article VIII and all rights or obligations arising
under Article VIII. The Shareholders and Beneficiaries will be bound by all
actions taken and documents executed by the Representatives in connection with
Article VIII, and DoveBid will be entitled to rely on any action or decision of
the Representatives. In performing the functions specified in this Agreement,
the Representatives, in their capacity as such, will not be liable to any
Shareholder and Beneficiary in the absence of gross negligence or willful
misconduct on the part of the Representatives. The Shareholders and
Beneficiaries shall severally indemnify the Representatives and hold each of
them harmless against any loss, liability or expense incurred without gross
negligence or willful misconduct on the part of the Representatives and arising
out
<PAGE>
of or in connection with the acceptance or administration of their duties
hereunder. Any out-of-pocket costs and expenses reasonably incurred by the
Representatives in connection with actions taken by the Representatives pursuant
to the terms of Article VIII (including without limitation the hiring of legal
counsel and the incurring of legal fees and costs) will be paid by the
Shareholders to the Representatives pro rata in proportion to their respective
percentage equity interests in the Company.
8.5 Notice of Claim. As used herein, the term "Claim" means a claim for
---------------
indemnification of a DoveBid Indemnitee for Damages under Article VIII. DoveBid
may give notice of a Claim under this Agreement whether for its own Damages or
for Damages incurred by any other DoveBid Indemnitee, and DoveBid will give
written notice of a Claim executed by an officer of DoveBid (a "Notice of
Claim") to the Representatives promptly after DoveBid becomes aware of the
existence of any potential claim by a DoveBid Indemnitee for indemnity for
Damages under Article VIII, including in connection with any Third Person Claim.
In the event that DoveBid has delivered to the Representatives one or more
Notices of Claim on or prior to the date on which the Deferred Payment is due to
be paid, any amounts claimed as Damages in such Notice(s) of Claim shall be
withheld from the Deferred Payment until final resolution of the Claims
specified therein in accordance with this Article VIII.
8.6 Contents of Notice of Claim. Each Notice of Claim by DoveBid will
---------------------------
contain the following information:
(a) that DoveBid has incurred, paid or properly accrued (in accordance
with GAAP) or, in good faith, believes it will have to incur, pay or accrue (in
accordance with GAAP), Damages in an aggregate stated amount arising from such
Claim (which amount may be the amount of damages claimed by a third party in an
action brought against any DoveBid Indemnitee based on alleged facts, which if
true, would give rise to liability for Damages to such DoveBid Indemnitee under
Article VIII); and
(b) a brief description, in reasonable detail (to the extent
reasonably available to DoveBid), of the facts, circumstances or events giving
rise to the alleged Damages based on DoveBid's good faith belief thereof,
including, without limitation, the identity and address of any third-party
claimant (to the extent reasonably available to DoveBid) and copies of any
formal demand or complaint, the amount of Damages, the date each such item was
incurred, paid or properly accrued, or the basis for such anticipated liability,
and the specific nature of the breach to which such item is related.
8.7 Resolution of Notice of Claim. Any Notice of Claim received by the
-----------------------------
Representative will be resolved as follows:
(a) Uncontested Claims. In the event that, within fifteen calendar
------------------
days after a Notice of Claim is received by the Representative, the
Representatives do not contest such Notice of Claim in writing to DoveBid (an
"Uncontested Claim"), the Representatives will be conclusively deemed to have
consented, on behalf of all Shareholders and Beneficiaries, to the recovery by
the DoveBid Indemnitee of the full amount of Damages specified in the Notice of
Claim in accordance with this Article VIII, including the offset of any such
amounts against the Deferred Payment, and, without further notice, to have
stipulated to the entry of a final judgment
<PAGE>
for damages against the Shareholders and Beneficiaries for such amount in any
court having jurisdiction over the matter where venue is proper. However,
Damages shall not be limited to the amounts of the Deferred Payment.
(b) Contested Claims. In the event that the Representatives give
----------------
DoveBid written notice contesting all or any portion of a Notice of Claim (a
"Contested Claim") within the fifteen day period, then: (i) such Contested Claim
will be resolved by either (A) a written settlement agreement executed by
DoveBid and the Representatives or (B) in the absence of such a written
settlement agreement, by binding arbitration between DoveBid and the
Representatives in accordance with the terms and provisions of Section 8.7(c).
(c) Arbitration of Contested Claims. Each of DoveBid, the
-------------------------------
Shareholders and the Beneficiaries agree that any Contested Claim will be
submitted to mandatory, final and binding arbitration before J.A.M.S./ENDISPUTE
or its successor ("J.A.M.S."), pursuant to the United States Arbitration Act, 9
U.S.C., Section 1 et seq. and that any such arbitration will be conducted in San
Mateo County, California. Either DoveBid or the Representatives may commence
the arbitration process called for by this Agreement by filing a written demand
for arbitration with J.A.M.S. and giving a copy of such demand to each of the
other parties to this Agreement. The arbitration will be conducted in
accordance with the provisions of J.A.M.S' Streamlined Arbitration Rules and
Procedures in effect at the time of filing of the demand for arbitration,
subject to the provisions of Section 8.7(c) of this Agreement. The parties will
cooperate with J.A.M.S. and with each other in promptly selecting an arbitrator
from J.A.M.S.' panel of neutrals, and in scheduling the arbitration proceedings
in order to fulfill the provisions, purposes and intent of this Agreement. The
parties covenant that they will participate in the arbitration in good faith,
and that they will share in its costs in accordance with subparagraph (i) below.
A Contested Claim finally resolved in favor of DoveBid may be satisfied as if
such Claim were an Uncontested Claim pursuant to Section 8.7(a). The provisions
of this Section 8.7(c) may be enforced by any court of competent jurisdiction,
and the party seeking enforcement will be entitled to an award of all costs,
fees and expenses, including attorneys' fees, to be paid by the party against
whom enforcement is ordered. Judgment upon the award rendered by the arbitrator
may be entered in any court having competent jurisdiction.
(i) Payment of Costs. DoveBid on the one hand, and the Shareholders
----------------
and Beneficiaries (through the Representative), on the other hand, will bear the
expense of deposits and advances required by the arbitrator in equal
proportions, but either party may advance such amounts, subject to recovery as
an addition or offset to any award. The arbitrator shall determine the party
who is the Prevailing Party and the party who is the Non-Prevailing Party. The
Non-Prevailing Party shall pay all reasonable costs, fees and expenses related
to the arbitration, including reasonable fees and expenses of attorneys,
accountants and other professionals incurred by the prevailing party, but not
including the fees of each arbitrator and the administrative fee of the
arbitration proceedings, which shall be shared equally by DoveBid, on the one
hand, and the Shareholders and Beneficiaries, on the other hand. If such an
award would result in manifest injustice, however, the arbitrator may apportion
such costs, fees and expenses between the parties in such a manner as the
arbitrator deems just and equitable.
<PAGE>
(ii) Burden of Proof. Except as may be otherwise expressly provided
---------------
herein, for any Contested Claim submitted to arbitration, the burden of proof
will be as it would be if the claim were litigated in a judicial proceeding
governed by California law exclusively.
(iii) Award. Upon the conclusion of any arbitration proceedings
-----
hereunder, the arbitrator will render findings of fact and conclusions of law
and a final written arbitration award setting forth the basis and reasons for
any decision reached (the "Final Award") and will deliver such documents to the
Representatives and DoveBid, together with a signed copy of the Final Award.
The Final Award will constitute a conclusive determination of all issues in
question, binding upon the Shareholders, the Beneficiaries, the Representatives
and DoveBid, and will include an affirmative statement to such effect.
(iv) Timing. The Representatives, DoveBid and the arbitrator will
------
conclude each arbitration pursuant to this Section 8.7 as promptly as possible
for the Contested Claim being arbitrated.
(v) Terms of Arbitration. The arbitrator chosen in accordance with
--------------------
these provisions will not have the power to alter, amend or otherwise affect the
terms of these arbitration provisions or the provisions of this Agreement.
ARTICLE IX
GENERAL
9.1 Confidentiality. The Company, the Shareholders, the Beneficiaries and
---------------
DoveBid each recognize that they have received and will receive confidential
information concerning the other during the course of the negotiations and
preparations of this Agreement and the transactions contemplated herein.
Accordingly, the Company, the Shareholders, the Beneficiaries and DoveBid each
agree (a) to use their respective best efforts to prevent the unauthorized
disclosure of any confidential information concerning the other that was or is
disclosed during the course of such negotiations and preparations, and is
clearly designated in writing as confidential at the time of disclosure, and (b)
to not make use of or permit to be used any such confidential information other
than for the purpose of effectuating the Closing and related transactions. The
obligations of this Section 9.1 will not apply to information that is required,
in the opinion of counsel to a party hereto, to be disclosed by statute, or
governmental rule or regulation, or, following the Closing, to the disclosure of
information regarding the Company by DoveBid. If this Agreement is terminated,
all copies of documents containing confidential information shall be returned by
the receiving party to the disclosing party. Because of the difficulty of
measuring economic losses as a result of the breach of the foregoing covenants
in Section 9.1 and because of the immediate and irreparable damage that would be
caused for which they would have no other adequate remedy, the parties hereto
agree that, in the event of a breach by any of them of the foregoing covenants,
the covenant may be enforced against the other parties by injunctions and
restraining orders. DoveBid acknowledges that the disclosure of the pendency of
the transactions contemplated hereby to the employees of the Company, and the
legal, accounting and other professional advisors of the Company and the
Shareholders, provided that such disclosure was accompanied by appropriate
cautions regarding
<PAGE>
the confidentiality of such information, did not violate the provisions of this
Section 9.1. Any public announcement of this transaction shall be prepared by
DoveBid, and approved by the Shareholders prior to its release, which approval
shall not be unreasonably withheld or delayed.
9.2 Successors and Assigns. Neither the Company, any Shareholder nor any
----------------------
Beneficiary may assign any of its rights or obligations hereunder without the
prior written consent of DoveBid except by will or by the laws of descent and
distribution. DoveBid may not assign any of its rights or obligations hereunder
without the prior written consent of Shareholders holding not less than a
majority of the voting power in the Company, except that DoveBid may assign its
rights and obligations hereunder without the prior written consent of any
Shareholder in connection with a merger, consolidation or sale of all or
substantially all of DoveBid's assets or in connection with a reincorporation,
reorganization or other corporate recapitalization, provided that the acquiring
or surviving corporation or entity agrees to assume all of DoveBid's obligations
under this Agreement. Any purported assignment in violation of this section
shall be void. This Agreement will be binding upon and inure to the benefit of
the parties hereto and their respective successors and permitted assigns.
9.3 Entire Agreement; Amendments. This Agreement (including the schedules
----------------------------
and exhibits attached hereto) and the documents delivered pursuant hereto
constitute the entire agreement and understanding among the Shareholders, the
Beneficiaries, the Company and DoveBid and supersede any prior agreement,
understanding or discussions relating to DoveBid or the transactions
contemplated by this Agreement. Except as otherwise stated herein, this
Agreement and the exhibits hereto may be modified or amended only by a written
instrument executed by the Shareholders, the Beneficiaries, the Company and
DoveBid, acting through their respective officers, and duly authorized by each
of their Board of Directors (in the case of the Company and DoveBid).
9.4 Counterparts. This Agreement may be executed simultaneously in two or
------------
more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same agreement.
9.5 Expenses; Taxes. DoveBid will pay the fees, expenses and
---------------
disbursements of DoveBid and its agents, representatives, accountants and
counsel incurred in connection with the subject matter of this Agreement and any
amendments thereto, including all costs and expenses incurred in the performance
and compliance with all conditions to be performed by DoveBid under this
Agreement. The Shareholders or the Company will pay the Shareholders, the
Beneficiaries and the Company's respective fees, expenses and disbursements of
counsel and accountants incurred in connection with the subject matter of this
Agreement and any amendments thereto, including all costs and expenses incurred
in the performance and compliance with all conditions to be performed by them
under this Agreement; provided, that all such amounts shall have been paid and
satisfied in full prior to the date of the Closing Balance Sheet. Any expenses
of the Shareholders, the Beneficiaries or the Company not paid by the
Shareholders prior to the Closing shall be treated as Damages under Article
VIII. The Shareholders acknowledge that they, and not DoveBid or the Company,
will pay all income taxes due upon the receipt by the Shareholders of each
element of the Purchase Price pursuant to this Agreement.
<PAGE>
9.6 Notices. All notices and other communications required or permitted
-------
hereunder shall be effective upon receipt (or refusal of receipt) and shall be
in writing and delivered by depositing the same in United States mail or a
nationally recognized overnight courier service, addressed to the party to be
notified, postage prepaid and registered or certified with return receipt
requested, by delivering the same in person to such party or to an officer or
agent of such party, as follows:
(i) If mailed or delivered to DoveBid, to each of the following,
using two separate mailings or deliveries:
DoveBid, Inc.
1241 East Hillsdale Blvd.
Foster City, CA 94404
Attn: Cory Ravid, Chief Financial Officer
DoveBid, Inc.
1241 East Hillsdale Blvd.
Foster City, CA 94404
Attn: Anthony Capobianco, General Counsel
(ii) If mailed or delivered to the Company, the Representatives,
the Shareholders or the Beneficiaries, to each of:
Mr. and Mrs. Manford J. Trees
148 Exbourne Avenue
San Carlos, CA 94070
Mr. and Mrs. Michael Megown
6870 Corte Munras
Pleasanton, CA 94566
James Hagan
Hagan, Saca & Hagan Law Corporation
350 Cambridge Avenue, Suite 150
Palo Alto, CA 94306
or to such other address as any party hereto shall specify in writing to the
other parties hereto pursuant to this Section 9.7 from time to time. Such
notice shall be effective only upon actual receipt.
9.7 Governing Law; Forum. This Agreement shall be governed by and
--------------------
construed in accordance with the laws of the State of California, without giving
effect to laws concerning choice of law or conflicts of law. Except as set
forth in Article VIII regarding the arbitration of Contested Claims, all
disputes arising out of this Agreement or the obligations of the parties
hereunder, including disputes that may arise following termination of this
Agreement, shall be
<PAGE>
subject to the exclusive jurisdiction and venue of the California state courts
of San Mateo County, California (or, if there is federal jurisdiction, then the
exclusive jurisdiction and venue of the United States District Court having
jurisdiction over San Mateo County). EACH PARTY HERETO HEREBY IRREVOCABLY AND
UNCONDITIONALLY CONSENTS TO THE PERSONAL AND EXCLUSIVE JURISDICTION AND VENUE OF
SAID COURTS AND ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF
ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT OR THAT SUCH ACTION OR
PROCEEDING WAS BROUGHT IN AN INCONVENIENT COURT AND AGREES NOT TO PLEAD OR CLAIM
THE SAME.
9.8 Exercise of Rights and Remedies. Except as otherwise provided herein,
-------------------------------
no delay of, or omission in the exercise of any right, power or remedy accruing
to any party as a result of any breach or default by any other party under this
Agreement shall impair any such right, power, or remedy, nor shall it be
construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
9.9 Time. Time is of the essence with respect to this Agreement.
----
9.10 Reformation and Severability. In case any provision of this
----------------------------
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
9.11 Remedies Cumulative. No right, remedy or election given by any term
-------------------
of this Agreement shall be deemed exclusive but each shall be cumulative with
all other rights, remedies and elections available at law, or in equity or by
contract.
9.12 Construction. This Agreement has been negotiated among DoveBid, the
------------
Company, the Shareholders, the Beneficiaries and their respective legal counsel,
and legal or equitable principles that might require the construction of this
Agreement or any provision of this Agreement against the party drafting this
Agreement will not apply in any construction or interpretation of this
Agreement.
9.13 Captions. The headings of this Agreement are inserted for
--------
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
[The Remainder Of This Page Intentionally Left Blank]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Stock Purchase
Agreement to be duly executed by the respective authorized representatives of
DoveBid and the Company and by each Shareholder and each Beneficiary as of the
day and year first above written.
DOVEBID, INC.
By: /s/ Anthony Capobianco
-------------------------------------
Anthony Capobianco
Vice President and General Counsel
HALTEK ELECTRONICS d/b/a TEST LAB COMPANY
By: /s/ Manford J. Trees
-------------------------------------
Name:
Title:
THE MANFORD AND AUDREY TREES LIVING TRUST
DATED MARCH 3, 1980
By: /s/ Manford J. Trees
--------------------------------------
Manford J. Trees, Trustee
By: /s/ Audrey Trees
--------------------------------------
Audrey Trees, Trustee
By: /s/ Manford J. Trees
-------------------------------------
Manford J. Trees
By: /s/ Audrey Trees
-------------------------------------
Audrey Trees
[First signature page to Stock Purchase Agreement]
<PAGE>
THE MICHAEL P. MEGOWN AND DARCY E. MEGOWN
TRUST DATED NOVEMBER 7, 1995
By: /s/ Michael Megown
--------------------------------
Michael Megown, Trustee
By: /s/ Darcy Megown
--------------------------------
Darcy Megown, Trustee
/s/ Michael Megown
--------------------------------
Michael Megown
/s/ Darcy Megown
--------------------------------
Darcy Megown
[Second signature page to Stock Purchase Agreement]
<PAGE>
EXHIBIT 2.06
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this "Agreement") is made and entered into
as of March 2, 2000 by and among DOVEBID VALUATION SERVICES, INC., a California
corporation ("DoveBid"), DOVEBID, INC., a Delaware corporation ("Dovebid, Inc.")
(each of Dovebid and Dovebid, Inc. hereinafter individually referred to as a
"Dovebid Company" and collectively referred to as the "Dovebid Companies"),
ACCUVAL ASSOCIATES, INCORPORATED, a Wisconsin corporation ("AccuVal"), LIQUITEC
INDUSTRIES, INCORPORATED, a Wisconsin corporation ("LiquiTec" and, together with
AccuVal, the "Companies"), DAVID S. GRONIK, JR. ("Gronik") and RICHARD E.
SCHMITT ("Schmitt") (each of Gronik and Schmitt hereinafter individually
referred to as a "Shareholder" and collectively referred to as the
"Shareholders").
BACKGROUND
Gronik and Schmitt own beneficially and of record all of the issued and
outstanding capital stock of each of the Companies.
DoveBid desires to purchase from the Shareholders, and each Shareholder
desires to sell to DoveBid, all shares of the capital stock of each of the
Companies owned by the Shareholders (collectively, the "Shares") on the terms
and conditions set forth in this Agreement.
Now, therefore, the parties agree as follows:
ARTICLE I
STOCK SALE AND PURCHASE
1.1 Agreement to Sell and Purchase Stock. At the Closing, each
-------------------------------------
Shareholder shall sell, transfer and deliver to DoveBid, and DoveBid shall
purchase and accept from each Shareholder, all of the Shares owned by such
Shareholder, free and clear of all security interests, liens, pledges, charges,
escrows, options, rights of first refusal, mortgages, indentures, security
agreements or other claims, encumbrances, agreements, arrangements or
commitments of any kind or character (collectively, "Liens") in exchange for the
following aggregate consideration (the "Purchase Price"), which shall be subject
to reduction in accordance with Section 1.2:
(i) cash in the amount of $1,650,000, to be divided equally by the
Shareholders, and paid via wire transfer to the accounts designated in writing
by the Shareholders;
(ii) two promissory notes, one payable to Gronik and one payable to
Schmitt, each in the principal amount of $500,000, in the form attached hereto
as Exhibit A (each, a "Promissory Note"); and
---------
<PAGE>
(iii) two convertible subordinated promissory notes, one payable to
Gronik and one payable to Schmitt, each in the principal amount of $1,425,000,
in the form attached hereto as Exhibit B (each, a "Convertible Subordinated
---------
Promissory Note").
1.2 Purchase Price Adjustment. At the Closing, the Shareholders shall
-------------------------
deliver balance sheets of each of the Companies as of the business day
immediately preceding the date of the Closing (the "Closing Balance Sheets"), in
each case, prepared in accordance with United States generally accepted
accounting principles ("GAAP"), together with a detailed list of all accrued
expenses and liabilities of each of the Companies as of the Closing Date (the
"Closing Liabilities Schedule"). In the event that the aggregate book value of
stockholders' equity of the Companies, determined in accordance with GAAP,
consistently applied with prior periods, set forth on the Closing Balance Sheets
(such amount, the "Closing Stockholders' Equity") is less than (x) $373,212
minus (y) the aggregate amount of invoiced third party vendor costs incurred by
the Companies in connection with the Companies' software development programs
since January 1, 2000 (such result, the "Base Amount"), the initial aggregate
Purchase Price of $5,500,000 shall be reduced by one dollar for each dollar that
the Closing Stockholders' Equity is less than the Base Amount. In the event of
any reduction in Purchase Price, the cash portion of the Purchase Price shall be
reduced and such reduced aggregate consideration shall constitute the "Purchase
Price" for all purposes under this Agreement.
1.3 Closing. The purchase and sale of the Shares, and the consummation of
-------
the other transactions contemplated hereby (the "Closing"), will take place at
the offices of DoveBid at 1241 East Hillsdale Boulevard, Foster City, California
at 10:00 a.m. Pacific Time, on March 2, 2000 or, if all conditions to closing
have not been satisfied or waived by said date, at such other time and place as
the DoveBid Companies and Shareholders shall mutually agree upon. At the
Closing, the Shareholders will deliver to DoveBid certificates representing all
of the Shares, duly endorsed for transfer to DoveBid, against delivery to the
Shareholders by the DoveBid Companies of the Purchase Price. The date on which
the Closing occurs is referred to herein as the "Closing Date."
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF THE SHAREHOLDERS AND THE COMPANIES
Except as specifically set forth in the disclosure letter provided by the
Shareholders and the Companies to the DoveBid Companies simultaneously with the
signing of this Agreement, dated as of the date of this Agreement (the
"Companies Disclosure Letter"), the parts of which are numbered to correspond to
the sections of this Agreement, each of the Shareholders and each of the
Companies hereby jointly and severally represent and warrant to the DoveBid
Companies as follows:
2.1 Organization and Good Standing. Each of the Companies is a
------------------------------
corporation duly organized, validly existing and in current status under the
laws of the State of Wisconsin, has the corporate power and authority to own,
operate and lease its properties and to carry on its business as now conducted
and as proposed to be conducted, and is qualified to conduct business
<PAGE>
in each jurisdiction in which the character of the properties owned, leased or
licensed by it or the nature of such activities requires such qualification.
2.2 Power, Authorization and Validity.
---------------------------------
2.2.1 The Companies and each Shareholder has the right, power, legal
capacity and authority to enter into and perform its obligations under this
Agreement, and all agreements to which the Companies and each Shareholder is or
will be a party that are required to be executed pursuant to this Agreement (the
"Ancillary Agreements"). The execution, delivery and performance of this
Agreement and the Ancillary Agreements have been duly and validly approved and
authorized by each of the Companies' Board of Directors. No vote of the
shareholders of either of the Companies is required by the Articles of
Incorporation, bylaws, other governing documents of the Companies or applicable
law with respect to the due authorization and approval of this Agreement, the
Ancillary Agreements or the transactions contemplated hereby or thereby. Each
Shareholder is an "accredited investor" as such term is defined in Rule 501
promulgated under the Securities Act of 1933, as amended (the "Securities Act").
2.2.2 No filing, authorization or approval, governmental or
otherwise, is necessary to enable the Companies or the Shareholders to enter
into, and to perform their respective obligations under, this Agreement and the
Ancillary Agreements, except for such qualifications and filings as may be
required to comply with federal and state securities laws as may be required in
connection with the transactions contemplated by this Agreement. All such
qualifications and filings will, in the case of qualifications, be effective on
the Closing, and will, in the case of filings, be made within the time
prescribed below.
2.2.3 This Agreement and the Ancillary Agreements are, or when
executed by the Companies and the Shareholders will be, valid and binding
obligations of the Companies and the Shareholders enforceable against the
Companies and the Shareholders in accordance with their respective terms, except
as to the effect, if any, of (a) applicable bankruptcy and other similar laws
affecting the rights of creditors generally, (b) rules of law governing specific
performance, injunctive relief and other equitable remedies and (c) the
enforceability of provisions requiring indemnification in connection with the
offering, issuance or sale of securities.
2.3 Capitalization. The authorized capital stock of AccuVal consists
--------------
entirely of 2,800 shares of common stock, of which a total of 200 shares are
issued and outstanding, and of which 100 shares are owned beneficially and of
record by Gronik and 100 shares are owned beneficially and of record by Schmitt,
and no other entity or individual owns either beneficially or of record any
other equity interest of AccuVal. The authorized capital stock of LiquiTec
consists entirely of 2,800 shares of common stock, of which a total of 200
shares are issued and outstanding, and of which 100 shares are owned
beneficially and of record by Gronik and 100 shares are owned beneficially and
of record by Schmitt, and no other entity or individual owns either beneficially
or of record, any other equity interest of LiquiTec. On the date of this
Agreement each Shareholder has, and on the Closing Date each Shareholder will
have, good and marketable title to that number of shares of capital stock of the
Companies set forth in this Section 2.3, free and clear of any and all Liens,
which shares do and shall constitute collectively
<PAGE>
all of the outstanding shares of the Companies' capital stock. On the date of
this Agreement, there are no, and on the Closing Date, there will be no,
options, warrants, calls, commitments, conversion privileges or preemptive or
other rights or agreements outstanding to purchase any of shares of the
Companies' capital stock or any securities convertible into or exchangeable for
shares of the Companies' capital stock or obligating the Companies to grant,
extend, or enter into any such option, warrant, call, right, commitment,
conversion privilege or other right or agreement. There is no voting agreement,
right of first refusal or other restriction (other than normal restrictions on
transfer under applicable federal and state securities laws) applicable to any
of the Companies' outstanding securities. Each share of each of the Companies'
capital stock has been duly authorized and validly issued, is fully paid and
nonassessable (except as set forth in Section 180.0622(2)(b) of the Wisconsin
Statutes), is not subject to any right of rescission, and has been offered,
issued, sold and delivered by the Companies in compliance with all registration
or qualification requirements (or applicable exemptions therefrom) of applicable
federal and state securities laws, other laws and requirements set forth in
applicable agreements or instruments. The Companies are not under any obligation
to register under the Securities Act, any of its presently outstanding
securities or any securities that may be subsequently issued.
2.4 Subsidiaries. The Companies do not have any subsidiaries or any
-------------
interest, direct or indirect, in any corporation, partnership, joint venture or
other business entity.
2.5 No Conflict. Neither the execution and delivery of this Agreement nor
-----------
any Ancillary Agreement, nor the consummation of the transactions contemplated
hereby, will conflict with, or (with or without notice or lapse of time, or
both) result in a termination, breach, default, impairment or violation of (a)
any provision of the Articles of Incorporation, bylaws or other governance
document of either of the Companies, (b) any instrument or contract to which the
Companies or any Shareholder is a party or by which either of the Companies or
either Shareholder is a party, or any of the Companies' or Shareholders' assets
or properties are bound or affected, or (c) any federal, state, local or foreign
judgment, writ, decree, order, statute, rule or regulation applicable to either
of the Companies or either Shareholder or their respective assets or properties.
The consummation of the transactions contemplated by this Agreement does not and
will not require the consent, waiver, release or approval of any third party.
2.6 Litigation. There is no action, proceeding, claim or investigation
-----------
pending against the Companies before any court or administrative agency, nor, to
the knowledge of the Shareholders, has any such action, proceeding, claim or
investigation been threatened. There is no reasonable basis for any shareholder
or former shareholder of the Companies, or any other person, firm, corporation,
or entity, to assert a claim against the Companies, any Shareholder or the
DoveBid Companies based upon: (a) ownership or rights to ownership of any shares
or other ownership interest in the Companies, (b) any rights as a shareholder of
the Companies, including any option or preemptive rights or rights to notice or
to vote, or (c) any rights under any agreement among the Companies and its
shareholders. There are no outstanding orders, awards, judgments, injunctions,
decrees or other requirements of any court, arbitrator or governmental or
regulatory body against the Companies or their assets, properties or securities.
2.7 Taxes. The Companies have timely filed all federal, state, local and
-----
foreign tax returns required to be filed, have paid all taxes required to be
paid in respect of all periods for which returns have been filed, have
established an adequate accrual or reserve for the payment of
<PAGE>
all taxes payable in respect of the periods subsequent to the periods covered by
the most recent applicable tax returns, have made all necessary estimated tax
payments, and have no liability for taxes in excess of the amount so paid or
accruals or reserves so established. All accruals or reserves for taxes on the
Closing Balance Sheets will be established in the ordinary course of business
and will be consistent with the Companies' prior practices. The Companies are
not delinquent in the payment of any tax or in the filing of any tax returns,
and no deficiencies for any tax have been threatened, claimed, proposed or
assessed. The Companies have not received any notification from the Internal
Revenue Service or any other taxing authority regarding any material issues
that: (a) are currently pending before the Internal Revenue Service or any other
taxing authority (including but not limited to any sales or use tax authority)
regarding the Companies or (b) have been raised by the Internal Revenue Service
or other taxing authority and not yet finally resolved. No tax return of the
Companies has ever been audited by the Internal Revenue Service or any state
taxing agency or authority. There is not in effect any waiver by the Companies
of any statute of limitations with respect to any taxes; and the Companies have
not consented to extend to a date later than the date hereof the period in which
any tax may be assessed or collected by any taxing authority. Neither of the
Companies is a "personal holding company" within the meaning of the Internal
Revenue Code of 1986, as amended (the "Code"). Neither Company has filed any
election under Section 341(f) of the Code. Each of the Companies has withheld
with respect to each of its employees and independent contractors all taxes,
including but not limited to federal and state income taxes, FICA, Medicare,
FUTA and other taxes, required to be withheld, and paid such withheld amounts to
the appropriate tax authority within the time prescribed by law.
Effective as of July 21, 1988, AccuVal made a valid election under Section
1362 of the Code to be an S corporation within the meaning of Sections 1361 and
1362 of the Code effective for all taxable periods beginning on or subsequent to
July 20, 1988. Effective as of June 13, 1988, LiquiTec made a valid election
under Section 1362 of the Code to be an S corporation within the meaning of
Sections 1361 and 1362 of the Code effective for all taxable periods beginning
on or subsequent to June 13, 1988. Part 2.7 of the Companies Disclosure Letter
sets forth each state and locality where the Companies have made a valid
election under the applicable law of such jurisdiction to be an S corporation
effective for all taxable periods beginning on or subsequent to the date of such
election, and the date of such election. Neither the Companies nor the
Shareholders have taken any action inconsistent with the requirements of the
Companies' S corporation status, nor have the Companies or the Shareholders
failed to take any action required in order to maintain the Companies' S
Corporation status, and the Companies' S corporation election has not been
terminated (whether inadvertently or otherwise) since each such effective date
and is currently valid and in effect in each such jurisdiction in which an
election was made.
