<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 15, 2000
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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TRADEOUT.COM, INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 7389 13-4035203
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
------------------------------
410 SAW MILL RIVER ROAD
SUITE 2065
ARDSLEY, NEW YORK 10502
(914) 479-0611
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
------------------------------
GEORGE SAMENUK
CHIEF EXECUTIVE OFFICER AND PRESIDENT
TRADEOUT.COM, INC.
410 SAW MILL RIVER ROAD
SUITE 2065
ARDSLEY, NEW YORK 10502
(914) 479-0611
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
------------------------------
Copies to:
<TABLE>
<S> <C>
BABAK YAGHMAIE, ESQ. MARLEE S. MYERS, ESQ.
NICOLE L. WOO, ESQ. DAVID A. GERSON, ESQ.
BROBECK, PHLEGER & HARRISON LLP MORGAN, LEWIS & BOCKIUS LLP
1633 BROADWAY, 47(TH) FLOOR ONE OXFORD CENTRE, THIRTY-SECOND FLOOR
NEW YORK, NEW YORK 10019 PITTSBURGH, PENNSYLVANIA 15219-1417
(212) 581-1600 (412) 560-3300
</TABLE>
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
- ------------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
- ------------------
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
- ------------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE
<S> <C> <C>
Common Stock, par value $.0001 per share $115,000,000 $30,360
</TABLE>
(1) Estimated pursuant to Rule 457(o) under the Securities Act of 1933, as
amended, solely for the purpose of computing the amount of the registration
fee.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION. DATED , 2000.
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL NOR DOES IT SEEK ANY OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
Shares
[LOGO]
TRADEOUT.COM, INC.
Common Stock
-------------
This is an initial public offering of shares of common stock of
TradeOut.com, Inc. All of the shares of common stock are being sold by
TradeOut.com.
Prior to this offering, there has been no public market for the common
stock. TradeOut.com estimates that the initial public offering price will be
between $ and $ per share. TradeOut.com intends to apply for quotation
of the common stock on the Nasdaq National Market under the symbol "TOUT".
SEE "RISK FACTORS" BEGINNING ON PAGE 5 TO READ ABOUT FACTORS YOU SHOULD
CONSIDER BEFORE BUYING SHARES OF THE COMMON STOCK.
------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY
HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------
<TABLE>
<CAPTION>
Per Share Total
---------- -----------
<S> <C> <C>
Initial public offering price............................... $ $
Underwriting discount....................................... $ $
Proceeds, before expenses, to TradeOut.com.................. $ $
</TABLE>
To the extent that the underwriters sell more than shares of common
stock, the underwriters have the option to purchase up to an additional
shares from TradeOut.com at the initial public offering price less the
underwriting discount.
------------------
The underwriters expect to deliver the shares against payment in New York,
New York on , 2000.
GOLDMAN, SACHS & CO. DONALDSON, LUFKIN & JENRETTE
MERRILL LYNCH & CO. CHASE H&Q
------------
Prospectus dated , 2000.
<PAGE>
[COLOR ARTWORK TO BE PROVIDED]
<PAGE>
PROSPECTUS SUMMARY
YOU SHOULD READ THE FOLLOWING SUMMARY TOGETHER WITH THE MORE DETAILED
INFORMATION AND OUR FINANCIAL STATEMENTS AND THE NOTES TO THOSE STATEMENTS
APPEARING ELSEWHERE IN THIS PROSPECTUS.
TRADEOUT.COM
TradeOut.com is a leading business-to-business Internet marketplace for
buyers and sellers of excess inventory and idle assets, known as business
surplus. Our solution creates a more efficient way to buy and sell business
surplus by centralizing the fragmented market and streamlining the traditionally
cumbersome fax- and paper-based sales and procurement process. Our
Internet-based solution enables businesses to buy and sell business surplus
globally, across a variety of industries, 24 hours a day, seven days a week.
Through December 31, 1999, 230 companies had sold more than $15 million
worth of excess inventory and idle assets to 359 businesses through our
marketplace. As of December 31, 1999, approximately $979 million of business
surplus was posted for sale on our Web site. Business users from 43 different
countries posted more than 8,400 items for sale on our marketplace between April
1999, when we launched our Web site, and December 31, 1999. Today, our
marketplace contains business surplus in more than 100 different product
categories.
OUR MARKET OPPORTUNITY
Most companies create business surplus in the ordinary course of business as
a result of many events, including the discontinuation of products, customer
returns, equipment upgrades and the expiration of leases. We estimate that the
worldwide market for business surplus in 1999 totaled more than $400 billion.
Businesses incur costs associated with storing, tracking and maintaining this
business surplus and therefore seek efficient means of disposing of it. However,
the traditional methods of selling business surplus can be difficult, time
consuming and expensive, deterring many businesses from undertaking the selling
process. The Internet enables the creation of centralized marketplaces that
allow widely dispersed buyers and sellers to interact and facilitate the
efficient exchange of product and pricing information.
OUR SOLUTION
TradeOut.com harnesses the power of the Internet to reduce the
inefficiencies inherent in the traditional process of buying and selling
business surplus. TradeOut.com provides a centralized marketplace that brings
together buyers and sellers of business surplus. We allow sellers to quickly and
easily disseminate information about their business surplus over the Internet
directly to prospective buyers. We centralize relevant industry, product and
pricing information on our marketplace and allow it to be easily updated,
organized and searched. The auction formats we offer provide a competitive
environment for establishing optimal pricing for sellers. Our marketplace
streamlines the buying process and reduces transaction costs associated with
traditional purchasing methods.
We focus exclusively on the business surplus market across a variety of
targeted industries. We have developed in-depth expertise within each of our
targeted industries in order to better serve the complex needs of buyers and
sellers in these industries. Although we intend to continually expand into new
industries, we currently focus on eight specific industry classifications:
<TABLE>
<S> <C>
- Apparel / Footwear / Accessories - Computer Products
- Food and Beverage - Health and Beauty Care
- Housewares / Household Products - Automotive
- Metalworking Machinery - Power and Utility Equipment
</TABLE>
1
<PAGE>
Our sales personnel focus on key decision makers in our targeted industries to
create compelling listings of business surplus assets. We also focus resources
on bringing a broad range of buyers to our marketplace and making it easier for
them to find the assets they seek. Finally, our trade facilitation personnel
work to bring transactions to closure, by ensuring proper merchandising of
items, identifying potential buyers and facilitating communication between
parties.
OUR STRATEGY
Our objective is to be the world's leading business-to-business Internet
marketplace for buyers and sellers of business surplus. To achieve our
objective, we intend to:
- build a critical mass of buyers and sellers;
- leverage our first-mover advantage and expand our brand awareness;
- create alliances with strategic partners that can help bring more buyers
and sellers to our marketplace, broaden our service offerings and enhance
the depth and breadth of our targeted industries;
- offer a broad range of value-added services to our customers;
- expand the number of our targeted industries and the depth of our industry
expertise; and
- integrate our marketplace into our customers' internal information
systems.
OUR STRATEGIC ALLIANCES
We are entering into strategic alliances with four major types of
organizations to increase the activity in our marketplace. These include:
- targeted industry anchors such as General Electric Capital Corporation;
- traditional liquidators and brokers such as Quality King Distributors;
- traffic drivers such as PurchasePro.com and the National Association of
Wholesaler-Distributors; and
- ancillary service providers such as i-Escrow and Emery Worldwide.
RECENT DEVELOPMENTS
In March 2000, we entered into a strategic alliance agreement with General
Electric Capital Corporation under which we expect GE Capital to encourage its
business units and affiliates to post assets on our marketplace, promote these
assets to their customers and provide remarketing services to their customers.
In addition, we sold approximately $15.0 million of Series D preferred stock and
warrants to purchase up to 2,392,500 shares of our common stock to GE Capital
Equity Investments, Inc., an affiliate of GE Capital.
CORPORATE INFORMATION
We were incorporated in Delaware on December 11, 1998. Our principal
executive offices are located at 410 Saw Mill River Road, Suite 2065, Ardsley,
New York 10502 and our telephone number is (914) 479-0611. Our Web site is
WWW.TRADEOUT.COM. The information on our Web site is not a part of this
prospectus.
TradeOut, TradeOut.com and the TradeOut.com logo are trademarks of
TradeOut.com, Inc. All other trademarks and service marks used in this
prospectus are the property of their respective owners.
2
<PAGE>
THE OFFERING
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<S> <C>
Common stock offered by TradeOut.com......... shares
Common stock to be outstanding after this
offering................................... shares
Proposed Nasdaq National Market symbol....... TOUT
Use of proceeds.............................. To expand operations and for general
corporate purposes, including working
capital. We may also use a portion of the
proceeds for strategic investments or
acquisitions.
</TABLE>
This information is based on our shares of common stock outstanding as of
March 14, 2000. This information excludes:
- 1,579,135 shares subject to options outstanding as of March 14, 2000, at a
weighted average exercise price of $1.79 per share;
- 275,923 additional shares that could be issued under our stock option
plans;
- 11,142,945 shares subject to warrants to purchase our common stock at a
weighted average exercise price of $8.60 per share;
- up to 3,409,934 shares subject to warrants to purchase our common stock at
an exercise price of $2.00 per share, exercisable if certain target sales
levels are achieved pursuant to strategic alliance agreements; and
- warrants issued to the holders of our Series E preferred stock to purchase
a number of shares of common stock to be determined upon the closing of
this offering based upon the fully diluted capitalization of TradeOut.com
on that date, at an exercise price equal to the initial public offering
price.
Except as set forth in the financial statements and related notes or as
otherwise indicated, all information in this prospectus assumes:
- no exercise of the underwriters' over-allotment option;
- the conversion of all outstanding shares of our preferred stock into
shares of common stock immediately prior to the closing of the offering;
and
- a one-for-two reverse split of our common stock to be effected prior to
completion of this offering.
3
<PAGE>
SUMMARY FINANCIAL DATA
The following tables summarize the financial data for our business. You
should read this information with the discussion in "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and our financial
statements and notes to those statements included elsewhere in this prospectus.
<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 11, 1998
(INCEPTION) TO YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1999
----------------- -----------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................................ $ -- $ 828
Gross profit............................................ -- 299
Operating loss.......................................... (50) (19,124)
Net loss................................................ (50) (18,744)
Pro forma net loss per share............................ $ (0.68)
Pro forma weighted average shares outstanding........... 27,600
</TABLE>
The following table is a summary of our balance sheet at December 31, 1999.
The pro forma data give effect to the sale of 5,577,825 shares of our Series D
preferred stock and 2,455,588 shares of our Series E preferred stock and the
automatic conversion into common stock of all outstanding Series A, Series B,
Series C and Series E preferred stock upon the closing of this offering. The pro
forma as adjusted data reflect the sale of shares of common stock at an
assumed initial public offering price of $ per share, after deducting
underwriting discounts and estimated offering expenses.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $18,977 $58,977 $
Working capital............................................. 16,377 56,377
Total assets................................................ 21,238 61,238
Capital leases, excluding current installments.............. 22 22
Redeemable preferred stock.................................. -- 15,000
Total stockholders' equity.................................. 18,164 43,164
</TABLE>
4
<PAGE>
RISK FACTORS
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD CAREFULLY CONSIDER
THE RISKS DESCRIBED BELOW BEFORE YOU DECIDE TO BUY OUR COMMON STOCK. IF ANY OF
THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS, FINANCIAL CONDITION OR RESULTS
OF OPERATIONS WOULD LIKELY SUFFER. IN THIS CASE, THE TRADING PRICE OF OUR COMMON
STOCK COULD DECLINE, AND YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT.
OUR LIMITED OPERATING HISTORY MAKES EVALUATING OUR BUSINESS AND FUTURE PROSPECTS
DIFFICULT.
We have a very limited operating history. Our company was founded in
December 1998 and did not generate revenues until after we launched our
marketplace in April 1999. Because our operating history is so limited, it is
very difficult to evaluate our business and our future prospects. We will
encounter risks and difficulties frequently encountered by companies in an early
stage of commercial development in new and rapidly evolving markets. In order to
overcome these risks and difficulties, we must, among other things:
- execute our sales and marketing strategy successfully;
- increase the number of businesses that use our Internet marketplace to
transact in business surplus;
- attract a sufficient number of sellers of business surplus to our Internet
marketplace to ensure the availability of a wide range of products;
- attract a sufficient number of buyers to purchase business surplus through
our Internet marketplace to sustain a competitive market for the products
available through our site;
- enter into long-term agreements with strategic partners to bring more
products and more buyers and sellers to our Internet marketplace, and to
make available to buyers and sellers related value-added services; and
- continue to attract, hire, motivate and retain qualified personnel.
If we fail to achieve these objectives, we may not realize sufficient revenues
or net income to succeed.
BECAUSE OUR COMPANY AND OUR BUSINESS CONCEPT ARE NEW AND UNPROVEN, OUR PAST
PERFORMANCE CANNOT HELP TO PREDICT OUR CHANCES FOR SUCCESS.
We have only been operating our business and generating revenues for a short
period of time, and the entire online business surplus industry has only
recently emerged. Both our company and our way of conducting business are
entirely new. We cannot rely upon our performance over the limited period since
our inception to help us predict our chances for success in the future, nor are
there others in our industry to whom we can look for guidance on how to succeed.
MOST OF OUR REVENUES LAST YEAR CAME FROM A FEW TRANSACTIONS FOR A FEW CLIENTS
AND ARE NOT INDICATIVE OF OUR BUSINESS.
Substantially all of our revenues last year were derived from a few
transactions in our marketplace, on which we collected sales commissions and
listing fees. If these transactions had not occurred, our revenues would have
been even lower and our net loss even higher in 1999. We do not have contractual
relationships with any of the parties that accounted for these revenues last
year that would compel them to list additional business surplus for sale in our
marketplace, and even if we did, we could not assure you that anything listed
would ultimately be sold and result in revenues for us. Accordingly, we do not
believe that our 1999 revenues are meaningful indicators of our business and
future prospects.
5
<PAGE>
BUYERS AND SELLERS OF EXCESS INVENTORY AND IDLE ASSETS MAY NOT ADOPT OUR ONLINE
METHOD OF BUYING AND SELLING BUSINESS SURPLUS.
Business-to-business online transactions are a new method of buying and
selling business surplus that potential buyers and sellers may not adopt. If
businesses do not adopt our transaction method, then our business may not
succeed. In order to accept our method, sellers and buyers must adopt new
practices that are different from their traditional practices. Traditional
purchasing is often based on long-standing relationships between a seller and a
few buyers. Buyers and sellers of business surplus often negotiate prices
directly, with sellers frequently directing their business to chosen buyers
based on factors such as price and familiarity. Our services may be disruptive
to existing, long-standing relationships because, in order to use our services,
a seller must be willing to leave the comfort and certainty of dealing with one
or a few trusted buyers or intermediaries, and instead take a chance on a more
impersonal marketplace, which may or may not deliver a more favorable price in
the end. Similarly, buyers must be willing to rely less upon personal
relationships with sellers and intermediaries and more upon their own judgment
in selecting products to purchase and making offers of prices to pay. We cannot
assure you that enough businesses will choose to adopt our method or will do so
at sufficient levels to sustain our business.
WE MAY NOT BE ABLE TO ATTRACT ENOUGH BUYERS AND SELLERS TO CREATE A MEANINGFUL
MARKETPLACE.
Our marketplace works best for buyers when a large selection and quantity of
business surplus items are available in our marketplace, so that there is a
higher probability that a buyer will find what it is looking for, and best for
sellers when many buyers are present in our marketplace, so that true
competition for available products develops and market prices prevail. This
means that we need to bring a great deal of traffic to our site in order for our
online method of buying and selling business surplus to work optimally. To do
so, we may have to incur significant costs and may have to issue equity in
marketing and forming strategic alliances. We may not be able to achieve the
volume of traffic that we desire, induce potential sellers to post their items
or potential buyers to make actual purchases or achieve a desirable balance
among buyers, sellers and products. If our marketplace does not reach critical
mass or if a competitive marketplace eclipses ours, we may be unable to continue
to bring buyers and sellers together. Any of these failures may harm our
business by reducing revenues and increasing costs.