For the purposes of this Agreement, the terms "tax" and "taxes" include all
federal, state, local and foreign income, gains, franchise, excise, property,
sales, use, employment, license, payroll, occupation, recording, value added or
transfer taxes, governmental charges, fees, levies or assessments (whether
payable directly or by withholding), and, with respect to such taxes, any
estimated tax, interest and penalties or additions to tax and interest on such
penalties and additions to tax.
<PAGE>
2.8 Financial Statements. The Companies have delivered to the DoveBid
--------------------
Companies, attached hereto as Exhibit C, copies of: (a) the Companies' unaudited
---------
consolidated balance sheets as of December 31, 1999 (the "Balance Sheets") and
(b) the Companies' unaudited consolidated income statements and statements of
cash flows for the twelve months ended December 31, 1999 (together, with the
Balance Sheets and the Closing Balance Sheets, the "Financial Statements"). The
Financial Statements (a) are in accordance with the books and records of the
Companies, (b) fairly present the financial condition of the Companies at the
date therein indicated and the results of operations for the period therein
specified and (c) have been prepared in accordance with GAAP. The Companies
have no debt, liability or obligation of any nature, whether accrued, absolute,
contingent or otherwise, and whether due or to become due, that is not reflected
or reserved against in the Financial Statements and the Closing Liabilities
Schedule.
2.9 Title to Assets and Properties. The Companies have good and
-------------------------------
marketable title to all of their assets as shown on the Balance Sheets and
Closing Balance Sheets, free and clear of all Liens (other than for taxes not
yet due and payable). All machinery and equipment included in such assets is in
good condition and repair, normal wear and tear excepted, and all leases of real
or personal property to which either Company is a party are fully effective and
afford such Company peaceful and undisturbed possession of the subject matter of
the lease. Neither Company is in violation of any zoning, building, safety or
environmental ordinance, regulation or requirement or other law or regulation
applicable to the operation of owned or leased properties, and has not received
any notice of violation with which it has not complied.
2.10 Absence of Certain Changes. Since December 31, 1999, there has not
--------------------------
been with respect to either of the Companies:
(a) any change in the financial condition, properties, assets,
liabilities, business or operations thereof which change by itself or in
conjunction with all other such changes, whether or not arising in the ordinary
course of business, has had or will have a material adverse effect thereon;
(b) any contingent liability incurred thereby as guarantor or
otherwise with respect to the obligations of others;
(c) any mortgage, encumbrance or Lien placed on any of the properties
thereof;
(d) any material obligation or liability incurred thereby other than
obligations and liabilities incurred in the ordinary course of business in
individual amounts less than $25,000;
(e) any purchase or sale or other disposition, or any agreement or
other arrangement for the purchase, sale or other disposition, of any of the
properties or assets thereof other than in the ordinary course of business in
individual amounts less than $25,000;
(f) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the properties, assets or business
thereof;
<PAGE>
(g) any declaration, setting aside or payment of any dividend on, or
the making of any other distribution in respect of, the capital stock thereof,
any split, combination or recapitalization of the capital stock thereof or any
direct or indirect redemption, purchase or other acquisition of the equity
interests thereof;
(h) any labor dispute or claim of unfair labor practices, any change
in the compensation payable or to become payable to any of its officers,
managers, employees or agents, or any bonus payment or arrangement made to or
with any of such officers, managers, employees or agents;
(i) any change with respect to the management, supervisory or other
key personnel thereof;
(j) any payment or discharge of a material lien or liability thereof
which lien was not either shown on the Balance Sheets or incurred in the
ordinary course of business thereafter;
(k) any obligation or liability incurred thereby to any of its
officers, employees, directors or shareholders or any loans or advances made
thereby to any of its officers, employees, directors or shareholders except
normal compensation and expense allowances payable to officers and employees;
(l) any amendment or change in the Articles of Incorporation, bylaws
or other governing documents of the Companies; or
(m) any change in the accounting policies or procedures of the
Companies.
2.11 Contracts and Commitments. Section 2.11 of the Companies Disclosure
-------------------------
Letter sets forth a list of each of the following oral or written contracts,
agreements, understandings and arrangements, a true and complete copy of each
(or, in the case of an oral agreement, a written summary of all of the material
terms of which) has been provided to the DoveBid Companies:
(a) Contract, agreement or other understanding or arrangement
providing for payments by or to the Companies in an aggregate amount of $25,000
or more in any year which are currently in effect;
(b) Companies IP Rights Agreement (as defined in Section 2.12), and
contract, license, agreement or other understanding or arrangement as licensor
or licensee;
(c) Contract, lease, license, agreement or other understanding or
arrangement for the lease of real or personal property;
(d) Joint venture contract or arrangement or any other agreement that
involves or could involve a sharing of profits, expenses or losses with any
other party;
(e) Instrument evidencing or related in any way to indebtedness for
borrowed money by way of direct loan, sale of debt securities, purchase money
obligation, conditional sale, guarantee, or otherwise, except for trade
indebtedness incurred in the ordinary
<PAGE>
course of business and for no more than $25,000 in amount, and except as
disclosed in the Financial Statements;
(f) Contract, agreement or other understanding or arrangement
containing covenants purporting to limit the Companies' freedom to compete in
any line of business in any geographic area, or which grants any exclusive
rights or obligations;
(g) Contract, agreement or other understanding or arrangement for or
relating to the employment of any officer, employee, contractor, or consultant
of the Companies; or
(h) Any other agreement not specified above which is material to the
business of the Companies.
All agreements, contracts, plans, leases, instruments, arrangements,
licenses and commitments identified in this Section 2.11 are valid and in full
force and effect. The Companies are not, nor, to the knowledge of the
Shareholders, is any other party thereto, in breach or default under the terms
of any such agreement, contract, plan, lease, instrument, arrangement, license
or commitment. The Companies do not have any liability for renegotiation of
government contracts or subcontracts, if any.
2.12 Intellectual Property. The Companies own, or have a valid right to use,
---------------------
sell or license all Intellectual Property Rights (as defined below) necessary or
required for the conduct of business as presently conducted (such Intellectual
Property Rights being hereinafter collectively referred to as the "Companies IP
Rights") and such rights to use, sell or license are sufficient for the conduct
of the Companies' businesses as presently conducted. The execution, delivery
and performance of this Agreement and the consummation of the transactions
contemplated hereby do not and will not constitute a breach of any instrument or
agreement governing or affecting any Companies IP Right (the "Companies IP
Rights Agreements"), do not and will not cause the forfeiture or termination or
give rise to a right of forfeiture or termination of any Companies IP Right or
impair the right of the Companies to use, sell or license any Companies IP Right
or portion thereof. There is no royalty, honoraria, fee or other payment
payable by the Companies to any person by reason of the ownership, use, license,
sale or disposition of any Companies IP Right (other than as set forth in the
Companies IP Rights Agreements listed in Section 2.11 to the Companies
Disclosure Letter). The manufacture, marketing, license, sale or intended use
of any product currently licensed or sold by the Companies or currently under
development by the Companies does not violate any license or agreement between
the Companies and any third party or infringe any Intellectual Property Right of
any other person or entity; and there is no pending or, to the knowledge of the
Shareholders, threatened claim or litigation contesting the validity, ownership
or right to use, sell, license or dispose of any Companies IP Right nor, to the
knowledge of the Shareholders, is there any basis for any such claim. The
Companies have not received any notice asserting that any Companies IP Right or
the proposed use, sale, license or disposition thereof conflicts, or will
conflict, with the rights of any other person or entity, nor, to the knowledge
of the Shareholders, is there any basis for any such assertion. Schmitt is the
only employee of the Companies who has participated in the development of
proprietary software of the Companies with respect to a customized appraisal
system consisting of project management, auction management, library management,
contact management, proposal management and
<PAGE>
comparable sales systems. The Companies and the Shareholders shall use best
efforts to cause each officer, employee and consultant of the Companies to
execute and deliver to the Companies an agreement in the form provided by the
DoveBid Companies regarding the protection of proprietary information and the
assignment to the Companies of all Intellectual Property Rights arising from the
services performed for the Companies by such person. Section 2.12 to the
Companies Disclosure Letter contains a list of all applications, registrations,
filings and other formal actions made or taken pursuant to federal, state and
foreign laws by the Companies to perfect or protect its interest in Companies IP
Rights, including, without limitation, all patents, patent applications,
trademarks, trademark applications and service marks. As used herein, the term
"Intellectual Property Rights" shall mean all worldwide industrial or
intellectual property rights, including, without limitation, patents, patent
applications, patent rights, trademarks, trademark applications, trade names,
service marks, service mark applications, Internet domain names, Internet or
World Wide Web URLs or addresses, copyright, copyright applications, franchises,
licenses, inventories, know-how, trade secrets, customer lists, proprietary
processes and formulae, all source and object code, algorithms, architecture,
structure, display screens, layouts, inventions, development tools and all
documentation and media constituting, describing or relating to the above,
including, without limitation, manuals, memoranda and records.
2.13 Compliance with Laws. The Companies have complied, or prior to the
--------------------
Closing Date will have complied, and are or will be at the Closing in full
compliance with, all applicable laws, ordinances, regulations, and rules, and
all orders, writs, injunctions, awards, judgments, and decrees applicable to it
or to the assets, properties, and business thereof, including, without
limitation: (a) all applicable federal and state securities laws and
regulations, (b) all applicable federal, state, and local laws, ordinances,
regulations, and all orders, writs, injunctions, awards, judgments, and decrees
pertaining to (i) the sale, licensing, leasing, ownership, or management of its
owned, leased or licensed real or personal property, products and technical
data, (ii) employment and employment practices, terms and conditions of
employment, and wages and hours and (iii) safety, health, fire prevention,
environmental protection, hazardous materials, toxic waste disposal, building
standards, zoning and other similar matters (c) the Export Administration Act
and regulations promulgated thereunder and all other laws, regulations, rules,
orders, writs, injunctions, judgments and decrees applicable to the export or
re-export of controlled commodities or technical data and (d) the Immigration
Reform and Control Act. The Companies have received all permits and approvals
from, and have made all filings with, third parties, including government
agencies and authorities, that are necessary in connection with its present
business. There are no legal or administrative proceedings or investigations
involving the Companies pending or, to the knowledge of the Shareholders,
threatened before any governmental agency or authority.
2.14 Certain Transactions and Agreements. None of the officers,
-----------------------------------
directors, shareholders or, to the knowledge of the Shareholders, employees of
the Companies, or any member of their immediate families, has any direct or
indirect ownership interest in any firm or corporation that competes with the
Companies (except with respect to any interest in less than one percent of the
stock of any corporation whose stock is publicly traded). None of said officers
directors, shareholders or, to the knowledge of the Shareholders, employees, nor
any member of their immediate families, is directly or indirectly a party to any
contract or informal arrangement with the Companies, except for compensation for
services as an officer, director, shareholder or employee thereof. None of said
officers, directors, shareholders or employees nor any member of their immediate
families has any interest in any property, real or personal,
<PAGE>
tangible or intangible, including any Intellectual Property Rights, used in or
pertaining to the business of the Companies, except for the rights of a
shareholder of the Companies.
2.15. Employees, ERISA and Other Compliance.
-------------------------------------
2.15.1 The Companies do not have any employment contract or
consulting agreement currently in effect that is not terminable at will (other
than agreements with the sole purpose of providing for the confidentiality of
proprietary information or assignment of inventions). All officers, directors,
employees and consultants of the Companies having access to proprietary
information have executed and delivered to the Companies an agreement regarding
the protection of such proprietary information and the assignment of inventions
to the Companies; true and complete copies of the form of all such agreements
have been delivered to the DoveBid Companies.
2.15.2 The Companies (i) have not ever been nor are now subject to
a union organizing effort, (ii) are not subject to any collective bargaining
agreement with respect to any of its employees, (iii) are not subject to any
other contract, written or oral, with any trade or labor union, employees'
association or similar organization, or (iv) have no current labor disputes. The
Companies have good labor relations, and have no knowledge of any facts
indicating that the consummation of the transactions contemplated hereby will
have a material adverse effect on such labor relations, and have no knowledge
that any of their key employees intends to leave his or her employ.
2.15.3 Section 2.15 to the Companies Disclosure Letter identifies
(i) each "employee benefit plan," as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and (ii) all other
written or formal plans or agreements involving direct or indirect compensation
or benefits (including any employment agreements entered into between the
Companies and any employee of the Companies, but excluding workers'
compensation, unemployment compensation and other government-mandated programs)
currently or previously maintained, contributed to or entered into by the
Companies under which the Companies or any ERISA Affiliate (as defined below)
thereof has any present or future obligation or liability (collectively, the
"Companies Employee Plans"). For purposes of this Section 2.15, "ERISA
Affiliate" shall mean any entity which is a member of (A) a "controlled group of
corporations," as defined in Section 414(b) of the Code, (B) a group of entities
under "common control," as defined in Section 414(c) of the Code, or (C) an
"affiliated service group," as defined in Section 414(m) of the Code, or
treasury regulations promulgated under Section 414(o) of the Code, any of which
includes the Companies. Copies of all Companies Employee Plans (and, if
applicable, related trust agreements) and all amendments thereto and written
interpretations thereof (including summary plan descriptions) have been
delivered to the DoveBid Companies, together with the three most recent annual
reports (Form 5500, including, if applicable, Schedule B thereto) prepared in
connection with any such Companies Employee Plan. All Companies Employee Plans
which individually or collectively would constitute an "employee pension benefit
plan," as defined in Section 3(2) of ERISA (collectively, the "Companies Pension
Plans"), are identified as such in Section 2.15 to the Companies Disclosure
Letter. All contributions due from the Companies with respect to any of the
Companies Employee Plans have been made as required under ERISA or have been
accrued on the Financial Statements. Each Companies Employee Plan has been
maintained substantially
<PAGE>
in compliance with its terms and with the requirements prescribed by any and all
statutes, orders, rules and regulations, including, without limitation, ERISA
and the Code, which are applicable to such Companies Employee Plans.
2.15.4 No Companies Pension Plan constitutes, or has since the
enactment of ERISA constituted, a "multiemployer plan," as defined in Section
3(37) of ERISA. No Companies Pension Plans are subject to Title IV of ERISA.
No "prohibited transaction," as defined in Section 406 of ERISA or Section 4975
of the Code, has occurred with respect to any Companies Employee Plan which is
covered by Title I of ERISA which would result in a liability to the Companies,
excluding transactions effected pursuant to a statutory or administrative
exemption. Nothing done or omitted to be done and no transaction or holding of
any asset under or in connection with any Companies Employee Plan has or will
make the Companies or any officer or director of the Companies subject to any
liability under Title I of ERISA or liable for any tax (as defined in Section
2.7 hereof) or penalty pursuant to Sections 4972, 4975, 4976 or 4979 of the Code
or Section 502 of ERISA.
2.15.5 Any Companies Pension Plan which is intended to be qualified
under Section 401(a) of the Code (a "Companies 401(a) Plan") is so qualified and
has been so qualified during the period from its adoption to date, and the trust
forming a part thereof is exempt from tax pursuant to Section 501(a) of the
Code. The Companies have delivered to the DoveBid Companies a complete and
correct copy of the most recent Internal Revenue Service determination letter
with respect to each Companies 401(a) Plan.
2.15.6 Section 2.15 to the Companies Disclosure Letter lists each
employment, severance or other similar contract, arrangement or policy and each
plan or arrangement (written or oral) providing for insurance coverage
(including any self-insured arrangements), workers' benefits, vacation benefits,
severance benefits, disability benefits, death benefits, hospitalization
benefits, retirement benefits, deferred compensation, profit-sharing, bonuses
and all forms of incentive compensation or post-retirement insurance,
compensation or benefits for employees, consultants or directors which (A) is
not a Companies Employee Plan, (B) is entered into, maintained or contributed
to, as the case may be, by the Companies and (C) covers any employee or former
employee of the Companies. Such contracts, plans and arrangements as are
described in this Section 2.15.6 are herein referred to collectively as the
"Companies Benefit Arrangements." Each Companies Benefit Arrangement has been
maintained in substantial compliance with its terms and with the requirements
prescribed by any and all statutes, orders, rules and regulations which are
applicable to such Companies Benefit Arrangement. The Companies have delivered
to the DoveBid Companies a complete and correct copy or description of each
Companies Benefit Arrangement.
2.15.7 There has been no amendment to, written interpretation or
announcement (whether or not written) by the Companies relating to, or change in
employee participation or coverage under, any Companies Employee Plan or
Companies Benefit Arrangement that would increase the expense of maintaining
such Companies Employee Plan or Companies Benefit Arrangement above the level of
the expense incurred in respect thereof since the date of the Balance Sheet.
<PAGE>
2.15.8 The Companies have provided, or will have provided prior to
the Closing, to individuals entitled thereto all required notices and coverage
pursuant to Section 4980B of the Code and the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended ("COBRA"), with respect to any
"qualifying event" (as defined in Section 4980B(f)(3) of the Code) occurring
prior to and including the Closing Date, and no tax payable on account of
Section 4980B of the Code has been incurred with respect to any current or
former employees (or their beneficiaries) of the Companies.
2.15.9 No benefit payable or which may become payable by the
Companies pursuant to any Companies Employee Plan or any Companies Benefit
Arrangement or as a result of or arising under this Agreement shall constitute
an "excess parachute payment" (as defined in Section 280G(b)(1) of the Code)
which is subject to the imposition of an excise tax under Section 4999 of the
Code or which would not be deductible by reason of Section 280G of the Code.
2.15.10 The Companies are in compliance with all applicable laws,
agreements and contracts relating to employment, employment practices, wages,
hours, and terms and conditions of employment, including, but not limited to,
employee compensation matters, but not including ERISA.
2.15.11 To the knowledge of the Shareholders, no employee of the
Companies is in violation of any term of any employment contract, patent
disclosure agreement, noncompetition agreement, or any other contract or
agreement, or any restrictive covenant relating to the right of any such
employee to be employed thereby, or to use trade secrets or proprietary
information of others, and to the knowledge of the Shareholders, the employment
of such employees does not subject the Companies to any liability.
2.15.12 A list of all employees, officers, directors and consultants
of the Companies and their current compensation is set forth on Section 2.15 to
the Companies Disclosure Letter.
2.15.13 The Companies are not a party to any (a) agreement with any
officer, director, shareholder or other employee thereof (i) providing benefits
which are contingent, or the terms of which are altered, upon the occurrence of
a transaction involving the Companies in the nature of any of the transactions
contemplated by this Agreement, (ii) providing any term of employment or
compensation guarantee, or (iii) providing severance benefits or other benefits
after the termination of employment of such employee regardless of the reason
for such termination of employment, or (b) agreement or plan, any of the
benefits of which will be increased, or the vesting of benefits of which will be
accelerated, by the occurrence of any of the transactions contemplated by this
Agreement or the value of any of the benefits of which will be calculated on the
basis of any of the transactions contemplated by this Agreement.
2.16 Company Documents. The Companies have made available to the DoveBid
-----------------
Companies for examination true and complete copies of all documents and
information listed in the Companies Disclosure Letter or other exhibits called
for by this Agreement which has been requested by DoveBid and/or its legal
counsel, including, without limitation, the following:
<PAGE>
(a) copies of the Companies' Articles of Incorporation, bylaws and other
governance documents as currently in effect; (b) all records of all proceedings,
consents, actions, and meetings of the shareholders, the board of directors and
any committees thereof; (c) its journal reflecting all equity issuances and
transfers; and (d) all permits, orders, and consents issued by any regulatory
agency with respect to the Companies, or any securities of the Companies, and
all applications for such permits, orders, and consents.
2.17 No Brokers. Neither the Companies nor the Shareholders are or will
----------
be obligated for the payment of fees or expenses of any investment banker,
broker or finder in connection with the origin, negotiation or execution of this
Agreement or in connection with any transaction contemplated hereby.
2.18 Accounts Receivable. Subject to the reserves set forth on the
-------------------
Balance Sheets, if any, all accounts receivable of the Companies set forth on
the Balance Sheets have arisen in the ordinary course of the Companies'
businesses, represent valid, enforceable and fully collectible obligations due
to the Companies, and have been and are not subject to any set-off, counterclaim
or future performance obligation on the part of the Companies.
2.19 Books and Records.
-----------------
2.19.1 The books, records and accounts of the Companies are (a)
true, complete and correct, and (b) are stated in reasonable detail and
accurately and fairly reflect the transactions and dispositions of the assets of
the Companies.
2.19.2 The Companies have devised and maintain a system of internal
accounting controls sufficient to provide reasonable assurances that (a)
transactions are executed in accordance with management's general or specific
authorization, (b) transactions are recorded as necessary (i) to permit
preparation of financial statements in conformity with generally accepted
accounting principles or any other criteria applicable to such statements, and
(ii) to maintain accountability for assets, and (c) the amount recorded for
assets on the books and records of the Companies is compared with the existing
assets at reasonable intervals and appropriate action is taken with respect to
any differences.
2.20 Insurance. The Companies maintain and at all times during the prior
----------
three years have maintained policies of insurance and bonds, including all
legally required workers' compensation insurance and errors and omissions,
casualty, fire and general liability insurance, which policies and bonds are
listed in Section 2.20 of the Companies Disclosure Letter. There is no claim
pending under any of such policies or bonds as to which coverage has been
questioned, denied or disputed by the underwriters of such policies or bonds.
All premiums due and payable under all such policies and bonds have been timely
paid and the Companies are otherwise in compliance with the terms of such
policies and bonds. The Companies have no knowledge of any threatened
termination of, or premium increase with respect to, any of such policies.
Prior to the Closing, the Shareholders shall have obtained, and fully prepaid
all premiums associated with, "claims made" insurance for the Companies for
activities of the Companies prior to the Closing, which insurance shall be
assignable to the DoveBid Companies at the Closing, shall expire no earlier than
the third anniversary of the Closing and shall contain coverage that is
customary for the Companies' industry and be reasonably acceptable to the
DoveBid Companies.
<PAGE>
All policies of insurance now held by the Companies are set forth in Section
2.20 of the Companies Disclosure Letter, together with the name of the insurer
under each policy, the type of policy, the policy coverage amount and any
applicable deductible.
2.21 Disclosure. Neither the Companies Disclosure Letter, this Agreement,
----------
its exhibits and schedules, nor any of the certificates or documents to be
delivered by the Companies to DoveBid pursuant to this Agreement, taken
together, contains or will contain any untrue statement of a material fact known
to either of the Shareholders or omits or will omit to state any material fact
known to either of the Shareholders that is necessary in order to make the
statements contained herein and therein, in light of the circumstances under
which such statements were made, not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE DOVEBID COMPANIES
Except as specifically set forth in the disclosure letter provided by the
DoveBid Companies to the Companies simultaneously with the signing of this
Agreement, dated as of the date of this Agreement (the "DoveBid Disclosure
Letter"), the parts of which are numbered to correspond to the sections of this
Agreement, each of the DoveBid Companies jointly and severally represent and
warrant to the Shareholders as follows:
3.1 Organization and Good Standing. The DoveBid Companies are
------------------------------
corporations duly organized, validly existing and in good standing under the
laws of their respective jurisdictions, and have the corporate power and
authority to own, operate and lease its properties and to carry on its business
as now conducted and as proposed to be conducted.
3.2 Power, Authorization and Validity.
---------------------------------
3.2.1 The DoveBid Companies have the corporate right, power and
authority to enter into and perform their obligations under this Agreement, and
all agreements to which the DoveBid Companies are or will be a party that are
required to be executed pursuant to this Agreement (the "DoveBid Ancillary
Agreements"). The execution, delivery and performance of this Agreement and the
DoveBid Ancillary Agreements have been duly and validly approved and authorized
by the Board of Directors of the DoveBid Companies.
3.2.2 No filing, authorization or approval, governmental or
otherwise, is necessary to enable the DoveBid Companies to enter into, and to
perform their obligations under, this Agreement and the DoveBid Ancillary
Agreements, except for (a) the filing of appropriate documents with the relevant
authorities of California and Delaware and other states in which each DoveBid
Company is qualified to do business, if any, and (b) such filings as may be
required to comply with federal and state securities laws.
3.2.3 This Agreement and the DoveBid Ancillary Agreements are, or
when executed by the DoveBid Companies will be, valid and binding obligations of
the DoveBid
<PAGE>
Companies enforceable against them in accordance with their respective terms,
except as to the effect, if any, of (a) applicable bankruptcy and other similar
laws affecting the rights of creditors generally, (b) rules of law governing
specific performance, injunctive relief and other equitable remedies and (c) the
enforceability of provisions requiring indemnification in connection with the
offering, issuance or sale of securities.
3.3 No Conflict. Neither the execution and delivery of this Agreement nor
-----------
any DoveBid Ancillary Agreement, nor the consummation of the transactions
contemplated hereby, will conflict with, or (with or without notice or lapse of
time, or both) result in a termination, breach, impairment or violation of (a)
any provision of the Articles of Incorporation or bylaws of the DoveBid
Companies, as currently in effect, (b) any instrument or contract to which a
DoveBid Company is a party or by which a DoveBid Company's assets or properties
are bound or affected, or (c) any federal, state, local or foreign judgment,
writ, decree, order, statute, rule or regulation applicable to the DoveBid
Companies or its assets or properties.
3.4 No Brokers. The DoveBid Companies are not obligated for the payment
----------
of fees or expenses of any investment banker, broker or finder in connection
with the origin, negotiation or execution of this Agreement or in connection
with any transaction contemplated hereby or thereby.
ARTICLE IV
ADDITIONAL AGREEMENTS
4.1 Advice of Changes. During the period from the date of this Agreement
-----------------
until the earlier of the Closing or the termination of this Agreement, the
Companies will promptly advise DoveBid in writing (a) of any event occurring
subsequent to the date of this Agreement that would render any representation or
warranty of the Companies contained in this Agreement, if made on or as of the
date of such event or at the Closing untrue or inaccurate in any material
respect and (b) of any material adverse change in the Companies' business,
prospects, results of operations or financial condition. The Companies agree to
cooperate with DoveBid's auditors in order to book financial entries in
accordance with GAAP and in a manner acceptable to DoveBid and its auditors.
4.2 Maintenance of Business. During the period from the date of this
-----------------------
Agreement until the earlier of the Closing or the termination of this Agreement,
the Companies will use their best efforts to carry on and preserve their
business and their relationships with customers, suppliers, key employees and
others in substantially the same manner as it has prior to the date hereof. If
the Companies become aware of a material deterioration in the relationship with
any customer, supplier or key employee, it will promptly bring such information
to the attention of DoveBid in writing and, if requested by DoveBid, will exert
their best efforts to restore the relationship.
4.3 Conduct of Business. During the period from the date of this
-------------------
Agreement until the earlier of the Closing or the termination of this Agreement,
the Companies will continue to
<PAGE>
conduct their business and maintain their business relationships in the ordinary
and usual course and will not, without the prior written consent of the
President of DoveBid:
(a) borrow any money;
(b) enter into any transaction not in the ordinary course of business;
(c) take positions in assets greater than $1,000,000 without DoveBid's
prior written consent, not to be unreasonably withheld;
(d) make any expenditure or sale of fixed or other non-current assets
in excess of $25,000 in the aggregate, outside the normal course of business;
provided; however, that the Companies may purchase the computer equipment
described in Section 4.3(d) of the Companies Disclosure Letter for an aggregate
amount not to exceed $27,000;
(e) encumber or permit to be encumbered any of their assets except in
the ordinary course of their business consistent with past practice and to an
extent that is not material to their business;
(f) dispose of any of their assets except in the ordinary course of
business consistent with past practice; provided, however, that the Companies
shall transfer title to the 1999 Lexus and 1995 BMW owned by the Companies to
the Shareholders, respectively, in exchange for the assumption of all
indebtedness associated with such automobiles by the Shareholders;
(g) enter into any material lease or contract for the purchase or sale
of any property, real or personal, except in the ordinary course of business
consistent with past practice;
(h) fail to maintain their equipment and other assets in good working
condition and repair according to the standards they have maintained to the date
of this Agreement, subject only to ordinary wear and tear;
(i) fail to use their best efforts to maintain and preserve their
business organization intact, retain their present employees and maintain their
relationships and present agreements with suppliers, customers and others having
business relations with the Companies, or fail to maintain their current debt
and lease instruments;
(j) pay any bonus, increased salary or special remuneration to any
officer, director, employee or consultant or enter into any new employment or
consulting agreement with any such person, except as set forth in Section 4.3(j)
of the Companies Disclosure Letter;
(k) change accounting methods, policies or procedures;
(l) introduce any material new method of management or operations;
(m) declare, set aside or pay any cash or stock dividend or other
distribution in respect of any equity interest, or redeem or otherwise acquire
any of their equity interests;
<PAGE>
provided, however, that the Companies shall be permitted to make distributions
to the Shareholders from the Companies' cash on hand immediately prior to the
Closing;
(n) amend or terminate any contract, agreement or license to which
they are a party, except those amended or terminated in the ordinary course of
business, consistent with past practice, and which are not material in amount or
effect;
(o) lend any amount to any person or entity, other than (i) advances
for travel and expenses which are incurred in the ordinary course of business
consistent with past practice, not material in amount and documented by receipts
for the claimed amounts or (ii) any loans pursuant to the Companies 401(k) Plan;
(p) guarantee or act as a surety for any obligation, except for the
endorsement of checks and other negotiable instruments in the ordinary course of
business, consistent with past practice, which are not material in amount;
(q) waive or release any material right or claim except in the
ordinary course of business, consistent with past practice;
(r) issue or sell any shares of their capital stock or any other of
their securities, or issue or create any warrants, obligations, subscriptions,
options, convertible securities, or other commitments to issue any securities,
or accelerate the vesting of any outstanding option or other security;
(s) split or combine their outstanding securities or enter into any
recapitalization affecting the number of shares outstanding or affecting any
other of their securities;
(t) merge, consolidate or reorganize with, or acquire any entity;
(u) amend their Articles of Incorporation, bylaws or any other
governance document;
(v) license any of their technology or Intellectual Property Rights
except in the ordinary course of business consistent with past practice;
(w) agree to any audit assessment by any tax authority or file any
federal or state income or franchise tax return;
(x) change any insurance coverage or issue any certificates of
insurance; or
(y) agree to do any of the things described in the preceding clauses
4.3(a) through 4.3(x).