ONCE BUYERS AND SELLERS MEET IN OUR MARKETPLACE, THEY MAY INTENTIONALLY AVOID
OUR MARKETPLACE IN THE FUTURE.
It is possible that once buyers and sellers have located one another in our
marketplace, they will not use our marketplace to transact with each other in
the future. Sellers may initially use our marketplace to gain contact with a
group of buyers and, in the future, contact these buyers directly. This kind of
seller activity would decrease the number of listings on our marketplace and
impair our financial performance.
SELLERS MAY CREATE CHANNEL CONFLICT FOR THEIR OWN PRODUCTS BY SELLING TO
COMPETING DISTRIBUTORS THROUGH OUR SITE, AND MAY REDUCE THEIR PARTICIPATION IN
OUR MARKETPLACE AS A RESULT.
A business disposing of excess inventory in our marketplace may experience
channel conflict, which occurs when a company's excess inventory ends up in the
hands of inappropriate distributors, such as discount warehouses, which will
sell the goods to the original company's own customer base at a cheaper price.
Channel conflict could harm existing relationships between sellers and their
distributors, as well as between actual and potential buyers and their resale
customers. Users who experience negative consequences resulting from channel
conflict in sales consummated in our marketplace may end their business
relationships with us. This could harm our reputation and reduce our revenues.
6
<PAGE>
WE MAY NOT BE ABLE TO COLLECT ALL OF THE SALES COMMISSIONS TO WHICH WE ARE
ENTITLED.
Our business generates the majority of its revenues through sales
commissions paid by the seller when products are sold through our marketplace.
Because we do not take possession of any of the products posted on our site, and
because we do not pack or ship products after they are sold, we may not be aware
of all sales transactions that actually take place in our Internet marketplace.
Thus, we may not be able to collect payment for all sales transactions that are
initiated on TradeOut.com, and our revenues and financial performance may suffer
as a result.
FAILURES OF HARDWARE SYSTEMS OR SOFTWARE COULD UNDERMINE OUR USERS' CONFIDENCE
IN OUR RELIABILITY.
A significant disruption in our online service could seriously undermine our
users' confidence in our business. The businesses that use our marketplace hold
us to a high standard of reliability and performance. We have experienced
occasional system outages, which we believe will continue to occur from time to
time. These outages have stemmed from a variety of causes, including third-
party hardware and software problems, human error and general maintenance. The
volume of traffic on our Web site has been increasing dramatically, requiring us
to expand and upgrade our technology, software and network infrastructure and to
add new personnel. We may be unable to accurately project the rate or timing of
increases, if any, in the use of the TradeOut.com service or expand and upgrade
our systems and infrastructure to accommodate such increases in a timely manner.
Any failure to expand or upgrade our systems at least as fast as the growth in
demand for capacity could cause our Internet marketplace to become unstable and
possibly cease to operate for periods of time. Unscheduled downtime could harm
our business.
Some of the elements set forth above are not within our control, such as
Internet connectivity and software, hardware and telecommunications equipment we
purchase from others. Some users of our site may use older or inferior
technologies, which may not operate properly. In addition, hardware and software
are potentially vulnerable to interruption from power failures,
telecommunications outages, network service outages and disruptions, natural
disasters, and vandalism and other misconduct.
WE MAY NOT BE ABLE TO DETERMINE OR DESIGN THE FEATURES AND FUNCTIONALITY THAT
OUR USERS REQUIRE OR PREFER.
Our success depends upon our ability to accurately determine the features
and functionality that our users require or prefer in using electronic commerce
as a method of buying and selling business surplus. We must be able to
successfully design and implement these functions and features on our site. We
may need to rely upon relationships with third-party partners to provide
additional value-added services that our customers demand and that we cannot
otherwise provide, such as appraisal and financing services. If we are unable to
determine or design the features and functionality that customers require or
prefer, or if we are unable to bring desired third-party services onto our site,
then customers may seek alternative online marketplaces in which to transact
business, or may prefer traditional offline purchase and sale methods. We cannot
be certain that the features and functionality that we currently offer on our
site, or those that we may offer in the future, will satisfy the requirements or
preferences of our current or potential users.
IF WE DO NOT ADEQUATELY MAINTAIN THE INTEGRITY OF INFORMATION IN OUR
MARKETPLACE, USERS MAY SEEK ALTERNATIVE MARKETPLACES AND OUR RESULTS COULD
SUFFER.
Users of our marketplace rely upon the information that is made available
there. Sellers post descriptions of offered business surplus and depend upon the
descriptions matching those that they provide. Buyers propose prices that they
are willing to pay, or accept posted offer prices, and rely upon those prices
being accurate. If product descriptions are not accurate, or if bid and asked
price information is not correct, buyers and sellers may lose confidence in
their ability to transact
7
<PAGE>
business in our marketplace and may revert to traditional methods of buying and
selling business surplus or may avail themselves of the services offered by our
competitors. Our failure to maintain the integrity of information in our
marketplace could result in a loss of confidence by users and a corresponding
reduction in use of our online marketplace which would reduce our revenues and
materially harm our business.
WE DO NOT VALIDATE THE IDENTITY OR RELIABILITY OF USERS OF OUR INTERNET
MARKETPLACE, AND OUR BUSINESS COULD BE HARMED BY FRAUDULENT ACTIVITIES IN OUR
MARKETPLACE.
Our future success will depend largely upon sellers reliably delivering and
accurately representing their posted goods and upon buyers paying the agreed
purchase price. Currently, any buyer or seller can register with and use our
Internet marketplace, and we do not validate its identity or reliability. In the
past, some users have not received the purchase price or the goods that were to
be exchanged and we expect this to continue. While we can suspend users who fail
to fulfill their delivery obligations to other users, we do not have the ability
to require users to make payments or deliver goods. Negative publicity generated
as a result of fraudulent or deceptive conduct by users of our service could
damage our reputation and cause users to seek alternatives to our site, which
would reduce our revenues, or lead to costly litigation initiated by users
seeking to recover the benefit of their bargain.
WE DEPEND ON OUR STRATEGIC RELATIONSHIP WITH GE CAPITAL; THE LOSS OF THIS
STRATEGIC PARTNER WOULD SIGNIFICANTLY REDUCE OUR REVENUES AND NET INCOME.
General Electric Capital Corporation, through its affiliates, runs a
substantial remarketing business for used and surplus assets that reaches a
significant number of remarketing customers. Under our agreement with GE
Capital, we expect it to encourage its business units and affiliates to post
assets on our marketplace, promote these assets to their existing customers and
provide remarketing services to their customers. We would then receive a
commission on the sale of these assets on our site. Our five-year alliance with
GE Capital provides certain financial incentives for GE Capital business units
and affiliates to post their assets on our site, but does not obligate them to
do so. If we fail to provide an appropriate level of customer service to GE
Capital or its business units and affiliates, or if our service does not
significantly enhance its current remarketing efforts, it may elect to post its
assets elsewhere.
GE Capital and its affiliates may decide not to sell their assets through
our marketplace. The loss or partial loss of this partner or its failure to
increase usage of our marketplace would significantly diminish our revenues and
operating results, forcing us to curtail our growth plans and incur greater
losses. Even if we maintain this relationship, we may not be successful in
growing and diversifying our user base.
FORMING STRATEGIC RELATIONSHIPS WITH LARGE CORPORATE PARTNERS MAY NOT RESULT IN
MEANINGFUL INCREASES IN THE QUANTITY OR QUALITY OF GOODS AVAILABLE IN OUR
MARKETPLACE, AND THUS MAY NOT ATTRACT MORE BUYERS OR SELLERS.
We are focusing significant attention on securing relationships with large
corporations to post their business surplus for sale in our marketplace. While
these corporations dispose of a substantial amount of business surplus each
year, we cannot assure you that they will post any significant portion of their
surplus assets in our marketplace, or that they will post goods that are readily
saleable. Without a broad range of goods available for purchase, we may not
attract enough buyers to create a meaningful marketplace, and without enough
buyers we may lose our ability to induce sellers to continue to post products or
to add more products for sale. Any of these failures would reduce our revenues
and harm our business.
8
<PAGE>
WE HAVE ONLY RECENTLY ASSEMBLED OUR MANAGEMENT TEAM.
We have recently expanded our management team dramatically, adding new
executive officers in almost every function. These individuals have generally
not worked with one another before, and we may not be able to forge an effective
working relationship among them. Moreover, all of our new managers are still
learning about our company and our industry. If our senior management cannot
work together effectively and cannot master the details of our business and our
market, then our business will be harmed and we will incur additional costs in
seeking and retaining new management personnel.
THE LOSS OF OUR KEY EXECUTIVES WOULD DISRUPT OUR BUSINESS.
The loss of any member of our key management team would significantly
disrupt our business. We rely on the leadership and vision of key members of our
senior management team, including:
- Brin McCagg, our founder and Chairman;
- George Samenuk, our Chief Executive Officer and President; and
- James Mooney, our Chief Financial Officer.
These officers are instrumental to the management and growth of our
business. The loss of any of these executives could disrupt our growth or result
in lost revenues or a decrease in net income. Although we maintain a "key man"
life insurance policy on Mr. McCagg and intend to obtain a policy on
Mr. Samenuk prior to the closing of this offering, the proceeds of those
policies would not be sufficient to compensate us for the loss of these
individuals to our business. In addition, although we have agreements with our
key employees that prohibit them from soliciting any of our customers for a
period of one year following the termination of employment, our key employees
could otherwise compete with us.
WE MAY NOT BE ABLE TO HIRE OR RETAIN QUALIFIED STAFF.
If we cannot attract and retain enough qualified and skilled staff, the
growth of our business may be limited. Our ability to grow our business depends,
in part, on our ability to attract and retain staff with professional experience
that is relevant for attracting sellers and buyers, facilitating trades,
developing new technology and other functions we perform in connection with our
services and marketplace. Competition for personnel with these skill sets is
intense. Some technical job categories are under conditions of severe shortage
in the United States. In addition, restrictive immigration quotas could prevent
us from recruiting skilled staff from outside the United States. We may not be
able to recruit or retain the caliber of staff required to carry out essential
functions at the pace necessary to sustain or grow our business.
IF WE FAIL TO CONTINUALLY IMPROVE OUR TECHNOLOGY, OUR BUSINESS WILL SUFFER.
Our services and the business-to-business electronic commerce market are
characterized by rapidly changing technologies and frequent new product and
service introductions. We may fail to introduce new online purchase and sale
technology on a timely basis or at all. If we fail to introduce new technology
or to improve our existing technology in response to industry developments, we
could experience frustration from our users that could lead to a loss of
revenues. Our technology is complex, and accordingly may contain undetected
errors or defects that we may not be able to fix. Reduced market acceptance of
our services due to errors or defects in our technology would harm our business
by reducing our revenues.
THE CAPACITY CONSTRAINTS OF OUR PERSONNEL AND TECHNOLOGY RESOURCES MAY LIMIT OUR
GROWTH.
If we are unable to undertake new business due to a shortage of staff or
technology resources, our growth will be impeded. At times, our customers ask us
to post large quantities of business
9
<PAGE>
surplus in our marketplace, straining our resources in terms of both people and
technology. At the same time, growth of our business requires that we expand
product and service offerings to drive users to our marketplace. This, too,
often requires a substantial amount of time from our marketing and trade
facilitation staff. If our staff does not have the time to develop our database
of products and services while serving our current users, we may not be able to
grow sufficiently to succeed. Therefore, there may be times when our
opportunities for revenue growth may be limited by the capacity of our internal
resources rather than by the absence of market demand.
FAILURE TO MANAGE OUR GROWTH COULD REDUCE OUR REVENUES OR NET INCOME.
In order to execute our business plan, we must grow significantly. This
growth will place a significant strain on our infrastructure, management,
internal controls and financial systems. We may not be able to effectively
manage our present growth or any future expansion. To support our growth, many
of our key managerial, technical and sales positions have been recently filled
with new employees who have not had time to be fully integrated into our
business. Inadequate integration and training of our employees may result in
underutilization of our workforce and may reduce our revenues or net income.
OUR QUARTERLY OPERATING RESULTS ARE VOLATILE AND DIFFICULT TO PREDICT; IF WE
FAIL TO MEET THE EXPECTATIONS OF PUBLIC MARKET ANALYSTS OR INVESTORS, THE MARKET
PRICE OF OUR COMMON STOCK MAY DECLINE.
We have only been in business since December 1998, and our quarterly
operating results have varied widely in the past and will likely vary
significantly in the future. We derive most of our revenues from commissions on
sales completed on our site. These sales vary greatly in dollar amount due to
the type of assets being sold, the sales format used, the listing size and the
nature of the business surplus market. Additionally, we have no control over
when business surplus will be posted on our Web site or the length of the sales
cycle relating to the sale format the seller chooses. As a result, there may be
significant fluctuations in the amount of revenues generated in different
periods. Moreover, charges related to outstanding warrants that we have issued
to strategic alliance partners and that vest upon the attainment of performance
milestones may be very significant in future periods and may more than offset
any income that we have in those periods. We believe that period-to-period
comparisons of our results of operations are not meaningful and you should not
rely upon them as indicators of future performance. Our operating results will
likely fall below the expectations of securities analysts or investors in some
future quarter or quarters. Our failure to meet these expectations may result in
a decrease in the market price of our common stock.
WE USE SIGNIFICANTLY MORE CASH THAN WE GENERATE.
Since our inception, our operating and investing activities have used more
cash than they have generated. Because we will continue to need substantial
amounts of working capital to fund the growth of our business, we expect to
continue to experience significant negative operating and investing cash flows
for the foreseeable future. We may need to raise additional capital in the
future to meet our cash requirements. We may not be able to find additional
financing, if required, on favorable terms or at all. If we raise additional
funds through the issuance of equity, equity-related or debt securities, these
securities may have rights, preferences or privileges senior to those of the
rights of our common stock, and our stockholders may experience additional
dilution to their equity ownership.
10
<PAGE>
OUR SPENDING ON INCREASED CAPACITY PRECEDES OUR RECEIPT OF REVENUES; THIS COULD
CAUSE OUR GROSS MARGINS TO BE VOLATILE.
We must hire personnel, acquire equipment, develop our technology and expand
our facilities in anticipation of increasing the volume of transactions in our
marketplace and receiving revenues in future periods. Because many of our
expenses for these activities are components of our cost of revenues, our gross
margins are likely to be volatile.
WE MAY NOT BE ABLE TO ADJUST OUR SPENDING QUICKLY; IF WE CANNOT, THEN OUR NET
INCOME WILL BE REDUCED.
We plan to increase expenditures for our sales and marketing efforts,
development of new technology and improvement of our operational and financial
systems. We have almost no historical financial data upon which we can base our
planned operating costs and capital expenditures, and the data we do have are
very limited and may not be meaningful. Our planned expense levels are
relatively fixed in the short term and are based on our anticipation of future
revenues. We may not be able to forecast revenues accurately due to our limited
operating history. If we fail to predict revenues accurately in relation to our
planned expense levels, then we may be unable to adjust our costs in a timely
manner in response to lower-than-expected revenues, and our net income will be
negatively affected.
WE ANTICIPATE FUTURE LOSSES.
We have experienced losses every quarter since our inception. Our chances
for future profitability will depend on whether we can increase revenues while
controlling expenses. We may not achieve profitability in the future, or sustain
any future profitability.