4.4 DHC Finder's Fee. If the Shareholders introduce DoveBid to the
----------------
executive officers of Daley-Hodkin Corporation ("DHC"), and within one year
following such initial introduction, DoveBid or one of its affiliates
consummates the acquisition of DHC, whether by merger, purchase of a majority of
the equity interests of DHC, or purchase of all or substantially
<PAGE>
all of the assets of DHC, DoveBid agrees to pay to the Shareholders a one time
aggregate fee of $200,000 in cash, such payment to be made within ten business
days following the consummation of such transaction. While DoveBid agrees to use
commercially reasonable efforts to attempt to negotiate mutually acceptable
definitive agreements with DHC and consummate the transactions contemplated
thereby should such agreements be entered into, the Shareholders acknowledge and
agree that in no event shall be DoveBid be obligated in any way to acquire DHC
or agree to any terms or take any actions with respect to such acquisition,
except as DoveBid shall determine in its sole discretion to be in its best
interests. In the event that the Shareholders introduce DoveBid to the
management of DHC and following such initial introduction, but not within such
one year period, DoveBid or one of its affiliates consummates the acquisition of
DHC, whether by merger, purchase of a majority of the equity interests of DHC,
or purchase of substantially all of the assets of DHC, DoveBid agrees to in good
faith consider making some payment to the Shareholders.
4.5 Regulatory Approvals. The DoveBid Companies, the Companies and each
--------------------
Shareholder will execute and file, or join in the execution and filing, of any
application or other document that may be necessary in order to obtain the
authorization, approval or consent of any governmental body, federal, state,
local or foreign that may be reasonably required, or that DoveBid may reasonably
request, in connection with the consummation of the transactions contemplated by
this Agreement. The Companies and each Shareholder will use their best efforts
to obtain all such authorizations, approvals and consents.
4.6 Necessary Consents. The Companies and each Shareholder will use their
------------------
best efforts to obtain such written consents and take such other actions as may
be necessary or appropriate in DoveBid's reasonable judgment to allow the
consummation of the transactions contemplated hereby and to allow DoveBid to
carry on the Companies' business after the Closing.
4.7 Litigation. The Companies will notify DoveBid in writing promptly
----------
after learning of any material actions, suits, proceedings or investigations by
or before any court, board or governmental agency, initiated by or against them,
or known by them to be threatened against them.
4.8 No Other Negotiations. From the date of this Agreement until the
---------------------
earlier of termination of this Agreement or the Closing, the Companies and the
Shareholders will not, and will not authorize or knowingly permit any officer,
shareholder, director, employee, investment banker, attorney, agent,
representative or affiliate of the Companies, or any other person or entity, on
its behalf to, directly or indirectly, solicit, initiate or encourage any offer
from any person or entity or consider any inquiries or proposals received from
any other person or entity, participate in any negotiations or discussions
regarding, furnish to any person or entity any information with respect to, or
enter into any agreement, commitment, letter of intent or understanding
concerning, the possible disposition of all or any substantial portion of the
Companies' business, assets or equity interests by merger, sale or any other
means (other than the transactions contemplated hereby with the DoveBid
Companies). The Companies will promptly and in any event within 24 hours notify
DoveBid orally and in writing of any such inquiry or proposal, including the
name of the persons making such proposal and all of the terms thereof.
<PAGE>
4.9 Access to Information. From the date of this Agreement until the
---------------------
earlier of termination of this Agreement or the Closing, the Companies will
allow DoveBid and its agents reasonable access to the files, books, records and
offices of the Companies, including, without limitation, any and all information
relating to the Companies' taxes, commitments, contracts, leases, licenses, and
real, personal and intangible property and financial condition. The Companies
will cause its accountants to cooperate with DoveBid and its agents in making
available all financial information reasonably requested, including without
limitation the right to examine all working papers pertaining to all financial
statements prepared or audited by such accountants.
4.10 Satisfaction of Conditions Precedent. From the date of this
------------------------------------
Agreement until the earlier of termination of this Agreement or the Closing, the
Companies will use their best efforts to satisfy or cause to be satisfied all
the conditions precedent that are set forth in Article VI, and the Companies
will use their best efforts to cause the transactions contemplated by this
Agreement to be consummated, and, without limiting the generality of the
foregoing, to obtain all consents and authorizations of third parties and to
make all filings with, and give all notices to, third parties that may be
necessary or reasonably required on its part in order to effect the transactions
contemplated hereby.
4.11 Blue Sky Laws. From the date of this Agreement until the earlier of
-------------
termination of this Agreement or the Closing, the Companies shall use their best
efforts to assist DoveBid to the extent necessary to comply with the securities
and Blue Sky laws of all jurisdictions that are applicable in connection with
the transactions contemplated herein.
4.12 Further Assurances. The Companies, the Shareholders and the DoveBid
------------------
Companies shall each deliver or cause to be delivered to the other, at such
other times and places as shall be reasonably agreed, such additional
instruments, and take such additional actions as can be taken without
unreasonable expense, as any other may reasonably request for the purpose of
carrying out this Agreement and the transactions contemplated hereby. The
Shareholders and the Companies will cooperate and use their reasonable efforts
to have the present officers, directors and employees of the Companies cooperate
with DoveBid on and after Closing in furnishing information, evidence, testimony
and other assistance in connection with any tax return filing obligations,
actions, proceedings, arrangements or disputes of any nature with respect to
matters pertaining to all periods prior to Closing.
4.13 Employee Benefits. The Shareholders shall co-operate with and assist
-----------------
the DoveBid Companies with respect to the termination, following the Closing, of
all Companies Employee Plans other than the AccuVal long-term disability
insurance plan which shall be continued for so long as John Lima, an employee of
AccuVal, requires coverage thereunder. The employees of the Companies will be
credited for all continuous periods of employment with the Companies for the
purposes of the DoveBid Companies' employee vacation benefits. The DoveBid
Companies will continue to fund the reasonable costs of the continuing
professional education policies of the Companies and to cover the licensing
costs of appraisers employed by the Companies in appropriate jurisdictions.
4.14 Employee Stock Options. The DoveBid Companies and Gronik will
----------------------
collectively determine the allocation of stock options to purchase an aggregate
of 75,000 shares of common
<PAGE>
stock of DoveBid, Inc. (the "Option Pool") to be granted to employees of the
Companies pursuant to the terms of DoveBid, Inc.'s 1999 Stock Option Plan,
provided that (a) the options to be granted to Gronik, Schmitt and Richard T.
Ferron will not be included as grants from the Option Pool, and (b) the DoveBid
Companies are not obliged to grant options to any particular employee of the
Companies.
ARTICLE V
CONDITIONS PRECEDENT TO OBLIGATIONS
OF THE SHAREHOLDERS AND THE COMPANIES
The obligations of the Shareholders and the Companies with respect to
actions to be taken at Closing are subject to the satisfaction, or waiver by the
Shareholders, at or prior to Closing of all of the following conditions.
5.1 Representations and Warranties; Covenants. The representations and
-----------------------------------------
warranties of the DoveBid Companies set forth in this Agreement shall be true
and correct in all material respects at the Closing with the same effect as
though such representations and warranties had been made as of that time. The
covenants set forth in this Agreement to be performed by the DoveBid Companies
at or before the Closing shall have been duly performed in all material
respects. The DoveBid Companies shall have delivered to the Shareholders a
certificate to such effect dated the Closing Date signed by an authorized
officer of the DoveBid Companies.
5.2 Satisfaction. All actions, proceedings, instruments and documents
------------
required to carry out the transactions contemplated by this Agreement or
incidental hereto and all other related legal matters shall have been executed
by the DoveBid Companies and shall be acceptable to the Shareholders.
5.3 No Litigation. No action or proceeding before a court or any other
-------------
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the transactions contemplated herein and no governmental agency or
body shall have taken any other action or made any request of the Companies as a
result of which the Shareholders deem it materially detrimental to the Companies
to proceed with the transactions hereunder.
5.4 Consents and Approvals. All necessary consents of and filings with
----------------------
any governmental authority or agency relating to the consummation of the
transaction contemplated herein shall have been obtained and made and no action
or proceeding shall have been instituted or threatened to restrain or prohibit
the transactions contemplated herein.
5.5 Promissory Note, Convertible Subordinated Promissory Note and
--------------------------------------------------------------
Subordination Agreement. The DoveBid Companies shall have executed and
- ------------------------
delivered, as applicable, to each Shareholder each Promissory Note, Convertible
Subordinated Promissory Note and Subordination Agreement attached as Annex A
thereto.
5.6 Employment Agreements. DoveBid shall have executed and delivered to
---------------------
each Shareholder an Employment Agreement in substantially the form of Exhibit D
---------
attached hereto ("Employment Agreements").
<PAGE>
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF DOVEBID
The obligations of the DoveBid Companies with respect to actions to be
taken at the Closing are subject to the satisfaction, or waiver by the DoveBid
Companies, at or prior to the Closing of all of the following conditions.
6.1 Representations and Warranties; Covenants. The representations and
-----------------------------------------
warranties of the Shareholders and the Companies set forth in this Agreement
shall be true and correct in all material respects at the Closing with the same
effect as though such representations and warranties had been made as of that
time. The covenants set forth in this Agreement to be performed by the
Shareholders and the Companies on or before the Closing shall have been duly
performed in all material respects. The Shareholders and the Companies shall
have delivered to the DoveBid Companies a certificate to such effect dated the
Closing Date signed by each of the Shareholders and the President of each of the
Companies.
6.2 No Litigation. No bona fide action or proceeding before a court or
-------------
any other governmental agency or body shall have been instituted or threatened
to restrain or prohibit the transactions contemplated herein and no governmental
agency or body shall have taken any other action that will restrain or prohibit
the transactions contemplated herein.
6.3 No Material Adverse Effect. No event or circumstance shall have
--------------------------
occurred between the execution of this Agreement and the Closing which would
constitute a material adverse effect on either of the Companies' business,
prospects, financial condition or operating results; and the DoveBid Companies
shall have received a certificate to such effect dated the Closing Date signed
by the Shareholders.
6.4 Satisfaction. All actions, proceedings, instruments and documents
------------
required to carry out the transactions contemplated by this Agreement or
incidental hereto and all other related legal matters shall have been executed
by the Shareholders or the Companies and shall be reasonably acceptable to the
DoveBid Companies.
6.5 Consents and Approvals. All necessary consents of and filings with
----------------------
any governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made; the
Companies shall have obtained and delivered to the DoveBid Companies such
additional material consents to the transactions contemplated herein as they may
reasonably request including, without limitation, the DoveBid Companies' receipt
on or prior to Closing of consents of third parties listed in Section 2.5 of the
Companies Disclosure Letter.
6.6 Current Status Certificate or Equivalent. At their sole discretion,
----------------------------------------
the DoveBid Companies shall have received evidence satisfactory to them that the
Companies are validly existing, in current status and authorized to do business
and that all state franchise and/or income tax returns and taxes due by the
Companies for all periods prior to the Closing have been filed and paid. The
DoveBid Companies' failure to require or receive such evidence in no way
<PAGE>
vitiates or affects the Companies's or the Shareholders' representations and
warranties regarding such matters and the DoveBid Companies' reliance on such
representations or warranties.
6.7 Convertible Subordinated Promissory Note and Subordination Agreement.
---------------------------------------------------------------------
Each Shareholder shall have executed and delivered to the DoveBid Companies his
Convertible Subordinated Promissory Note and the Subordination Agreement
attached as Annex A thereto.
6.8 Employment Agreements. Each of the Shareholders and Richard T. Ferron
---------------------
shall have executed and delivered to DoveBid his Employment Agreement.
6.9 Release of Claims. DoveBid shall have received copies of a Release of
-----------------
Claims executed by each Shareholder in substantially the form of Exhibit E
---------
attached hereto.
6.10 Lease Matters. DoveBid shall have executed fair market rental leases
-------------
of the Companies' Mequon, Wisconsin facilities on terms deemed acceptable to
DoveBid.
6.11 Insurance Matters. The Shareholders shall have obtained, and fully
-----------------
prepaid all premiums associated with, "claims made" insurance for the Companies
for activities of the Companies prior of the Closing that will be assigned to
DoveBid at the Closing, that expire no earlier than the third anniversary of the
Closing and that contain coverage that is customary for the Companies' industry
and is reasonably acceptable to DoveBid.
6.12 Due Diligence. The results of DoveBid's due diligence review of the
-------------
Companies' businesses, finances, practices and procedures shall be satisfactory
to the DoveBid Companies in their sole discretion.
6.13 Closing of DoveBid's Series C Financing. DoveBid shall have closed
---------------------------------------
the sale of shares of its Series C Preferred Stock to investors on terms
satisfactory to DoveBid in its sole discretion.
6.14 Cash; Automobiles. The Companies shall have at least $100,000 in
-----------------
cash on hand. The Companies shall have transferred title to the 1999 Lexus and
1995 BMW owned by the Companies to the Shareholders, respectively, in exchange
for the assumption of all indebtedness associated with such automobiles by the
Shareholders.
6.15 Memorandum of Assignment of Ownership. Gronik and Schmitt shall have
-------------------------------------
executed a Memorandum of Assignment of Ownership in the form attached as Exhibit
-------
F hereto with respect to the assignment of all rights, title and interest in
- -
certain computer programs to AccuVal.
6.16 Termination of Financing Statements. Any UCC financing statement
-----------------------------------
evidencing a security interest in any of either Companies' assets shall have
been terminated, and satisfactory evidence of such termination shall have been
provided to the DoveBid Companies.
<PAGE>
ARTICLE VII
TERMINATION
7.1 Right to Terminate. This Agreement may be terminated and the
------------------
transactions contemplated herein abandoned at any time prior to the Closing: (i)
by the mutual written consent of the parties hereto (which, for purposes of this
Article, the DoveBid Companies shall be considered collectively one party and
both Companies and both Shareholders collectively shall be considered one
party); (ii) by either party, if such party is not in material breach of any
representation, warranty, covenant or agreement contained in this Agreement, and
such other party is in material breach of any representation, warranty, covenant
or agreement contained in this Agreement and such breaching party fails to cure
such material breach within fifteen days after receipt of written notice of such
material breach from the non-breaching party; (iii) by either party, if there is
a final nonappealable order of a federal or state court in effect preventing
consummation of the transactions contemplated herein, or if any statute, rule,
regulation or order is enacted, promulgated or issued or deemed applicable to
the transactions contemplated herein by any governmental body that would make
consummation of the transactions contemplated herein illegal; or (iv) by either
party if the transactions contemplated herein have not occurred by March 3,
2000.
7.2 Termination Procedures. If either party wishes to terminate this
----------------------
Agreement pursuant to Section 7.1, such party shall deliver to the other party a
written notice stating that such party is terminating this Agreement and setting
forth a brief description of the basis of such termination. Termination of this
Agreement will be effective upon the receipt of such notice.
7.3 Continuing Obligations. Following any termination of this Agreement
----------------------
pursuant to this Article VII, the parties to this Agreement will continue to be
liable for breaches of this Agreement prior to such termination and will
continue to perform their respective obligations under Article IX. Except for
the continuing obligations set forth in the preceding sentence, the parties to
this Agreement will be without any further obligation or liability upon any
party in favor of the other party.
ARTICLE VIII
SURVIVAL OF REPRESENTATIONS, INDEMNIFICATION AND REMEDIES
8.1 Survival of Representations. The representations, warranties,
---------------------------
covenants and agreements of the DoveBid Companies contained in this Agreement
will remain operative and in full force and effect, regardless of any
investigation made by or on behalf of the parties to this Agreement, until the
earlier of the termination of this Agreement or the three-year anniversary
Closing Date, whereupon such representations, warranties, covenants and
agreements will expire (except for covenants that by their terms survive for a
longer period). All representations, warranties, covenants and agreements of
the Companies and the Shareholders contained in this Agreement will remain
operative and in full force and effect from the date of this Agreement until the
earlier of the termination of this Agreement or the three-year anniversary of
the Closing, whereupon such representations, warranties, covenants and
agreements will expire (except for provisions that by their terms survive for a
longer period, and for the representations and
<PAGE>
warranties set forth in Sections 2.3 and 2.7, which shall survive for the
statute of limitations period applicable to a claim that would constitute a
breach thereof).
8.2 Indemnification of the DoveBid Companies. Subject to the limitations
----------------------------------------
set forth in this Article VIII, each of the Shareholders, jointly and severally,
hereby indemnify and hold harmless the DoveBid Companies and their officers,
directors, agents and employees, and each person, if any, who controls or may
control a DoveBid Company within the meaning of the Securities Act
(individually, a "DoveBid Indemnitee" and collectively, "DoveBid Indemnitees")
from and against any and all claims, demands, actions, causes of actions,
losses, costs, damages, liabilities and expenses including, without limitation,
reasonable legal fees and expenses ("Damages"):
(a) arising out of any misrepresentation, or breach of, or default in
connection with, any of the representations, warranties, covenants and
agreements given or made by the Companies or any Shareholder in this Agreement
or any certificate, document or instrument delivered by or on behalf of the
Companies or the Shareholders pursuant to this Agreement;
(b) resulting from any failure of any Shareholder to have good, valid
and marketable title to the issued and outstanding shares held by such
Shareholder, free and clear of Liens, or any claim by a current or former
shareholder, or any other person, firm, corporation or entity, seeking to assert
or based upon ownership or rights to ownership of equity interest of the
Companies (or the Purchase Price), any rights of a shareholder of the Companies,
including any options, or preemptive rights or rights to notice or to vote, any
rights under the Companies' Articles of Incorporation, bylaws or other charter
documents, any right under any agreement among the Companies and the
Shareholders or any claim that his or her equity interests or other securities
were wrongfully repurchased by the Companies; or
(c) in connection with a liability of the Companies arising out of any
acts, events, omissions or transactions occurring prior to the Closing Date,
which liabilities were not disclosed to the DoveBid Companies in this Agreement
or the Companies Disclosure Letter and were either known or should have been
known by the Shareholders at the time of the Closing, or any breach of any
agreement entered into by the Companies or the Shareholders prior to the
Closing.
8.3 Indemnification of the Shareholders. The DoveBid Companies hereby
-----------------------------------
jointly and severally agree to indemnify the Shareholders and to hold each of
them harmless from and against any and all Damages:
(a) arising out of any misrepresentation, or breach of, or default in
connection with, any of the representations, warranties, covenants and
agreements given or made by any DoveBid Company in this Agreement or any
certificate, document or instrument delivered by or on behalf of the DoveBid
Companies pursuant to this Agreement; or
(b) in connection with a liability of the Companies arising out of any
acts, events, omissions or transactions occurring after the Closing Date.
<PAGE>
8.4 Limitations on Shareholder Liability; Exceptions.
------------------------------------------------
(a) Limitations on Shareholder Liability. Notwithstanding any other
------------------------------------
term of this Agreement, in no event shall the Shareholders be liable under this
Agreement, including this Article VIII, for an amount which exceeds the Purchase
Price.
(b) Basket. The indemnification provided for in this Article VIII
------
shall not apply unless the aggregate Damages for which one or more DoveBid
Indemnitees seeks indemnification from the Shareholders exceeds $50,000. In the
event that Damages do exceed $50,000, the Shareholders will indemnify the
DoveBid Indemnitee for the portion of Damages in excess of $50,000.
(c) Exceptions to Limitations on Liability. None of the limitations
--------------------------------------
set forth in this Section 8.4 shall in any manner limit the liability or
indemnification obligations of the Shareholders with respect to: (i) intentional
fraud or willful misconduct or (ii) any breach of the representations and
warranties made in Sections 2.3, 2.7or 2.17 hereof.
(d) Actual Knowledge of the DoveBid Companies. The DoveBid Companies
-----------------------------------------
hereby irrevocably waive any right they or any of them may have to file a claim
for reimbursement or indemnity against the Shareholders under the terms of this
Agreement concerning any matter with respect to which it is ultimately proven by
clear and convincing evidence that any DoveBid Company (i) had actual knowledge
prior to the Closing Date of specific facts which clearly and obviously
constitute a breach by the Shareholders of a representation or warrant made
under this Agreement, and (ii) failed to disclose such facts to the
Shareholders.
(e) Insurance Effect. The indemnification payments of an Indemnifying
----------------
Party shall be adjusted so as to give effect to any amounts actually recovered
by the Claiming Party with respect to the matter for which the Claiming Party is
being indemnified or reimbursed from unaffiliated insurance carriers under
insurance policies for the benefit of the Claiming Party that reduce claims that
would otherwise be sustained; provided, however, that this Section 8.4(e) shall
apply only if the provision does not constitute an improper waiver of the
insurer's rights of subrogation against the Claiming Party, and provided
further, that the no Claiming Party shall be under any affirmative obligation as
a result of this Section 8.4(e) to obtain, maintain in force or take any action
with respect to any such insurance policies.
(f) Damages Offset. In the event that Damages to be indemnified by
--------------
the Shareholders under this Article VIII exceed the sum of (i) the amount of
cash paid to the Shareholders at the Closing pursuant to Section 1.1(i) hereof,
(ii) the amount of any cash repayment to the Shareholders by DoveBid, Inc. under
the terms of the Promissory Note, and (iii) an amount equal to the product of
(x) the number of shares of DoveBid, Inc. issued to the Shareholders pursuant to
the conversion of indebtedness of DoveBid, Inc. under the terms of the
Convertible Subordinated Promissory Note by (y) the lesser of the conversion
price of such shares or the fair market value of such shares on date that the
Shareholders become obligated to indemnify such Damages, such excess amount
shall first be offset against amounts owed, if any, by the DoveBid Companies to
the Shareholders pursuant to the Promissory Notes and the Convertible
Subordinated Promissory Notes.
<PAGE>
8.5 Notice of Claim. In the event that any party hereto shall claim
---------------
that it is entitled to be indemnified pursuant to the terms of this Article
VIII, it (the "Claiming Party") shall so notify the party or parties against
which the claim is made (the "Indemnifying Party") in writing of such claim (a
"Notice of Claim") promptly after the Claiming Party has notice of any action,
proceeding, demand or assessment or otherwise has received any claim or notice
from a third party that is reasonably expected to result in a claim for
indemnification by the Claiming Party against the Indemnifying Party; provided,
however, that failure to give a Notice of Claim shall not affect the
indemnification provided hereunder except to the extent the Indemnifying Party
shall have been actually and materially prejudiced as a result of such failure.
DoveBid may give notice of a claim under this Agreement whether for its own
Damages or for Damages incurred by any other DoveBid Indemnitee. The Notice of
Claim shall specify in reasonable detail the breach of representation, warranty,
covenant or agreement claimed by the Claiming Party, including a brief
description of the facts, circumstances or events giving rise to the alleged
Damages, including the identity and address of any third party claimant (to the
extent reasonably available) and copies of any formal demand or complaint, and
the amount of Damages incurred by or imposed upon the Claiming Party on account
thereof. If such Damages are liquidated in amount, the Notice of Claim shall so
state and such amount shall be deemed the amount of the claim of the Claiming
Party. If the amount is not liquidated, the Notice of Claim shall so state and
in such event a claim shall be deemed asserted against the Indemnifying Party on
behalf of the Claiming Party, but no payment shall be made on account thereof
until the amount of such claim is liquidated and the claim is finally
determined.
8.6 Resolution of Notice of Claim. Any Notice of Claim received by the
-----------------------------
Indemnifying Party will be resolved as follows:
(a) Uncontested Claims. In the event that, within twenty calendar days
------------------
after a Notice of Claim is received by the Indemnifying Party, the Indemnifying
Party does not contest such Notice of Claim in writing to the Claiming Party (an
"Uncontested Claim"), the Indemnifying Party will be conclusively deemed to have
consented to the recovery by the Claiming Party of the full amount of Damages
specified in the Notice of Claim in accordance with this Article VIII, including
the offset of any such amounts against amounts owed by the DoveBid Companies to
the Shareholders pursuant to the Promissory Notes, the Convertible Promissory
Notes or otherwise, and, without further notice, to have stipulated to the entry
of a final judgment for damages against the Indemnifying Party for such amount
in any court having jurisdiction over the matter where venue is proper.
(b) Contested Claims. If the Indemnifying Party gives the Claiming
----------------
Party written notice contesting all or any portion of a Notice of Claim (a
"Contested Claim") within the twenty day period, then: (i) such Contested Claim
will be resolved by either (A) a written settlement agreement executed by the
Indemnifying Party and the Claiming Party or (B) in the absence of such a
written settlement agreement, by binding arbitration between the Indemnifying
Party and the Claiming Party in accordance with the terms and provisions of
Section 8.7.
(c) Third Person Claims. Promptly after a Claiming Party has
-------------------
received notice of or has knowledge of any claim by a person not a party to this
Agreement ("Third Person"), or the commencement of any action or proceeding by a
Third Person (such claim or commencement of such action or proceeding being a
"Third Person Claim") that could give rise to a right of
<PAGE>
indemnification under this Agreement, the Claiming Party shall give written
notice of such Third Person Claim to the Indemnifying Party in accordance with
Section 8.5 above. The Claiming Party shall defend any Third Person Claim, and
the costs and expenses incurred by the Claiming Party in connection with such
defense (including but not limited to reasonable attorneys' fees, other
professionals' and experts' fees and court or arbitration costs) shall be
included in the Damages for which the Claiming Party may seek indemnity
hereunder. The Indemnifying Party shall have the right to receive copies of all
pleadings, notices and communications with respect to the Third Person Claim to
the extent that receipt of such documents by the Indemnifying Party does not
affect any privilege relating to the Claiming Party, and may participate in
settlement negotiations with respect to the Third Person Claim. No Claiming
Party shall enter into any settlement of a Third Person Claim without the prior
written consent of the Indemnifying Party (which consent shall not be
unreasonably withheld), provided, that if the Indemnifying Party shall have
consented in writing to any such settlement, then the Indemnifying Party shall
have no power or authority to contest any claim by any Claiming Party for
indemnity under Article VIII for the amount of such settlement; and the
Indemnifying Party will remain responsible to indemnify the Claiming Party for
all Damages as an Uncontested Claim that may be incurred arising out of,
resulting from or caused by the Third-Party Claim to the fullest extent provided
in Article VIII. If the Indemnifying Party does not consent in writing to such
settlement, and the Claiming Party concludes such settlement without such
consent, the issue of whether the settlement is indemnifiable under the terms of
this Article VIII shall be treated as a Contested Claim hereunder.
8.7 Arbitration of Contested Claims.
-------------------------------
(a) Procedure. The DoveBid Companies and the Shareholders agree
---------
that any Contested Claim will be submitted to mandatory, final and binding
arbitration in San Mateo County, California in accordance with the Commercial
Arbitration Rules of the American Arbitration Association then in effect except
as otherwise provided in this Agreement. The parties covenant that they will
participate in the arbitration in good faith, and that they will share in its
costs in accordance with subparagraph (b) below. A Contested Claim finally
resolved in favor of the DoveBid Companies may be satisfied as if such Claim
were an Uncontested Claim pursuant to Article VIII. The arbitration provisions
herein may be enforced by any court of competent jurisdiction, and the party
seeking enforcement will be entitled to an award of all costs, fees and
expenses, including attorneys' fees, to be paid by the party against whom
enforcement is ordered. Judgment upon the award rendered by the arbitrator may
be entered in any court having competent jurisdiction.
(b) Payment of Costs. The DoveBid Companies on the one hand, and
----------------
the Shareholders, on the other hand, will bear the expense of deposits and
advances required by the arbitrator in equal proportions, but either party may
advance such amounts, subject to recovery as an addition or offset to any award.
The arbitrator shall determine the party who is the Prevailing Party and the
party who is the Non-Prevailing Party. The Non-Prevailing Party shall pay all
reasonable costs, fees and expenses related to the arbitration, including
reasonable fees and expenses of attorneys, accountants and other professionals
incurred by the prevailing party, the fees of each arbitrator and the
administrative fee of the arbitration proceedings. If such an award would result
in manifest injustice, however, the arbitrator may apportion such costs,
<PAGE>
fees and expenses between the parties in such a manner as the arbitrator deems
just and equitable.
(c) Burden of Proof. Except as may be otherwise expressly
---------------
provided herein, for any Contested Claim submitted to arbitration, the burden of
proof will be as it would be if the claim were litigated in a judicial
proceeding governed by California law exclusively.
(d) Award. Upon the conclusion of any arbitration proceedings
-----
hereunder, the arbitrator will render findings of fact and conclusions of law
and a final written arbitration award setting forth the basis and reasons for
any decision reached (the "Final Award") and will deliver such documents to the
DoveBid Companies and the Shareholders, together with a signed copy of the Final
Award. The Final Award will constitute a conclusive determination of all issues
in question, binding upon the Shareholders and the DoveBid Companies, and will
include an affirmative statement to such effect.
(e) Timing. The Shareholders, the DoveBid Companies and the
------
arbitrator will conclude each arbitration pursuant to this Section 8.6 as
promptly as possible for the Contested Claim being arbitrated.
(f) Terms of Arbitration. The arbitrator chosen in accordance
--------------------
with these provisions will not have the power to alter, amend or otherwise
affect the terms of these arbitration provisions or the provisions of this
Agreement.
ARTICLE IX
GENERAL
9.1 Confidentiality. The Companies, the Shareholders and the DoveBid
---------------
Companies each recognize that they have received and will receive confidential
information concerning the other during the course of the negotiations and
preparations of this Agreement and the transactions contemplated herein.
Accordingly, the Companies, the Shareholders and the DoveBid Companies each
agree (a) to use their respective best efforts to prevent the unauthorized
disclosure of any confidential information concerning the other that was or is
disclosed during the course of such negotiations and preparations, and is
clearly designated in writing as confidential at the time of disclosure, and (b)
to not make use of or permit to be used any such confidential information other
than for the purpose of effectuating the Closing and related transactions. The
obligations of this Section 9.1 will not apply to information that is required,
in the opinion of counsel to a party hereto, to be disclosed by statute, or
governmental rule or regulation, or, following the Closing, to the disclosure of
information regarding the Companies by the DoveBid Companies. If this Agreement
is terminated, all copies of documents containing confidential information shall
be returned by the receiving party to the disclosing party. Because of the
difficulty of measuring economic losses as a result of the breach of the
foregoing covenants in Section 9.1 and because of the immediate and irreparable
damage that would be caused for which they would have no other adequate remedy,
the parties hereto agree that, in the event of a breach by any of them of the
foregoing covenants, the covenant may be enforced against the other parties by
injunctions and restraining orders.