WE MAY ACQUIRE OTHER BUSINESSES OR TECHNOLOGIES; IF WE DO, WE MAY BE UNABLE TO
INTEGRATE THEM WITH OUR BUSINESS, OR WE MAY IMPAIR OUR FINANCIAL PERFORMANCE.
If appropriate opportunities present themselves, we may acquire businesses,
technologies, services or products that we believe are strategic. We do not
currently have any understandings, commitments or agreements with respect to any
acquisition, nor are we currently pursuing any acquisition. We may not be able
to identify, negotiate or finance any future acquisition successfully. Even if
we do succeed in acquiring a business, technology, service or product, we have
no experience in integrating an acquisition into our business; the process of
integration may produce unforeseen operating difficulties and expenditures and
may absorb significant attention of our management that would otherwise be
available for the ongoing development of our business. If we make future
acquisitions, we may issue shares of stock that dilute other stockholders, incur
debt, assume contingent liabilities or create additional expenses related to
amortizing goodwill and other intangible assets, any of which might harm our
financial results and cause our stock price to decline. Any financing that we
might need for future acquisitions may only be available to us on terms that
restrict our business or that impose on us costs that reduce our net income.
THE MARKET FOR BUSINESS-TO-BUSINESS ELECTRONIC COMMERCE PRODUCTS AND SERVICES IS
INTENSELY COMPETITIVE; IF WE CANNOT COMPETE SUCCESSFULLY, OUR BUSINESS WILL
SUFFER REDUCED REVENUES AND NET INCOME.
Competition in the markets we serve is intense. We must compete with other
online providers of purchase and sale services for business surplus, some of
which have very narrow product focuses and seek to exploit niche markets, and
also with traditional offline businesses such as auctioneers, dealers and other
intermediaries. Individual buyers or sellers of business surplus may continue to
use or create their own online or offline marketplaces for those products in the
future, either alone or in groups, all of which would be direct competitors of
our marketplace. We expect competition from all sources to intensify in the
future. Several of our competitors, both online and
11
<PAGE>
offline, are well-financed and could commit more resources to sales and
marketing efforts, adopt more aggressive promotional and pricing policies and
devote more resources to technology and site development than can we. Moreover,
traditional providers of business surplus disposal services can rely upon their
long-standing relationships with buyers and sellers and their intimate knowledge
of niche markets in which they operate. In order to respond to competitive
changes in this competitive environment, we may from time to time make pricing,
marketing or other strategic decisions that could have a material adverse affect
on our operating results.
Barriers to entry are low. Competitors can obtain low cost, commercially
available software that provides the same basic site functionality as
TradeOut.com. We believe that the principal competitive factors in this market
are the volume, selection and quality of assets for sale, attracting a large
population of buyers and sellers, delivering superior customer service, building
brand recognition and return customers, enhancing Web site functionality and
ease of use, providing value-added services, the price range of products
available on our site and the reliability of our systems. We may not be able to
compete effectively on all or any of these factors against current and potential
competitors; if we cannot, then our revenues may be reduced and our costs
increased.
FUTURE GOVERNMENT REGULATION OF THE INTERNET AND ONLINE TRANSACTIONS MAY ADD TO
OUR OPERATING COSTS.
Like many Internet-based businesses, we operate in an environment of
tremendous uncertainty as to potential government regulation. The Internet has
rapidly emerged as a commerce medium, and governmental agencies have not yet
been able to adapt all existing regulations to the Internet environment. Laws
and regulations may be introduced and court decisions reached that affect the
Internet or other online services, covering issues such as user pricing, user
privacy, freedom of expression, access charges, content and quality of products
and services, advertising, intellectual property rights and information
security. In addition, because we offer our services worldwide and facilitate
sales of goods to customers globally, foreign jurisdictions may claim that we
are required to comply with their laws. Any future regulation may have a
negative impact on our business by restricting our method of operation or
imposing additional costs.
In order to conduct business over our site, users must provide us with
identifying and demographic information. We use this information to track users'
activities in our marketplace and to provide users with certain marketing and
promotional offers. We also plan to share user information with some of our
strategic partners in accordance with the terms of our privacy policies. The
Federal Trade Commission and state agencies have been investigating various
Internet companies regarding their use of personal information. Future
regulation could limit our ability to collect and use this information, and this
limitation could harm our ability to promote our site or our partners' goods or
services to our users.
As an Internet company, it is unclear in which jurisdictions we may be
deemed to be conducting business. Our failure to qualify to do business in a
jurisdiction that requires us to do so could subject us to fines or penalties
and could result in our inability to enforce contracts in that jurisdiction.
Numerous jurisdictions have laws and regulations regarding the conduct of
auctions and the liability of auctioneers. We do not believe that these laws and
regulations, which were enacted for consumer protection many years ago, apply to
our services. However, one or more jurisdictions may attempt to impose these
laws and regulations on our operations in the future.
WE MAY BECOME SUBJECT TO CERTAIN SALES AND OTHER TAXES THAT COULD ADVERSELY
AFFECT OUR BUSINESS.
The imposition of sales, value-added or similar taxes could diminish our
competitiveness and harm our business. We do not collect sales or other similar
taxes for items purchased through our
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<PAGE>
marketplace. Our users are businesses that typically manage and pay their own
sales and use taxes. However, we may be subject to sales tax collection
obligations in the future.
IF WE ARE NOT ABLE TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY RIGHTS, THEN
OUR COMPETITORS MAY BE ABLE TO DUPLICATE OUR SERVICES.
We rely in part upon our proprietary technology to conduct sales through our
marketplace. Our failure to adequately protect our intellectual property rights
could harm our business by making it easier for our competitors to duplicate our
services. We cannot assure you that we have adequately protected our technology
and processes or that our proprietary rights will result in commercial
advantages for us. We have applied for registration of certain of our trademarks
and our marketing materials are protected by copyright, but these protections
may not be adequate. Although we have registered our domain name in over 75
foreign countries, there are third parties who own foreign registrations of the
TradeOut.com domain name in some countries. These registrations and future
foreign registrations by third parties of the TradeOut.com domain name in
countries where we have not already registered our domain name, could divert
traffic from our site and require us to choose other domain names that are not
easily recognizable. In addition, although we require each of our employees to
enter into a proprietary information and confidentiality agreement, this
agreement may not satisfactorily safeguard our intellectual property.
We cannot be certain that third parties will not infringe or misappropriate
our proprietary rights or that third parties will not independently develop
similar proprietary information. Any infringement, misappropriation or
independent development could harm our future financial results. There have been
several instances of third parties copying the design and content of our site,
and we expect these attempts to continue in the future. There is nothing we can
do to prevent copying before it occurs. In addition, effective patent,
trademark, copyright and trade secret protection may not be available in every
country in which we provide services. We may, at times, have to incur
significant legal costs and spend time defending our trademarks, copyrights and,
if issued, any patents. Any defense efforts, whether successful or not, would
divert both time and resources from the operation and growth of our business.
There is also significant uncertainty regarding the applicability to the
Internet of existing laws regarding matters such as property ownership,
copyrights and other intellectual property rights. Legislatures adopted the vast
majority of these laws prior to the advent of the Internet and, as a result,
these laws do not contemplate or address the unique issues of the Internet and
related technologies. We cannot be sure what laws and regulations may ultimately
affect our business or intellectual property rights.
OTHERS MAY ASSERT THAT OUR TECHNOLOGY INFRINGES THEIR INTELLECTUAL PROPERTY
RIGHTS.
We do not believe that our technology infringes the proprietary rights of
others and, to date, no third parties have notified us of infringement of their
technology, but we may be subject to infringement claims in the future. Patents
have been issued and are continually being issued covering aspects of online
commerce and electronic auction methods, processes and technologies, and, thus,
aspects of our business, processes or technologies may infringe patents held by
third parties now or in the future. The defense of any claims of infringement
made against us by third parties could involve significant legal costs and
require our management to divert time from our business operations. Either of
these consequences of an infringement claim could have a material adverse effect
on our operating results. If we are unsuccessful in defending any claims of
infringement, we may be forced to obtain licenses or to pay royalties to
continue to use our technology. We may not be able to obtain any licenses that
are necessary for us to avoid infringement on commercially reasonable terms or
at all. If we fail to obtain necessary licenses or other rights, or if these
licenses are too costly, we may be prohibited from using certain processes or
technology or conducting certain aspects of our business, and our operating
results may suffer
13
<PAGE>
either from reductions in revenues through our inability to serve users or from
increases in costs to license third-party technology.
OTHERS MAY REFUSE TO LICENSE IMPORTANT TECHNOLOGY TO US OR MAY INCREASE THE FEES
THEY CHARGE US FOR THIS TECHNOLOGY.
We rely on third parties to provide us with some software and hardware, for
which we pay fees. This software has been readily available, but these third
parties may increase their fees significantly or refuse to license their
software or provide their hardware to us. While other vendors may provide the
same or similar technology, we cannot be certain that we can obtain the required
technology on favorable terms, if at all. If we are unable to obtain required
technology at a reasonable cost, our growth prospects and operating results may
be harmed through impairment of our ability to conduct business or through
increased cost.
SECURITY RISKS AND CONCERNS MAY DETER THE USE OF THE INTERNET FOR CONDUCTING
COMMERCE.
Concern about the security of the transmission of confidential information
over public networks is a significant barrier to electronic commerce and
communication. Advances in computer capabilities, new discoveries in the field
of cryptography or other events or developments could result in compromises or
breaches of Internet security systems that protect proprietary information. If
any well-publicized compromises of security were to occur, they could
substantially reduce the use of the Internet for commerce and communications.
Anyone who circumvents our security measures could misappropriate proprietary
information, corrupt our listing or pricing data or cause interruptions in our
services or operations. The Internet is a public network, and data are sent over
this network from many sources. In the past, computer viruses have been
distributed and have rapidly spread over the Internet. Computer viruses could be
introduced into our systems or those of our customers, which could disrupt our
technology or make our online services inaccessible to our users. We may be
required to expend significant capital and other resources to protect against
the threat of, or to alleviate problems caused by, security breaches and the
introduction of computer viruses. Our security measures may be inadequate to
prevent security breaches or combat the introduction of computer viruses, either
of which may result in loss of data, increased operating costs, litigation and
possible liability.
OUR INTERNATIONAL OPERATIONS SUBJECT US TO RISKS AND UNCERTAINTIES.
We face risks in doing business internationally. We provide our services to
international sellers and buyers. We currently serve many users based in Latin
America. We plan to establish subsidiaries there and in other parts of the
world. We expect to incur significant costs for our international operations as
we add staff and facilities to serve foreign markets. These costs, together with
the costs of the overhead needed to comply with legal, regulatory and accounting
requirements that differ from those in the United States, may reduce our net
income.
In addition, because our services are accessible worldwide, transactions may
occur in our marketplace between parties in restricted jurisdictions. The United
States government prohibits commercial transactions with buyers and sellers in
certain countries. Currently, we do not monitor sales on our site to prevent
transactions with these "denied parties." Our failure to comply with government
restrictions on transactions with parties in these jurisdictions could subject
us to penalties, such as fines or bans on our ability to offer our services.
Finally, our international operations are subject to disruption from
political and economic instability in the countries in which they may be
located, which may interrupt our ability to conduct business and impose
additional costs upon us.
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<PAGE>
OUR MANAGEMENT HAS BROAD DISCRETION OVER HOW TO USE THE PROCEEDS OF THIS
OFFERING; WE MAY NOT USE THE PROCEEDS IN WAYS THAT HELP OUR BUSINESS SUCCEED.
We estimate that our net proceeds from this offering will be $ million,
at an initial public offering price of $ per share and after deducting the
underwriting discount and our estimated offering expenses. Our primary purposes
in making this offering are to increase our working capital, create a public
market for our common stock, facilitate our future access to the public capital
markets and increase our visibility in the marketplace. We have no specific
plans for the net proceeds of this offering other than working capital and
general corporate purposes. Accordingly, our management will have broad
discretion as to how to apply the net proceeds of this offering. If we fail to
use these proceeds effectively, our business may not grow and our revenues and
net income may decline.
OTHER COMPANIES MAY HAVE DIFFICULTY ACQUIRING US, EVEN IF DOING SO WOULD BENEFIT
OUR STOCKHOLDERS, DUE TO PROVISIONS OF OUR CORPORATE CHARTER AND BYLAWS AND
DELAWARE LAW.
Provisions in our Certificate of Incorporation and Bylaws to be in effect
upon closing of this offering and provisions of Delaware law could make it more
difficult for other companies to acquire us, even if doing so would benefit our
stockholders. Our Certificate of Incorporation and Bylaws will contain the
following provisions, among others, which may inhibit an acquisition of our
company by a third party:
- a staggered board of directors, where stockholders elect only a minority
of the board each year;
- advance notification procedures for matters to be brought before
stockholder meetings;
- a limitation on who may call stockholder meetings; and
- a prohibition on stockholder action by written consent.
We are also subject to provisions of Delaware law that prohibit us from engaging
in any business combination with any "interested stockholder", meaning generally
a stockholder who beneficially owns more than 15% of our stock, for a period of
three years from the date this person became an interested stockholder, unless
various conditions are met, such as approval of the transaction by our Board.
This could have the effect of delaying or preventing a change in control.
OUR STOCK PRICE MAY BE VOLATILE, WHICH COULD RESULT IN SUBSTANTIAL LOSSES FOR
STOCKHOLDERS.
Before this offering, there has never been a public market for our common
stock. The market price for our common stock is likely to be highly volatile and
subject to wide fluctuations in response to the risks described above and many
other factors, some of which are beyond our control. The market prices for
stocks of Internet companies and other companies whose businesses are heavily
dependent on the Internet have generally proven to be highly volatile, and
particularly so in recent periods.
SUBSTANTIAL SALES OF OUR COMMON STOCK AFTER THE OFFERING COULD CAUSE OUR STOCK
PRICE TO FALL.
Most of our outstanding shares are currently restricted from resale, but
some may be sold into the market in the near future. Sales of these shares into
the market could cause the market price of our common stock to drop
significantly, even if our business is doing well.
Immediately following this offering, we will have outstanding shares of
common stock. This includes the shares we are selling in this offering.
Assuming that we sell all shares reserved under our directed share program to
the entities or persons for whom these shares have been reserved, we expect that
investors may resell shares in the public market immediately.
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<PAGE>
The remaining %, or shares, of our total outstanding shares will
become available for resale in the public market as shown in the chart below:
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL DATE OF AVAILABILITY FOR
SHARES OUTSTANDING RESALE INTO PUBLIC MARKET
- --------- ----------- ---------------------------------------------------------
<S> <C> <C>
Immediately.
90 days after the date of this prospectus.
180 days after the date of this prospectus due to an
agreement many of our stockholders have with the
underwriters. However, the underwriters can waive this
restriction and allow these stockholders to sell their
shares at any time.
</TABLE>
As restrictions on resale end, the market price of our stock could drop
significantly if the holders of these restricted shares sell them or the market
perceives that they intend to sell them.
YOU WILL SUFFER IMMEDIATE AND SUBSTANTIAL DILUTION IN THE BOOK VALUE OF YOUR
INVESTMENT.
The initial public offering price per share will significantly exceed our
net tangible book value per share. If we were to liquidate immediately after the
offering, investors purchasing shares in this offering would receive a per share
amount of tangible assets net of liabilities that would be less than the initial
public offering price per share. Investors purchasing shares in this offering
will suffer dilution of $ per share from their investment.
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<PAGE>
FORWARD-LOOKING STATEMENTS
Many statements made in this prospectus under the captions "Prospectus
Summary", "Risk Factors", "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business" and elsewhere are
forward-looking statements that are not based on historical facts. Because these
forward looking-statements involve risks and uncertainties, there are important
factors that could cause actual results to differ materially from those
expressed or implied by these forward-looking statements, including those
discussed under "Risk Factors".