<PAGE>
9.2 Successors and Assigns. Neither the Companies nor any Shareholder may
----------------------
assign any of its rights or delegate obligations hereunder without the prior
written consent of the DoveBid Companies. The DoveBid Companies may not assign
any of their rights or obligations hereunder without the prior written consent
of Shareholders holding not less than a majority of the voting power in the
Companies, except that a DoveBid Company may assign its rights and obligations
hereunder without the prior written consent of any Shareholder in connection
with a merger, consolidation or sale of all or substantially all of such DoveBid
Company's assets or in connection with a reincorporation, reorganization or
other corporate recapitalization, provided that the acquiring or surviving
corporation or entity agrees to assume all of the DoveBid Company's obligations
under this Agreement, and provided further that, in the case of an asset sale
transaction only, the DoveBid Companies shall remain liable if the assignee
fails to perform the delegated obligations hereunder. This provision does not
govern the assignment of the Promissory Notes or the Convertible Subordinated
Promissory Notes, which shall be governed solely by the provisions thereof.
This Agreement will be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns, provided that the
employees of the Companies generally, and Mr. John Lima in particular, are
intended third party beneficiaries of the provisions of Section 4.13.
9.3 Entire Agreement; Amendments. This Agreement (including the schedules
----------------------------
and exhibits attached hereto) and the documents delivered pursuant hereto
constitute the entire agreement and understanding among the Shareholders, the
Companies and the DoveBid Companies and supersede any prior agreement,
understanding or discussions relating to the DoveBid Companies or the
transactions contemplated by this Agreement. Except as otherwise stated herein,
this Agreement and the exhibits hereto may be modified or amended only by a
written instrument duly executed and authorized by the Shareholders, the
Companies and the DoveBid Companies, acting through their respective officers,
and duly authorized by each of their Board of Directors.
9.4 Counterparts. This Agreement may be executed simultaneously in two or
------------
more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same agreement.
9.5 Expenses; Taxes. The DoveBid Companies will pay the fees, expenses
---------------
and disbursements of the DoveBid Companies and their agents, representatives,
accountants and counsel incurred in connection with the subject matter of this
Agreement and any amendments thereto, including all costs and expenses incurred
in the performance and compliance with all conditions to be performed by the
DoveBid Companies under this Agreement. The Shareholders will pay their and the
Companies' respective fees, expenses and disbursements of counsel and
accountants incurred in connection with the subject matter of this Agreement and
any amendments thereto, including all costs and expenses incurred in the
performance and compliance with all conditions to be performed by them under
this Agreement. Any expenses of the Shareholders and the Companies not paid by
the Shareholders at or prior to the Closing shall be treated as Damages under
Article VIII and shall not be subject to the limitations on liability and
"basket" provisions set forth in Section 8.4. The Shareholders shall pay all
sales, use, transfer, real property transfer, recording, gains, stock transfer
and other similar taxes and fees ("Transfer Taxes") incurred in connection with
the transactions contemplated by this Agreement. The Companies shall file, and
the Shareholders shall cause the Companies to file,
<PAGE>
all necessary documentation and tax returns with respect to such Transfer Taxes.
In addition, the Shareholders acknowledge that they, and not the DoveBid
Companies or the Companies, will pay all taxes due upon the receipt by the
Shareholders of each element of the Purchase Price pursuant to this Agreement.
9.6 Notices. All notices and other communications required or permitted
-------
hereunder shall be effective upon receipt (or refusal of receipt) and shall be
in writing and delivered by depositing the same in United States mail or a
nationally recognized overnight courier service, addressed to the party to be
notified, postage prepaid and registered or certified with return receipt
requested, by delivering the same in person to such party or to an officer or
agent of such party (or in the case of the Shareholders by facsimile), as
follows:
(i) If mailed or delivered to the DoveBid Companies, to each of
the following, using two separate mailings or deliveries:
DoveBid, Inc.
1241 East Hillsdale Blvd.
Foster City, CA 94404
Attn: Cory Ravid, Chief Financial Officer
DoveBid, Inc.
1241 East Hillsdale Blvd.
Foster City, CA 94404
Attn: Anthony Capobianco, General Counsel
(ii) If mailed, delivered or faxed to the Companies or the
Shareholders, to:
David S. Gronik, Jr.
7124 North Beach Drive
Fox Point, WI 53217
Richard E. Schmitt
10111 North Range Line Road
Mequon, WI 53092
With a copy to:
O'Neil, Canon & Hollman, S.C.
111 East Wisconsin Avenue, Suite 1400
Milwaukee, WI 53202
Attn: James G. DeJong
Fax No. (414) 276-6581
<PAGE>
or to such other address (or in the case of the Shareholders, the fax number) as
any party hereto shall specify in writing to the other parties hereto pursuant
to this Section 9.6 from time to time. Such notice shall be effective only upon
actual receipt.
9.7 Governing Law; Forum. This Agreement shall be governed by and
--------------------
construed in accordance with the laws of the State of California, without giving
effect to laws concerning choice of law or conflicts of law. Except as set
forth in Article VIII regarding the arbitration of Contested Claims, all
disputes arising out of this Agreement or the obligations of the parties
hereunder, including disputes that may arise following termination of this
Agreement, shall be subject to the exclusive jurisdiction and venue of the
California state courts of San Mateo County, California (or, if there is federal
jurisdiction, then the exclusive jurisdiction and venue of the United States
District Court having jurisdiction over San Mateo County). EACH PARTY HEREBY
IRREVOCABLY AND UNCONDITIONALLY CONSENTS TO THE PERSONAL AND EXCLUSIVE
JURISDICTION AND VENUE OF SAID COURTS AND WAIVES TRIAL BY JURY AND ANY OBJECTION
THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING
IN ANY SUCH COURT OR THAT SUCH ACTION OR PROCEEDING WAS BROUGHT IN AN
INCONVENIENT COURT AND AGREES NOT TO PLEAD OR CLAIM THE SAME.
9.8 Exercise of Rights and Remedies. Except as otherwise provided herein,
-------------------------------
no delay of, or omission in the exercise of any right, power or remedy accruing
to any party as a result of any breach or default by any other party under this
Agreement shall impair any such right, power, or remedy, nor shall it be
construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
9.9 Time. Time is of the essence with respect to this Agreement.
----
9.10 Reformation and Severability. In case any provision of this
----------------------------
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
9.11 Remedies Cumulative. No right, remedy or election given by any term
-------------------
of this Agreement shall be deemed exclusive but each shall be cumulative with
all other rights, remedies and elections available at law, or in equity or by
contract.
9.12 Construction. This Agreement has been negotiated among the DoveBid
------------
Companies, the Companies, the Shareholders and their respective legal counsel,
and legal or equitable principles that might require the construction of this
Agreement or any provision of this Agreement against the party drafting this
Agreement will not apply in any construction or interpretation of this
Agreement.
<PAGE>
9.13 Captions. The headings of this Agreement are inserted for
--------
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
[The Remainder Of This Page Intentionally Left Blank.]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Stock Purchase
Agreement to be duly executed by the respective authorized representatives of
the DoveBid Companies and the Companies and by each Shareholder as of the day
and year first above written.
DOVEBID VALUATION SERVICES, INC.
By: /s/ Anthony Capobianco
-----------------------------------------
Name: Anthony Capobianco
Title: Vice President and General Counsel
DOVEBID, INC.
By: /s/ Anthony Capobianco
-----------------------------------------
Name: Anthony Capobianco
Title: Vice President and General Counsel
ACCUVAL ASSOCIATES, INCORPORATED
By: /s/ David S. Gronik, Jr.
-----------------------------------------
Name:
Title:
LIQUITEC INDUSTRIES, INCORPORATED
By: /s/ Richard E. Schmitt
-----------------------------------------
Name:
Title:
By: /s/ David S. Gronik, Jr.
-----------------------------------------
David S. Gronik, Jr.
By: /s/ Richard E. Schmitt
-----------------------------------------
Richard E. Schmitt
<PAGE>
EXHIBIT 3.01
DOVEBID, INC.
RESTATED
CERTIFICATE OF INCORPORATION
DoveBid, Inc. (the "Corporation"), a corporation organized under the laws
of the State of Delaware, whose Certificate of Incorporation was filed with the
Delaware Secretary of State on June 4, 1999, under its original name Dove
Partners, Inc., and who subsequently amended such original Certificate of
Incorporation by means of the Restated Certificate of Incorporation filed with
the Delaware Secretary of State on October 15, 1999, hereby again amends and
restates its Certificate of Incorporation so that the same shall read, in its
entirety, as follows.
FIRST: NAME OF CORPORATION
The name of the Corporation is DoveBid, Inc.
SECOND: REGISTERED AGENT
The address of the registered office of the Corporation in the State of
Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle,
and the name of its registered agent at that address is The Corporation Trust
Company.
THIRD: PURPOSE
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
Delaware.
FOURTH: DESIGNATION OF SHARES
1. Classes of Stock. The total number of shares of all classes of stock
----------------
that the Corporation shall have authority to issue is 227,000,000 shares,
consisting of 77,000,000 shares of Preferred Stock, $.001 par value per share
(the "Preferred Stock"), and 150,000,000 shares of Common Stock, $.001 par value
per share (the "Common Stock").
2. Designation of Rights, Preferences and Restrictions of Preferred
----------------------------------------------------------------
Stock.
- -----
2.1 Shares Designated; Split of Outstanding Shares. The Preferred
----------------------------------------------
Stock shall be divided into series. The first series shall consist of 13,000,000
shares and is designated "Series A Preferred Stock." The second series shall
consist of 18,000,000 shares and is designated "Series B Preferred Stock," and
the third series shall consist of 43,000,000 shares and is designated "Series C
Preferred Stock." Upon amendment and restatement of this Certificate of
Incorporation to read as set forth herein, each outstanding share of Series A
Preferred Stock will be split and reconstituted into 1.03221917 shares of such
stock and each outstanding share of Series B Preferred Stock will be split and
reconstituted into 1.016438352 shares of Series B Pre-
<PAGE>
ferred Stock. No fractional shares shall be issued in connection with the
foregoing stock split; all shares of Series A Preferred Stock or Series B
Preferred Stock held by a stockholder will be aggregated by series subsequent to
the foregoing split and each fractional share resulting from such aggregation by
series shall be rounded up or down to the nearest whole share.
2.2 Further Designations. The remaining 3,000,000 shares of
--------------------
Preferred Stock may be issued from time to time in one or more series. The
Board of Directors of the Corporation shall have the full authority permitted by
law and subject to compliance with applicable protective voting rights granted
to or imposed upon any series of Preferred Stock in this Certificate of
Incorporation ("Protective Provisions"), to fix by resolution full, limited,
multiple, fractional, or no voting rights, and such designations, preferences,
and relative, participating, optional or other special rights, qualifications,
limitations or restrictions thereof, of any series that may be desired in
respect of the Preferred Stock. Subject to compliance with applicable
Protective Provisions, the Board of Directors is also authorized to increase or
decrease the number of shares of any series, prior or subsequent to the issue of
that series, but not below the number of shares of such series then outstanding.
In case the number of shares of any series shall be so decreased, the shares
constituting such decrease shall resume the status that they had prior to the
adoption of the resolution originally fixing the number of shares of such
series.
FIFTH: PREFERRED STOCK
The powers, preferences, rights, restrictions, and other matters relating
to the Series A, B and C Preferred Stock (for purposes of the Article Fifth, the
"Preferred Stock") are as follows. Any references to a "Section" in this Article
shall be a reference to a Section within this Article Fifth, unless another
Article is specifically referred to in conjunction with such Section.
1. Dividend Provisions.
-------------------
1.1 Series A, B and C Preferred Stock Preference. The holders of
--------------------------------------------
shares of Preferred Stock shall be entitled to receive cumulative cash
dividends, which shall accumulate on each such share of Series A Preferred Stock
or Series B Preferred Stock outstanding on the date hereof from December 31,
1999 and on any other share of Preferred Stock from the date of issuance of such
share of Preferred Stock, whether or not declared or paid, out of any assets
legally available therefor, prior and in preference to any declaration or
payment of any dividend (payable other than in Common Stock or other securities
and rights convertible into or entitling the holder thereof to receive, directly
or indirectly, additional shares of Common Stock of the Corporation) on the
Common Stock of the Corporation, at the rates of $.0264, $.0616 and $0.2136, for
the Series A, B and C Preferred Stock, respectively, per share per annum. Such
dividends shall be payable quarterly, in cash, on March 31, June 30, September
30 and December 31 of each year while any of Preferred Stock remains
outstanding, commencing on March 31, 2000, for each series of Preferred Stock
(and any provision to the contrary prior to the amendment of this Certificate of
Incorporation on the date hereof is hereby waived and terminated); provided,
--------
however, that dividends on shares of the Preferred Stock will accrue but
payments shall be deferred until:
(a) such time as the Board of Directors declares the same, in its
sole discretion, when, as and if declared, out of funds legally available
therefor; or
2
<PAGE>
(b) immediately prior to the closing of a consolidation or merger of
the Corporation with or into one or more corporations or other entities
(other than a consolidation or merger of the Corporation with or into a
wholly owned subsidiary of the Corporation and other than a merger of the
Corporation effected solely to change domicile) or any other transaction or
series of related transactions in which more than 50% of the voting power
of the Corporation is transferred, disposed of or otherwise held by persons
who were not stockholders prior to such consolidation, merger, transaction
or series of related transactions, or a sale, conveyance or disposition of
all or substantially all of the assets of the Corporation (a "Merger or
Sale").
No interest shall accrue on accumulated dividends. Other than a distribution in
accordance with Section 2 of this Article Fifth, no dividend or distribution
shall be declared or made with respect to the Common Stock of the Corporation or
with respect to any other series of Preferred Stock (as such term is defined in
Article Four, Section 1) until all cumulative dividends accumulated on the then
outstanding Preferred Stock shall have been declared and paid in full.
1.2 Non-cash Dividends. In the event the Corporation shall declare a
------------------
distribution payable in securities of other persons, evidences of indebtedness
issued by the Corporation or other persons, assets (excluding cash dividends) or
options or rights to purchase any such securities or evidences of indebtedness,
then, in each case the holders of the Preferred Stock shall be entitled to a
proportionate share of any such distribution out of assets legally available
therefor in preference to any payment on the Common Stock, as though the holders
of the Preferred Stock were the holders of the number of shares of Common Stock
of the Corporation into which their respective shares of Preferred Stock are
convertible as of the record date fixed for the determination of the holders of
Common Stock of the Corporation entitled to receive such distribution.
1.3 Participation in Remainder. After any dividend distributions
--------------------------
(including any dividends that accumulated in prior years but remain unpaid)
described in Sections 1.1 and 1.2 above have been paid, the holders of shares of
Common Stock and Preferred Stock shall be entitled to receive dividends, when,
if and as declared by the Board of Directors of the Company, out of any assets
legally available therefor, payable pro rata on the Common Stock and the
Preferred Stock on a pari passu basis according to the number of shares of
Common Stock held by such holders, where each holder of shares of Preferred
Stock is to be treated for this purpose as holding the greatest whole number of
shares of Common Stock then issuable upon conversion of all shares of Preferred
Stock held by such holder pursuant to Section 4 below.
2. Liquidation Preference.
----------------------
2.1 Order of Distribution. In the event of any liquidation,
---------------------
dissolution or winding up of the Corporation, either voluntary or involuntary,
including but not limited to a deemed liquidation provided for in Section 2.2
below (each a "Liquidation Event"), the following shall apply.
3
<PAGE>
2.1.1 As a liquidation preference, prior and in preference to
any payment on any Common Stock or any other series of Preferred Stock (as
"Preferred Stock" is defined in Article Four, Section 1):
(a) Each holder of outstanding Series A Preferred
Stock shall be entitled to receive $0.33 (the "Original Series A Issue
Price") for each outstanding share of Series A Preferred Stock held by such
holder;
(b) Each holder of outstanding Series B Preferred
Stock shall be entitled to receive $0.77 (the "Original Series B Issue
Price") for each outstanding share of Series B Preferred Stock held by such
holder; and
(c) Each holder of outstanding Series C Preferred
Stock shall be entitled to receive $2.67 (the "Original Series C Issue
Price") for each outstanding share of Series C Preferred Stock held by such
holder.
The Original Series A Issue Price, the Original Series B Issue Price and the
Original Series C Issue Price shall be collectively referred to as the
applicable "Original Issue Price." If the assets and funds available for
distribution to the holders of the Preferred Stock are insufficient to pay the
full $0.33 for each outstanding share of Series A Preferred Stock, $0.77 for
each outstanding share of Series B Preferred Stock and $2.67 for each
outstanding share of Series C Preferred Stock, then the entire assets and funds
of the Corporation legally available for distribution shall be distributed
ratably to the holders of Preferred Stock in proportion to the aggregate amount
of such liquidation preference each such holder would otherwise be entitled to
receive.
2.1.2 Notwithstanding the provisions of Section 2.1.1 above,
in the event of a Liquidation Event that occurs within one year after the date
in which the first share of Series C Preferred Stock is issued, and if the
holders of the Series C Preferred Stock would not be entitled to receive at
least $5.34 per share pursuant to the terms of Section 2.1.1, 2.1.4 and 2.1.5 as
a result of such Liquidation Event, then the following shall apply in lieu of
Section 2.1.1.
(a) Each holder of outstanding Series C Preferred
Stock shall be entitled to receive $5.34 per share for each outstanding share of
Series C Preferred Stock prior and in preference to any payment pursuant to this
Section 2 on the Series A and B Preferred Stock, on any other series of
Preferred Stock (as "Preferred Stock" is defined in Article Four, Section 1) or
on the Common Stock. If the assets and funds available for distribution to the
holders of the Series C Preferred Stock are insufficient to pay the full $5.34
for each outstanding share of Series C Preferred Stock, then the entire assets
and funds of the Corporation legally available for distribution shall be
distributed ratably to the holders of Series C Preferred Stock in proportion to
the aggregate amount of such liquidation preference each such holder would
otherwise be entitled to receive.
(b) If and to the extent assets and funds of the
Corporation remain legally available for distribution after the full $5.34 per
share has been paid to the holders of the Series C Preferred Stock, then each
holder of outstanding Series A and B Preferred Stock shall be entitled to
receive $0.33 and $0.77 per share, respectively. If the assets and funds avail-
4
<PAGE>
able for distribution to the holders of the Series A and B Preferred Stock are
insufficient to pay the full $0.33 and $0.77 for each outstanding share of
Series A Preferred Stock and Series B Preferred Stock, respectively, then the
entire assets and funds of the Corporation legally available for distribution
shall be distributed ratably to the holders of Series A and B Preferred Stock in
proportion to the aggregate amount of such remainder that each such holder would
otherwise be entitled to receive.
2.1.3 If and to the extent assets and funds of the
Corporation remain legally available for distribution after the distribution
described in Section 2.1.1 or 2.1.2 above, each holder of Common Stock shall be
entitled to receive $0.33 for each outstanding share of Common Stock, prior and
in preference to any further payment on the Preferred Stock. If the assets and
funds available for distribution to the holders of the Common Stock are
insufficient to pay $0.33 for each outstanding share of Common Stock, then the
entire assets and funds of the Corporation legally available for distribution
shall be distributed ratably among such holders based on the aggregate amount
available for distribution to such holders and the number of shares of such
stock held by them.
2.1.4 If and to the extent assets and funds of the
Corporation remain legally available for distribution after the distributions
described in Sections 2.1.1 through 2.1.3 above, then each holder of Preferred
Stock shall be entitled to receive prior and in preference to any further
distribution of any assets of the Corporation to the holders of Common Stock or
of any other series of Preferred Stock (as "Preferred Stock" is defined in
Article Four, Section 1), by reason of their ownership thereof, an amount equal
to accumulated or declared but unpaid dividends on each share of Preferred
Stock. If the assets and funds available for distribution to the holders of the
Preferred Stock are insufficient to pay the full amount of such dividends, then
the entire assets and funds of the Corporation legally available for
distribution shall be distributed ratably to the holders of Preferred Stock in
proportion to the aggregate amount of the accumulated or declared but unpaid
dividends each such holder would otherwise be entitled to receive.
2.1.5 After the distributions described in Sections 2.1.1
through 2.1.4 above have been paid, the entire remaining assets and funds of the
Corporation legally available for distribution to stockholders shall be
distributed among the holders of Preferred Stock and the Common Stock pro rata
based on the number of shares of such stock held by them (in the case of
Preferred Stock, on an as converted basis).
2.2 Deemed Liquidation. A Merger or Sale shall be deemed to be a
------------------
Liquidation Event within the meaning of this Section 2.
2.2.1 No later than 20 days before any Merger or Sale, the
Corporation shall deliver a notice (as provided in Section 4.8 below) to each
holder of Preferred Stock setting forth the principal terms of such Merger or
Sale. Such notice shall include a description of the amounts that would be paid
to holders of Preferred Stock.
2.2.2 Insofar as the consideration to be received by the
Corporation in connection with such Merger or Sale consists of property other
than cash it shall be computed at
5
<PAGE>
the fair value thereof at the time of such issue, as determined in good faith by
the Board of Directors.
3. Redemption. The Preferred Stock shall not be redeemable.
----------
4. Conversion. The holders of the Preferred Stock shall have conversion
----------
rights as follows (the "Conversion Rights"):
4.1 Right to Convert.
----------------
4.1.1 Subject to Section 4.3 below, each share of Preferred
Stock shall be convertible, at the option of the holder thereof, at any time
after the date of issuance of such share at the office of the Corporation or any
transfer agent for the Preferred Stock, into such number of fully paid and
nonassessable shares of Common Stock as is determined by dividing the sum of the
applicable Original Issue Price on such share by the Conversion Price at the
time in effect for such share. The initial Conversion Price per share for each
series of Preferred Stock shall be the applicable Original Issue Price;
provided, however, that such Conversion Prices shall be subject to adjustment as
- --------
set forth in Section 4.3 below.
4.1.2 Each share of Preferred Stock shall automatically be
converted into such number of fully paid and nonassessable shares of Common
Stock as is determined by dividing the applicable Original Issue Price by the
Conversion Price at the time in effect for such Preferred Stock immediately upon
the earlier of (a) the first closing of a bona fide, firmly underwritten public
offering of shares of Common Stock registered under the Securities Act of 1933,
as amended (the "Securities Act"), raising gross proceeds of at least
$50,000,000 in the aggregate, provided, that, immediately after the public
--------
offering, the Corporation's Common Stock is listed on a national securities
exchange or over-the-counter market (a "Qualifying IPO") or (b) the date upon
which the holders of at least 66.7% of the then outstanding shares of Preferred
Stock voting together as a single class on an as-converted basis ("Voting
Together") elect to convert such shares into Common Stock.
4.2 Mechanics of Conversion. Before any holder of Preferred Stock
-----------------------
shall be entitled to convert the same into shares of Common Stock, the holder
shall surrender the certificate or certificates therefor, duly endorsed, at the
office of the Corporation or of any transfer agent for the Preferred Stock, and
shall give written notice by mail, postage prepaid, to the Corporation at its
principal corporate office, of the election to convert the same and shall state
therein the name or names in which the certificate or certificates for shares of
Common Stock are to be issued. The Corporation shall, as soon as practicable
thereafter, issue and deliver at such office to such holder of Preferred Stock,
or to the nominee or nominees of such holder, a certificate or certificates for
the number of shares of Common Stock to which such holder shall be entitled as
aforesaid. Such conversion shall be deemed to have been made immediately prior
to the close of business on the date of such election, and the person or persons
entitled to receive the shares of Common Stock issuable upon such conversion
shall be treated for all purposes as the record holder or holders of such shares
of Common Stock as of such date. If the conversion is in connection with an
underwritten offer of securities registered pursuant to the Securities Act, the
conversion may, at the option of any holder tendering Preferred Stock for
conversion, be
6
<PAGE>
conditioned upon the closing with the underwriter of the sale of securities
pursuant to such offering in which event the person(s) entitled to receive the
Common Stock issuable upon such conversion of the Preferred Stock shall not be
deemed to have converted such Preferred Stock until immediately prior to the
closing of such sale of securities.
4.3 Conversion Price Adjustments of Preferred Stock. The Conversion
-----------------------------------------------
Prices of the Preferred Stock shall be subject to adjustment from time to time
as follows.
4.3.1 Upon each issuance by the Corporation of any Additional
Stock (as defined below), after the date upon which any shares of a series of
Preferred Stock were first issued (the "Purchase Date" with respect to such
series), without consideration or for a consideration per share less than the
Conversion Price for such series in effect immediately prior to the issuance of
such Additional Stock, the Conversion Price for such series in effect
immediately prior to each such issuance shall forthwith (except as otherwise
provided in this Section 4.3.1 and in Section 4.3.2 below) be adjusted to a
price determined by multiplying such Conversion Price by a fraction:
(a) The numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such issuance plus
the number of shares of Common Stock which the aggregate consideration
received by the Corporation for such issuance would purchase at such
Conversion Price; and
(b) The denominator of which shall be the number of
shares of Common Stock outstanding immediately prior to such issuance plus
the number of shares of such Additional Stock.
For the purpose of the above calculation, the number of shares of Common Stock
outstanding immediately prior to such issue of Additional Stock shall be
calculated on a fully diluted basis, as if all shares of Preferred Stock and all
other securities convertible into Common Stock had been fully converted into
shares of Common Stock immediately prior to such issuance and any outstanding
warrants, options or other rights for the purchase of shares of Common Stock or
securities convertible into Common Stock had been fully exercised immediately
prior to such issuance (and the resulting securities fully converted into shares
of Common Stock, if so convertible) as of such date, but not including in such
calculation any additional shares of Common Stock issuable with respect to
shares of Preferred Stock, other convertible securities, or outstanding options,
warrants or other rights for the purchase of shares of stock or convertible
securities, solely as a result of the adjustment of the Conversion Price
resulting from the issuance of the Additional Stock causing the adjustment in
question.
4.3.2 No adjustment of the Conversion Prices for the
Preferred Stock shall be made in an amount less than one cent per share,
provided that any adjustments which are not required to be made by reason of
this sentence shall be carried forward and shall be either taken into account in
any subsequent adjustment made prior to three years from the date of the event
giving rise to the adjustment being carried forward, or shall be made at the end
of three years from the date of the event giving rise to the adjustment being
carried forward. Except to the limited extent provided for in Sections 4.3.5(c)
and 4.3.5(d), no adjustment of such Conver-
7
<PAGE>
sion Prices pursuant to Section 4.3.1 and this Section 4.3.2 shall have the
effect of increasing the Conversion Prices above the Conversion Prices in effect
immediately prior to such adjustment.
4.3.3 In the case of the issuance of Common Stock for cash,
the consideration shall be deemed to be the amount of cash paid therefor before
deducting any reasonable discounts, commissions or other expenses allowed, paid
or incurred by the Corporation for any underwriting or otherwise in connection
with the issuance and sale thereof.
4.3.4 In the case of the issuance of the Common Stock for a
consideration in whole or in part other than cash, the consideration other than
cash shall be deemed to be the fair value thereof as determined by the
Corporation's Board of Directors irrespective of any accounting treatment.
4.3.5 In the case of the issuance (whether before, on or
after the applicable Purchase Date) of options to purchase or rights to
subscribe for Common Stock, securities by their terms convertible into or
exchangeable for Common Stock or options to purchase or rights to subscribe for
such convertible or exchangeable securities, the following provisions shall
apply for all purposes of Sections 4.3.1 and 4.3.2 above and Section 4.3.6
below.
(a) The aggregate maximum number of shares of Common
Stock deliverable upon exercise (assuming the satisfaction of any conditions to
exercisability, including without limitation, the passage of time, but without
taking into account potential antidilution adjustments) of such options to
purchase or rights to subscribe for Common Stock shall be deemed to have been
issued at the time such options or rights were issued and for a consideration
equal to the consideration (determined in the manner provided in Sections 4.3.3
and 4.3.4 above), if any, received by the Corporation, upon the issuance of such
options or rights plus the exercise price provided in such options or rights
(without taking into account potential antidilution adjustments) for the Common
Stock covered thereby.
(b) The aggregate maximum number of shares of Common
Stock deliverable upon conversion of or in exchange (assuming the satisfaction
of any conditions to convertibility or exchangeability, including, without
limitation, the passage of time, but without taking into account potential
antidilution adjustments) for any such convertible or exchangeable securities or
upon the exercise of options to purchase or rights to subscribe for such
convertible or exchangeable securities and subsequent conversion or exchange
thereof shall be deemed to have been issued at the time such securities were
issued or such options or rights were issued and for a consideration equal to
the consideration, if any, received by the Corporation for any such securities
and related options or rights (excluding any cash received on account of accrued
interest or accrued dividends), plus the additional consideration, if any, to be
received by the Corporation (without taking into account potential antidilution
adjustments) upon the conversion or exchange of such securities or the exercise
of any related options or rights (the consideration in each case to be
determined in the manner provided in Sections 4.3.3 and 4.3.4 above).
(c) In the event of any change in the number of shares
of Common Stock deliverable or in the consideration payable to the Corporation
upon exercise of such options or rights or upon conversion of or in exchange for
such convertible or exchangeable
8
<PAGE>
securities, including, but not limited to, a change resulting from the
antidilution provisions thereof, the applicable Conversion Price, to the extent
in any way affected by or computed using such options, rights or securities,
shall be recomputed to reflect such change, but no further adjustment shall be
made for the actual issuance of Common Stock or any payment of such
consideration upon the exercise of any such options or rights or the conversion
or exchange of such securities.
(d) Upon the expiration of any such options or rights,
the termination of any such rights to convert or exchange or the expiration of
any options or rights related to such convertible or exchangeable securities,
the applicable Conversion Price, to the extent in any way affected by or
computed using such options, rights or securities or options or rights related
to such securities, shall be recomputed to reflect the issuance of only the
number of shares of Common Stock (and convertible or exchangeable securities
which remain in effect) actually issued upon the exercise of such options or
rights, upon the conversion or exchange of such securities or upon the exercise
of the options or rights related to such securities.
(e) The number of shares of Common Stock deemed issued
and the consideration deemed paid therefor pursuant to Sections 4.3.5(a) and (b)
above shall be appropriately adjusted to reflect any change, termination or
expiration of the type described in either Sections 4.3.5(c) or (d) above.
4.3.6 "Additional Stock"' means any shares of Common Stock
issued (or deemed to have been issued pursuant to Section 4.3.5 above) by the
Corporation after the Purchase Date other than:
(a) Common Stock issued pursuant to a transaction
described in Section 4.3.7 through 4.3.10 below or in Section 2.2 above;
(b) the issuance or sale of Common Stock (or options
therefor) to employees, consultants or directors of the Corporation
directly or pursuant to a stock option plan, restricted stock plan or
similar benefit program or agreement approved by the Board of Directors of
the Corporation or the Compensation Committee thereof;
(c) Shares of Common Stock issued or issuable upon
conversion of the Preferred Stock;
(d) Shares of Common Stock issued or issuable in a
Qualifying IPO or securities issued or issuable in any other transaction
registered under the Securities Act;
(e) Shares of Common Stock issued or issuable to
persons or entities with which the Corporation has, or will have, strategic
relationships provided such issuances are for other than primarily equity
financing purposes;
(f) Shares of Common Stock issued or issuable in
connection with a bona fide business acquisition by the Corporation,
whether by merger, consolidation, sale of assets, sale or exchange of stock
or otherwise; or
9
<PAGE>
(g) Shares of capital stock or warrants therefor
issued to a lending or leasing institution in connection with a debt or
lease financing.
4.3.7 In the event the Corporation should at any time or from
time to time after the Purchase Date fix a record date for the effectuation of a
split or subdivision of the outstanding shares of Common Stock or the
determination of holders of Common Stock entitled to receive a dividend or other
distribution payable in additional shares of Common Stock or other securities or
rights convertible into, or entitling the holder thereof to receive directly or
indirectly (but other than a dividend provided for in Section 1.3 above),
additional shares of Common Stock (hereinafter referred to as "Common Stock
Equivalents") without payment of any consideration by such holder for the
additional shares of Common Stock or the Common Stock Equivalents (including the
additional shares of Common Stock issuable upon conversion or exercise thereof),
then, as of such record date (or the date of such dividend distribution, split
or subdivision if no record date is fixed), the applicable Conversion Price for
the Preferred Stock shall be appropriately decreased so that the number of
shares of Common Stock issuable on conversion of each share of such series shall
be increased in proportion to such increase of the aggregate of shares of Common
Stock outstanding and those issuable with respect to such Common Stock
Equivalents with the number of shares issuable with respect to Common Stock
Equivalents determined from time to time in the manner provided for deemed
issuances in Section 4.3.5 above.
4.3.8 If the number of shares of Common Stock outstanding at
any time after the Purchase Date for a series of Preferred Stock is decreased by
a combination of the outstanding shares of Common Stock, then, following the
record date of such combination, the applicable Conversion Price shall be
appropriately increased so that the number of shares of Common Stock issuable on
conversion of each share of such series shall be decreased in proportion to such
decrease in outstanding shares.
4.3.9 If at any time or from time to time there shall be a
recapitalization of the Common Stock (other than a subdivision, stock dividend,
combination, reorganization, merger or consolidation provided for elsewhere in
this Section 4 or treated as a Liquidation Event pursuant to Section 2.2 above)
provision shall be made so that the holders of the Preferred Stock shall
thereafter be entitled to receive upon conversion of the Preferred Stock the
number of shares of stock or other securities or property of the Corporation or
otherwise, to which a holder of Common Stock deliverable upon conversion would
have been entitled on such recapitalization. In any such event, appropriate
adjustment shall be made in the application of the provisions of this Section 4
with respect to the rights of the holders of the Preferred Stock after the
recapitalization to the end that the provisions of this Section 4 (including
adjustment of the Conversion Price then in effect and the number of shares
purchasable upon conversion of the Preferred Stock) shall be applicable after
that event as nearly equivalent as may be practicable.
4.3.10 If at any time or from time to time after the
applicable Purchase Date for a series of Preferred Stock there is a merger,
consolidation or reorganization of the Corporation with or into another
corporation (except an event which is treated as a Liquidation Event pursuant to
Section 2.2), then, as a part of such merger, consolidation or reorganization,
10
<PAGE>
provision shall be made so that the holders of such series of Preferred Stock
thereafter shall be entitled to receive, upon conversion of such Preferred
Stock, the number of shares of stock or other securities or property of the
Corporation, or of such successor corporation resulting from such merger,
consolidation or reorganization, to which a holder of Common Stock deliverable
upon conversion would have been entitled on such merger, consolidation or
reorganization. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 4.3 with respect to the rights of
the holders of the Preferred Stock after the merger, consolidation or
reorganization to the end that the provisions of this Section 4 (including
adjustment of the Conversion Price then in effect and number of shares issuable
upon conversion of the Preferred Stock) shall be applicable after that event and
be as nearly equivalent to the provisions hereof as may be practicable.
4.4 No Impairment. The Corporation will not, by amendment of its
-------------
Certificate of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this Section 4 and in the taking of all such action as may
be necessary or appropriate in order to protect the Conversion Rights of the
holders of the Preferred Stock against impairment.
4.5 No Fractional Shares and Certificate as to Adjustments.
------------------------------------------------------
4.5.1 No fractional shares shall be issued upon conversion of
the Preferred Stock, and the number of shares of Common Stock to be issued shall
be rounded to the nearest whole share. Whether or not fractional shares are
issuable upon such conversion shall be determined on the basis of the total
number of shares of Series A, B or C Preferred Stock that the holder is at the
time converting into Common Stock and the number of shares of Common Stock
issuable upon such aggregate conversion.
4.5.2 Upon the occurrence of each adjustment or readjustment
of the Conversion Price of a series of Preferred Stock pursuant to this Section
4, the Corporation, at its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Preferred Stock so affected a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon the written
request at any time of any holder of Preferred Stock, furnish or cause to be
furnished to such holder a like certificate setting forth (a) such adjustment
and readjustment, (b) the Conversion Price at the time in effect, and (c) the
number of shares of Common Stock and the amount, if any, of other property which
at the time would be received upon the conversion of a share of such Preferred
Stock.
4.6 Notices of Record Date. In the event of any taking by the
----------------------
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend or other distribution, any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other securities or
property, or to receive any other right, the Corporation shall mail to each
holder of Preferred Stock, at least 20
11
<PAGE>
days prior to the date specified therein, a notice specifying the date on which
any such record is to be taken for the purpose of such dividend, distribution or
right, and the amount and character of such dividend, distribution or right.
4.7 Reservation of Stock Issuable Upon Conversion. The Corporation
---------------------------------------------
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock solely for the purpose of effecting the conversion of the
shares of the Preferred Stock such number of its shares of Common Stock as shall
from time to time be sufficient to effect the conversion of all outstanding
shares of Preferred Stock; and if at any time the number of authorized but
unissued shares of Common Stock shall not be sufficient to effect the conversion
of all then outstanding shares of the Preferred Stock, in addition to such other
remedies as shall be available to the holder of such Preferred Stock, the
Corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purposes.
4.8 Notices. Any notice permitted or required by the provisions of
-------
this Section 4, or Section 2 above, to be given to the holders of any shares of
Preferred Stock shall be in writing and shall be deemed to have been given for
all purposes (a) upon personal delivery, (b) one day after being sent, when sent
by professional overnight courier service from and to locations within the
United States, (c) five days after posting when sent by registered or certified
mail, in each case addressed to each bolder of record at its address appearing
on the books of the Corporation.
5. General Voting Rights. In addition to any rights to vote as a separate
---------------------
separate class provided by law, the holder of each share of Preferred Stock
shall have the right to one vote for each share of Common Stock into which such
share of Preferred Stock could then be converted (with any fractional share
determined on an aggregate conversion basis being rounded to the nearest whole
share), and with respect to such vote, such holder shall have full voting rights
and powers equal to the voting rights and powers of the holders of Common Stock,
and shall be entitled, notwithstanding any provision hereof, to notice of any
stockholders' meeting in accordance with the bylaws of the Corporation, and
shall be entitled to vote, together with holders of Common Stock with respect to
any question upon which holders of Common Stock have the right to vote.
6. Election of Directors.
---------------------
6.1 Right to Elect. The Board of Directors of the Corporation (the
--------------
"Board") shall consist of nine members.
6.1.1 So long as more than 7,500,000, but less than
15,000,000, shares of Series C Preferred Stock (adjusted for stock splits and
dividends) remain outstanding, the holders of the Series C Preferred Stock shall
be entitled to elect one member of the Board by vote of holders of at least a
majority of such shares (a "Majority Vote"), and so long as at least 15,000,000
shares of Series C Preferred Stock (adjusted for stock splits and dividends)
remain outstanding, the number of members of the Board the holders of the Series
C Preferred Stock are entitled to elect shall instead be two.
12
<PAGE>
6.1.2 So long as more than 2,418,181 shares of Series A
Preferred Stock (adjusted for stock splits and dividends) remain outstanding,
the holders of the Series A Preferred Stock shall be entitled to elect one
member of the Board by a Majority Vote;
6.1.3 So long as more than 3,116,883 shares of Series B
Preferred Stock (adjusted for stock splits and dividends) remain outstanding,
the holders of the Series B Preferred Stock shall be entitled to elect one
member of the Board by a Majority Vote;
6.1.4 The holders of shares of Common Stock shall be
entitled, voting as a separate class by vote sufficient under Delaware law, to
elect three members of the Board; and
6.1.5 Each of the remaining members of the Board shall be
elected by the holders of the Preferred Stock and the Common Stock, voting
together as a single class by vote sufficient under Delaware law.
6.2 The election of directors pursuant to this Section 6 may take
place either at an annual or special meeting of the applicable stockholders of
the Corporation, or by written consent of the applicable stockholders in lieu of
a meeting (provided such consent is unanimous if so required by applicable law).
The directors to be elected by the stockholders pursuant to this Section 6 shall
serve for terms extending from the date of their election and qualification
until the time of the next succeeding annual meeting of stockholders or until
their successors have been elected and qualified. Any director elected by a
specified group of stockholders pursuant to Section 6.1 above may be removed,
either with or without cause, by, and only by, the affirmative vote of such
specified group of stockholders, either at a special meeting of such
stockholders duly called for that purpose or pursuant to a written consent of
stockholders. In the event of any vacancy, the Secretary (or any Assistant
Secretary) of the Corporation shall, upon the written request of the holders of
record of shares representing at least 20% of the voting power of the
stockholders eligible to elect such director, call a special meeting of the
stockholders of the Corporation for the purpose of electing directors or
circulate an action by written consent to the applicable stockholders. Each
such meeting, if any, shall be held at the earliest practicable date at such
place as is specified in the Bylaws of the Corporation. If such meeting shall
not be called by the Secretary (or any Assistant Secretary) of the Corporation,
or such written consent is not circulated, within ten days after delivery of
said written request on him or her, then the holders of record of shares
representing at least 20% of the voting power of the stockholders eligible to
elect such director may designate in writing one of their number to call such
meeting, or to circulate such written consent, at the expense of the
Corporation, and any such meeting may be called by such person so designated
upon the notice required for annual meeting of stockholders and shall be held at
such specified place. Any stockholder so designated shall have access to the
stock books of the Corporation for the purpose of calling a meeting of the
stockholders or circulating a written consent pursuant to these provisions.
6.3 At any meeting held pursuant to this Section for the purpose of
electing directors, the presence, in person or by proxy, of the holders of
record of shares representing a majority of the voting power of the series or
class entitled to elect one or more directors then outstanding shall be required
to constitute a quorum of the respective series or class, as the case may
13
<PAGE>
be, for the election of directors to be elected solely by the holders of the
series or class, as the case may be. At any such meeting or adjournment thereof,
the absence of such a quorum of the series or class shall not prevent the
election of directors other than the directors to be elected by holders of the
series or class that lacks a quorum. The absence of a quorum for the election of
such other directors shall not prevent the election of the directors to be
elected by the holders of the other series or class that obtains a quorum. In
the absence of all such quorums, the holders of record of shares representing a
majority of the voting power present in person or by proxy of the series or
class of stock that lack a quorum shall have power to adjourn the meeting for
the election of directors who they are entitled to elect from time to time
without notice other than announcement at the meeting, unless notice thereof is
otherwise required by law. A vacancy in any directorship to be elected by a
specified series or class of stockholders may be filled only by (a) a vote of
the holders of such series or class, acting separately as a series or class, as
the case may be, at a meeting or by written consent (provided such consent is
unanimous if so required by applicable law), or (b) the remaining directors
elected by the holders of such series or class (or by directors so elected).
7. Protective Provisions.
---------------------
7.1. Series C Preferred Stock. So long as any share of Series C
------------------------
Preferred Stock remains outstanding, the Corporation shall not, without first
obtaining the approval (by vote or written consent, as provided by law) of the
holders of at least a majority of the then outstanding shares of Series C
Preferred Stock:
(a) create or issue any new class or series of capital stock, or
reclassify any class or series of capital stock into capital stock, having
a preference over the Series C Preferred Stock with respect to voting,
dividends or liquidation rights, or
(b) amend or change the rights, preferences or privileges of the
Series C Preferred Stock.
7.2 Preferred Stock. So long as more than 5,535,065 shares of
---------------
Preferred Stock (adjusted for stock splits and stock dividends) remain
outstanding, the Corporation shall not without first obtaining the approval (by
vote or written consent, as provided by law) of the holders of at least 66.7% of
the then outstanding shares of Preferred Stock (Voting Together):
(a) Effect any sale, lease, assignment, transfer or other
conveyance of all or substantially all of the assets of the Corporation or
any of its subsidiaries in which the Corporation controls more than 50% of
the voting power, or effect any voluntary dissolution, liquidation or
winding up of the Corporation;
(b) Effect any Merger or Sale (as defined in Section 1.1 above);
(c) Authorize, issue or agree to issue shares of capital stock
of the Corporation in any transaction, or series of transactions, such that
the holders of capital stock of the Corporation prior to any such
transaction or series of transactions own less than 50% of the voting power
of the Corporation after such transaction or series of transactions;
14
<PAGE>
(d) Alter or change the rights, preferences or privileges of the
Preferred Stock set forth in the Corporation's Certificate of Incorporation
or Bylaws;
(e) Increase the authorized number of shares of Preferred Stock;
(f) Increase the authorized number of shares of Common Stock;
(g) Increase the number of members of the Corporation's Board of
Directors to greater than nine;
(h) Permit any subsidiary or other entity owned by the
Corporation, and in which the Corporation controls more than 50% of the
voting power, to sell, except to the Corporation or any wholly owned
subsidiary, any equity security or any right to acquire an equity security
in such entity, unless unanimously approved by the Board;
(i) create or issue any new class or series of capital stock, or
reclassify any class or series of capital stock into capital stock, having
a preference over, or being on a parity with, the Preferred Stock with
respect to voting, dividends or liquidation rights;
(j) Acquire or redeem any shares of Common Stock of the
Corporation, except for shares acquired or redeemed from employees,
advisors, officers, directors, consultants and service providers pursuant
to terms approved by the Board; or
(k) Effect any transaction that would involve, or constitute, a
deemed dividend within the meaning of the Internal Revenue Code of 1986, as
amended.
8. Status of Converted Stock. In the event any shares of Preferred Stock
-------------------------
shall be converted pursuant to Section 4 above, the shares so converted shall be
cancelled and shall not be reissuable by the Corporation, and such shares shall
assume the status of authorized but unissued shares of Preferred Stock.
SIXTH: COMMON STOCK
The powers, rights, restrictions and other matters relating to the Common
Stock are as follows.
1. Dividend Rights. Subject to the prior rights of holders of all classes
---------------
of stock at the time outstanding having prior rights as to dividends pursuant to
Section 1 of Article Fifth and any applicable Protective Provisions, the holders
of the Common Stock shall be entitled to receive, when and as declared by the
Board of Directors, out of any assets of the Corporation legally available
therefor, such dividends as may be declared from time to time by the Board of
Directors.
2. Liquidation Rights. Upon the liquidation, dissolution or winding up of
------------------
the Corporation, the assets of the Corporation shall be distributed as provided
in Section 2 of Article Fifth of this Certificate of Incorporation.
3. Redemption. The Common Stock is not redeemable.
----------
15
<PAGE>
4. Voting Rights. Subject to Section 6 of Article Fifth, the holder of
-------------
each share of Common Stock shall have the right to one vote, and shall be
entitled to notice of any stockholders' meeting in accordance with the bylaws of
the Corporation, and shall be entitled to vote upon such matters and in such
manner as may be provided by law.
SEVENTH: MANAGEMENT OF CORPORATION
The business and affairs of the Corporation shall be managed by and under
the direction of the Board.
EIGHTH: INDEMNIFICATION AND LIABILITY OF DIRECTORS
To the fullest extent permitted by the General Corporation Law of the State
of Delaware, as the same exists or may hereafter be amended, a director of the
Corporation shall not be liable to the Corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director. The liability of a
director of the Corporation to the Corporation or its stockholders for monetary
damages shall be eliminated to the fullest extent permissible under applicable
law in the event it is determined that Delaware law does not apply. The
Corporation is authorized to provide by bylaw, agreement or otherwise for
indemnification of directors, officers, employees and agents for breach of duty
to the Corporation and its stockholders in excess of the indemnification
otherwise permitted by applicable law. Any repeal or modification of this
Article shall not result in any increase in liability for a director with
respect to any action or omission occurring prior to such repeal or
modification.
NINTH: AMENDMENT OR REPEAL OF CERTIFICATE
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute and by this Certificate of Incorporation, and
all rights conferred upon stockholders herein are granted subject to this
reservation.
TENTH: AMENDMENT OR REPEAL OF BYLAWS
In addition to the other powers expressly granted by statute, the Board of
Directors of the Corporation shall have the power to adopt, repeal, alter or
amend the bylaws of the Corporation, subject to the Protective Provisions set
forth herein.
This Amended and Restated Certificate of Incorporation has been duly
adopted by the written consent of the stockholders in accordance with the
provisions of Sections 242, 245 and 228 of the General Corporation Law of
Delaware, as amended, and written notice has been given as provided in Section
228 of the General Corporation Law of Delaware.
[Signature page follows]
16
<PAGE>
IN WITNESS WHEREOF, DoveBid, Inc. has caused this Restated Certificate of
Incorporation to be signed by its President as of this 25 day of February
2000
DOVEBID, INC.
By: /s/ Jeff Crowe
__________________________________
Its: President
17
<PAGE>
EXHIBIT 3.03
AMENDED AND RESTATED BYLAWS
OF
DOVEBID, INC.,
a Delaware corporation
ARTICLE I
OFFICES
Section 1.1 Registered Office. The registered office of this Corporation
-----------------
shall be in the City of Wilmington, County of New Castle, Delaware and the name
of the resident agent in charge thereof is the agent named in the Certificate of
Incorporation until changed by the Board of Directors (the "Board").
Section 1.2 Principal Office. The principal office for the transaction of
----------------
the business of the Corporation shall be at such place as may be established by
the Board. The Board is granted full power and authority to change said
principal office from one location to another.
Section 1.3 Other Offices. The Corporation may also have an office or
-------------
offices at such other places, either within or without the State of Delaware, as
the Board may from time to time designate or the business of the Corporation may
require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 2.1 Time and Place of Meetings. Meetings of stockholders shall be
--------------------------
held at such time and place, within or without the State of Delaware, as shall
be stated in the notice of the meeting or in a duly executed waiver of notice
thereof.
Section 2.2 Annual Meetings. Annual meetings of the stockholders of the
---------------
Corporation for the purpose of electing directors and for the transaction of
such other proper business as may come before such meetings may be held at such
time, date and place as the Board shall determine by resolution.
Section 2.3 Special Meeting. Special meetings of the stockholders of the
---------------
Corporation for any purpose or purposes may be called at any time by the Board,
or by a committee of the Board that has been duly designated by the Board and
whose powers and authority, as provided in a resolution of the Board or in the
Bylaws of the Corporation, include the power to call such meetings, and shall be
called by the president or secretary at the request in writing of a majority of
the Board, or at the request in writing of stockholders owning a majority in
amount of the entire capital stock of the Corporation issued and outstanding and
entitled to vote but such special meetings may not be called by any other person
or persons; provided, however, that if and to the extent that any special
meeting of stockholders may be called by any other person or persons specified
in any provisions of the Certificate of Incorporation or any amendment thereto,
or any certificate filed under Section 151(g) of the Delaware General
Corporation Law (or its successor statute as in effect from time to time
hereafter), then such special meeting may also be
<PAGE>
called by the person or persons in the manner, at the times and for the purposes
so specified. Business transacted at any special meeting of stockholders shall
be limited to the purposes stated in the notice.
Section 2.4 Stockholder List. The officer who has charge of the stock ledger
----------------
of the Corporation shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting or at the place of the meeting, and the list shall also be available at
the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
Section 2.5 Notice of Meetings. Notice of each meeting of stockholders,
------------------
whether annual or special, stating the place, date and hour of the meeting and,
in the case of a special meeting, the purpose or purposes for which such meeting
has been called, shall be given to each stockholder of record entitled to vote
at such meeting not less than ten nor more than sixty days before the date of
the meeting. Except as otherwise expressly required by law, notice of any
adjourned meeting of the stockholders need not be given if the time and place
thereof are announced at the meeting at which the adjournment is taken.
Whenever any notice is required to be given under the provisions of the
statutes or of the Certificate of Incorporation or of these Bylaws, a waiver
thereof in writing, signed by the person or persons entitled to said notice,
whether before or after the time stated therein, shall be deemed equivalent
thereto. Notice of any meeting of stockholders shall be deemed waived by any
stockholder who shall attend such meeting in person or by proxy, except a
stockholder who shall attend such meeting for the express purpose of objecting,
at the beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened.
Section 2.6 Quorum and Adjournment. The holders of a majority of the stock
----------------------
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum for holding all meetings of
stockholders, except as otherwise provided by applicable law or by the
Certificate of Incorporation; provided, however, that the stockholders present
at a duly called or held meeting at which a quorum is present may continue to
transact business until adjournment notwithstanding the withdrawal of enough
stockholders to leave less than a quorum, if any action taken (other than
adjournment) is approved by at least a majority of the shares required to
constitute a quorum. If it shall appear that such quorum is not present or
represented at any meeting of stockholders, the Chairman of the meeting shall
have power to adjourn the meeting from-time to time, without notice other than
announcement at the meeting, until a quorum shall be present or represented. At
such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally noticed. If the adjournment is for more than thirty days, or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting. The Chairman of the meeting may determine that
a quorum is present based upon any reasonable
2
<PAGE>
evidence of the presence in person or by proxy of stockholders holding a
majority of the outstanding votes, including without limitation, evidence from
any record of stockholders who have signed a register indicating their presence
at the meeting.
Section 2.7 Voting. In all matters, when a quorum is present at any meeting,
------
the vote of the holders of a majority of the capital stock having voting power
present in person or represented by proxy shall decide any question brought
before such meeting, unless the question is one upon which by express provision
of applicable law or of the Certificate of Incorporation, a different vote is
required in which case such express provision shall govern and control the
decision of such question. Such vote may be viva voce or by written ballot;
provided, however, that the Board may, in its discretion, require a written
ballot for any vote, and further provided that all elections for directors must
be by written ballot upon demand made by a stockholder at any election and
before the voting begins.
Unless otherwise provided in the Certificate of Incorporation each stockholder
shall at every meeting of the stockholders be entitled to one vote in person or
by proxy for each share of the capital stock having voting power held by such
stockholder.
Section 2.8 Proxies. Each stockholder entitled to vote at a meeting of
-------
stockholders may authorize in writing another person or persons to act for such
holder by proxy, but no proxy shall be voted or acted upon after three years
from its date, unless the person executing the proxy specifies therein the
period of time for which it is to continue in force.
Section 2.9 Inspectors of Election. The Corporation shall, in advance of any
----------------------
meeting of stockholders, appoint one or more inspectors to act at the meeting
and make a written report thereof. The Corporation or the Chairman of the
meeting shall appoint one or more alternate inspectors to replace any inspector
who fails to act. Each inspector, before undertaking his or her duties, shall
take and sign an oath faithfully to execute the duties of inspector with strict
impartiality and according to the best of his or her ability. The inspector
shall ascertain the number of shares outstanding and the voting power of each,
determine the shares represented at the meeting and the validity of the proxies
and ballots, count all votes and ballots, determine and retain for a reasonable
period a record of the disposition of any challenges made to any determination
by the inspectors and certify their determination of the number of shares
represented at the meeting and their count of all votes and ballots. The
inspector shall perform his or her duties and shall make all determinations in
accordance with the Delaware General Corporation Law including, without
limitation, Section 231 of the Delaware General Corporation Law.
The date and time of the opening and closing of the polls for each matter upon
which the stockholders will vote at a meeting shall be announced at the meeting.
No ballot, proxies or votes, nor revocations thereof or changes thereto, shall
be accepted by the inspectors after the closing of the polls unless the Court of
Chancery upon application by a stockholder shall determine otherwise.
The appointment of inspectors of election shall be in the discretion of the
Board until such time as the Corporation has a class of voting stock that is (i)
listed on a national securities exchange, (ii) authorized for quotation on an
interdealer quotation system of a registered national
3
<PAGE>
securities association, or (iii) held of record by more than 2,000 stockholders,
at which time appointment of inspectors shall be obligatory.
Section 2.10 Action Without Meeting. Any action of the stockholders may be
----------------------
taken without a meeting, if a majority of the stockholders consent thereto in
writing, and the writing or writings are filed with the minutes of the
proceedings of stockholders, provided, that, prompt notice of the taking of the
action without a meeting by less than unanimous written consent shall be given
to those stockholders who have not consented in writing.
ARTICLE III
DIRECTORS
Section 3.1 Powers. The Board shall have the power to manage or direct the
------
management of the property, business and affairs of the Corporation, and except
as expressly limited by law, to exercise all of its corporate powers. The Board
may establish procedures and rules, or may authorize the Chairman of any meeting
of stockholders to establish procedures and rules, for the fair and orderly
conduct of any meeting including, without limitation, registration of the
stockholders attending the meeting, adoption of an agenda, establishing the
order of business at the meeting, recessing and adjourning the meeting for the
purposes of tabulating any votes and receiving the results thereof, the timing
of the opening and closing of the polls, and the physical layout of the
facilities for the meeting.
Section 3.2 Number, Election and Tenure. The Board shall consist of one or
more members. The exact number shall be determined from time to time by
resolution of the Board. Until otherwise determined by such resolution, the
Board shall consist of seven persons. Directors shall be elected at the annual
meeting of stockholders and each director shall serve until such person's
successor is elected and qualified or until such person's death, retirement,
resignation or removal.
Section 3.3 Vacancies and Newly Created Directorships. Any newly created
-----------------------------------------
directorship resulting from an increase in the number of directors may be filled
by a majority of the Board of Directors then in office, provided that a quorum
is present, and any other vacancy on the Board of Directors may be filled by a
majority of the directors then in office, even if less than a quorum, or by a
sole remaining director.
Section 3.4 Meetings. The Board may hold meetings, both regular and special,
either within or outside the State of Delaware.
Section 3.5 Annul Meeting. The Board shall meet as soon as practicable after
-------------
each annual election of directors.
Section 3.6 Regular Meetings. Regular meetings of the Board shall be held
----------------
without call or notice at such time and place as shall from time to time be
determined by resolution of the Board.
4
<PAGE>
Section 3.7 Special Meetings. Special meetings of the Board may be called at
----------------
any time, and for any purpose permitted by law, by the Chairman of the Board
(or, if the Board does not appoint a Chairman of the Board, the President), or
by the Secretary on the written request of any two members of the Board unless
the Board consists of only one director in which case the special meeting shall
be called on the written request of the sole director, which meetings shall be
held at the time and place designated by the person or persons calling the
meeting. Notice of the time, place and purpose of any such meeting shall be
given to the directors by the Secretary, or in case of the Secretary's absence,
refusal or inability to act, by any other officer. Any such notice may be given
by mail, by telegraph, by telephone, by personal service, or by any combination
thereof as to different directors. If the notice is by mail, then it shall be
deposited in a United States Post Office at least seventy-two hours before the
time of the meeting; if by telegraph, by deposit of the message with the
telegraph company at least twenty-four hours before the time of the meeting; if
by telephone or by personal service, communicated or delivered at least twenty-
four hours before the time of the meeting.
Section 3.8 Quorum. At all meetings of the Board, a majority of the whole
------
Board shall be necessary and sufficient to constitute a quorum for the
transaction of business, and the act of a majority of the directors present at
any meeting at which there is a quorum shall be the act of the Board, except as
may be otherwise specifically provided by applicable law or by the Certificate
of Incorporation or by these Bylaws. Any meeting of the Board may be adjourned
to meet again at a stated day and hour. Even though a quorum is not present, as
required in this Section, a majority of the directors present at any meeting of
the Board, either regular or special, may adjourn from time to time until a
quorum be had. Notice of any adjourned meeting need not be given.
Section 3.9 Fees and Compensation. Each director and each member of a
---------------------
committee of the Board shall receive such fees and reimbursement of expenses
incurred on behalf of the Corporation or in attending meetings as the Board may
from time to time determine. No such payment shall preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor.
Section 3.10 Meetings by Telephonic Communication. Members of the Board or
------------------------------------
any committee thereof may participate in a regular or special meeting of such
Board or committee by means 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.
Section 3.11 Committees. The Board may, by resolution passed by a majority
----------
of the whole Board, designate committees, each committee to consist of one or
more of the directors of the Corporation. The Board may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. Upon the absence or
disqualification of a member of a committee, if the Board has not designated one
or more alternates (or if such alternate(s) are then absent or disqualified),
the member or members thereof present at any meeting and not disqualified from
voting, whether or not such member or members constitute a quorum, may
unanimously appoint another member of the Board to act at the meeting in the
place of any such absent or disqualified member or alternate. Any such
committee, to the extent provided in the resolution of the Board, shall have
5
<PAGE>
and may exercise all the powers and authority of the Board in the management of
the business and affairs of the Corporation, and may authorize the seal of the
Corporation to be affixed to all papers that may require it; but no such
committee shall have the power or authority in reference to: (a) amending the
Certificate of Incorporation (except that a committee may, to the extent
authorized in the resolution or resolutions providing for the issuance of shares
of stock adopted by the Board as provided in Section 151 (a) of the Delaware
General Corporation Law fix the designations and any of the preferences or
rights of such shares relating to dividends, redemption, dissolution, any
distribution of assets of the Corporation or the conversion into, or the
exchange of such shares for, shares of any other class or classes or any other
series of the same or any other class or classes of stock of the Corporation or
fix the number of shares of any series of stock or authorize the increase or
decrease of the shares of any series); (b) adopting an agreement of merger or
consolidation under Section 251 or 252 of the Delaware General Corporation Law;
(c) recommending to the stockholders the sale, lease or exchange of all or
substantially all of the Corporation's property and assets; (d) recommending to
the stockholders a dissolution of the Corporation or a revocation of a
dissolution; or (e) amending the Bylaws of the Corporation. Unless the
resolution appointing such committee or the Certificate of Incorporation
expressly so provides, no such committee shall have the power or authority to
declare a dividend or to authorize the issuance of stock or to adopt a
certificate of ownership and merger pursuant to Section 253 of the Delaware
General Corporation Law. Each committee shall have such name as may be
determined from time to time by resolution adopted by the Board. Each committee
shall keep minutes of its meetings and report to the Board when required.