The forward-looking statements made in this prospectus relate only to events
as of the date on which the statements are made. We undertake no obligation to
update any forward-looking statement to reflect events or circumstances after
the date on which the statement is made or to reflect the occurrence of
unanticipated events.
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<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds we will receive from the sale of the
shares of common stock in this offering will be $ million, assuming an
initial public offering price of $ per share and after deducting the
estimated underwriting discount and offering expenses. If the underwriters'
over-allotment option is exercised in full, we estimate that the net proceeds
will be $ million.
The principal purposes of this offering are to increase our working capital,
to create a public market for our common stock, to facilitate future access to
the public capital market and to increase our visibility in the marketplace. We
expect to use the net proceeds of this offering to expand operations and for
working capital and general corporate purposes. As of the date of this
prospectus, however, we have not made any specific expenditure plans with
respect to the proceeds of this offering. Therefore, we cannot specify with
certainty the particular uses for the net proceeds to be received upon
completion of this offering. Accordingly, our management will have significant
flexibility in applying the net proceeds of the offering. We may, for example,
use a portion of the proceeds for strategic investments or acquisitions;
however, we currently have no commitments or agreements and are not negotiating
any of these transactions.
Pending any use, the net proceeds of this offering will be invested in
short-term interest-bearing securities.
DIVIDEND POLICY
We have never declared or paid cash dividends on our capital stock. We do
not anticipate paying any cash dividends in the foreseeable future. We currently
intend to retain any future earnings to finance the expansion of our business.
In addition, future bank credit facilities may restrict our ability to pay cash
dividends.
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<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999:
- on an actual basis;
- on a pro forma basis after giving effect to:
(1) the sale and issuance of 5,577,825 shares of our Series D preferred
stock and 2,455,588 shares of our Series E preferred stock subsequent
to December 31, 1999;
(2) the automatic conversion of all outstanding shares of our Series A,
Series B, Series C and Series E preferred stock;
(3) an increase in our authorized common stock to 200,000,000 shares and
a decrease in our authorized preferred stock to 10,000,000 shares;
and
(4) a one-for-two reverse split of our common stock immediately prior to
completion of this offering.
- on a pro forma as adjusted basis to reflect our sale of shares of
common stock at an initial public offering price of $ per share,
after deducting underwriting discounts and commissions and estimated
offering expenses payable by us.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents................................... $ 18,977 $ 58,977 $
======== ======== ========
Capital leases, excluding current installments.............. $ 22 $ 22 $
Series D redeemable preferred stock, $.0001 par value, no
shares authorized, issued and outstanding (actual);
5,577,825 shares authorized, issued and outstanding (pro
forma and pro forma as adjusted).......................... -- 15,000
Stockholders' equity:
Preferred stock, $.0001 par value: 22,000,000 shares
authorized (actual); 10,000,000 shares authorized (pro
forma and pro forma as adjusted):
Series A preferred stock, $.0001 par value, 3,046,200
shares authorized, 3,045,914 shares issued and
outstanding (actual); no shares authorized, issued and
outstanding (pro forma and pro forma as adjusted)..... -- --
Series B preferred stock, $.0001 par value, 953,361
shares authorized, issued and outstanding (actual); no
shares authorized, issued and outstanding
(pro forma and pro forma as adjusted)................. -- --
Series C preferred stock, $.0001 par value, 9,750,000
shares authorized, 9,288,273 shares issued and
outstanding (actual); no shares authorized, issued and
outstanding (pro forma and pro forma as adjusted)..... 1
Series E preferred stock, $.0001 par value, no shares
authorized, issued and outstanding (actual); no shares
authorized, issued and outstanding (pro forma and pro
forma as adjusted).................................... -- --
Common stock, $.0001 par value: 62,500,000 shares
authorized, 19,236,000 shares issued and outstanding
(actual); 200,000,000 shares authorized (pro forma and
pro forma as adjusted), 29,107,210 shares issued and
outstanding (pro forma), [ ] shares issued and
outstanding (pro forma as adjusted);.................. 2 4
Additional paid-in capital................................ 37,988 62,987
Deferred stock compensation............................... (777) (777)
Accumulated deficit....................................... (19,050) (19,050)
-------- -------- --------
Total stockholders' equity............................ 18,164 43,164
-------- -------- --------
Total capitalization.................................. $ 18,186 $ 58,186 $
======== ======== ========
</TABLE>
Pro forma information is based on our shares of common stock outstanding as
of December 31, 1999. This information excludes:
- 1,892,732 shares subject to options, at a weighted average exercise price
of $1.20 per share;
- 4,675,183 additional shares that could be issued under our stock option
plans; and
- 11,154,995 shares subject to warrants to purchase our common stock at a
weighted average exercise price of $8.59 per share.
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<PAGE>
DILUTION
Our pro forma net tangible book value as of December 31, 1999 was
approximately $ million, or $ per share of common stock. Pro
forma net tangible book value per share is determined by dividing the amount of
our total tangible assets less total liabilities by the pro forma number of
shares of common stock outstanding at that date, assuming the sale and issuance
of 5,577,825 shares of our Series D preferred stock and 2,455,588 shares of our
Series E preferred stock and the conversion of all outstanding shares of our
preferred stock. Dilution in net tangible book value per share represents the
difference between the amount per share paid by purchasers of shares of common
stock in this offering and the net tangible book value per share of common stock
immediately after the completion of this offering.
After giving effect to the issuance and sale of the shares of common stock
offered by us and after deducting the estimated underwriting discount and
offering expenses payable by us, our pro forma net tangible book value as of
December 31, 1999 would have been $ , 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 in this offering. If the
initial public offering price is higher or lower, the dilution to the new
investors will be greater or less, respectively. The following table illustrates
this per share dilution.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share at 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>
The following table summarizes, on a pro forma basis, as of December 31,
1999, the differences between the number of shares of common stock purchased
from us, the aggregate cash consideration paid to us and the average price per
share paid by existing stockholders and new investors purchasing shares of
common stock in this offering. The calculation below is based on an assumed
initial public offering price of $ per share, before deducting the
estimated underwriting discount and offering expenses payable by us:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- -------- ----------- -------- --------------
<S> <C> <C> <C> <C> <C>
Existing stockholders............ % $ % $
New investors....................
---------- --- ----------- ---
Total...................... 100% $ 100%
========== === =========== ===
</TABLE>
The preceding table assumes:
- the sale and issuance of 5,577,825 shares of our Series D preferred stock
and 2,455,588 shares of our Series E preferred stock in March 2000; and
- no exercise of any outstanding stock options or warrants.
This table excludes options outstanding as of December 31, 1999 to purchase
a total of 1,892,732 shares of common stock with a weighted average exercise
price of $1.20 per share. This table also excludes 11,154,995 shares subject to
warrants outstanding as of December 31, 1999 to purchase our common stock at a
weighted average exercise price of $8.59 per share. To the extent that any
outstanding options or warrants are exercised, there will be further dilution to
new investors.
20
<PAGE>
SELECTED FINANCIAL DATA
You should read the selected financial data set forth below along with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements and the notes to those statements
included elsewhere in this prospectus. We have derived the statement of
operations data for 1998 and 1999, and the balance sheet data as of
December 31, 1998 and 1999, from our audited financial statements included
elsewhere in the prospectus.
<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 11, 1998
(INCEPTION) TO YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1999
----------------- -----------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................................. $ -- $ 828
Cost of revenues......................................... -- 529
------- --------
Gross profit............................................. 299
Operating costs:
Sales and marketing.................................... -- 14,090
Research and development............................... 8 2,197
General and administrative............................. 42 3,045
Stock-based compensation expense....................... -- 91
------- --------
Total operating costs.................................... 50 19,423
------- --------
Operating loss........................................... (50) (19,124)
Other income, net........................................ -- 380
------- --------
Net loss................................................. (50) (18,744)
Preferred stock dividend................................. -- (256)
------- --------
Net loss available for common shareholders............... $ (50) $(19,000)
======= ========
Basic and diluted net loss per common share.............. $ (0.00) $ (1.00)
======= ========
Shares used to compute basic and diluted loss per
share.................................................. 15,231 19,071
======= ========
Pro forma net loss per share(1)(2)....................... $ (0.68)
========
Pro forma weighted average shares
outstanding(1)(2)...................................... 27,600
========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1998 1999
--------------- ---------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................ $ 76 $18,977
Working capital.......................................... 60 16,377
Total assets............................................. 76 21,238
Capital leases, excluding current installments........... -- 22
Redeemable preferred stock............................... -- --
Total stockholders' equity............................... 60 18,164
</TABLE>
- ------------------------
(1) See note 4 of notes to our financial statements included elsewhere in this
prospectus for an explanation of the method used to determine the number of
shares used to compute pro forma net loss per share.
(2) Assumes the conversion of all outstanding shares of preferred stock and
excludes options to purchase 1,892,732 shares of common stock with exercise
prices that range from $0.33 to $2.00 and warrants to purchase 11,154,995
shares of common stock with exercise prices that range from $0.02 to $8.94
per share issued in 1999.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH "SELECTED
FINANCIAL DATA" AND OUR FINANCIAL STATEMENTS AND THE NOTES TO THOSE STATEMENTS
APPEARING ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
TradeOut.com is a leading business-to-business Internet marketplace for
buyers and sellers of business surplus. We provide an Internet-based solution
that enables businesses to efficiently buy and sell excess inventory and idle
assets globally, 24 hours a day, seven days a week. We were incorporated in
December 1998 and launched our marketplace in April 1999.
Substantially all of our revenues to date have been derived from listing
fees and sales commissions paid by sellers. We do not charge fees to buyers and,
to date, we have not sold advertising on our site. Sellers typically pay a
nominal listing fee per item and, if the item is sold, a sales commission based
on the purchase price. We intend to pursue future opportunities to derive
revenues from ancillary valued-added services that will assist buyers and
sellers to take better advantage of our marketplace, including logistics
support, financing and credit, escrow accounts, inspections, appraisals,
insurance and shipping. We may provide these services ourselves or through
third-party providers.
Revenues from listing fees are recognized over the period that the item is
posted on our Web site. Revenues related to sales commissions are recognized at
the time the item is sold or the sale or auction for the item is successfully
concluded, which occurs when a buyer has met a seller's asking price and the
sale duration has expired. We have established an allowance for sales returns
based on our historical experience and for failures by buyers and sellers to
consummate a transaction. We do not take possession of either the item being
sold or the buyer's payment for the item. Fees to sellers are aggregated and
billed twice a month. We have no procurement, carrying or shipping costs and no
inventory risk.
We have entered into several strategic business alliance agreements pursuant
to which we pay a sales commission to our strategic alliance partners based on a
percentage of the commission revenues or gross sales dollars arising from the
successful sale of merchandise they post or refer to our Internet marketplace.
In addition to receiving sales commissions, certain strategic alliance partners
have been issued warrants to purchase shares of our common stock for $2.00 per
share. The vesting of these warrants is conditioned upon the attainment of
certain target sales levels over the terms of the strategic alliance agreements.
The maximum number of such warrants issued under agreements in place as of
March 14, 2000 is 3,409,934. Our strategic alliance agreements stipulate that
these warrants are earned and granted over a period of one to five years. We
will recognize a "stock-based strategic alliance cost" for the estimated fair
market value of the warrants in each quarter in which the sales target is
achieved and the warrants are earned. The charge will be based on the fair
market value of the underlying shares at the time the quarterly sales target is
achieved or achievement is probable. Such charges could be significant. We
intend to enter into similar strategic arrangements with other business surplus
sellers.
We recorded cumulative deferred compensation of approximately $868,000
through December 31, 1999, which represents the difference between the exercise
price of some stock options granted in 1999, and the fair market value of the
underlying common stock at the date of grant. The difference is recorded as a
reduction of stockholders' equity and amortized over the vesting period of the
applicable options, typically over three to five years. Of the total deferred
compensation amount, approximately $91,000 was amortized during the year ended
December 31, 1999. The amortization of deferred compensation is generally
recorded as an operating expense.
22
<PAGE>
As a result, we currently expect to record the following amounts as deferred
compensation expense annually with respect to options outstanding at
December 31, 1999:
- 2000--$280,000;
- 2001--$280,000;
- 2002--$195,000;
- 2003--$11,000; and
- 2004--$11,000.
We have incurred significant net losses and negative cash flows from
operations since our inception. At December 31, 1999, we had an accumulated
deficit of $19.0 million. These losses have been funded primarily through the
issuance of our equity securities. We intend to continue to invest heavily in
marketing and brand development to bring more buyers and sellers to our
marketplace. As a result, we believe that we will continue to incur net losses
and negative cash flows from operations for the foreseeable future. Moreover,
the rate at which these losses will be incurred is likely to increase
significantly from current levels.
We have a very limited operating history. Our company was founded in
December 1998 and did not generate revenues until after we launched our Internet
marketplace in April 1999. Because our operating history is so limited, you
cannot evaluate our business and our future prospects based on our historical
results.
Our quarterly operating results have varied in the past and will likely vary
significantly in the future. We derive our revenues primarily from commissions
on sales completed in our Internet marketplace. These sales vary greatly in
dollar amount depending on the type of assets being sold, the sales format used,
the listing size and the nature of the business surplus market generally. As a
result, there may be significant fluctuations in the amount of revenues
generated in different periods. Moreover, charges related to outstanding
warrants that we have issued to strategic alliance partners and that vest upon
the attainment of performance milestones may be very significant in future
periods and may more than offset any income that we have in those periods. We
believe that period-to-period comparisons of our results of operations are not
meaningful and you should not rely upon them as indicators of future
performance.
RESULTS OF OPERATIONS
REVENUES
Total revenues for the year ended December 31, 1999 were $828,000. We did
not recognize any revenues in 1998. In 1999, revenues consisted of sales
commissions and, to a lesser extent, listing fees.
COST OF REVENUES
Cost of revenues primarily consists of compensation for customer service and
Web site operations personnel, Internet service provider connectivity charges
and sales commissions paid to strategic partners. Cost of revenues was $529,000
in 1999 and gross profit was $299,000 during the same period. We anticipate that
our cost of revenues will increase significantly in future periods as we expand
our Web site operations group and our Web site facilities and that our gross
profit margin will vary widely, as some of these costs do not bear any direct
proportional relationship to revenues in the periods when the costs are
incurred.
23
<PAGE>
SALES AND MARKETING
Sales and marketing expenses primarily consist of compensation for sales and
marketing personnel, advertising, trade show and other promotional costs and
overhead costs. Sales and marketing expenses were $14.1 million in 1999. We did
not incur any sales and marketing expenses in 1998. We expect sales and
marketing expenses to continue to increase in absolute dollars for the
foreseeable future as we:
- continue our branding campaign;
- expand our direct sales force and trade facilitation staff;
- increase the number of trade shows we participate in; and
- grow our database marketing infrastructure and personnel.
RESEARCH AND DEVELOPMENT
Research and development expenses consist primarily of compensation for our
research and development staff, payments to outside contractors and, to a lesser
extent, depreciation in equipment used for research and development and
associated overhead costs. We expense research and development costs as they are
incurred. Research and development costs increased from $8,000 in 1998 to
$2.2 million in 1999. The increase was due to costs associated with the increase
in research and development needed to support the initial and ongoing
development of our marketplace.
GENERAL AND ADMINISTRATIVE
General and administrative expenses consist primarily of compensation for
personnel and, to a lesser extent, fees for outside professional advisers and
other overhead costs, including occupancy expense. General and administrative
costs were $3.0 million in 1999 compared to $42,000 in 1998.
INTEREST AND OTHER INCOME, NET
Interest and other income, net, consists of interest earned on cash, cash
equivalents and short-term investments offset by interest expense. Interest and
other income, net, was $380,000 in 1999 and $0 in 1998. The increase was
primarily due to interest earned on the proceeds from the sale of our preferred
stock.