Section 3.12 Action Without Meetings. Unless otherwise restricted by
-----------------------
applicable law or by the Certificate of Incorporation or by these Bylaws, any
action required or permitted to be taken at any meeting of the Board or of any
committee thereof may be taken without a meeting if all members of the Board or
of such committee, as the case may be, consent thereto in writing, and the
writing or writings are filed with the minutes of the proceedings of the Board
or committee.
Section 3.13 Removal. Unless otherwise restricted by the Certificate of
-------
Incorporation or by law, any director or the entire Board may be removed, with
or without cause, by the holders of a majority of shares entitled to vote at an
election of directors.
ARTICLE IV
OFFICERS
Section 4.1 Appointment and Salaries. The officers of the Corporation shall
------------------------
be appointed by the Board and shall be a President, a Secretary and a Treasurer.
The Board may also appoint a Chairman of the Board and one or more Vice
Presidents and the Board or the President may appoint such other officers
(including Assistant Secretaries and Financial Officers) as the Board or the
President may deem necessary or desirable. The officers shall hold their offices
for such terms and shall exercise such powers and perform such duties as shall
be determined from time to time by the Board. The Board shall fix the salaries
of all officers appointed by it. Unless prohibited by applicable law or by the
Certificate of Incorporation or by these Bylaws, one person may be elected or
appointed to serve in more than one official capacity. Any vacancy occurring in
any office of the Corporation shall be filled by the Board.
6
<PAGE>
Section 4.2 Removal and Resignation. Any officer may be removed, either with
-----------------------
or without cause, by the Board or, in the case of an officer not appointed by
the Board, by the President. Any officer may resign at any time by giving notice
to the Board, the President or Secretary. Any such resignation shall take effect
at the date of receipt of such notice or at any later time specified therein
and, unless otherwise specified in such notice, the acceptance of the
resignation shall not be necessary to make it effective.
Section 4.3 Chairman of the Board. The Board may, at its election, appoint a
---------------------
Chairman of the Board. If such an officer be elected, he or she shall, if
present, preside at all meetings of the stockholders and of the Board and shall
have such other powers and duties as may from time to time be assigned to him or
her by the Board.
Section 4.4 President. Subject to such powers, if any, as may be given by
---------
the Board to the Chairman of the Board, if there is such an officer, the
President shall be the chief executive officer of the Corporation with the
powers of general manager, and he or she shall have supervising authority over
and may exercise general executive powers concerning all of the operations and
business of the Corporation, with the authority from time to time to delegate to
other officers such executive and other powers and duties as he or she may deem
advisable. If there be no Chairman of the Board, or in his or her absence, the
President shall preside at all meetings of the stockholders and of the Board,
unless the Board appoints another person who need not be a stockholder, officer
or director of the Corporation, to preside at a meeting of stockholders.
Section 4.5 Vice President. In the absence of the President, or in the event
--------------
of the President's inability or refusal to act, the Vice President, if any, (or
if there be more than one Vice President, the Vice Presidents in the order of
their rank or, if of equal rank, then in the order designated by the Board or
the President or, in the absence of any designation, then in the order of their
appointment) shall perform the duties of the President and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
President. The rank of Vice Presidents in descending order shall be Executive
Vice President, Senior Vice President and Vice President. The Vice President
shall perform such other duties and have such other powers as the Board may from
time to time prescribe.
Section 4.6 Secretary and Assistant Secretary. The Secretary shall attend
---------------------------------
all meetings of the Board (unless the Board shall otherwise determine) and all
meetings of the stockholders and record all the proceedings of the meetings of
the Corporation and of the Board in a book to be kept for that purpose and shall
perform like duties for the committees when required. The Secretary shall give,
or cause to be given, notice of all meetings of stockholders and special
meetings of the Board. The Secretary shall have custody of the corporate seal of
the Corporation and shall (as well as any Assistant Secretary) have authority to
affix the same to any instrument requiring it and to attest it. The Secretary
shall perform such other duties and have such other powers as the Board or the
President may from time to time prescribe.
Section 4.7 Treasurer. The Treasurer shall have custody of the corporate
---------
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation and shall deposit all monies
and other valuable effects in the name and to the credit of the Corporation in
such depositories as may be designated by the Board. The
7
<PAGE>
Treasurer may disburse the funds of the Corporation as may be ordered by the
Board or the President, taking proper vouchers for such disbursements, and shall
render to the Board at its regular meetings, or when the Board so requires, an
account of transactions and of the financial condition of the Corporation. The
Treasurer shall perform such other duties and have such other powers as the
Board or the President may from time to time prescribe.
If required by the Board, the Treasurer and Assistant Treasurer, if
any, shall give the Corporation a bond (which shall be renewed at such times as
specified by the Board) in such sum and with such surety or sureties as shall be
satisfactory to the Board for the faithful performance of the duties of such
person's office and for the restoration to the Corporation, in case of such
person's death, resignation, retirement or removal from office, of all books,
papers, vouchers, money and other property of whatever kind in such person's
possession or under such person's control belonging to the Corporation.
Section 4.8 Assistant Officers. An assistant officer shall, in the absence
------------------
of the officer to whom such person is an assistant or in the event of such
officer's inability or refusal to act (or, if there be more than one such
assistant officer, the assistant officers in the order designated by the Board
or the President or, in the absence of any designation, then in the order of
their appointment), perform the duties and exercise the powers of such officer.
An assistant officer shall perform such other duties and have such other powers
as the Board or the President may from time to time prescribe.
ARTICLE V
SEAL
It shall not be necessary to the validity of any instrument executed by any
authorized officer or officers of the Corporation that the execution of such
instrument be evidenced by the corporate seal, and all documents, instruments,
contracts and writings of all kinds signed on behalf of the Corporation by any
authorized officer or officers shall be as effectual and binding on the
Corporation without the corporate seal, as if the execution of the same had been
evidenced by affixing the corporate seal thereto. The Board may give general
authority to any officer to affix the seal of the Corporation and to attest the
affixing by signature.
ARTICLE VI
FORM OF STOCK CERTIFICATE
Every holder of stock in the Corporation shall be entitled to have a
certificate signed by, or in the name of, the Corporation by the Chairman or
Vice-Chairman of the Board of Directors, if any, or by the President or a Vice-
President, and by the Treasurer or a Financial Officer, or the Secretary or an
Assistant Secretary certifying the number of shares owned in the Corporation.
Any or all of the signatures on the certificate may be a facsimile signature. If
any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, it may
be issued by the Corporation with the same effect as if such person were such
officer, transfer agent or registrar at the date of the issuance.
8
<PAGE>
If the Corporation shall be authorized to issue more than one class of stock
or more than one series of any class, the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualification, limitations or restrictions of such
preferences and/or rights shall be set forth in full or summarized on the face
or back of the certificate that the Corporation shall issue to represent such
class or series of stock. Except as otherwise provided in Section 202 of the
General Corporation Law of Delaware, in lieu of the foregoing requirements,
there may be set forth on the face or back of the certificate a statement that
the Corporation will furnish without charge to each stockholder who so requests
the powers, designations, preferences and relative, participating, optional or
other special rights of each class of stock or series thereof and the
qualifications, limitations or restrictions of such preferences and/or rights.
ARTICLE VII
REPRESENTATION OF SHARES OF OTHER CORPORATIONS
Any and all shares of any other corporation or corporations standing in the
name of the Corporation shall be voted, and all rights incident thereto shall be
represented and exercised on behalf of the Corporation, as follows: (i) as the
Board of the Corporation may determine from time to time, or (ii) in the absence
of such determination, by the Chairman of the Board, or (iii) if the Chairman of
the Board shall not vote or otherwise act with respect to the shares, by the
President. The foregoing authority may be exercised either by any such officer
in person or by any other person authorized so to do by proxy or power of
attorney duly executed by said officer.
ARTICLE VIII
TRANSFERS OF STOCK
Upon surrender of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignment or authority to transfer, it shall be
the duty of the Corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
ARTICLE IX
LOST, STOLEN OR DESTROYED CERTIFICATES
The Board may direct a new certificate or certificates be issued in place of
any certificate theretofore issued alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of the fact by the person claiming
the certificate to be lost, stolen or destroyed. When authorizing such issue of
a new certificate, the Board may, in its discretion and as a condition precedent
to the issuance, require the owner of such certificate or certificates, or such
person's legal representative, to give the Corporation a bond in such sum as it
may direct as indemnity against any claim that may be made against the
Corporation with respect to the lost, stolen or destroyed certificate.
9
<PAGE>
ARTICLE X
RECORD DATE
The Board may fix in advance a date, which shall not be more than sixty days
nor less than ten days preceding the date of any meeting of stockholders, nor
more than 60 days prior to any other action, as a record date for the
determination of stockholders entitled to notice of or to vote at any such
meeting and any adjournment thereof, or to express consent to corporate action
in writing without a meeting, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise the
rights in respect of any change, conversion or exchange of stock, and in such
case such stockholders, and only such stockholders as shall be stockholders of
record on the date so fixed shall be entitled to such notice of, and to vote at,
such meeting and any adjournment thereof, or to receive payment of such
dividend, or to receive such allotment of rights, or to exercise such rights, or
to give such consent, as the case may be, notwithstanding any transfer of any
stock on the books of the Corporation after any such record date fixed as
aforesaid.
ARTICLE XI
REGISTERED STOCKHOLDERS
The Corporation shall be entitled to treat the holder of record of any share
or shares of stock of the Corporation as the holder in fact thereof and shall
not be bound to recognize any equitable or other claim to or interest in such
share on the part of any other person, whether or not it shall have express or
other notice thereof, except as expressly provided by applicable law.
ARTICLE XII
FISCAL YEAR
The fiscal year of the Corporation shall be fixed by resolution of the Board.
ARTICLE XIII
AMENDMENTS
Subject to any contrary or limiting provisions contained in the Certificate of
Incorporation, these Bylaws may be amended or repealed, or new Bylaws may be
adopted (a) by the affirmative vote of the holders of at least a majority of the
Common Stock of the Corporation, or (b) by the affirmative vote of the majority
of the Board at any regular or special meeting. Any Bylaws adopted or amended by
the stockholders may be amended or repealed by the Board or the stockholders.
ARTICLE XIV
DIVIDENDS
Section 14.1 Declaration. Dividends on the capital stock of the Corporation,
-----------
subject to the provisions of the Certificate of incorporation, if any, may be
declared by the Board at any regular or special meeting, pursuant to law, and
may be paid in cash, in property or in shares of capital stock.
10
<PAGE>
Section 14.2 Set Aside Fund. Before payment of any dividend, there may be
--------------
set aside out of any funds of the Corporation available for dividends such sums
as the directors from time to time, in their absolute discretion, think proper
as a reserve or reserves to meet contingencies, or for equalizing dividends, or
for repairing or maintaining any property of the Corporation, or for such other
purpose as the directors shall determine to be in the best interest of the
Corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
ARTICLE XV
INDEMNIFICATION AND INSURANCE
Section 15.1 Right to indemnification. Each person who was or is a party or
------------------------
is threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director or officer
of the Corporation or is or was serving at the request of the Corporation as a
director or officer of another corporation or of a partnership, joint venture,
trust or other enterprise, including service with respect to employee benefit
plans, whether the basis of such proceeding is alleged action or inaction in an
official capacity or in any other capacity while serving as a director, officer,
employee or agent, shall be indemnified and held harmless by the Corporation to
the fullest extent permitted by the laws of Delaware, as the same exist or may
hereafter be amended, against all costs, charges, expenses, liabilities and
losses (including attorneys' fees, judgments, fines, ERISA excise taxes or
penalties and amounts paid or to be paid in settlement) reasonably incurred or
suffered by such person in connection therewith, and such indemnification shall
continue as to a person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of his or her heirs, executors and
administrators; provided, however, that the Corporation shall indemnify any such
-------- -------
person seeking indemnification in connection with a proceeding (or part thereof)
initiated by such person only if such proceeding (or part thereof) was
authorized by the Board. The right to indemnification conferred in this Article
shall be a contract right and shall include the right to be paid by the
Corporation the expenses incurred in defending any such proceeding in advance of
its final disposition; provided, however, that, if the Delaware General
-------- -------
Corporation Law requires, the payment of such expenses incurred by a director or
officer in his or her capacity as a director or officer (and not in any other
capacity in which service was or is rendered by such person while a director or
officer, including, without limitation, service to an employee benefit plan) in
advance of the final disposition of a proceeding, shall be made only upon
delivery to the Corporation of an undertaking, by or on behalf of such director
or officer, to repay all amounts so advanced if it shall ultimately be
determined that such director or officer is not entitled to be indemnified under
this Section or otherwise. The Corporation may, by action of the Board, provide
indemnification to employees and agents of the Corporation with the same scope
and effect as the foregoing indemnification of directors and officers.
Section 15.2 Right of Claimant to Bring Suit. If a claim under Section 15.1
-------------------------------
of this Article is not paid in full by the Corporation within thirty days after
a written claim has been received by the Corporation, the claimant may at any
time thereafter bring suit against the Corporation to recover the unpaid amount
of the claim and, if successful in whole or in part, the
11
<PAGE>
claimant shall be entitled to be paid also the expense of prosecuting such
claim. It shall be a defense to any such action (other than an action brought to
enforce a claim for expenses incurred in defending any proceeding in advance of
its final disposition where the required undertaking, if any is required, has
been tendered to the Corporation) that the claimant has failed to meet a
standard of conduct which makes it permissible under Delaware law for the
Corporation to indemnify the claimant for the amount claimed. Neither the
failure of the Corporation (including its Board, independent legal counsel, or
its stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is permissible in the circumstances
because he or she has met such standard of conduct, nor an actual determination
by the Corporation (including its Board, independent legal counsel, or its
stockholders) that the claimant has not met such standard of conduct, shall be a
defense to the action or create a presumption that the claimant has failed to
meet such standard of conduct.
Section 15.3 Non-Exclusivity of Rights. The right to indemnification and the
-------------------------
payment of expenses incurred in defending a proceeding in advance of its final
disposition conferred in this Article shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, provision of
the Certificate of Incorporation, bylaw, agreement, vote of stockholders or
disinterested directors or otherwise.
Section 15.4 Insurance. The Corporation may maintain insurance, at its
---------
expense, to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise against any such expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under Delaware law.
Section 15.5 Expenses as a Witness. To the extent that any director, officer,
---------------------
employee or agent of the Corporation is by reason of such position, or a
position with another entity at the request of the Corporation, a witness in any
action, suit or proceeding, he or she shall be indemnified against all costs and
expenses actually and reasonably incurred by him or her or on his or her behalf
in connection therewith.
Section 15.6 Indemnity Agreements. The Corporation may enter into agreements
--------------------
with any director, officer, employee or agent of the Corporation providing for
indemnification to the full extent permitted by Delaware law.
12
<PAGE>
CERTIFICATE OF SECRETARY
OF
DOVE PARTNERS, INC.,
a Delaware corporation
I hereby certify that I am the duly elected and acting Secretary of Dove
Partners, Inc., a Delaware corporation, and that the foregoing Bylaws,
comprising 15 pages, constitute the Bylaws of said corporation as duly adopted
by the Board of Directors on June 4, 1999.
/s/ Cory Ravid
--------------------------------
Cory Ravid
Secretary
<PAGE>
EXHIBIT 10.05
(LOGO/LETTERHEAD OF CB COMMERCIAL REAL ESTATE GROUP, INC.)
This Lease between Dove Holdings, Inc.
------------------------------------------------------------
a California Corporation
-----------------------------------------------------------------------------
("Landlord"), and Dove Brothers, LLC
------------------------------------------------------------
a California Corporation , ("Tenant"), is
-------------------------------------------------------------
dated November 7, 1997
---------- --
1. LEASE OF PREMISES.
In consideration of the Rent (as defined at Section 5.4) and the provisions of
this Lease, Landlord leases to Tenant and Tenant leases from Landlord the
Premises shown by diagonal lines on the floor plan attached hereto as Exhibit
"A", and further described at Section 21. The Premises are located within the
Building and Project described in Section 2m. Tenant shall have the non-
exclusive right (unless otherwise provided herein) in common with Landlord,
other tenants, subtenants and invitees, to use of the Common Areas (as defined
at Section 2e).
2. DEFINITIONS
As used in this Lease, the following terms shall have the following meanings:
a. Base Rent (initial):$2.60 per month per rentable square foot fully
-------------------------------------------------------
serviced/$31.20 /year per year.
---------------------
b. Base Year: The calendar year of 1998
--------------------------------------------
c. Broker(s)
Landlord's: None
--------------------------------------------------------------
Tenant's: None
--------------------------------------------------------------
In the event that CB Commercial Real Estate Group, Inc. represents both Landlord
and Tenant, Landlord and Tenant hereby confirm that they were timely advised of
the dual representation and that they consent to the same, and that they do not
expect said broker to disclose to either of them the confidential information of
the other party.
d. Commencement Date: December 1, 1997
---------------------------------------------------------
e. Common Areas: the building lobbies, common corridors and hallways,
restrooms, garage and parking areas, stairways, elevators and other
generally understood public or common areas. Landlord shall have the right
to regulate or restrict the use of the Common Areas.
f. Expense Stop: (fill in if applicable): $ Base year 1998
-----------------------------------
g. Expiration Date: November 31, 2000 , unless otherwise
------------------------------------------
sooner terminated in accordance with the provisions of this Lease.
h. Index (Section 5.2): United States Department of Labor, Bureau of Labor
Statistics Consumer Price Index for All Urban Consumers, San Francisco-
--------------
Oakland, San Jose Met. Area Average, Subgroup "All Items" (1967 = 100).
---------------------------
i. Landlord's Mailing Address: 1241 E Hillsdale Blvd., Foster City, CA 94404
-----------------------------------------------
Tenant's Mailing Address: 1241 E. Hillsdale Blvd. Foster City, CA 94404
------------------------------------------------
j. Monthly Installments of Base Rent (initial): $ 2.60 fully serviced per
----------------------------
rentable sq. foot per month.
-----------------
k. Parking: Tenant shall be permitted, Free of charge to park 35 cars on a non-
----
exclusive basis in the area(s) designated by Landlord for parking. Tenant
shall abide by any and all parking regulations and rules established from
time to time by Landlord or Landlord's parking operator.
i. Premises: that portion of the Building containing approximately 9,486 square
-------
feet of Rentable Area, shown by diagonal lines on Exhibit "A", located on
the 1st floor of the Building and known as Suite 110.
----- -----
m. Project: the building of which the Premises are a part (the "Building") and
any other buildings or improvements on the real property (the "Property")
located at 1241 E Hillsdale Blvd. Foster City, CA
----------------------------------------------------------------
The Project is known as Dove Building .
--------------------------------------------------
n. Rentable Area: as to both the Premises and the Project, the respective
measurements of floor area as may from time to time be subject to lease by
Tenant and all tenants of the Project, respectively, as determined by
Landlord and applied on a consistent basis throughout the Project.
(1)
<PAGE>
[LOGO/LETTERHEAD OF CB COMMERCIAL REAL ESTATE GROUP, INC.]
TABLE OF CONTENTS
PAGE
Article 1 LEASE OF PREMISES ...................... 1
Article 2 DEFINITIONS ............................ 1
Article 3 EXHIBITS AND ADDENDA ................... 2
Article 4 DELIVERY OF POSSESSION ................. 2
Article 5 RENT ................................... 2
Article 6 INTEREST AND LATE CHARGES .............. 4
Article 7 SECURITY DEPOSIT ....................... 4
Article 8 TENANTS USE OF THE PREMISES ............ 4
Article 9 SERVICES AND UTILITIES ................. 5
Article 10 CONDITION OF THE PREMISES .............. 5
Article 11 CONSTRUCTION, REPAIRS AND MAINTENANCE .. 5
Article 12 ALTERATIONS AND ADDITIONS .............. 6
Article 13 LEASEHOLD IMPROVEMENTS; TENANTS PROPERTY 6
Article 14 RULES AND REGULATIONS .................. 7
Article 15 CERTAIN RIGHTS RESERVED BY LANDLORD .... 7
Article 16 ASSIGNMENT AND SUBLETTING .............. 7
Article 17 HOLDING OVER ........................... 8
Article 18 SURRENDER OF PREMISES .................. 8
Article 19 DESTRUCTION OR DAMAGE .................. 8
Article 20 EMINENT DOMAIN ......................... 8
Article 21 INDEMNIFICATION ........................ 9
Article 22 TENANTS INSURANCE ...................... 9
Article 23 WAIVER OF SUBROGATION .................. 10
Article 24 SUBORDINATION AND ATTORNMENT ........... 10
Article 25 TENANT ESTOPPEL CERTIFICATES ........... 10
Article 26 TRANSFER OF LANDLORD'S INTEREST ........ 10
Article 27 DEFAULT ................................ 10
Article 28 BROKERAGE FEES ......................... 11
Article 29 NOTICES ................................ 11
Article 30 GOVERNMENT ENERGY OR UTILITY CONTROLS .. 11
Article 31 RELOCATION OF PREMISES ................. 11
Article 32 QUIET ENJOYMENT ........................ 12
Article 33 OBSERVANCE OF LAW ...................... 12
Article 34 FORCE MAJEURE .......................... 12
Article 35 CURING TENANT'S DEFAULTS ............... 12
Article 36 SIGN CONTROL ........................... 12
Article 37 MISCELLANEOUS .......................... 12
<PAGE>
o. Security Deposit (Section 7): $ Waived
-------------------------------------------
p. State: the State of California
------------------------------------------------------
q. Tenant's First Adjustment Date (Section 5.2): the first day of the calendar
month following the Commencement Date plus 6 months.
---
r. Tenant's Proportionate Share: 24%. Such share is a fraction, the numerator
--
of which is the Rentable Area of the Premises, and the denominator of which
is the Rentable Area of the Project, as determined by Landlord from time to
time. The Project consists of 1 building(s) containing a total Rentable Area
---
of 39,633 square feet.
--------
s. Tenant's Use Clause (Article 8): general business
-----------------------------------------
t. Term: the period commencing on the Commencement Date and expiring at
midnight on the Expiration Date.
3. EXHIBITS AND ADDENDA.
The exhibits and addenda listed below (unless lined out) are incorporated by
reference in this Lease:
a. Exhibit "A"-Floor Plan showing the Premises.
b. Exhibit "B"-Site Plan of the Project.
c. Exhibit "C"- Building Standard Work Letter.
d. Exhibit "D"-Rules and Regulations.
e. Exhibit "E"-Guarantee.
f. Addenda:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
4. DELIVERY OF POSSESSION.
If for any reason Landlord does not deliver possession of the Premises to Tenant
on the Commencement Date, Landlord shall not be subject to any liability for
such failure, the Expiration Date shall not change and the validity of this
Lease shall not be impaired, but Rent shall be abated until delivery of
possession. "Delivery of possession" shall be deemed to occur on the date
Landlord completes Landlord's Work as defined in Exhibit "C" If Landlord permits
Tenant to enter into possession of the Premises before the Commencement Date,
such possession shall be subject to the provisions of this Lease, including,
without limitation, the payment of Rent.
5. RENT.
5.1. Payment of Base Rent. Tenant agrees to pay the Base Rent for the Premises.
Monthly Installments of Base Rent shall be payable in advance on the first day
of each calendar month of the Term. If the Term begins (or ends) on other than
the first (or last) day of a calendar month, the Base Rent for the partial month
shall be prorated on a per diem basis. Tenant shall pay Landlord the first
Monthly Installment of Base Rent when Tenant executes the Lease.
5.2 Adjusted Base Rent.
a. The Base Rent (and the corresponding Monthly Installments of Base
Rent) set forth at Section 2a shall be adjusted annually (the "Adjustment
Date"), commencing on Tenant's First Adjustment Date. Adjustments, if any,
shall be based upon increases (if any) in the Index. The Index in
publication three (3) months before the Commencement Date shall be the
"Base Index." The Index in publication three (3) months before each
Adjustment Date shall be the "Comparison Index:" As of each Adjustment
Date, the Base Rent payable during the ensuing twelve-month period shall be
determined by increasing the initial Base Rent by a percentage equal to the
percentage increase, if any, in the Comparison Index over the Base Index.
If the Comparison Index for any Adjustment Date is equal to or less than
the Comparison Index for the preceding Adjustment Date (or the Base Index,
in the case of First Adjustment Date), the Base Rent for the ensuing
twelve-month period shall remain the amount of Base Rent payable during
the preceding twelve-month period. When the Base Rent payable as of each
Adjustment Date is determined, Landlord shall promptly give Tenant written
notice of such adjusted Base Rent and the manner in which it was computed.
The Base Rent as so adjusted from time to time shall be the "Base Rent" for
all purposes under this Lease.
b. If at any Adjustment Date the Index no longer exists in the form
described in this Lease, Landlord may substitute any substantially
equivalent official index published by the Bureau of Labor Statistics or
its successor. Landlord shall use any appropriate conversion factors to
accomplish such substitution. The substitute index shall then become the
"Index" hereunder.
5.3 Project Operating Costs.
a. In order that the Rent payable during the Term reflect any increase in
Project Operating Costs, Tenant agrees to pay to Landlord as Rent, Tenant's
Proportionate Share of all increases in costs, expenses and obligations
attributable to the Project and its operation, all as provided below.
b. If, during any calendar year during the Term, Project Operating Costs
exceed the Project Operating Costs for the Base Year, Tenant shall pay to
Landlord, in addition to the Base Rent and all other payments due under
this Lease, an amount equal to Tenant's Proportionate Share of such excess
Project Operating Costs in accordance with the provisions of this Section
5.3b.
(2)
<PAGE>
(1) The term "Project Operating Costs" shall include all those items described
in the following subparagraphs (a) and (b).
(a) All taxes, assessments, water and sewer charges and other similar
governmental charges levied on or attributable to the Building or Project
or their operation, including without limitation, (i) real property taxes
or assessments levied or assessed against the Building or Project, (ii)
assessments or charges levied or assessed against the Building or Project
by any redevelopment agency, (iii) any tax measured by gross rentals
received from the leasing of the Premises, Building or Project, excluding
any net income, franchise, capital stock, estate or inheritance taxes
imposed by the State or federal government or their agencies, branches or
departments; provided that if at any time during the Term any governmental
entity levies, assesses or imposes on Landlord any (1) general or special,
ad valorem or specific, excise, capital levy or other tax, assessment, levy
or charge directly on the Rent received under this Lease or on the rent
received under any other leases of space in the Building or Project, or (2)
any license fee, excise or franchise tax, assessment, levy or charge
measured by or based, in whole or in part, upon such rent, or (3) any
transfer, transaction, or similar tax, assessment, levy or charge based
directly or indirectly upon the transaction represented by this Lease or
such other leases, or (4) any occupancy, use, per capita or other tax,
assessment, levy or charge based directly or indirectly upon the use or
occupancy of the Premises or other premises within the Building or Project,
then any such taxes, assessments, levies and charges shall be deemed to be
included in the term Project Operating Costs. If at any time during the
Term the assessed valuation of, or taxes on, the Project are not based on a
completed Project having at least eighty-five percent (85%) of the Rentable
Area occupied, then the "taxes" component of Project Operating Costs shall
be adjusted by Landlord to reasonably approximate the taxes which would
have been payable if the Project were completed and at least eighty-five
percent (85%) occupied.
(b) Operating costs incurred by Landlord in maintaining and operating the
Building and Project, including without limitation the following: costs of
(1) utilities; (2) supplies; (3) insurance (including public liability,
property damage, earthquake, and fire and extended coverage insurance for
the full replacement cost of the Building and Project as required by
Landlord or its lenders for the Project; (4) services of independent
contractors; (5) compensation (including employment taxes and fringe
benefits) of all persons who perform duties connected with the operation,
maintenance, repair or overhaul of the Building or Project, and equipment,
improvements and facilities located within the Project, including without
limitation engineers, janitors, painters, floor waxers, window washers,
security and parking personnel and gardeners (but excluding persons
performing services not uniformly available to or performed for
substantially all Building or Project tenants); (6) operation and
maintenance of a room for delivery and distribution of mail to tenants of
the Building or Project as required by the U.S. Postal Service (including,
without limitation, an amount equal to the fair market rental value of the
mail room premises); (7) management of the Building or Project, whether
managed by Landlord or an independent contractor (including, without
limitation, an amount equal to the fair market value of any on-site
manager's office); (8) rental expenses for (or a reasonable depreciation
allowance on) personal property used in the maintenance, operation or
repair of the Building or Project; (9) costs, expenditures or charges
(whether capitalized or not) required by any governmental or quasi-
governmental authority; (10) amortization of capital expenses (including
financing costs) (i) required by a governmental entity for energy
conservation or life safety purposes, or (ii) made by Landlord to reduce
Project Operating Costs; and (11) any other costs or expenses incurred by
Landlord under this Lease and not otherwise reimbursed by tenants of the
Project. If at any time during the Term, less than eighty-five percent
(85%) of the Rentable Area of the Project is occupied, the "operating
costs" component of Project Operating Costs shall be adjusted by Landlord
to reasonably approximate the operating costs which would have been
incurred if the Project had been at least eighty-five percent (85%)
occupied.
(2) Tenant's Proportionate Share of Project Operating Costs shall be payable by
Tenant to Landlord as follows:
(a) Beginning with the calendar year following the Base Year and for each
calendar year thereafter ("Comparison Year"), Tenant shall pay Landlord an
amount equal to Tenant's Proportionate Share of the Project Operating Costs
incurred by Landlord in the Comparison Year which exceeds the total amount
of Project Operating Costs payable by Landlord for the Base Year. This
excess is referred to as the "Excess Expenses."
(b) To provide for current payments of Excess Expenses, Tenant shall, at
Landlord's request, pay as additional rent during each Comparison Year, an
amount equal to Tenant's Proportionate Share of the Excess Expenses payable
during such Comparison Year, as estimated by Landlord from time to time.
Such payments shall be made in monthly installments, commencing on the
first day of the month following the month in which Landlord notifies
Tenant of the amount it is to pay hereunder and continuing until the first
day of the month following the month in which Landlord gives Tenant a new
notice of estimated Excess Expenses. It is the intention hereunder to
estimate from time to time the amount of the Excess Expenses for each
Comparison Year and Tenant's Proportionate Share thereof, and then to make
an adjustment in the following year based on the actual Excess Expenses
incurred for that Comparison Year.
(c) On or before April 1 of each Comparison Year after the first
Comparison Year (or as soon thereafter as is practical) Landlord shall
deliver to Tenant a statement setting forth Tenant's Proportionate Share of
the Excess Expenses for the preceding Comparison Year. If Tenant's
Proportionate Share of the actual Excess Expenses for the previous
Comparison Year exceeds the total of the estimated monthly payments made by
Tenant for such year, Tenant shall pay Landlord the amount of the
deficiency within ten (10) days of the receipt of the statement. If such
total exceeds Tenant's Proportionate Share of the actual Excess Expenses
for such Comparison Year, then Landlord shall credit against Tenant's next
ensuing monthly installment(s) of additional rent an amount equal to the
difference until the credit is exhausted. If a credit is due from Landlord
on the Expiration Date, Landlord shall pay Tenant the amount of the credit.
The obligations of Tenant and Landlord to make payments required under this
Section 5.3 shall survive the Expiration Date.
(d) Tenant's Proportionate Share of Excess Expenses in any Comparison Year
having less than 365 days shall be appropriately prorated.
(e) If any dispute arises as to the amount of any, additional rent due
hereunder, Tenant shall have the right after reasonable notice and at
reasonable times to inspect Landlord's accounting records at Landlord's
accounting office and, if after such inspection Tenant still disputes the
amount of additional rent owed, a certification as to the proper amount
shall be made by Landlord's certified public accountant, which
certification shall be final and conclusive. Tenant agrees to pay the cost
of such certification unless it is determined that Landlord's original
statement overstated Project Operating Costs by more than five percent
(5%).
(3)
<PAGE>
(f) If this Lease sets forth an Expense Stop at Section 2f, then during
the Term Tenant shall be liable for Tenant's Proportionate Share of any
actual Project Operating Costs which exceed the amount of the Expense Stop.
Tenant shall make current payments of such excess costs during the Term in
the same manner as is provided for payment of Excess Expenses under the
applicable provisions of Section 5.3b(2)(b) and (c) above.
5.4 Definition of Rent. All costs and expenses which Tenant assumes or agrees
to pay to Landlord under this Lease shall be deemed additional rent (which,
together with the Base Rent is sometimes referred to as the "Rent"). The Rent
shall be paid to the Building manager (or other person) and at such place, as
Landlord may from time to time designate in writing, without any prior demand
therefor and without deduction or offset, in lawful money of the United States
of America.
5.5 Rent Control. If the amount of Rent or any other payment due under this
Lease violates the terms of any governmental restrictions on such Rent or
payment, then the Rent or payment due during the period of such restrictions
shall be the maximum amount allowable under those restrictions. Upon termination
of the restrictions, Landlord shall, to the extent it is legally permitted,
recover from Tenant the difference between the amounts received during the
period of the restrictions and the amounts Landlord would have received had
there been no restrictions.
5.6 Taxes Payable by Tenant. In addition to the Rent and any other charges to
be paid by Tenant hereunder, Tenant shall reimburse Landlord upon demand for any
and all taxes payable by Landlord (other than net income taxes) which are not
otherwise reimbursable under this Lease, whether or not now customary or within
the contemplation of the parties; where such taxes are upon, measured by or
reasonably attributable to (a) the cost or value of Tenant's equipment,
furniture, fixtures and other personal property located in the Premises, or the
cost or value of any leasehold improvements made in or to the Premises by or for
Tenant, other than Building Standard Work made by Landlord, regardless of
whether title to such improvements is held by Tenant or Landlord; (b) the gross
or net Rent payable under this Lease, including, without limitation, any rental
or gross receipts tax levied by any taxing authority with respect to the receipt
of the Rent hereunder; (c) the possession, leasing, operation, management,
maintenance, alteration, repair, use or occupancy by Tenant of the Premises or
any portion thereof; or (d) this transaction or any document to which Tenant is
a party creating or transferring an interest or an estate in the Premises. If it
becomes unlawful for Tenant to reimburse Landlord for any costs as required
under this Lease, the Base Rent shall be revised to net Landlord the same net
Rent after imposition of any tax or other charge upon Landlord as would have
been payable to Landlord but for the reimbursement being unlawful.
6. INTEREST AND LATE CHARGES.
If Tenant fails to pay when due any Rent or other amounts or charges which
Tenant is obligated to pay under the terms of this Lease, the unpaid amounts
shall bear interest at the maximum rate then allowed by law. Tenant acknowledges
that the late payment of any Monthly Installment of Base Rent will cause
Landlord to lose the use of that money and incur costs and expenses not
contemplated under this Lease, including without limitation, administrative and
collection costs and processing and accounting expenses, the exact amount of
which is extremely difficult to ascertain. Therefore, in addition to interest,
if any such installment is not received by Landlord within ten (10) days from
the date it is due, Tenant shall pay Landlord a late charge equal to ten percent
(10%) of such installment. Landlord and Tenant agree that this late charge
represents a reasonable estimate of such costs and expenses and is fair
compensation to Landlord for the loss suffered from such nonpayment by Tenant.
Acceptance of any interest or late charge shall not constitute a waiver of
Tenant's default with respect to such nonpayment by Tenant nor prevent Landlord
from exercising any other rights or remedies available to Landlord under this
Lease.
7. SECURITY DEPOSIT.
Tenant agrees to deposit with Landlord the Security Deposit set forth at Section
2.0 upon execution of this Lease, as security for Tenant's faithful performance
of its obligations under this Lease. Landlord and Tenant agree that the Security
Deposit may be commingled with funds of Landlord and Landlord shall have no
obligation or liability for payment of interest on such deposit. Tenant shall
not mortgage, assign, transfer or encumber the Security Deposit without the
prior written consent of Landlord and any attempt by Tenant to do so shall be
void, without force or effect and shall not be binding upon Landlord.
If Tenant fails to pay any Rent or other amount when due and payable under this
Lease, or fails to perform any of the terms hereof, Landlord may appropriate and
apply or use all or any portion of the Security Deposit for Rent payments or any
other amount then due and unpaid, for payment of any amount for which Landlord
has become obligated as a result of Tenant's default or breach, and for any loss
or damage sustained by Landlord as a result of Tenant's default or breach, and
Landlord may so apply or use this deposit without prejudice to any other remedy
Landlord may have by reason of Tenant's default or breach. If Landlord so uses
any of the Security Deposit, Tenant shall, within ten (10) days after written
demand therefor, restore the Security Deposit to the full amount originally
deposited; Tenant's failure to do so shall constitute an act of default
hereunder and Landlord shall have the right to exercise any remedy provided for
at Article 27 hereof. Within fifteen (15) days after the Term (or any extension
thereof) has expired or Tenant has vacated the Premises, whichever shall last
occur, and provided Tenant is not then in default on any of its obligations
hereunder, Landlord shall return the Security Deposit to Tenant, or, if Tenant
has assigned its interest under this Lease, to the last assignee of Tenant. If
Landlord sells its interest in the Premises, Landlord may deliver this deposit
to the purchaser of Landlord's interest and thereupon be relieved of any further
liability or obligation with respect to the Security Deposit.
8. TENANT'S USE OF THE PREMISES.
Tenant shall use the Premises solely for the purposes set forth in Tenant's Use
Clause. Tenant shall not use or occupy the Premises in violation of law or any
covenant, condition or restriction affecting the Building or Project or the
certificate of occupancy issued for the Building or Project, and shall, upon
notice from Landlord, immediately discontinue any use of the Premises which is
declared by any governmental authority having jurisdiction to be a violation of
law or the certificate of occupancy. Tenant, at Tenant's own cost and expense,
shall comply with all laws, ordinances, regulations, rules and/or any directions
of any governmental agencies or authorities having jurisdiction which shall, by
reason of the nature of Tenant's use or occupancy of the Premises, impose any
duty upon Tenant or Landlord with respect to the Premises or its use or
occupation. A judgment of any court of competent jurisdiction or the admission
by Tenant in any action or proceeding against Tenant that Tenant has violated
any such laws, ordinances, regulations, rules and/or directions in the use of
the Premises shall be deemed to be a conclusive determination of that fact as
between Landlord and Tenant. Tenant shall not do or permit to be done anything
which will invalidate or increase the cost of any fire, extended coverage or
other insurance policy covering the Building or Project and/or property located
therein, and shall comply with all rules, orders, regulations, requirements and
recommendations of the Insurance Services Office or any other organization
performing a similar function. Tenant shall
(4)
<PAGE>
promptly upon demand reimburse Landlord for any additional premium charged for
such policy by reason of Tenant's failure to comply with the provisions of this
Article. Tenant shall not do or permit anything to be done in or about the
Premises which will in any way obstruct or interfere with the rights of other
tenants or occupants of the Building or Project, or injure or annoy them, or use
or allow the Premises to be used for any improper, immoral, unlawful or
objectionable purpose, nor shall Tenant cause, maintain or permit any nuisance
in, on or about the Premises. Tenant shall not commit or suffer to be committed
any waste in or upon the Premises.
9. SERVICES AND UTILITIES.
Provided that Tenant is not in default hereunder, Landlord agrees to furnish to
the Premises during generally recognized business days, and during hours
determined by Landlord in its sole discretion, and subject to the Rules and
Regulations of the Building or Project, electricity for normal desk top office
equipment and normal copying equipment, and heating, ventilation and air
conditioning ("HVAC") as required in Landlord's judgment for the comfortable use
and occupancy of the Premises. If Tenant desires HVAC at any other time,
Landlord shall use reasonable efforts to furnish such service upon reasonable
notice from Tenant and Tenant shall pay Landlord's charges therefor on demand.
Landlord shall also maintain and keep lighted the common stairs, common entries
and restrooms in the Building. Landlord shall not be in default hereunder or be
liable for any damages directly or indirectly resulting from, nor shall the Rent
be abated by reason of (i) the installation, use or interruption of use of any
equipment in connection with the furnishing of any of the foregoing services,
(ii) failure to furnish or delay in furnishing any such services where such
failure or delay is caused by accident or any condition or event beyond the
reasonable control of Landlord, or by the making of necessary repairs or
improvements to the Premises, Building or Project, or (iii) the limitation,
curtailment or rationing of, or restrictions on, use of water, electricity, gas
or any other form of energy serving the Premises, Building or Project. Landlord
shall not be liable under any circumstances for a loss of or injury to property
or business, however occurring, through or in connection with or incidental to
failure to furnish any such services. If Tenant uses heat generating machines or
equipment in the Premises which affect the temperature otherwise maintained by
the HVAC system, Landlord reserves the right to install supplementary air
conditioning units in the Premises and the cost thereof, including the cost of
installation, operation and maintenance thereof, shall be paid by Tenant to
Landlord upon demand by Landlord.
Tenant shall not, without the written consent of Landlord, use any apparatus or
device in the Premises, including without limitation, electronic data processing
machines, punch card machines or machines using in excess of 120 volts, which
consumes more electricity than is usually furnished or supplied for the use of
premises as general office space, as determined by Landlord. Tenant shall not
connect any apparatus with electric current except through, existing electrical
outlets in the Premises. Tenant shall not consume water or electric current in
excess of that usually furnished or supplied for the use of premises as general
office space (as determined by Landlord), without first procuring the written
consent of Landlord, which Landlord may refuse, and in the event of consent,
Landlord may have installed a water heater or electrical current meter in the
Premises to measure the amount of water or electric current consumed. The cost
of any, such meter and of its installation, maintenance and repair shall be paid
for by the Tenant and Tenant agrees to pay to Landlord promptly upon demand for
all such water and electric current consumed as shown by said meters, at the
rates charged for such services by the local public utility plus any additional
expense incurred in keeping account of the water and electric current so
consumed. If a separate meter is not installed, the excess cost for such water
and electric current shall be established by an estimate made by a utility
company or electrical engineer hired by Landlord at Tenant's expense.
Nothing contained in this Article shall restrict Landlord's right to require at
any time separate metering of utilities furnished to the Premises. In the event
utilities are separately metered, Tenant shall pay promptly upon demand for all
utilities consumed at utility rates charged by the local public utility plus any
additional expense incurred by Landlord in keeping account of the utilities so
consumed. Tenant shall be responsible for the maintenance and repair of any such
meters at its sole cost.
Landlord shall furnish elevator service, lighting replacement for building
standard lights, restroom supplies, window washing and janitor services in a
manner that such services are customarily furnished to comparable office
buildings in the area.
10. CONDITION OF THE PREMISES.
Tenant's taking possession of the Premises shall be deemed conclusive evidence
that as of the date of taking possession the Premises are in good order and
satisfactory condition, except for such matters as to which Tenant gave Landlord
notice on or before the Commencement Date. No promise of Landlord to alter,
remodel, repair or improve the Premises, the Building or the Project and no
representation, express or implied, respecting any matter or thing relating to
the Premises, Building, Project or this Lease (including, without limitation,
the condition of the Premises, the Building or the Project) have been made to
Tenant by Landlord or its Broker or Sales Agent, other than as may be contained
herein or in a separate exhibit or addendum signed by Landlord and Tenant.
11. CONSTRUCTION, REPAIRS AND MAINTENANCE.
a. Landlord's; Obligations. Landlord shall perform Landlord's Work to the
Premises. Landlord shall maintain in good order, condition and repair the
Building and all other portions of the Premises not the obligation of
Tenant or of any other tenant in the Building.
b. Tenant's Obligations.
(1) Tenant shall perform Tenant's Work to the Premises as described in
Exhibit "C."
(2) Tenant at Tenant's sole expense shall, except for services furnished
by Landlord pursuant to Article 9 hereof, maintain the Premises in good
order, condition and repair, including the interior surfaces of the
ceilings, walls and floors, all doors, all interior windows, all
plumbing, pipes and fixtures, electrical wiring, switches and fixtures,
Building Standard furnishings and special items and equipment installed
by or at the expense of Tenant.
(3) Tenant shall be responsible for all repairs and alterations in and
to the Premises, Building and Project and the facilities and systems
thereof, the need for which arises out of (i) Tenant's use or occupancy
of the Premises, (ii) the installation, removal, use or operation of
Tenant's Property (as defined in Article 13) in the Premises, (iii) the
moving of Tenant's Property into or out of the Building, or (iv) the
act, omission, misuse or negligence of Tenant, its agents contractors,
employees or invitees.
(5)
<PAGE>
(4) If Tenant fails to maintain the Premises in good order, condition
and repair, Landlord shall give Tenant notice to do such acts as are
reasonably required to so maintain the Premises. If Tenant fails to
promptly commence such work and diligently prosecute it to completion,
then Landlord shall have the right to do such acts and expend such funds
at the expense of Tenant as are reasonably required to perform such
work. Any amount so expended by Landlord shall be paid by Tenant
promptly after demand with interest at the prime commercial rate then
being charged by Bank of America NT & SA plus two percent (2%) per
annum, from the date of such work, but not to exceed the maximum rate
then allowed by law. Landlord shall have no liability to Tenant for any
damage, inconvenience, or interference with the use of the Premises by
Tenant as a result of performing any such work.
c. Compliance with Law. Landlord and Tenant shall each do all acts required
to comply with all applicable laws, ordinances, and rules of any public
authority relating to their respective maintenance obligations as set forth
herein.
d. Waiver by Tenant. Tenant expressly waives the benefits of any statute
now or hereafter in effect which would otherwise afford the Tenant the
right to make repairs at Landlord's expense or to terminate this Lease
because of Landlord's failure to keep the Premises in good order, condition
and repair.
e. Load and Equipment Limits. Tenant shall not place a load upon any floor
of the Premises which exceeds the load per square foot which such floor was
designed to carry, as determined by Landlord or Landlord's structural
engineer. The cost of any such determination made by Landlord's structural
engineer shall be paid for by Tenant upon demand. Tenant shall not install
business machines or mechanical equipment which cause noise or vibration to
such a degree as to be objectionable to Landlord or other Building tenants.
f. Except as otherwise expressly provided in this Lease, Landlord shall
have no liability to Tenant nor shall Tenant's obligations under this Lease
be reduced or abated in any manner whatsoever by reason of any
inconvenience, annoyance, interruption or injury to business arising from
Landlord's making any repairs or changes which Landlord is required or
permitted by this Lease or by any other tenant's lease or required by law
to make in or to any portion of the Project, Building or the Premises.
Landlord shall nevertheless use reasonable efforts to minimize any
interference with Tenant's business in the Premises.
g. Tenant shall give Landlord prompt notice of any damage to or defective
condition in any part or appurtenance of the Building's mechanical,
electrical, plumbing, HVAC or other systems serving, located in, or passing
through the Premises.
h. Upon the expiration or earlier termination of this Lease, Tenant shall
return the Premises to Landlord clean and in the same condition as on the
date Tenant took possession, except for normal wear and tear. Any damage to
the Premises, including any structural damage, resulting from Tenant's use
or from the removal of Tenant's fixtures, furnishings and equipment
pursuant to Section 13b shall be repaired by Tenant at Tenant's expense.
12. ALTERATIONS AND ADDITIONS.
a. Tenant shall not make any additions, alterations or improvements to the
Premises without obtaining the prior written consent of Landlord.
Landlord's consent may be conditioned on Tenant's removing any such
additions, alterations or improvements upon the expiration of the Term and
restoring the Premises to the same condition as on the date Tenant took
possession. All work with respect to any addition, alteration or
improvement shall be done in a good and workmanlike manner by properly
qualified and licensed personnel approved by Landlord, and such work shall
be diligently prosecuted to completion. Landlord may, at Landlord's option,
require that any such work be performed by Landlord's contractor, in which
case the cost of such work shall be paid for before commencement of the
work. Tenant shall pay to Landlord upon completion of any such work by
Landlord's contractor, an administrative fee of fifteen percent (15%) of
the cost of the work.
b. Tenant shall pay the costs of any work done on the Premises pursuant to
Section 12a, and shall keep the Premises, Building and Project free and
clear of liens of any kind. Tenant shall indemnify, defend against and keep
Landlord free and harmless from all liability, loss, damage, costs,
attorneys' fees and any other expense incurred on account of claims by any
person performing work or furnishing materials or supplies for Tenant or
any person claiming under Tenant.
Tenant shall keep Tenant's leasehold interest, and any additions or
improvements which are or become the property of Landlord under this Lease,
free and clear of all attachment or judgment liens. Before the actual
commencement of any work for which a claim or lien may be filed, Tenant
shall give Landlord notice of the intended commencement date a sufficient
time before that date to enable Landlord to post notices of
non-responsibility or any other notices which Landlord deems necessary for
the proper protection of Landlord's interest in the Premises, Building or
the Project, and Landlord shall have the right to enter the Premises and
post such notices at any reasonable time.
c. Landlord may require, at Landlord's sole option, that Tenant provide to
Landlord, at Tenant's expense, a lien and completion bond in an amount
equal to at least one and one-half (1 1/2 ) times the total estimated cost
of any additions, alterations or improvements to be made in or to the
Premises, to protect Landlord against any liability for mechanic's and
materialmen's liens and to insure timely completion of the work. Nothing
contained in this Section 12c shall relieve Tenant of its obligation under
Section 12b to keep the Premises, Building and Project free of all liens.
d. Unless their removal is required by Landlord as provided in Section 12a,
all additions, alterations and improvements made to the Premises shall
become the property of Landlord and be surrendered with the Premises upon
the expiration of the Term; provided, however, Tenant's equipment,
machinery and trade fixtures which can be removed without damage to the
Premises shall remain the property of Tenant and may be removed, subject to
the provisions of Section 13b.
13. LEASEHOLD IMPROVEMENTS; TENANT'S PROPERTY.
a. All fixtures, equipment, improvements and appurtenances attached to or
built into the Premises at the commencement of or during the Term, whether
or not by or at the expense of Tenant ("Leasehold Improvements"), shall be
and remain a part of the Premises, shall be the property of Landlord and
shall not be removed by Tenant, except as expressly provided in Section
13b.
(6)
<PAGE>
b. All movable partitions, business and trade fixtures, machinery and
equipment, communications equipment and office equipment located in the
Premises and acquired by or for the account of Tenant, without expense to
Landlord, which can be removed without structural damage to the Building,
and all furniture, furnishings and other articles of movable personal
property owned by Tenant and located in the Premises (collectively
"Tenant's Property") shall be and shall remain the property of Tenant and
may be removed by Tenant at any time during the Term; provided that if any
of Tenant's Property is removed, Tenant shall promptly repair any damage to
the Premises or to the Building resulting from such removal.
14. RULES AND REGULATIONS.
Tenant agrees to comply with (and cause its agents, contractors, employees and
invitees to comply with) the rules and regulations and with such reasonable
modifications thereof and additions thereto as Landlord may from time to time
make. Landlord shall not be responsible for any violation of said rules and
regulations by other tenants or occupants of the Building or Project.
15. CERTAIN RIGHTS RESERVED BY LANDLORD.
Landlord reserves the following rights, exercisable without liability to Tenant
for (a) damage or injury to property, person or business, (b) causing an actual
or constructive eviction from the Premises, or (c) disturbing Tenant's use or
possession of the Premises:
a. To name the Building and Project and to change the name or street
address of the Building or Project;
b. To install and maintain all signs on the exterior and interior of the
Building and Project;
c. To have pass keys to the Premises and all doors within the Premises,
excluding Tenant's vaults and safes;
d. At any time during the Term, and on reasonable prior notice to Tenant,
to inspect the Premises, and to show the Premises to any prospective
purchaser or mortgagee of the Project, or to any assignee of any mortgage
on the Project, or to others having an interest in the Project or Landlord,
and during the last six months of the Term, to show the Premises to
prospective tenants thereof; and
e. To enter the Premises for the purpose of making inspections, repairs,
alterations, additions or improvements to the Premises or the Building
(including, without limitation, checking, calibrating, adjusting or
balancing controls and other parts of the HVAC system), and to take all
steps as may be necessary or desirable for the safety, protection,
maintenance or preservation of the Premises or the Building or Landlord's
interest therein, or as may be necessary or desirable for the operation or
improvement of the Building or in order to comply with laws, orders or
requirements of governmental or other authority. Landlord agrees to use its
best efforts (except in an emergency) to minimize interference with
Tenant's business in the Premises in the course of any such entry.
16. ASSIGNMENT AND SUBLETTING.
No assignment of this Lease or sublease of all or any part of the Premises shall
be permitted, except as provided in this Article 16.
a. Tenant shall not, without the prior written consent of Landlord, assign
or hypothecate this Lease or any interest herein or sublet the Premises or
any part thereof, or permit the use of the Premises by any party other than
Tenant. Any of the foregoing acts without such consent shall be void and
shall, at the option of Landlord, terminate this Lease. This Lease shall
not, nor shall any interest of Tenant herein, be assignable by operation of
law without the written consent of Landlord.
b. If at any time or from time to time during the Term Tenant desires to
assign this Lease or sublet all or any part of the Premises, Tenant shall
give notice to Landlord setting forth the terms and provisions of the
proposed assignment or sublease, and the identity of the proposed assignee
or subtenant. Tenant shall promptly supply Landlord with such information
concerning the business background and financial condition of such proposed
assignee or subtenant as Landlord may reasonably request. Landlord shall
have the option, exercisable by notice given to Tenant within twenty (20)
days after Tenant's notice is given, either to sublet such space from
Tenant at the rental and on the other terms set forth in this Lease for the
term set forth in Tenant's notice, or, in the case of an assignment, to
terminate this Lease. If Landlord does not exercise such option, Tenant may
assign the Lease or sublet such space to such proposed assignee or
subtenant on the following further conditions:
(1) Landlord shall have the right to approve such proposed assignee or
subtenant, which approval shall not be unreasonably withheld;
(2) The assignment or sublease shall be on the same terms set forth in
the notice given to Landlord;
(3) No assignment or sublease shall be valid and no assignee or
sublessee shall take possession of the Premises until an executed
counterpart of such assignment or sublease has been delivered to
Landlord;
(4) No assignee or sublessee shall have a further right to assign or
sublet except on the terms herein contained; and
(5) Any sums or other economic consideration received by Tenant as a
result of such assignment or subletting, however denominated under the
assignment or sublease, which exceed, in the aggregate, (i) the total
sums which Tenant is obligated to pay Landlord under this Lease
(prorated to reflect obligations allocable to any portion of the
Premises subleased), plus (ii) any real estate brokerage commissions
or fees payable in connection with such assignment or subletting,
shall be paid to Landlord as additional rent under this Lease without
affecting or reducing any other obligations of Tenant hereunder.
c. Notwithstanding the provisions of paragraphs a and b above, Tenant may
assign this Lease or sublet the Premises or any portion thereof, without
Landlord's consent and without extending any recapture or termination
option to Landlord, to any corporation which controls, is controlled by or
is under common control with Tenant, or to any corporation resulting from a
merger or consolidation with Tenant, or to any person or entity which
acquires all the assets of Tenant's business as a going concern, provided
that (i) the assignee or sublessee assumes, in full, the obligations of
Tenant under this Lease, (ii) Tenant remains fully liable under this Lease,
and (iii) the use of the Premises under Article 8 remains unchanged.
(7)
<PAGE>
d. No subletting or assignment shall release Tenant of Tenant's obligations
under this Lease or alter the primary liability of Tenant to pay the Rent
and to perform all other obligations to be performed by Tenant hereunder.
The acceptance of Rent by Landlord from any other person shall not be
deemed to be a waiver by Landlord of any provision hereof. Consent to one
assignment or subletting shall not be deemed consent to any subsequent
assignment or subletting. In the event of default by an assignee or
subtenant of Tenant or any successor of Tenant in the performance of any of
the terms hereof, Landlord may proceed directly against Tenant without the
necessity of exhausting remedies against such assignee, subtenant or
successor. Landlord may consent to subsequent assignments of the Lease or
sublettings or amendments or modifications to the Lease with assignees of
Tenant, without notifying Tenant, or any successor of Tenant, and without
obtaining its or their consent thereto and any such actions shall not
relieve Tenant of liability under this Lease.
e. If Tenant assigns the Lease or sublets the Premises or requests the
consent of Landlord to any assignment or subletting or if Tenant requests
the consent of Landlord for any act that Tenant proposes to do, then Tenant
shall, upon demand, pay Landlord an administrative fee of One Hundred Fifty
and No/100ths Dollars ($150.00) plus any attorneys' fees reasonably
incurred by Landlord in connection with such act or request.
17. HOLDING OVER.
If after expiration of the Term, Tenant remains in possession of the Premises
with Landlord's permission (express or implied), Tenant shall become a tenant
from month to month only, upon all the provisions of this Lease (except as to
term and Base Rent), but the "Monthly Installments of Base Rent" payable by
Tenant shall be increased to one hundred fifty percent (150%) of the Monthly
Installments of Base Rent payable by Tenant at the expiration of the Term. Such
monthly rent shall be payable in advance on or before the first day of each
month. If either party desires to terminate such month to month tenancy, it
shall give the other party not less than thirty (30) days advance written notice
of the date of termination.
18. SURRENDER OF PREMISES.
a. Tenant shall peaceably surrender the Premises to Landlord on the
Expiration Date, in broom-clean condition and in as good condition as when
Tenant took possession, except for (i) reasonable wear and tear, (ii) loss
by fire or other casualty, and (iii) loss by condemnation. Tenant shall, on
Landlord's request, remove Tenant's Property on or before the Expiration
Date and promptly repair all damage to the Premises or Building caused by
such removal.
b. If Tenant abandons or surrenders the Premises, or is dispossessed by
process of law or otherwise, any of Tenant's Property left on the Premises
shall be deemed to be abandoned, and, at Landlord's option, title shall
pass to Landlord under this Lease as by a bill of sale. If Landlord elects
to remove all or any part of such Tenant's Property, the cost of removal,
including repairing any damage to the Premises or Building caused by such
removal, shall be paid by Tenant. On the Expiration Date Tenant shall
surrender all keys to the Premises.
19. DESTRUCTION OR DAMAGE.
a. If the Premises or the portion of the Building necessary for Tenant's
occupancy is damaged by fire, earthquake, act of God, the elements of other
casualty, Landlord shall, subject to the provisions of this Article,
promptly repair the damage, if such repairs can, in Landlord's opinion, be
completed within (90) ninety days. If Landlord determines that repairs can
be completed within ninety (90) days, this Lease shall remain in full force
and effect, except that if such damage is not the result of the negligence
or willful misconduct of Tenant or Tenant's agents, employees, contractors,
licensees or invitees, the Base Rent shall be abated to the extent Tenant's
use of the Premises is impaired, commencing with the date of damage and
continuing until completion of the repairs required of Landlord under
Section 19d.
b. If in Landlord's opinion, such repairs to the Premises or portion of the
Building necessary for Tenant's occupancy cannot be completed within ninety
(90) days, Landlord may elect, upon notice to Tenant given within thirty
(30) days after the date of such fire or other casualty, to repair such
damage, in which event this Lease shall continue in full force and effect,
but the Base Rent shall be partially abated as provided in Section 19a. If
Landlord does not so elect to make such repairs, this Lease shall terminate
as of the date of such fire or other casualty.
c. If any other portion of the Building or Project is totally destroyed or
damaged to the extent that in Landlord's opinion repair thereof cannot be
completed within ninety (90) days, Landlord may elect upon notice to Tenant
given within thirty (30) days after the date of such fire or other
casualty, to repair such damage, in which event this Lease shall continue
in full force and effect, but the Base Rent shall be partially abated as
provided in Section 19a. If Landlord does not elect to make such repairs,
this Lease shall terminate as of the date of such fire Or other casualty.
d. If the Premises are to be repaired under this Article, Landlord shall
repair at its cost any injury or damage to the Building and Building
Standard Work in the Premises. Tenant shall be responsible at its sole cost
and expense for the repair, restoration and replacement of any other
Leasehold Improvements and Tenant's Property. Landlord shall not be liable
for any loss of business, inconvenience or annoyance arising from any
repair or restoration of any portion of the Premises, Building or Project
as a result of any damage from fire or other casualty.
e. This Lease shall be considered an express agreement governing any case
of damage to or destruction of the Premises, Building or Project by fire or
other casualty, and any present or future law which purports to govern the
rights of Landlord and Tenant in such circumstances in the absence of
express agreement, shall have no application.
20. EMINENT DOMAIN.
a. If the whole of the Building or Premises is lawfully taken by
condemnation or in any other manner for any public or quasi-public purpose,
this Lease shall terminate as of the date of such taking, and Rent shall be
prorated to such date. If less than the whole of the Building or Premises
is so taken, this Lease shall be unaffected by such taking, provided that
(i) Tenant shall have the right to terminate this Lease by notice to
Landlord given within ninety (90) days after the date of such taking if
twenty percent (20%) or more of the Premises is taken and the remaining
area of the Premises is not reasonably sufficient for Tenant to continue
operation of its business, and (ii) Landlord shall have the right to
terminate this Lease by notice to Tenant given within ninety (90) days
after the date of such taking. If either Landlord or Tenant so elects to
terminate this Lease, the Lease shall terminate on the thirtieth (30th) day
after either such notice. The Rent shall be prorated to the date of
termination. If this Lease continues in force upon such partial taking, the
Base Rent and Tenant's Proportionate Share shall be equitably adjusted
according to the remaining Rentable Area of the Premises and Project.