STOCK-BASED COMPENSATION
In connection with the grant of certain stock options through December 31,
1999, we have recorded aggregate unearned compensation of $868,000, which amount
is being amortized over the vesting period of the options, typically three to
five years. Of the total unearned compensation, approximately $91,000 was
amortized in 1999 and $0 was amortized in 1998. See note 5 of the notes to our
financial statements.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations primarily through private
placements of our preferred stock. As of December 31, 1999, we had cash and cash
equivalents of $19.0 million. Subsequent to December 31, 1999, we raised
approximately $15.0 million from the sale of 5,577,825 shares of our Series D
preferred stock and approximately $25.0 million from the sale of 2,455,588
shares of our Series E preferred stock.
24
<PAGE>
Cash used in operating activities was $25,000 in 1998 and $15.8 million in
1999. Cash used in operating activities was primarily attributable to costs
associated with the development of our Internet marketplace, the expansion of
our sales force and the expansion of our administrative and operations staff to
support our growth.
Cash used in investing activities was $0 in 1998 and $1.9 million in 1999.
Cash used in investing activities has primarily been comprised of software
development and purchases of office equipment and furniture.
Cash provided by financing activities was $100,000 in 1998 and
$36.7 million in 1999. In 1998, we raised $100,000 from the sale of our common
stock. In 1999, we raised an aggregate of $1.3 million from the sale of our
common stock in January and February and $35.4 million from the sale of our
preferred stock in April, August and October.
If revenues attributable to GE Capital and its affiliates under our
strategic alliance agreement with GE Capital do not exceed specified target
levels for the one-year period beginning July 1, 2000, or a later date if the
parties agree, then we are obligated to repurchase up to 929,613 shares of
common stock held by GE Capital Equity Investments at a price equal to 125% of
the amount GE Capital Equity Investments paid for those shares.
We believe that our existing capital resources, together with the proceeds
from the sale of our common stock in this offering, will be sufficient to
satisfy our cash requirements for the next 12 months. To the extent these
resources are insufficient to satisfy our cash requirements for that period, we
will be required to raise additional funds through equity or debt financings. We
may not be able to raise these funds on favorable terms or at all.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Investments
and Hedging Activities" (SFAS No. 133). SFAS No. 133 establishes a new model for
accounting for derivatives and hedging activities and supersedes a number of
existing standards. SFAS No. 133 is effective for all fiscal quarters of fiscal
years beginning after June 15, 2000. We do not expect the adoption of SFAS
No. 133 to have a material impact on our financial position or results of
operations.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Most of our cash equivalents, short-term investments and capital lease
obligations are at fixed interest rates. The fair value of these investments is
affected by changes in market interest rates. However, because our investment
portfolio is primarily comprised of investments in high grade commercial paper,
an immediate 10% change in market interest rates would not have a material
effect on the fair market value of our portfolio. Therefore, we would not expect
our operating results or cash flows to be affected to any significant degree by
the effect of a sudden change in market interest rates on our investment
portfolio.
QUARTERLY RESULTS OF OPERATIONS
The following tables present our operating results for the period from
December 11, 1998 (date of inception) to December 31, 1998, and for each of the
four fiscal quarters in the year ended December 31, 1999. The information for
each of these periods is unaudited. In the opinion of management, all necessary
adjustments, which consist only of normal and recurring accruals, have been
included to fairly present the unaudited quarterly results. These data should be
read together with our financial statements and the notes to those statements
included elsewhere in this prospectus.
25
<PAGE>
The historical financial information reflected below is not indicative of
our future performance.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
PERIOD FROM ---------------------------------------------------
DECEMBER 11,
1998
(INCEPTION) TO
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1998 1999 1999 1999 1999
-------------- --------- -------- ------------- ------------
(IN THOUSANDS)
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues............................... $ -- $ -- $ 144 $ 303 $ 381
Cost of revenues....................... -- -- 17 212 300
---- ------- ------- ------- -------
Gross profit........................... -- -- 127 91 81
Operating costs:
Sales and marketing.................. -- 78 1,485 6,736 5,791
Research and development............. 8 33 369 666 1,129
General and administrative........... 42 104 317 908 1,716
Stock-based compensation expense..... -- -- 4 22 65
---- ------- ------- ------- -------
Total operating costs.................. 50 215 2,175 8,332 8,701
---- ------- ------- ------- -------
Operating loss......................... (50) (215) (2,048) (8,241) (8,620)
Other income, net...................... -- 11 58 77 234
---- ------- ------- ------- -------
Net loss............................... (50) (204) (1,990) (8,164) (8,386)
Preferred stock dividends.............. -- -- -- -- (256)
---- ------- ------- ------- -------
Net loss available for
common shareholders.................. $(50) $ (204) $(1,990) $(8,164) $(8,642)
==== ======= ======= ======= =======
</TABLE>
26
<PAGE>
BUSINESS
OVERVIEW
TradeOut.com is a leading business-to-business Internet marketplace for
buyers and sellers of business surplus. We provide an Internet-based solution
that enables businesses to buy and sell excess inventory and idle assets
globally, 24 hours a day, seven days a week. Our solution benefits both buyers
and sellers by centralizing the fragmented business surplus market and
streamlining the traditionally cumbersome paper- and fax-based sales and
procurement process. As a result, sellers can reach a broader global base of
potential buyers and buyers can access a wider range of business surplus across
a variety of industries. Moreover, our solution enables both buyers and sellers
to significantly shorten their sales and procurement cycles, reduce transaction
costs and take advantage of the efficiencies resulting from the use of our
marketplace.
Through December 31, 1999, business users from 43 different countries had
posted more than 8,400 items for sale on our site. At December 31, 1999,
approximately $979 million of business surplus was posted for sale on
TradeOut.com. As of December 31, 1999, more than $15.0 million worth of excess
inventory and idle assets had been sold through our marketplace. At
December 31, 1999, we had approximately 12,700 registered users, and we are
currently registering approximately 100 new users per day. In 1999, we
recognized approximately $828,000 in revenues.
INDUSTRY BACKGROUND
GROWTH OF BUSINESS-TO-BUSINESS ELECTRONIC COMMERCE
Businesses are increasingly relying on the Internet to access and share
information, as well as to purchase and sell products and services. Because
businesses have recognized the power of the Internet to improve efficiency,
streamline existing complex processes, lower costs, find new buyers and create
new markets, Internet-based business-to-business commerce is poised for rapid
growth. Forrester Research estimates that business-to-business electronic
commerce will grow from $406.2 billion in 2000 to $2.7 trillion in 2004.
The Internet enables the creation of centralized marketplaces that allow
widely dispersed buyers and sellers to interact and facilitates the efficient
exchange of product and pricing information. Many businesses have capitalized on
this unique attribute of the Internet to create centralized consumer trading
marketplaces for a variety of consumer goods. The growing popularity of these
consumer-oriented Web sites and the opportunity presented by
business-to-business electronic commerce have spurred the creation of
business-to-business Internet marketplaces. The centralized structure and
potential for increased efficiency and cost savings create a more appealing way
for businesses to buy and sell goods.
THE BUSINESS SURPLUS MARKET
Most companies generate excess inventory and idle assets, known as business
surplus. Businesses create excess inventory in the ordinary course of business
as a result of manufacturer overruns, the discontinuation of products, customer
returns, retail overstocks, the introduction of new lines of merchandise and
evolving market preferences. Businesses also have idle capital assets resulting
from equipment upgrades, facility relocations, office equipment replacement and
the expiration of leases. Business surplus can adversely affect an
organization's financial performance by tying up capital that could otherwise be
invested more productively. In addition, businesses incur costs associated with
storing, tracking and maintaining business surplus. We estimate that the market
for business surplus totaled more than $400 billion worldwide in 1999.
27
<PAGE>
INEFFICIENCIES IN THE MARKET FOR BUSINESS SURPLUS
The traditional methods of selling business surplus are difficult, time
consuming and expensive for the following reasons:
- FRAGMENTED MARKETPLACE. There are limited comprehensive sources of
information about the availability of business surplus, and buyers and
sellers are widely dispersed. Sellers may have difficulty locating buyers
interested in their products or have limited access to industry
intermediaries, such as liquidators and brokers. Similarly, buyers may not
have established relationships with these intermediaries and, therefore,
may not have sources for goods they need.
- CUMBERSOME NEGOTIATION PROCESS. It is time consuming for sellers to
negotiate with multiple potential buyers and for buyers to negotiate with
multiple sellers by phone or in meetings.
- LIMITATIONS OF LIVE AUCTIONS. It is expensive for sellers to hold live
auctions. Moreover, live auctions are limited to buyers who can
participate at the time and place the auction is held.
- DIFFICULTIES IN OBTAINING OPTIMAL PRICE. Companies that do not specialize
in buying and selling business surplus are not always in a position to
know the market value of particular assets. As a result, a business may
dispose of its excess inventory by selling to a liquidator or broker at a
significant discount from the inventory's market value. Because buyers
also lack established sources of price and market information, they may
pay higher prices than the desired assets are worth.
As a result of these inefficiencies in the traditional market for business
surplus, many businesses are deterred from undertaking the selling process, and
consequently, from recovering value for these assets and optimizing their
financial performances.
OPPORTUNITY FOR A BUSINESS-TO-BUSINESS ELECTRONIC COMMERCE SOLUTION
The inefficiencies, fragmentation and complexities of the traditional means
of buying and selling business surplus have created an opportunity for a more
efficient business-to-business Internet marketplace. The Internet enables buyers
and sellers of business surplus around the world to interact with each other
24 hours a day, seven days a week. Sellers can quickly and easily disseminate
information about their business surplus over the Internet directly to
prospective buyers. Relevant industry, product and pricing information can be
centralized, updated, organized and easily searched. Internet marketplaces
provide a competitive environment for establishing optimal pricing for sellers
and streamline the buying process to reduce transaction costs associated with
traditional purchasing methods. Buyers can also use the Internet to more
efficiently arrange for financing, appraisal, insurance and delivery at the time
of purchase.
THE TRADEOUT.COM SOLUTION
TradeOut.com is a global business-to-business Internet marketplace that
brings together buyers and sellers of business surplus. Sellers from around the
world can post their business surplus on TradeOut.com in order to convert these
non-performing assets into cash and improve their financial performance by
strengthening their balance sheets and lowering their operating expenses. Buyers
can search, bid for and purchase business surplus more efficiently across a
number of industries throughout the world. We focus exclusively on the business
surplus market across a variety of targeted industries. We have developed
in-depth expertise within each of the industries we have targeted in order to
better serve the complex needs of buyers and sellers in these industries.
28
<PAGE>
Our solution is designed to provide the following key benefits:
BENEFITS TO SELLERS
ACCESS TO BUYERS WORLDWIDE. We enable sellers to offer their excess
inventory and idle assets to buyers throughout the world. Because sellers have
access to a broader global base of potential buyers and can post their listings
according to specific industry categories, they have an increased likelihood of
finding the right buyers for their assets. Moreover, selected buyers can be
targeted via e-mail to drive key buying prospects to sellers' listings. In
addition, utilizing our large database of buyers, our trade facilitation
personnel can identify relevant buyers and actively assist both sellers and
buyers in successfully completing transactions.
SHORTER SALES CYCLES AND REDUCED COSTS. Our marketplace streamlines the
traditionally inefficient and cumbersome paper- and fax-based sales process.
Sellers can post and easily update product information which can then be
accessed by potential buyers without the need to contact each one individually.
This reduces labor and communications costs and enables sellers to focus on
their core business rather than devoting time to contacting and negotiating with
multiple buyers on a one-to-one basis. In addition, by utilizing TradeOut.com,
some sellers can choose to outsource certain aspects of their excess inventory
and idle asset disposal effort.
MORE EFFICIENT PRICING. TradeOut.com enables sellers to obtain more
efficient pricing than they could through the traditionally fragmented market of
potential buyers and cumbersome individual selling efforts. The greater number
of buyers accessible to sellers on TradeOut.com enables sellers to more
accurately gauge market demand and to determine the optimal asking price.
Moreover, our auction formats allow for concurrent, real-time bidding by
multiple buyers, which creates a more competitive marketplace and increases the
likelihood of obtaining a higher price.
GREATER FLEXIBILITY AND CONTROL OVER THE SALES PROCESS. Our marketplace
allows sellers to select the sales process to suit their particular needs. We
offer multiple sale formats, including: standard auctions; first come, first
served sales; and highest sealed bid sales. The ability to select from various
sale formats enables sellers to achieve objectives such as optimizing the sales
price and completing sales more quickly. Sellers that are sensitive to creating
conflict among their distribution channels can conduct private sales by limiting
participation to designated buyers. In addition, sellers can set delivery and
payment terms, and identify product specifications and lot size. We also provide
sellers with real-time reporting features that enable them to review prior
listings and sales history, as well as track the status of their current
listings at any time.
BENEFITS TO BUYERS
ACCESS TO WORLDWIDE SELECTION OF BUSINESS SURPLUS. We provide buyers with a
centralized Internet marketplace where they can locate and acquire a wide range
of business surplus products across a variety of industries from multiple
sellers around the world. Our marketplace allows buyers to conduct tailored
searches for specific products and to post descriptions of items they are
seeking to purchase within our targeted industry categories. In addition, to
further facilitate the buying process, we provide e-mail notification or direct
calls from our trade facilitation personnel to relevant potential buyers when
new products in which they may be interested are posted on our marketplace.
SHORTER PROCUREMENT CYCLES AND REDUCED COSTS. We enable buyers to bypass
the traditionally labor-intensive and expensive procurement process. We reduce
the time and related costs for buyers to locate and interact with sellers of
business surplus. Buyers using our marketplace do not have to call or find
potential sellers by telephone, fax or other traditional
29
<PAGE>
marketing methods. They can access up-to-date information easily and quickly
from our centralized Internet marketplace. In addition, buyers can avoid
extensive one-on-one negotiations with multiple sellers regarding price or other
terms. As a result, buyers can significantly shorten their asset procurement
cycles and reduce associated costs.
BETTER MARKET INFORMATION. By establishing a critical mass of both sellers
and business assets, we provide buyers with an in-depth view of the market
across a variety of industries for desired assets. In addition, buyers can
compare similar products being offered by different sellers. We also provide
buyers with valuable information to support their purchasing decisions, such as
product condition, specifications, packaging and lot size information. We offer
users access to relevant market news through links to online trade publications
for 24 different industries. This further centralizes the relevant information
business surplus buyers need to make informed purchasing decisions. As a result,
by utilizing our marketplace, buyers can avoid paying unnecessary premiums,
commissions and mark-ups and can more readily obtain desired assets.
OUR STRATEGY
Our objective is to be the leading global marketplace for buyers and sellers
of business surplus. Key strategies to achieve this objective include:
ATTRACT A CRITICAL MASS OF BUYERS AND SELLERS TO OUR INTERNET
MARKETPLACE. Our success is dependent on building a critical mass of sellers
that post a wide range of business surplus on our marketplace and attracting a
large group of potential buyers to make offers on these listings. By adding
sellers and broadening the depth and range of business surplus available on our
marketplace, we create additional value for buyers. By driving more buyers to
our marketplace, we create additional liquidity and value for sellers. We
believe buyers will be drawn to the marketplace with the highest quality and
largest selection of business surplus and sellers will naturally want to
participate in the marketplace with the most buyers. By quickly attracting a
critical mass of both buyers and sellers to our marketplace we intend to create
a network effect, where the value to each participant in the marketplace is
increased with the addition of each new participant. Moreover, we believe that
obtaining this critical mass will create a significant barrier to entry for our
competitors.
LEVERAGE FIRST-MOVER ADVANTAGE AND EXPAND BRAND AWARENESS. We believe that
our position as a leading Internet marketplace for excess inventory and idle
assets provides us with a significant competitive advantage. We intend to
leverage our first-mover advantage by expanding market awareness of TradeOut.com
as the premier Internet marketplace for business surplus. We plan to
aggressively promote the TradeOut.com brand through advertising in key business
and trade periodicals, direct mailings to members of trade organizations,
participating in industry events and trade shows, and conducting targeted
promotions and public relations campaigns.
ESTABLISH ADDITIONAL STRATEGIC ALLIANCES. We intend to continue to enter
into strategic alliances to increase the number of buyers and sellers that
utilize our marketplace, enhance the depth and breadth of the industries we
serve and broaden the scope of our service offerings. We are seeking to develop
strategic arrangements with companies that sell significant amounts of business
surplus each year and that can consequently provide us with quality listings and
relevant buyers. We recently entered into a strategic alliance with GE Capital,
under which we expect GE Capital to encourage its business units and affiliates
to post assets on our marketplace, promote these assets to their customers and
provide remarketing services to their customers. We are also seeking to create
and broaden our alliances with traditional liquidators, trade associations,
financial institutions and leading electronic commerce companies that can help
drive users to our marketplace.
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OFFER A WIDE RANGE OF SERVICES. We intend to actively facilitate the sale
of business surplus on our marketplace by offering a variety of pre- and
post-sale services that address the needs of the business surplus market, from
planning to post-sale management. We also intend to provide buyers and sellers
with value-added ancillary services such as logistics support, financing and
credit, escrow accounts, inspections, appraisals, insurance and shipping. We may
provide some of these services ourselves or enter into agreements with
third-party providers of these services. In addition, we intend to develop the
capability to provide customers with an end-to-end outsourced solution that will
enable them to focus on their core business and to more efficiently buy or sell
such assets.
EXPAND THE BREADTH AND DEPTH OF OUR TARGETED INDUSTRIES. We believe that
our focus on a number of targeted industries has been a critical component of
our success to date. We intend to establish a presence in additional industries.
In addition, we intend to actively recruit and hire personnel to increase our
expertise within our targeted industries. We believe that expanding our number
of targeted industries and enhancing our industry expertise will provide us with
a competitive advantage and will enable us to better serve the needs of buyers
and sellers utilizing our marketplace.
INTEGRATE ENTERPRISE INFORMATION SYSTEMS INTO OUR MARKETPLACE. We intend to
integrate our customers' information systems, such as inventory management
applications, into our marketplace system by building application interfaces. We
are developing an in-house team of information technology professionals that
will focus on providing this service to our large corporate sellers. We believe
that the integration of these systems will further simplify and automate our
customers' internal processes for buying and selling business surplus and
identifying and recording those transactions. Moreover, we believe that
integrating these information systems will provide us with a significant
competitive advantage.
THE TRADEOUT.COM MARKETPLACE
The TradeOut.com marketplace provides a solution to the inefficiencies in
the business surplus market across a wide variety of industries by creating a
forum in which any type of business surplus can be posted and by offering a
range of sales processes through which surplus can be sold efficiently. To
provide a higher level of service, we have targeted several specific industries
in which we have developed in-depth expertise. Our strategy of offering a
solution to the business surplus problem across many industries while focusing
on several targeted industries is reflected in the breadth of our listings and
in the organization of our marketplace. We have listings in more than 100
different product categories, and our marketplace and organizational structure
focus on eight specific industry classifications:
<TABLE>
<S> <C>
- - Apparel / Footwear / Accessories - Computer Products
- - Food and Beverage - Health and Beauty Care
- - Housewares / Household Products - Automotive
- - Metalworking Machinery - Power and Utility Equipment
</TABLE>
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We provide a flexible, efficient marketplace for buying and selling business
surplus. Our marketplace works as follows:
[GRAPHIC]
TRADEOUT.COM TARGETS NEW SELLERS
To generate listings on our site that we think buyers will find compelling,
we target a number of potential sellers of suitable products for our marketplace
through the following activities:
- Direct customer sales calls on large key accounts in our targeted
industries to introduce TradeOut.com as a better solution to their
business surplus problem and to establish an ongoing business
relationship;
- Partnerships with traditional liquidators, dealers or brokers in our
targeted industries, and leading electronic commerce companies that either
manage business surplus problems or that have access to sellers with
business surplus problems;
- A comprehensive branding campaign to generate awareness of TradeOut.com
among key decision makers in our targeted industries with the objective of
encouraging listings on our site and obtaining sales leads; and
- Presentations at industry trade shows and conferences to establish
awareness of our marketplace and forge key business contacts.
We typically focus our efforts on senior financial, sales, manufacturing or
supply chain executives within enterprises that may be potential sellers of
business surplus. We work with our selling customers to identify the excess
inventory and idle assets that are best suited for sale on TradeOut.com. Our
sales and customer service representatives are available to instruct customers
on how to post listings on our marketplace and how to best merchandise those
listings for successful sales.
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SELLERS POST ITEMS FOR SALE ON TRADEOUT.COM
A seller who wishes to post an item for sale on TradeOut.com registers on
our site and completes a simple form that provides prospective buyers with
sufficient information to enable them to make a purchase decision. That
information generally includes the following:
- an item title and description;
- quantity available for sale;
- location of the item;
- category in which the seller wishes to post the item;
- acceptable payment methods;
- type of sale format;
- asking price (the price below which the seller will not sell the product);
- sale duration; and
- photograph of the listed items.
A seller may also elect to remain anonymous to prospective buyers. In order to
increase the likelihood of selling the assets, our users may contact
TradeOut.com customer service personnel for assistance in posting and marketing
their assets.
TradeOut.com offers sellers multiple sale formats to suit their particular
needs:
- FIRST COME, FIRST SERVED SALE, where the seller sets an asking price and
the first buyer to offer that price purchases the item. This type of sale
typically enables the seller to sell the item quickly at a pre-determined
price.
- STANDARD AUCTION, where the seller sets an asking price, a minimum opening
offer and sale duration. Buyers place increasing bids until the sale
closes. At the end of the sale, the highest bidder at or above the asking
price purchases the item. This type of sale format is designed to enable
the seller to maximize the price for its goods by generating competition
among buyers.
- HIGHEST SEALED BID, where the seller sets an asking price, a minimum
opening offer and sale duration. Buyers place sealed bids that are not
shown to other buyers. At the end of the sale, the highest bidder at or
above the asking price purchases the product. This type of sale enables
sellers to attract buyers for whom confidentiality is important.
Regardless of the type of sale format chosen, a seller also may hold a
private sale. For example, a business disposing of excess inventory may wish to
prevent channel conflict, which occurs when a company's excess inventory ends up
in the hands of unintended distributors, such as discount warehouses that sell
to the original company's own customer base at a cheaper price. Businesses can
avoid the negative consequences of channel conflict by providing us with a list
of pre-approved buyers eligible to purchase the assets for sale. Only these
buyers will be able to view and access the private listings for that seller on
our marketplace.
TRADEOUT.COM ATTRACTS BUYERS TO THE MARKETPLACE
To attract buyers to our Internet marketplace, we use a comprehensive sales
and marketing program that includes advertising, database-driven direct mail,
e-mail marketing and buyer tradeshows. We supplement this program with
knowledgeable trade facilitation sales personnel who identify products suitable
for purchase, direct potential buyers to the site and help manage large
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transactions with key buyers in our targeted industries. Our trade facilitation
personnel also work closely with the largest sellers to ensure proper
merchandising of the items on the site and to identify past buyers from the
proprietary TradeOut.com database that might be likely buyers of the sellers'
products. If the seller has posted the sale as a private sale, our trade
facilitation personnel will work closely with the seller to contact designated
buyers and to encourage them to make offers on items in the private sale.
BUYERS SEARCH FOR, EVALUATE AND MAKE OFFERS FOR ITEMS
Buyers enter our Internet marketplace from our home page or via links on our
partners' Web sites. Our user-friendly interface enables the buyer to easily
gather information and make a purchase. We have instituted easy-to-use search
capabilities so buyers can minimize the amount of time required to search for
product listings. Our search engine generates lists of relevant matches to
specified search criteria. Some of the key search capabilities include search by
category, product location, key word, seller name, items posted since the user
last visited our Web site or items that must be sold immediately.
Because some buyers may require information not contained in the product
listing, we have implemented two ways in which registered buyers may obtain
additional product information. A buyer may call or e-mail our customer service
personnel who can then contact the seller on the buyer's behalf.
Once the registered buyer has reviewed the listing details, viewed the
photograph, if available, and resolved any open questions, the buyer may make an
offer on the listing. With an auction format, a buyer may specify the maximum
amount it is willing to pay and, utilizing our auction engine, bid automatically
in bid increments that correspond with the listing's price range. In addition,
we will automatically notify a buyer when it has been outbid during an auction.
We also offer online proxy bidding for items being sold at traditional
industrial equipment auctions. Buyers can view items for sale in a traditional
auction, see the brochure, read the terms and conditions for the on-site auction
and make a proxy bid in advance of the auction, which will then be incorporated
into the on-site auction bidding by the auctioneer.
Finally, our site also features a Wanted section where buyers can post items
that they are interested in purchasing. If a seller sees an item posted in the
Wanted section that it is willing to sell, the seller can click through to a
form and post the item, which triggers an automatic notification to the
potential buyer.
SALES CLOSE AND TRADEOUT.COM COLLECTS FEES
At the completion of a sale, if an offer meets or exceeds the asking price,
we automatically notify the buyer and seller via e-mail, and the parties
consummate the transaction offline. At that point, we send an invoice to the
seller for the commission owed on the sale. In accordance with the terms of our
user agreement, if a seller receives an offer at or above the stated asking
price, the parties are obligated to complete the transaction. Although we cannot
force the seller and buyer to complete the transaction, we can suspend them from
using our marketplace in accordance with the terms of our user agreement. The
buyer and seller independently arrange payment for and shipment of the item, in
accordance with the terms of the product listing. In the event we are notified
of a dispute between the buyer and seller, we will attempt to finalize the sale
with the current buyer or with an alternative buyer.
We do not take possession of the products being sold or take responsibility
for the fulfillment of orders placed through our marketplace. As a result, we
are not subject to the costs and risks
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<PAGE>
associated with holding inventory, such as handling costs, leasing of warehouse
space, loss of product value and potential product damage.
OTHER SELF-SERVICE SITE FEATURES
We offer a variety of self-service features that make it easier for buyers
and sellers to use our Internet marketplace. For example, our My Home feature
allows the user to pre-select its asset categories of interest and the
geographic regions in which it prefers to buy. When the user logs on, the My
Home functionality automatically displays products that meet the user's
preferences. These features are especially useful to buyers that operate in a
specific industry or for which shipping costs may be prohibitive. Other features
of My Home include individual asset management reports of activity on
TradeOut.com, including items the user currently has for sale, items on which
the user currently has made offers and items the user has sold or purchased. We
also have a large Help section with answers to commonly asked questions.
In addition, our site provides links to related service providers so users
can access, at their own expense, additional services that may be important to
the purchase or sale of the assets. These include:
- links to shipping and logistics providers, so that buyers can obtain
information about shipping a particular item; and
- a link to iEscrow, an online escrow service, to provide assurance to
buyers and sellers with respect to payment and delivery.
OTHER INDUSTRY-SPECIFIC FEATURES
In order to further encourage users to visit our marketplace, we have
entered into content arrangements with 24 different industry trade publications.
These publications can easily be accessed through a link from our marketplace
and provide our users with access to relevant industry news and information.
These publications include BEVERAGE WORLD, MODERN MACHINE SHOP, PAPERBOARD
PACKAGING, PROGRESSIVE GROCER and DISCOUNT MERCHANDISER.
TRANSACTION FEES AND PRICING
Our transaction fees are currently paid by the sellers. Sellers typically
pay a listing fee per listing. The seller defines the listing, which can
represent a single product or a series of products bundled together and sold as
one listing. In the future, we may offer sellers the option to post items on our
marketplace through a subscription arrangement instead of individual listing
fees. Under this fee structure, the seller would pay a predetermined
subscription amount, which would cover the cost of an unlimited number of
listings for the duration of the agreement.
Upon a successful sale, which occurs when a buyer has met the seller's
asking price and the sale duration has expired, we charge the seller a
commission based on the final selling price. In the future, we may charge
sellers a graduated commission fee that takes into consideration the nature of
the transaction and the services that we provide.
We do not currently collect fees for ancillary services or for featured site
placements, advertisements on the Web site or customized marketing programs for
sellers, but we may incorporate fees for these services in the future. As we
continue to build our user base and expand our value-added service offerings to
include features such as financing and credit, inspections, appraisals,
insurance, logistics support and escrow accounts, we may enter into revenue
sharing agreements with third-party providers of these services or offer these
services ourselves.
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OUR BUYERS AND SELLERS
Our customers include buyers and sellers of business surplus across a wide
range of industries. As of December 31, 1999, 230 companies had successfully
sold items through our marketplace to 359 businesses. In 1999, Infinergy
Services and Denergy accounted for 66.9% of our total revenues.
STRATEGIC ALLIANCES
We are entering into strategic alliances with targeted industry anchors,
traditional market makers, traffic drivers, and ancillary service providers.
TARGETED INDUSTRY ANCHORS. We are developing relationships with Fortune 500
companies that we expect to become the anchors for supply in our targeted
industries by bringing a significant number of listings to our marketplace,
providing access to their traditional buyers of business surplus and promoting
our marketplace. In March 2000, we entered into an agreement with General
Electric Capital Corporation, which, together with its various business units
and affiliates, operates a business that generates a substantial amount of
business surplus and has access to a large number of buyers.
TRADITIONAL MARKET MAKERS. Market makers are traditional bricks-and-mortar
brokers and liquidators of business surplus. They bring both assets for sale and
access to an extensive database of buyers. By utilizing our site and services,
they obtain a more efficient means of reaching a broad group of buyers. Examples
of our market maker alliances include:
- QUALITY KING DISTRIBUTORS, a wholesale and retail distributor of health
and beauty care products, fragrances and grocery and pharmaceutical
products;
- PURITY WHOLESALE GROCERS, a wholesale distributor of grocery and general
merchandise products; and
- RUMARSON TECHNOLOGIES, a company that specializes in technology asset
management and product disposition.
TRAFFIC DRIVERS. Traffic drivers promote our site and services to their
customers as a value-added service through their sales forces, direct marketing
efforts and Web sites. They include financial institutions, electronic commerce
and software firms, trade associations and media companies. We currently have
alliances of this type with Chase Manhattan, Merrill Lynch, PurchasePro.com, the
National Association of Wholesaler-Distributors, the Consumer Electronics
Association and DowJones.com.
ANCILLARY SERVICE PROVIDERS. Ancillary service providers facilitate the
sale of business surplus through our marketplace by offering a variety of pre-
and post-sale services that address the needs of the business surplus market. In
some cases, partners in the other three categories also provide ancillary
services. Current service providers include:
- I-ESCROW, a provider of online escrow services;
- EMERY WORLDWIDE, a transportation and logistics firm;
- CARDINAL LOGISTICS, a logistics management company; and
- RUMARSON TECHNOLOGIES, a technology asset management company.
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SALES AND MARKETING
Our sales and marketing activities reflect our ongoing strategy of expanding
the number of industries we serve and enhancing the depth of our expertise in
our targeted industries. We employ a combination of marketing, communications
and direct customer contacts within each of our targeted industries, with the
objective of increasing relevant product listings on our Web site, attracting
relevant buyers and generating transactions in our marketplace.
As of December 31, 1999, our marketing organization consisted of eight
people. These individuals focus on increasing general awareness of our solution
through print advertising in leading national business publications and industry
trade publications, as well as reaching individual businesses within our
targeted industries via direct mail, e-mail, telemarketing and sales calls. We
also use a public relations media outreach program to obtain coverage of
TradeOut.com in business and trade publications. In addition, our top executives
speak at leading industry conferences to establish awareness of TradeOut.com and
to forge key business contacts with participants in these conferences.