(8)
<PAGE>
b. In the event of any taking, partial or whole, all of the proceeds of any
award, judgment or settlement payable by the condemning authority shall be
the exclusive property of Landlord, and Tenant hereby assigns to Landlord
all of its right, title and interest in any award, judgment or settlement
from the condemning authority. Tenant, however, shall have the right, to
the extent that Landlord's award is not reduced or prejudiced, to claim
from the condemning authority (but not from Landlord) such compensation as
may be recoverable by Tenant in its own right for relocation expenses and
damage to Tenant's personal property.
c. In the event of a partial taking of the Premises which does not result
in a termination of this Lease, Landlord shall restore the remaining
portion of the Premises as nearly as practicable to its condition prior to
the condemnation or taking, but only to the extent of Building Standard
Work. Tenant shall be responsible at its sole cost and expense for the
repair, restoration and replacement of any other Leasehold Improvements and
Tenant's Property.
21. INDEMNIFICATION.
a. Tenant shall indemnify and hold Landlord harmless against and from
liability and claims of any kind for loss or damage to property of Tenant
or any other person, or for any injury to or death of any person, arising
out of: (1) Tenant's use and occupancy of the Premises, or any work,
activity or other things allowed or suffered by Tenant to be done in, on or
about the Premises; (2) any breach or default by Tenant of any of Tenant's
obligations under this Lease; or (3) any negligent or otherwise tortious
act or omission of Tenant, its agents, employees, invitees or contractors.
Tenant shall at Tenant's expense, and by counsel satisfactory to Landlord,
defend Landlord in any action or proceeding arising from any such claim and
shall indemnify Landlord against all costs, attorneys' fees, expert witness
fees and any other expenses incurred in such action or proceeding. As a
material part of the consideration for Landlord's execution of this Lease,
Tenant hereby assumes all risk of damage or injury to any person or
property in, on or about the Premises from any cause.
b. Landlord shall not be liable for injury or damage which may be sustained
by the person or property of Tenant, its employees, invitees or customers,
or any other person in or about the Premises, caused by or resulting from
fire, steam, electricity, gas, water or rain which may leak or flow from or
into any part of the Premises, or from the breakage, leakage, obstruction
or other defects of pipes, sprinklers, wires, appliances, plumbing, air
conditioning or lighting fixtures, whether such damage or injury results
from conditions arising upon the Premises or upon other portions of the
Building or Project or from other sources. Landlord shall not be liable for
any damages arising from any act or omission of any other tenant of the
Building or Project.
22. TENANT'S INSURANCE.
a. All insurance required to be carried by Tenant hereunder shall be issued
by responsible insurance companies acceptable to Landlord and Landlord's
lender and qualified to do business in the State. Each policy shall name
Landlord, and at Landlord's request any mortgagee of Landlord, as an
additional insured, as their respective interests may appear. Each policy
shall contain (i) a cross- liability endorsement, (ii) a provision that
such policy and the coverage evidenced thereby shall be primary and
non-contributing with respect to any policies carried by Landlord and that
any coverage carried by Landlord shall be excess insurance, and (iii) a
waiver by the insurer of any right of subrogation against Landlord, its
agents, employees and representatives, which arises or might arise by
reason of any payment under such policy or by reason of any act or omission
of Landlord, its agents, employees or representatives. A copy of each paid
up policy (authenticated by the insurer) or certificate of the insurer
evidencing the existence and amount of each insurance policy required
hereunder shall be delivered to Landlord before the date Tenant is first
given the right of possession of the Premises, and thereafter within thirty
(30) days after any demand by Landlord therefor. Landlord may, at any time
and from time to time, inspect and/or copy any insurance policies required
to be maintained by Tenant hereunder. No such policy shall be cancellable
except after twenty (20) days written notice to Landlord and Landlord's
lender. Tenant shall furnish Landlord with renewals or "binders" of any
such policy at least ten (10) days prior to the expiration thereof. Tenant
agrees that if Tenant does not take out and maintain such insurance,
Landlord may (but shall not be required to) procure said insurance on
Tenant's behalf and charge the Tenant the premiums together with a
twenty-five percent (25%) handling charge, payable upon demand. Tenant
shall have the right to provide such insurance coverage pursuant to blanket
policies obtained by the Tenant, provided such blanket policies expressly
afford coverage to the Premises, Landlord, Landlord's mortgagee and Tenant
as required by this Lease.
b. Beginning on the date Tenant is given access to the Premises for any
purpose and continuing until expiration of the Term, Tenant shall procure,
pay for and maintain in effect policies of casualty insurance covering (i)
all Leasehold Improvements (including any alterations, additions or
improvements as may be made by Tenant pursuant to the provisions of Article
12 hereof), and (ii) trade fixtures, merchandise and other personal
property from time to time in, on or about the Premises, in an amount not
less than one hundred percent (100%) of their actual replacement cost from
time to time, providing protection against any peril included within the
classification "Fire and Extended Coverage" together with insurance against
sprinkler damage, vandalism and malicious mischief. The proceeds of such
insurance shall be used for the repair or replacement of the property so
insured. Upon termination of this Lease following a casualty as set forth
herein, the proceeds under (i) shall be paid to Landlord, and the proceeds
under (ii) above shall be paid to Tenant.
c. Beginning on the date Tenant is given access to the Premises for any
purpose and continuing until expiration of the Term, Tenant shall procure,
pay for and maintain in effect workers' compensation insurance as required
by law and comprehensive public liability and property damage insurance
with respect to the construction of improvements on the Premises, the use,
operation or condition of the Premises and the operations of Tenant in, on
or about the Premises, providing personal injury and broad form property
damage coverage for not less than One Million Dollars ($1,000,000.00)
combined single limit for bodily injury, death and property damage
liability.
d. Not less than every three (3) years during the Term, Landlord and Tenant
shall mutually agree to increases in all of Tenant's insurance policy
limits for all insurance to be carried by Tenant as set forth in this
Article. In the event Landlord and Tenant cannot mutually agree upon the
amounts of said increases, then Tenant agrees that all insurance policy
limits as set forth in this Article shall be adjusted for increases in the
cost of living in the same manner as is set forth in Section 5.2 hereof for
the adjustment of the Base Rent.
(9)
<PAGE>
23. WAIVER OF SUBROGATION.
Landlord and Tenant each hereby waive all rights of recovery against the other
and against the officers, employees, agents and representatives of the other, on
account of loss by or damage to the waiving party of its property or the
property of others under its control, to the extent that such loss or damage is
insured against under any fire and extended coverage insurance policy which
either may have in force at the time of the loss or damage. Tenant shall, upon
obtaining the policies of insurance required under this Lease, give notice to
its insurance carrier or carriers that the foregoing mutual waiver of
subrogation is contained in this Lease.
24. SUBORDINATION AND ATTORNMENT.
Upon written request of Landlord, or any first mortgagee or first deed of trust
beneficiary of Landlord, or ground lessor of Landlord, Tenant shall, in writing,
subordinate its rights under this Lease to the lien of any first mortgage or
first deed of trust, or to the interest of any lease in which Landlord is
lessee, and to all advances made or hereafter to be made thereunder. However,
before signing any subordination agreement, Tenant shall have the right to
obtain from any lender or lessor or Landlord requesting such subordination, an
agreement in writing providing that, as long as Tenant is not in default
hereunder, this Lease shall remain in effect for the full Term. The holder of
any security interest may, upon written notice to Tenant, elect to have this
Lease prior to its security interest regardless of the time of the granting or
recording of such security interest.
In the event of any foreclosure sale, transfer in lieu of foreclosure or
termination of the lease in which Landlord is lessee, Tenant shall attorn to the
purchaser, transferee or lessor as the case may be, and recognize that party as
Landlord under this Lease, provided such party acquires and accepts the Premises
subject to this Lease.
25. TENANT ESTOPPEL CERTIFICATES.
Within ten (10) days after written request from Landlord, Tenant shall execute
and deliver to Landlord or Landlord's designee, a written statement certifying
(a) that this Lease is unmodified and in full force and effect, or is in full
force and effect as modified and stating the modifications; (b) the amount of
Base Rent and the date to which Base Rent and additional rent have been paid in
advance; (c) the amount of any security deposited with Landlord; and (d) that
Landlord is not in default hereunder or, if Landlord is claimed to be in
default, stating the nature of any claimed default. Any such statement may be
relied upon by a purchaser, assignee or lender. Tenant's failure to execute and
deliver such statement within the time required shall at Landlord's election be
a default under this Lease and shall also be conclusive upon Tenant that: (1)
this Lease is in full force and effect and has not been modified except as
represented by Landlord; (2) there are no uncured defaults in Landlord's
performance and that Tenant has no right of offset, counter-claim or deduction
against Rent; and (3) not more than one month's Rent has been paid in advance.
26. TRANSFER OF LANDLORD'S INTEREST.
In the event of any sale or transfer by Landlord of the Premises, Building or
Project, and assignment of this Lease by Landlord, Landlord shall be and is
hereby entirely freed and relieved of any and all liability and obligations
contained in or derived from this Lease arising out of any act, occurrence or
omission relating to the Premises, Building, Project or Lease occurring after
the consummation of such sale or transfer, providing the purchaser shall
expressly assume all of the covenants and obligations of Landlord under this
Lease. If any security deposit or prepaid Rent has been paid by Tenant, Landlord
may transfer the security deposit or prepaid Rent to Landlord's successor and
upon such transfer, Landlord shall be relieved of any and all further liability
with respect thereto.
27. DEFAULT.
27.1. Tenant's Default. The occurrence of any one or more of the following
events shall constitute a default and breach of this Lease by Tenant:
a. If Tenant abandons or vacates the Premises; or
b. If Tenant fails to pay any Rent or any other charges required to be paid
by Tenant under this Lease and such failure continues for five (5) days
after such payment is due and payable; or
c. If Tenant fails to promptly and fully perform any other covenant,
condition or agreement contained in this Lease and such failure continues
for thirty (30) days after written notice thereof from Landlord to Tenant;
or
d. If a writ of attachment or execution is levied on this Lease or on any
of Tenant's Property; or e. If Tenant makes a general assignment for the
benefit of creditors, or provides for an arrangement, composition,
extension or adjustment with its creditors; or
f. If Tenant files a voluntary petition for relief or if a petition against
Tenant in a proceeding under the federal bankruptcy laws or other
insolvency laws is filed and not withdrawn or dismissed within forty-five
(45) days thereafter, of if under the provisions of any law providing for
reorganization or winding up of corporations, any court of competent
jurisdiction assumes jurisdiction, custody or control of Tenant or any
substantial part of its property and such jurisdiction, custody or control
remains in force unrelinquished, unstayed or unterminated for a period of
forty-five (45) days; or
g. If in any proceeding or action in which Tenant is a party, a trustee,
receiver, agent Or custodian is appointed to take charge of the Premises or
Tenant's Property (or has the authority to do so) for the purpose of
enforcing a lien against the Premises or Tenant's Property; or
h. If Tenant is a partnership or consists of more than one (1) person or
entity, if any partner of the partnership or other person or entity is
involved in any of the acts or events described in subparagraphs d through
g above.
27.2. Remedies. In the event of Tenant's default hereunder, then in addition to
any other rights or remedies Landlord may have under any law, Landlord shall
have the right, at Landlord's option, without further notice or demand of any
kind to do the following:
a. Terminate this Lease and Tenant's right to possession of the Premises
and reenter the Premises and take possession thereof, and Tenant shall have
no further claim to the Premises or under this Lease; or
b. Continue this Lease in effect, reenter and occupy the Premises for the
account of Tenant, and collect any unpaid Rent or other charges which have
or thereafter become due and payable; or
c. Reenter the Premises under the provisions of subparagraph b, and
thereafter elect to terminate this Lease and Tenant's right to possession
of the Premises.
(10)
<PAGE>
If Landlord reenters the Premises under the provisions of subparagraphs b or c
above, Landlord shall not be deemed to have terminated this Lease or the
obligation of Tenant to pay any Rent or other charges thereafter accruing,
unless Landlord notifies Tenant in writing of Landlord's election to terminate
this Lease. In the event of any reentry or retaking of possession by Landlord,
Landlord shall have the right, but not the obligation, to remove all or any part
of Tenant's Property in the Premises and to place such property in storage at a
public warehouse at the expense and risk of Tenant. If Landlord elects to relet
the Premises for the account of Tenant, the rent received by Landlord from such
reletting shall be applied as follows: first, to the payment of any indebtedness
other than Rent due hereunder from Tenant to Landlord; second, to the payment of
any costs of such reletting; third, to the payment of the cost of any
alterations or repairs to the Premises; fourth to the payment of Rent due and
unpaid hereunder; and the balance, if any, shall be held by Landlord and applied
in payment of future Rent as it becomes due. If that portion of rent received
from the reletting which is applied against the Rent due hereunder is less than
the amount of the Rent due, Tenant shall pay the deficiency to Landlord promptly
upon demand by Landlord. Such deficiency shall be calculated and paid monthly.
Tenant shall also pay to Landlord, as soon as determined, any costs and expenses
incurred by Landlord in connection with such reletting or in making alterations
and repairs to the Premises, which are not covered by the rent received from the
reletting.
Should Landlord elect to terminate this Lease under the provisions of
subparagraph a or c above, Landlord may recover as damages from Tenant the
following:
1. Past Rent. The worth at the time of the award of any unpaid Rent which
had been earned at the time of termination; plus
2. Rent Prior to Award. The worth at the time of the award of the amount
by which the unpaid Rent which would have been earned after
termination until the time of award exceeds the amount of such rental
loss that Tenant proves could have been reasonably avoided; plus
3. Rent After Award. The worth at the time of the award of the amount by
which the unpaid Rent for the balance of the Term after the time of
award exceeds the amount of the rental loss that Tenant proves could
be reasonably avoided; plus
4. Proximately Caused Damages. Any other amount necessary to compensate
Landlord for all detriment proximately caused by Tenant's failure to
perform its obligations under this Lease or which in the ordinary
course of things would be likely to result therefrom, including, but
not limited to, any costs or expenses (including attorneys' fees),
incurred by Landlord in (a) retaking possession of the Premises, (b)
maintaining the Premises after Tenant's default, (c) preparing the
Premises for reletting to a new tenant, including any repairs or
alterations, and (d) reletting the Premises, including broker's
commissions.
"The worth at the time of the award" as used in subparagraphs 1 and 2 above, is
to be computed by allowing interest at the rate of ten percent (10%) per annum.
"The worth at the time of the award" as used in subparagraph 3 above, is to be
computed by discounting the amount at the discount rate of the Federal Reserve
Bank situated nearest to the Premises at the time of the award plus one percent
(1%).
The waiver by Landlord of any breach of any term, covenant or condition of this
Lease shall not be deemed a waiver of such term, covenant or condition or of any
subsequent breach of the same or any other term, covenant or condition.
Acceptance of Rent by Landlord subsequent to any breach hereof shall not be
deemed a waiver of any preceding breach other than the failure to pay the
particular Rent so accepted, regardless of Landlord's knowledge of any breach at
the time of such acceptance of Rent. Landlord shall not be deemed to have waived
any term, covenant or condition unless Landlord gives Tenant written notice of
such waiver.
27.3 Landlords Default. If Landlord fails to perform any covenant, condition or
agreement contained in this Lease within thirty (30) days after receipt of
written notice from Tenant specifying such default, or if such default cannot
reasonably be cured within thirty (30) days, if Landlord fails to commence to
cure within that thirty (30) day period, then Landlord shall be liable to Tenant
for any damages sustained by Tenant as a result of Landlord's breach; provided,
however, it is expressly understood and agreed that if Tenant obtains a money
judgment against Landlord resulting from any default or other claim arising
under this Lease, that judgment shall be satisfied only out of the rents,
issues, profits, and other income actually received on account of Landlord's
right, title and interest in the Premises, Building or Project, and no other
real, personal or mixed property of Landlord (or of any of the partners which
comprise Landlord, if any) wherever situated, shall be subject to levy to
satisfy such judgment. If, after notice to Landlord of default, Landlord (or any
first mortgagee or first deed of trust beneficiary of Landlord) fails to cure
the default as provided herein, then Tenant shall have the right to cure that
default at Landlord's expense. Tenant shall not have the right to terminate this
Lease or to withhold, reduce or offset any amount against any payments of Rent
or any other charges due and payable under this Lease except as otherwise
specifically provided herein.
28. BROKERAGE FEES.
Tenant warrants and represents that it has not dealt with any real estate broker
or agent in connection with this Lease or its negotiation except those noted in
Section 2.c. Tenant shall indemnify and hold Landlord harmless from any cost,
expense or liability (including costs of suit and reasonable attorneys' fees)
for any compensation, commission or fees claimed by any other real estate broker
or agent in connection with this Lease or its negotiation by reason of any act
of Tenant.
29. NOTICES.
All notices, approvals and demands permitted or required to be given under this
Lease shall be in writing and deemed duly served or given if personally
delivered or sent by certified or registered U.S. mail, postage prepaid, and
addressed as follows: (a) if to Landlord, to Landlord's Mailing Address and to
the Building manager, and (b) if to Tenant, to Tenant's Mailing Address;
provided, however, notices to Tenant shall be deemed duly served or given if
delivered or mailed to Tenant at the Premises. Landlord and Tenant may from time
to time by notice to the other designate another place for receipt of future
notices.
30. GOVERNMENT ENERGY OR UTILITY CONTROLS.
In the event of imposition of federal, state or local government controls,
rules, regulations, or restrictions on the use or consumption of energy or other
utilities during the Term, both Landlord and Tenant shall be bound thereby. In
the event of a difference in interpretation by Landlord and Tenant of any such
controls, the interpretation of Landlord shall prevail, and Landlord shall have
the right to enforce compliance therewith, including the right of entry into the
Premises to effect compliance.
31. RELOCATION OF PREMISES.
Landlord shall have the right to relocate the Premises to another part of the
Building in accordance with the following:
(11)
<PAGE>
a. The new premises shall be substantially the same in size, dimensions,
configuration, decor and nature as the Premises described in this Lease,
and if the relocation occurs after the Commencement Date, shall be placed
in that condition by Landlord at its cost.
b. Landlord shall give Tenant at least thirty (30) days written notice of
Landlord's intention to relocate the Premises.
c. As nearly as practicable, the physical relocation of the Premises shall
take place on a weekend and shall be completed before the following Monday.
If the physical relocation has not been completed in that time, Base Rent
shall abate in full from the time the physical relocation commences to the
time it is completed. Upon completion of such relocation, the new premises
shall become the "Premises" under this Lease.
d. All reasonable costs incurred by Tenant as a result of the relocation
shall be paid by Landlord.
e. If the new premises are smaller than the Premises as it existed before
the relocation, Base Rent shall be reduced proportionately.
f. The parties hereto shall immediately execute an amendment to this Lease
setting forth the relocation of the Premises and the reduction of Base
Rent, if any.
32. QUIET ENJOYMENT.
Tenant, upon paying the Rent and performing all of its obligations under this
Lease, shall peaceably and quietly enjoy the Premises, subject to the terms of
this Lease and to any mortgage, lease, or other agreement to which this Lease
may be subordinate.
33. OBSERVANCE OF LAW.
Tenant shall not use the Premises or permit anything to be done in or about the
Premises which will in any way conflict with any law, statute, ordinance or
governmental rule or regulation now in force or which may hereafter be enacted
or promulgated. Tenant shall, at its sole cost and expense, promptly comply with
all laws, statutes, ordinances and governmental rules, regulations or
requirements now in force or which may hereafter be in force, and with the
requirements of any board of fire insurance underwriters or other similar bodies
now or hereafter constituted, relating to, or affecting the condition, use or
occupancy of the Premises, excluding structural changes not related to or
affected by Tenant's improvements or acts. The judgment of any court of
competent jurisdiction or the admission of Tenant in any action against Tenant,
whether Landlord is a party thereto or not, that Tenant has violated any law,
ordinance or governmental rule, regulation or requirement, shall be conclusive
of that fact as between Landlord and Tenant.
34. FORCE MAJEURE.
Any prevention, delay or stoppage of work to be performed by Landlord or Tenant
which is due to strikes, labor disputes, inability to obtain labor, materials,
equipment or reasonable substitutes therefor, acts of God, governmental
restrictions or regulations or controls, judicial orders, enemy or hostile
government actions, civil commotion, fire or other casualty, or other causes
beyond the reasonable control of the party obligated to perform hereunder, shall
excuse performance of the work by that party for a period equal to the duration
of that prevention, delay or stoppage. Nothing in this Article 34 shall excuse
or delay Tenant's obligation to pay Rent or other charges under this Lease.
35. CURING TENANT'S DEFAULTS.
If Tenant defaults in the performance of any of its obligations under this
Lease, Landlord may (but shall not be obligated to) without waiving such
default, perform the same for the account at the expense of Tenant. Tenant shall
pay Landlord all costs of such performance promptly upon receipt of a bill
therefor.
36. SIGN CONTROL.
Tenant shall not affix, paint, erect or inscribe any sign, projection, awning,
signal or advertisement of any kind to any part of the Premises, Building or
Project, including without limitation, the inside or outside of windows or
doors, without the written consent of Landlord. Landlord shall have the right to
remove any signs or other matter, installed without Landlord's permission,
without being liable to Tenant by reason of such removal, and to charge the cost
of removal to Tenant as additional rent hereunder, payable within ten (10) days
of written demand by Landlord.
37. MISCELLANEOUS.
a. Accord and Satisfaction; Allocation of Payments. No payment by. Tenant
or receipt by Landlord of a lesser amount than the Rent provided for in
this Lease shall be deemed to be other than on account of the earliest due
Rent, nor shall any endorsement or statement on any check or letter
accompanying any check or payment as Rent be deemed an accord and
satisfaction, and Landlord may accept such check or payment without
prejudice to Landlord's right to recover the balance of the Rent or pursue
any other remedy provided for in this Lease. In connection with the
foregoing, Landlord shall have the absolute right in its sole discretion to
apply any payment received from Tenant to any account or other payment of
Tenant then not current and due or delinquent.
b. Addenda. If any provision contained in an addendum to this Lease is
inconsistent with any other provision herein, the provision contained in
the addendum shall control, unless otherwise provided in the addendum.
c. Attorneys' Fees. If any action or proceeding is brought by either party
against the other pertaining to or arising out of this Lease, the finally
prevailing party shall be entitled to recover all costs and expenses,
including reasonable attorneys' fees, incurred on account of such action or
proceeding.
d. Captions, Articles and Section Numbers. The captions appearing within
the body of this Lease have been inserted as a matter of convenience and
for reference only and in no way define, limit or enlarge the scope or
meaning of this Lease. All references to Article and Section numbers refer
to Articles and Sections in this Lease.
e. Changes Requested by Lender. Neither Landlord or Tenant shall
unreasonably withhold its consent to changes or amendments to this Lease
requested by the lender on Landlord's interest, so long as these changes do
not alter the basic business terms of this Lease or otherwise materially
diminish any rights or materially increase any obligations of the party
from whom consent to such charge or amendment is requested.
f. Choice of Law. This Lease shall be construed and enforced in accordance
with the laws of the State.
g. Consent. Notwithstanding anything contained in this Lease to the
contrary, Tenant shall have no claim, and hereby waives the right to any
claim against Landlord for money damages by reason of any refusal,
withholding or delaying by Landlord of any consent, approval or statement
of satisfaction, and in such event, Tenant's only remedies therefor shall
be an action for specific performance, injunction or declaratory judgment
to enforce any right to such consent, etc.
(12)
<PAGE>
h. Corporate Authority. If Tenant is a corporation, each individual signing
this Lease on behalf of Tenant represents and warrants that he is duly
authorized to execute and deliver this Lease on behalf of the corporation,
and that this Lease is binding on Tenant in accordance with its terms.
Tenant shall, at Landlord's request, deliver a certified copy of a
resolution of its board of directors authorizing such execution.
i. Counterparts. This Lease may be executed in multiple counterparts, all
of which shall constitute one and the same Lease.
j. Execution of Lease; No Option. The submission of this Lease to Tenant
shall be for examination purposes only, and does not and shall not
constitute a reservation of or option for Tenant to lease, or otherwise
create any interest of Tenant in the Premises or any other premises within
the Building or Project. Execution of this Lease by Tenant and its return
to Landlord shall not be binding on Landlord notwithstanding any time
interval, until Landlord has in fact signed and delivered this Lease to
Tenant.
k. Furnishing of Financial Statements; Tenant's Representations. In order
to induce Landlord to enter into this Lease Tenant agrees that it shall
promptly furnish Landlord, from time to time, upon Landlord's written
request, with financial statements reflecting Tenant's current financial
condition. Tenant represents and warrants that all financial statements,
records and information furnished by Tenant to Landlord in connection with
this Lease are true, correct and complete in all respects.
l. Further Assurances. The parties agree to promptly sign all documents
reasonably requested to give effect to the provisions of this Lease.
m. Mortgagee Protection. Tenant agrees to send by certified or registered
mail to any first mortgagee or first deed of trust beneficiary of Landlord
whose address has been furnished to Tenant, a copy of any notice of default
served by Tenant on Landlord. If Landlord fails to cure such default within
the time provided for in this Lease, such mortgagee or beneficiary shall
have an additional thirty (30) days to cure such default; provided that if
such default cannot reasonably be cured within that thirty (30) day period,
then such mortgagee or beneficiary shall have such additional time to cure
the default as is reasonably necessary under the circumstances.
n. Prior Agreements; Amendments. This Lease contains all of the agreements
of the parties with respect to any matter covered or mentioned in this
Lease, and no prior agreement or understanding pertaining to any such
matter shall be effective for any purpose. No provisions of this Lease may
be amended or added to except by an agreement in writing signed by the
parties or their respective successors in interest.
o. Recording. Tenant shall not record this Lease without the prior written
consent of Landlord. Tenant, upon the request of Landlord, shall execute
and acknowledge a "short form" memorandum of this Lease for recording
purposes.
p. Severability. A final determination by a court of competent
jurisdiction that any provision of this Lease is invalid shall not affect
the validity of any other provision, and any provision so determined to be
invalid shall, to the extent possible, be construed to accomplish its
intended effect.
q. Successors and Assigns. This Lease shall apply to and bind the heirs,
personal representatives, and permitted successors and assigns of the
parties.
r. Time of the Essence. Time is of the essence of this Lease.
s. Waiver. No delay or omission in the exercise of any right or remedy of
Landlord upon any default by Tenant shall impair such right or remedy or be
construed as a waiver of such default.
t. Compliance. The parties hereto agree to comply with all applicable
federal, state and local laws, regulations, codes, ordinances and
administrative orders having jurisdiction over the parties, property or the
subject matter of this Agreement, including, but not limited to, the 1964
Civil Rights Act and all amendments thereto, the Foreign Investment In Real
Property Tax Act, the Comprehensive Environmental Response Compensation and
Liability Act, and The Americans With Disabilities Act.
The receipt and acceptance by Landlord of delinquent Rent shall not constitute a
waiver of any other default; it shall constitute only a waiver of timely payment
for the particular Rent payment involved.
No act or conduct of Landlord, including, without limitation, the acceptance of
keys to the Premises, shall constitute an acceptance of the surrender of the
Premises by Tenant before the expiration of the Term. Only a written notice from
Landlord to Tenant shall constitute acceptance of the surrender of the Premises
and accomplish a termination of the Lease.
Landlord's consent to or approval of any act by Tenant requiring Landlord's
consent or approval shall not be deemed to waive or render unnecessary
Landlord's consent to or approval of any subsequent act by Tenant.
Any waiver by Landlord of any default must be in writing and shall not be a
waiver of any other default concerning the same or any other provision of the
Lease.
The parties hereto have executed this Lease as of the dates set forth below
Date: 11/7/97 Date: 11/7/97
------------------------- -----------------------------
Landlord: Dove Holdings Tenant: Dove Brothers, LLC
------------------------- -----------------------------
By: /s/ Kirk Dove By: /s/ Lee Cochran
------------------------- -----------------------------
Kirk Dove Lee Cochran
Title: President Title: CFO
------------------------- -----------------------------
By: By:
-------------------------------- ---------------------------------
Title: Title:
----------------------------- -------------------------------
CONSULT YOUR ADVISORS -- This document has been prepared for approval by your
attorney. No representation or recommendation is made by CB Commercial as to the
legal sufficiency or tax consequences of this document or the transaction to
which it relates. These are questions for your attorney.
In any real estate transaction, it is recommended that you consult with a
professional, such as a civil engineer, industrial, hygienist or other person,
with experience in evaluating the condition of the property, including the
possible presence of asbestos, hazardous materials and underground storage
tanks.
(13)
<PAGE>
EXHIBIT 21.01
Subsidiaries
------------
DoveBid Valuation Services, Inc.
<PAGE>
EXHIBIT 23.02
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated:
January 28, 2000, except as to Note 11, as to which the date is March 8,
2000, with respect to DoveBid, Inc.
February 29, 2000, with respect to B&B Custom Circuit Supplies, Inc.
February 29, 2000, with respect to Unidyne International Inc.
March 3, 2000, with respect to AccuVal Associates, Incorporated and
LiquiTec Industries, Incorporated
March 8, 2000, with respect to Greenwich Industrial Services, LLC
March 2, 2000, with respect to Haltek Electronics dba Test Lab
March 7, 2000, with respect to Philip Pollack & Co., Inc.
all in the Registration Statement (Form S-1) and related Prospectus of DoveBid,
Inc. for the registration of shares of its common stock.
/s/ Ernst & Young LLP
March 8, 2000
San Francisco, CA
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 6,969
<SECURITIES> 0
<RECEIVABLES> 1,153
<ALLOWANCES> 43
<INVENTORY> 2,584
<CURRENT-ASSETS> 13,520
<PP&E> 1,380
<DEPRECIATION> 551
<TOTAL-ASSETS> 13,520
<CURRENT-LIABILITIES> 6,149
<BONDS> 0
0
16,832
<COMMON> 34
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 18,932
<SALES> 12,404
<TOTAL-REVENUES> 12,404
<CGS> 0
<TOTAL-COSTS> 16,444
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 61
<INCOME-PRETAX> (3,872)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,872)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,872)
<EPS-BASIC> (0.15)
<EPS-DILUTED> (0.15)
</TABLE>