As of December 31, 1999, our direct sales organization consisted of 63 sales
professionals. These individuals focus their efforts on generating awareness of
the TradeOut.com solution among key decision makers within enterprises that
operate in our targeted industries and may potentially buy or sell business
surplus.
We organize our sales professionals by targeted industy in order to
capitalize on their areas of expertise and their relationships with enterprises
in these industries. The general manager of sales for each of our targeted
industries creates a comprehensive operational plan for that industry that
relies heavily on the efforts of our sales and marketing department. In each
targeted industry, the following ongoing process occurs:
- The general manager in charge of the targeted industry identifies the
major manufacturing and retail organizations that represent the highest
potential business prospects for that industry.
- Each of the sales professionals dedicated to that industry is assigned key
accounts with which to establish relationships. Most of our sales
professionals have 10 to 20 years of previous experience in their
respective industries.
- The general manager works with our marketing personnel to design
customized advertising and direct marketing materials and to plan a media
schedule which includes generating coverage in trade publications for that
industry.
- The marketing team leverages our database of buyer information and
coordinates marketing activities designed to drive relevant buyers in that
industry to our marketplace.
- As sellers in the targeted industry respond to our marketing efforts and
register on our site, our customer service team provides ongoing support
to the sellers by assisting with listings and identifying potential
buyers.
- The business development team analyzes the industry landscape and
identifies companies that represent attractive potential partners to
increase our expertise in the industry and to expand to other industries
that generate high levels of business surplus.
OPERATIONS AND TECHNOLOGY
We have built a secure user interface and transaction processing system upon
a platform using industry-standard software and hardware. The TradeOut.com
system notifies users via e-mail upon registering for the service, posting an
item for sale, being outbid and upon receiving a successful bid or sale. The
system also sends frequent status updates to any active sellers regarding the
state of their current listings and maintains information regarding user
registrations, billing accounts,
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current sales and prior listings. All information is regularly extracted,
summarized and stored in a data warehouse. The system also has a search engine
that can search listings based on listing title, keywords, description, seller
name and category.
We capture site traffic information and report on it using WebTrends and an
internally developed data warehouse. The site traffic information includes
hourly volume data, user demographic data, referring site information,
click-stream data, site activity and detailed information on the registered
users in terms of listing, bidding and purchasing activity.
The TradeOut.com marketplace is available 24 hours a day, seven days a week.
Our system has been designed around industry standard architectures to reduce
downtime in the event of outages or catastrophic occurrences. However, we have
experienced occasional system outages that we believe will continue to occur
from time to time. These outages have stemmed from a variety of causes,
including third-party hardware and software problems, human error and general
maintenance.
Our production systems are hosted at the Exodus facility in Waltham,
Massachusetts, which provides redundant high-bandwidth communications lines and
emergency power backup. Our systems consist of Sun database servers running
Oracle relational database management systems and a load-balanced and redundant
suite of Intel-based Compaq servers running Microsoft Internet Information
Servers on the Windows NT operating system.
The volume of traffic on our Web site has been increasing continually,
requiring us to expand and upgrade our technology, software and network
infrastructure and to add new personnel. We may be unable to accurately project
the rate or timing of increases, if any, in the use of the TradeOut.com service
to expand and upgrade our systems and infrastructure to accommodate such
increases in a timely manner. Any failure to expand or upgrade our systems at
least as fast as the growth in demand for capacity could cause our Internet
marketplace to become unstable and possibly cease to operate for periods of
time. Unscheduled downtime could harm our business.
COMPETITION
A number of companies provide services or products in the market for
business-to-business electronic commerce, and existing and potential customers
can choose from a variety of current and potential competitors' services.
Competition in this market is rapidly evolving and intense, and we expect
competition to further intensify in the future.
Our Internet marketplace competes with traditional providers of services to
sellers and buyers of business surplus, such as jobbers, closeout dealers, used
machinery dealers and brokers. Many of these companies have well-established,
long-standing relationships with the same companies with which TradeOut.com
seeks to establish relationships.
In addition, a number of companies have established online
business-to-business marketplaces for surplus assets. Some of these companies
deal exclusively in used assets; others may sell both new and surplus goods. Our
existing and potential customers can utilize a number of current and potential
competitors' services for buying and selling business surplus. The closest
current competitors are firms that provide online business-to-business
marketplaces for surplus assets in the same industry categories in which
TradeOut.com is currently focused. TradeOut.com also competes, to a lesser
degree, with consumer-oriented sites on which business-to-business transactions
are also consummated.
Competition can be expected to intensify in the future. Several of our
competitors are well financed and could commit more resources to sales and
marketing efforts, adopt more aggressive promotional and pricing policies and
devote more resources to technology and site development than can we. In order
to respond to competitive changes in this environment, we may from time to
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time make pricing, marketing or other strategic decisions that could have a
material adverse affect on our operating results.
Barriers to entry are low. Competitors can obtain low-cost, commercially
available software that provides the same basic site functionality as
TradeOut.com. We believe that the principal competitive factors in this market
are the volume, selection and quality of assets for sale, attracting a large
population of buyers and sellers, delivering superior customer service, building
brand recognition and repeat customers, enhancing Web site functionality and
ease of use, providing value-added services, the price range of products
available on our site and reliability of our systems. We believe that we compete
favorably with respect to each of these factors. However, TradeOut.com may not
be able to compete effectively on all or any of these factors against current
and potential competitors.
INTELLECTUAL PROPERTY
We regard the protection of our intellectual property rights to be critical
to our success. We rely or expect to rely on a combination of patent, copyright,
trademark, service mark and trade secret restrictions and contractual provisions
to protect our intellectual property rights. We require employees and
independent contractors to enter into proprietary information and
confidentiality agreements. The contractual provisions and the other steps we
have taken to protect our intellectual property may not prevent misappropriation
of our technology or deter third parties from developing similar or competing
technologies. We claim trademark rights in the marks TradeOut, TradeOut.com and
the TradeOut.com logo. We have applied for registration of the TradeOut mark in
the United States and in Argentina, Australia, Brazil, Canada, Chile, China, the
European Union, Hong Kong, Japan, Mexico, Russia, Singapore, South Africa, South
Korea and Taiwan.
We have registered our domain name in the United States and in more than 75
foreign countries. There are, however, third parties who own foreign
registrations of the TradeOut.com domain name in some countries. These
registrations and future foreign registrations by third parties of the
TradeOut.com domain name in countries where we have not already registered our
domain name could divert traffic from our site and require us to choose other
domain names that are not easily recognizable.
We cannot be certain that the steps we have taken to protect our
intellectual property will be adequate, that third parties will not infringe or
misappropriate our proprietary rights or that third parties will not
independently develop similar proprietary information. Any such infringement,
misappropriation or independent development could harm our future financial
results. To date there have been several instances of third parties copying our
site and we have taken steps to assert our rights against such third parties.
Additionally, effective patent, trademark, copyright and trade secret protection
may not be available in every country where we provide services. We may, at
times, have to incur significant legal costs and spend time defending our
trademarks, copyrights and, if issued, any patents. Any such defense efforts,
whether successful or not, would divert both time and resources from the
operation and growth of our business.
There is also significant uncertainty regarding the applicability to the
Internet of existing laws regarding matters such as property ownership,
copyrights and other intellectual property rights. The vast majority of these
laws were adopted prior to the advent of the Internet and, as a result, do not
contemplate or address the unique issues of the Internet and related
technologies.
GOVERNMENT REGULATION
As with many Internet-based businesses, we operate in an environment of
tremendous uncertainty as to potential government regulation. The Internet has
rapidly emerged as a commerce 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,
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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
businesses 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
may be deemed to be 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 do not believe that these laws and
regulations, which were enacted for consumer protection many years ago, apply to
our online services. However, one or more jurisdictions may attempt to impose
these laws and regulations on our operations in the future. We may also be
subject to government regulation related to the sale of some goods over our
site.
OUR EMPLOYEES
As of December 31, 1999, we had 127 full time employees, of whom 77 worked
in sales, marketing and business development, 32 in product development and
technology, 10 in administration and 8 in customer service. None of our
personnel are represented under collective bargaining agreements. We consider
our relations with our employees to be good. In addition, all of our employees
have the opportunity to acquire an equity stake in the company through our stock
option plan.
OUR FACILITIES
Our corporate headquarters in Ardsley, New York currently occupy 7,810
square feet of office space under a month-to-month lease. We are in the process
of locating larger facilities to accommodate our anticipated growth.
Our Technology and Development offices are located in Cambridge,
Massachusetts, and we have regional sales offices in the following locations:
- Apple Valley, Minnesota;
- Carpinteria, California;
- Cranbury, New Jersey;
- DeSoto, Texas;
- Duluth, Georgia;
- Ft. Lauderdale, Florida;
- San Ramon, California; and
- St. Louis, Missouri.
We may add additional offices in the United States and in other countries.
LEGAL PROCEEDINGS
On February 23, 2000, TradeCard, Inc. filed a complaint against us in the
United States District Court for the Southern District of New York. The
complaint alleges that we have infringed the TradeCard mark and logo. We believe
that the allegations of the complaint are without merit, and we intend to
contest them vigorously.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth, as of March 14, 2000, the name, age and
position within TradeOut.com of each director, executive officer, and other key
employees of TradeOut.com.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- ------------------------------------------------
<S> <C> <C>
Brin McCagg.................................. 37 Chairman of the Board of Directors
George Samenuk............................... 44 Chief Executive Officer, President and Director
James Mooney................................. 45 Chief Financial Officer
Thomas Boyle................................. 38 Vice President, Partnerships
Jack Dowling................................. 43 Chief Information Officer
Ken Fairleigh................................ 44 Vice President, Worldwide Sales
Alexander D. Lynch........................... 38 Vice President, Strategic Development
Karin Princivalle............................ 43 Vice President, People
Dermott Ryan................................. 37 Vice President, Marketing
Peter C. Schilling........................... 35 Vice President, Technology
Christian Vandendriessche.................... 39 Vice President, International
David Beirne................................. 36 Director
Marc Cummins................................. 40 Director
Robert Goergen............................... 61 Director
J. William Gurley............................ 33 Director
Henry Schachar............................... 46 Director
Margaret Whitman............................. 43 Director
</TABLE>
BRIN MCCAGG is the founder of TradeOut.com and has served as the Chairman of
our board of directors since December 1998. Mr. McCagg served as our Chief
Executive Officer and President from December 1998 to January 2000. From April
1997 to November 1998, Mr. McCagg was the Managing Partner of CommServe, a
private investment fund. From December 1995 to April 1997, Mr. McCagg was the
Chief Executive Officer of Environmental Technologies, a recycler of hazardous
and specialty waste. From April 1991 to December 1995, Mr. McCagg co-founded and
served as Chief Executive Officer of Full Circle Recyclers, a recycling company
which merged with Environmental Technologies in December 1995. Mr. McCagg
received a B.A. in Economics from the University of Vermont and an M.B.A. from
The Wharton School of the University of Pennsylvania.
GEORGE SAMENUK has served as our Chief Executive Officer and President since
January 2000 and has been a director since March 2000. From April 1999 to
January 2000, he served as the General Manager of the Americas for IBM
Corporation, where he was responsible for IBM's operations in the United States,
Canada, and Latin America. From September 1996 until April 1999, Mr. Samenuk was
General Manager of IBM's ASEAN/South Asia region with responsibility for sales
and support of IBM products in 17 countries throughout Asia. From March 1994 to
August 1996, Mr. Samenuk served as Vice President, Banking, Finance and
Securities Industries for IBM Global Services. Mr. Samenuk received an A.B. in
Political Science from Brown University.
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JAMES MOONEY has served as our Chief Financial Officer since January 2000.
From April 1999 to January 2000, Mr. Mooney served as the Senior Vice President
and Chief Financial Officer of Baan Company N.V., a worldwide enterprise
software company. Mr. Mooney was Vice President and Chief Financial Officer of
the Americas for IBM Corporation from January 1998 to April 1999, and Vice
President and Chief Financial Officer, North America for IBM from April 1996 to
December 1997. From March 1994 to March 1996, he served as IBM's Vice President,
Financial Strategy & Operations, North America. Mr. Mooney received a B.A. in
Finance from the University of Notre Dame and an M.B.A. from New York
University.
THOMAS BOYLE has served as our Vice President of Partnerships since
February 2000. Mr. Boyle served as our Chief Operating Officer from July 1999
until January 2000, our Vice President, Product Development from January 1999
until June 1999, and our Vice President of Sales and Marketing from
December 1998 until January 1999. From August 1997 to November 1998, Mr. Boyle
was a Principal with Marketing Corporation of America, a marketing and strategy
consulting firm. From August 1991 to July 1997, Mr. Boyle held various strategy
and marketing positions at Colgate-Palmolive Company including most recently as
Marketing Director of Colgate Toothpaste and Oral Care New Products. Mr. Boyle
received a B.A. in Economics and Advertising from Syracuse University and an
M.B.A. from The Wharton School of the University of Pennsylvania.
JACK DOWLING has served as our Chief Information Officer since
January 2000. From May 1994 to January 2000, Mr. Dowling served as Senior Vice
President and Chief Information Officer of CompuCom, a global services-based
computer reseller. From December 1986 to April 1994, Mr. Dowling held several
key management positions within Sprint's Information Technology organization.
Mr. Dowling received a B.S. in Computer Information Systems from Tarleton State
University.
KEN FAIRLEIGH has served as our Vice President of Worldwide Sales since
January 2000. From January 1998 to January 2000, Mr. Fairleigh was the Vice
President, Worldwide of Square D Company, a manufacturer of electrical switches,
meters and load center equipment, where he was responsible for all sales,
commercial marketing and product marketing for the organization. From
September 1996 to January 1998, he served as Square D's Vice President of Sales.
From September 1994 to September 1996, he served as Vice President,
Construction & Utility Business for Square D. Mr. Fairleigh received a B.A. in
Economics from Duke University and an M.B.A. from The University of Dallas.
ALEXANDER D. LYNCH has served as our Vice President, Strategic Development
since February 2000. From January 1995 to February 2000, Mr. Lynch was a partner
at the law firm of Brobeck, Phleger & Harrison LLP where he was elected to the
policy committee and served as co-head of the firm's investment fund. Mr. Lynch
received a B.S. from Tulane University and a J.D. from Columbia University.
KARIN PRINCIVALLE has served as our Vice President of People since February
2000. From April 1998 to February 2000, Ms. Princivalle served as the Vice
President of Human Resources of Citigroup's Credit Card Business where she was
responsible for the human resources activities across North America. From March
1997 through April 1998, Ms. Princivalle was Vice President of Human Resources
for Citigroup's Consumer Businesses in Central and Eastern Europe, the Middle
East and Africa. From June 1986 to March 1997, she held a variety of senior
human resources positions in Citigroup's Consumer Bank. Ms. Princivalle received
a B.S. in Labor Relations from La Salle University and an M.A. in Industrial
Relations from St. Francis College.
DERMOTT RYAN has served as our Vice President of Marketing since May 1999.
From February 1998 to May 1999, Mr. Ryan was Group Marketing Manager of Advanced
Vertical Services at GTE. Prior to joining GTE, he held various marketing
positions at Johnson & Johnson from
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April 1991 to January 1998, most recently as Product Director on the Tylenol
franchise. Mr. Ryan received a B.A. in history from Yale University and an
M.B.A. from The Wharton School of the University of Pennsylvania.
PETER C. SCHILLING has served as our Vice President of Technology since
April 1999. From October 1995 to March 1999, he was Vice President and General
Manager of Cendant Internet Engineering, a division of Cendant Corp., a provider
of Consumer and business services, and Vice President and General Manager of the
NetMarket Company with Cendant's predecessor, CUC International. Before joining
CUC, Mr. Schilling was a Vice President at Lehman Brothers in the fixed income
research and mortgage trading groups from May 1989 to October 1995.
Mr. Schilling received a B.A. in Computer Science and Cognitive Science &
Linguistics from Brandeis University.
CHRISTIAN VANDENDRIESSCHE has served as our President of International
Operations since July 1999. From February 1999 to July 1999,
Mr. Vandendriessche served as Director of Corporate Mergers and Acquisitions for
Motorola's Corporate Business Development. From January 1994 to February 1999,
Mr. Vandendriessche served as Director and Executive Director of Motorola's
Network Management Group, where he was responsible for indentifying,
originating, building and managing wireless telecommunication investments around
the world. Mr. Vandendriessche received a B.S. in Business Analysis from Indiana
University at Bloomington and an M.M. (M.B.A.) from The J.L. Kellogg Graduate
School of Management at Northwestern University.
DAVID BEIRNE has served as a member of our board since October 1999.
Mr. Beirne has been a Managing Member of Benchmark Capital, a venture capital
firm, since June 1997. Prior to joining Benchmark Capital, Mr. Beirne founded
Ramsey Beirne Associates, an executive search firm, and served as its Chief
Executive Officer from October 1987 to June 1997. Mr. Beirne serves as a
director of Scient Corporation, Kana Communications, PlanetRx, Webvan Group,
1-800-FLOWERS.COM and several private companies. Mr. Beirne received a B.S. in
Management from Bryant College.
MARC CUMMINS has served as a member of our board since April 1999. Since
January 1999, Mr. Cummins has served as General Partner of Catterton Partners, a
private equity firm, and Chairman of Channel Capital Group, an investor in
business-to-business electronic commerce. Prior to joining Catterton,
Mr. Cummins was at Donaldson, Lufkin & Jenrette Securities Corporation from
September 1984 to January 1999 as a managing director of the Retail and
Specialty Distribution Investment Banking Group. Mr. Cummins received a B.A. in
Economics from Middlebury College and an M.B.A. from The Wharton School of the
University of Pennsylvania. He is currently on the board of directors of
PetroleumPlace.com, EmachineTool.com, FLOORgraphics, Scotch Twist and Neat
Twist.
ROBERT GOERGEN has served as a member of our board since June 1999. Since
June 1978 Mr. Goergen has been Chairman, President and Chief Executive Officer
of Blyth Industries, Inc., a manufacturer and marketer of candles, candle
accessories and home fragrances. He has been non-executive Chairman of XTRA
Corporation, a United States trailer leasing company, since January 1990, and
Chairman of the Ropart Group, a private equity investment firm, since January
1979. He is also a member of the board of directors of On-View.com, Bionutrics,
Equi-Financial and Protein Sciences. Mr. Goergen received his BS from the
University of Rochester, where he currently serves as Chairman of the Board of
Trustees, and his M.B.A. from the Wharton School of the University of
Pennsylvania.
J. WILLIAM GURLEY has served as a member of our board since October 1999.
Mr. Gurley has been a Managing Member of Benchmark Capital, a venture capital
firm, since March 1999. Prior to joining Benchmark Capital, Mr. Gurley was a
partner with Hummer Winblad Venture Partners from July 1997 until March 1999.
Prior to his involvement in the venture capital industry, Mr. Gurley was a
research analyst at Credit Suisse First Boston from July 1993 to July 1997.
Mr. Gurley serves as a
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director of several private companies. Mr. Gurley received a B.A. in Computer
Science from the University of Florida and an M.B.A. from the University of
Texas.
HENRY SCHACHAR has served as a member of our board since December 1998.
Mr. Schachar is a partner of iCentennial Ventures, LLC, an Internet incubator.
Mr. Schachar serves as Executive Vice President and Director of WorldSpy.com, a
free Internet service provider, and 2000 Logistics.com, an e-commerce
fulfillment company. Since January 2000, Mr. Schachar has been a General Partner
of iCentennial Ovation I, LP, a venture capital fund. From August 1977 to
August 1991, Mr. Schachar held various positions at Philipp Brothers Inc., a
leading global trader of metals, agricultural and energy related products,
serving as President from October 1985 to August 1991. Mr. Schachar is a member
of the New York Bar Association. He received a B.A. in psychology from Yeshiva
University and a J.D. from Brooklyn Law School.
MARGARET WHITMAN has served as a member of our board since October 1999. She
has been the President, Chief Executive Officer and a director of eBay since
March 1998. From January 1997 to February 1998, she was General Manager of the
Preschool Division of Hasbro, a toy company. From February 1995 to
December 1996, Ms. Whitman was employed by FTD, a floral products company, most
recently as President, Chief Executive Officer and a director. From
October 1992 to February 1995, Ms. Whitman was employed by The Stride Rite
Corporation, in various capacities, including President, Stride Rite Children's
Group and Executive Vice President, Product Development, Marketing and
Merchandising, Keds Division. From May 1989 to October 1992, Ms. Whitman was
employed by the Walt Disney Company, an entertainment company, most recently as
Senior Vice President, Marketing, Disney Consumer Products. Before joining
Disney, Ms. Whitman was at Bain &. Co., a consulting firm, most recently as a
Vice President. Ms. Whitman currently serves on the boards of directors of
Staples and Bizbuyer.com. Ms. Whitman received a B.A. in Economics from
Princeton University and an M.B.A. from the Harvard Business School.
CLASSIFIED BOARD OF DIRECTORS
Upon closing of this offering our board of directors will be divided into
three classes of directors serving staggered three-year terms. As a result,
approximately one-third of the board of directors will be elected each year.
This structure, when coupled with the provision of our amended and restated
certificate of incorporation authorizing the board of directors to fill vacant
directorships or increase the size of the board of directors, may delay a
stockholder from removing incumbent directors and simultaneously gaining control
of the board of directors by filling the vacancies with its own nominees.
BOARD COMMITTEES
Upon the closing of this offering, the board of directors will have an audit
committee and a compensation committee. The audit committee will report to the
board regarding the appointment of our independent public accountants, the scope
and results of our annual audits, compliance with our accounting and financial
policies and management's procedures and policies relative to the adequacy of
our internal accounting controls. Upon the completion of the initial public
offering, the audit committee will consist of , and
.
The compensation committee of the board of directors will review and make
recommendations to the board regarding our compensation policies and all forms
of compensation to be provided to our executive officers. In addition, the
compensation committee will review bonus and stock compensation arrangements for
all of our other employees. Upon the completion of the initial public offering,
the members of the compensation committee will be ,
and . No interlocking relationships will exist between our board of
directors or
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compensation committee and the board of directors or compensation committee of
any other company, nor has any interlocking relationship existed in the past.
DIRECTOR COMPENSATION
We do not currently compensate directors for attending meetings of the board
of directors or committee meetings of the board of directors, but we do
reimburse directors for their reasonable travel expenses incurred in connection
with attending these meetings.
Under the automatic option grant program of our 2000 Stock Incentive Plan,
which is described below under "--2000 Stock Incentive Plan", and subject to the
last sentence of this paragraph, each individual who is serving as a
non-employee member of the board of directors on the date the underwriting
agreement is executed and who has not previously been in our employ will receive
at that time an option to purchase shares of common stock with an exercise
price equal to the public offering price set forth on the cover page of this
prospectus. Each individual who first joins the board of directors after the
completion of this offering as a non-employee member of the board of directors
will also receive an option grant for shares of common stock at the time
he or she commences service on the board of directors, provided that individual
has not otherwise been in our prior employ and has not received options to
purchase, in the aggregate, more than shares of common stock in the last
12 months. In addition, at each annual meeting of stockholders, beginning with
the 2000 annual meeting, each individual who is to continue to serve as a
non-employee member of the board of directors will receive an option to purchase
shares of common stock, provided that individual has served as a
non-employee board member for at least six months.
EXECUTIVE COMPENSATION
The following table sets forth the total compensation paid during the fiscal
year ended December 31, 1999 to our Chief Executive Officer and to each of our
other most highly compensated executive officers whose salary and bonus for that
fiscal year exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION -----------------
--------------------- SHARES UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS COMPENSATION
- --------------------------- --------- --------- ----------------- ------------
<S> <C> <C> <C> <C>
Brin McCagg(1)............................... $178,325 $ -- -- $ --
Chairman of the Board, Chief Executive
Officer and President
Thomas Boyle................................. 150,673 -- 342,857 --
Vice President, Partnerships
Peter C. Schilling........................... 125,484 -- 100,000 --
Vice President, Technology
</TABLE>
- ------------------------
(1) Mr. McCagg was the Chief Executive Officer and President of TradeOut.com at
December 31, 1999. In January 2000, George Samenuk was hired as our Chief
Executive Officer and President.
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<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth grants of stock options for the year ended
December 31, 1999 to each of the named executive officers. We have never granted
any stock appreciation rights. The potential realizable value is calculated
based on the term of the option at its time of grant. It is calculated assuming
that the fair market value of common stock on the date of grant appreciates at
the indicated annual rate compounded annually for the entire term of the option
and that the option is exercised and sold on the last day of its term for the
appreciated stock price. These numbers are calculated based on the requirements
of the Securities and Exchange Commission and do not reflect our estimate of
future stock price growth.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------------------------------------------------
PERCENT OF POTENTIAL REALIZABLE VALUE AT
NUMBER OF TOTAL FAIR ASSUMED ANNUAL RATES OF
SECURITIES OPTIONS MARKET STOCK PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE VALUE ON OPTION TERM
OPTIONS EMPLOYEES PRICE PER THE DATE OF EXPIRATION -------------------------------
NAME GRANTED IN 1999 SHARE GRANT DATE 0% 5% 10%
- ---- ---------- ---------- --------- ------------- ---------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Brin McCagg............ -- --% $ -- $ -- -- $ -- $ -- $ --
Thomas Boyle........... 342,857 18.2 0.33 0.33 3/9/09 -- 71,874 182,142
Peter C. Schilling..... 75,000 4.0 1.00 1.22 3/25/09 -- 47,167 119,531
10,000 0.5 2.00 1.22 4/1/09 -- 12,578 31,875
15,000 0.8 2.00 4.66 12/10/09 -- 18,867 47,812
</TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth information concerning the value realized
upon exercise of options during 1999 and the number and value of unexercised
options held by each of the named executive officers at December 31, 1999. There
was no public trading market for the common stock as of December 31, 1999.
Accordingly, the values set forth below have been calculated on the basis of an
assumed initial public offering price of $ per share, less the applicable
exercise price per share, multiplied by the number of shares underlying the
options.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
FISCAL YEAR-END AT FISCAL YEAR-END (1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Brin McCagg..................................... -- -- $ -- $ --
Thomas Boyle.................................... 114,286 228,571 341,334 682,665
Peter C. Schilling.............................. -- 100,000 -- 207,000
</TABLE>
- ------------------------
(1) There was no public market for our common stock on December 31, 1999. The
fair market value on December 31, 1999 was determined by TradeOut.com to be
$3.32 per share.
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EMPLOYMENT AGREEMENTS
We expect to enter into an employment agreement with George Samenuk, who
became our Chief Executive Officer and President effective January 28, 2000.
Mr. Samenuk's agreement is expected to provide for an annual base salary of
$250,000. If his employment is terminated for reasons other than for cause or
permanent disability, he will be entitled to receive an additional $250,000. At
the time Mr. Samenuk became an employee of TradeOut.com, we granted him options
to purchase 1,640,000 shares of our common stock at an exercise price of $2.00
per share. The options vest in 60 equal installments over a five year period. In
addition, we made a restricted stock grant to him of 410,000 shares of our
common stock in exchange for a five-year promissory note for $820,000 that bears
interest at 6.04% compounded monthly. We have agreed to grant registration
rights to Mr. Samenuk with respect to these shares.
STOCK OPTION PLANS
1999 STOCK PLAN
Our board of directors adopted and our stockholders approved the
Tradeout.com, Inc. 1999 Stock Plan in March 1999. The 1999 Stock Plan became
effective in March 1999 and will continue in effect for a period of ten years
unless terminated by the board of directors at an earlier date. We may grant the
following types of awards under the 1999 Stock Plan to our employees, directors,
or consultants:
- incentive stock options;
- nonqualified stock options; and
- restricted stock.
We reserved 6,567,915 shares of our common stock for issuance under the 1999
Stock Plan. As of March 14, 2000, we had options outstanding to purchase
1,579,135 shares of common stock under the 1999 Stock Plan. We had not granted
any shares of restricted stock under the 1999 Stock Plan.
Our board of directors administers the 1999 Stock Plan and is responsible
for determining the terms and conditions of all grants of options and restricted
stock under the 1999 Stock Plan.
If control of our company changes through, for example, an acquisition of
more than 50% of our stock by another person or company, or through a merger
with another company, and the acquiror fails to assume or replace with
equivalent awards all outstanding awards under the 1999 Stock Plan, then all
outstanding options that have not vested prior to the change of control will
immediately vest and the restrictions on any restricted stock that have not
lapsed before the change of control will immediately lapse.
2000 STOCK INCENTIVE PLAN
INTRODUCTION. We intend to adopt a 2000 Stock Incentive Plan to serve as
the successor program to our 1999 Stock Plan. The 2000 plan will become
effective upon its adoption by our board, subject to approval by our
stockholders. All options outstanding under our existing 1999 Stock Plan on the
date of this offering will be transferred to the 2000 plan, and no further
option grants will be made under the 1999 plan. The transferred options will
continue to be governed by their existing principal economic terms, unless our
compensation committee decides to extend one or more features of the 2000 plan
to those options. Except as otherwise noted below, the transferred options will
have substantially the same terms as will be in effect for grants made under the
discretionary option grant program of our 2000 plan.
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SHARE RESERVE. shares of our common stock will be reserved for
issuance under the 2000 plan. This share reserve will consist of the number of
shares we estimate will be carried over from the 1999 plan plus an additional
increase of approximately shares. The share reserve under our 2000 plan
will automatically increase on the first trading day in January each calendar
year, beginning with calendar year 2001, by an amount equal to 2% of the total
number of shares of our common stock outstanding on the last trading day of
December in the prior calendar year, but in no event will this annual increase
exceed shares (or such other lesser number determined by the Board). In
addition, no participant in the 2000 plan may be granted stock options or direct
stock issuances for more than shares ( shares in the year of the
participant's hire date) of common stock in total in any calendar year.
PROGRAMS. Our 2000 plan will have five separate programs:
- the discretionary option grant program, under which eligible individuals
in our employ may be granted options to purchase shares of our common
stock at an exercise price not less than the fair market value of those
shares on the grant date;
- the stock issuance program, under which eligible individuals may be issued
shares of common stock directly, upon the attainment of performance
milestones or the completion of a specified period of service or as a
bonus for past services;
- the salary investment option grant program, under which our executive
officers and other highly compensated employees may be given the
opportunity to apply a portion of their base salary each year to the
acquisition of special below market stock option grants;
- the automatic option grant program, under which option grants will
automatically be made at periodic intervals to eligible non-employee board
members to purchase shares of common stock at an exercise price equal to
the fair market value of those shares on the grant date; and
- the director fee option grant program, under which our non-employee board
members may be given the opportunity to apply a portion of any retainer
fee otherwise payable to them in cash each year to the acquisition of
special below-market option grants.
ELIGIBILITY. The individuals eligible to participate in our 2000 plan will
include our officers and other employees, our board members and any consultants
we hire.
ADMINISTRATION. The discretionary option grant and stock issuance programs
will be administered by our compensation committee. This committee will
determine which eligible individuals are to receive option grants or stock
issuances under those programs, the time or times when the grants or issuances
are to be made, the number of shares subject to each grant or issuance, the
status of any granted option as either an incentive stock option or a
nonstatutory stock option under the federal tax laws, the vesting schedule to be
in effect for the option grant or stock issuance and the maximum term for which
any granted option is to remain outstanding. The compensation committee will
also have the authority to select the executive officers and other highly
compensated employees who may participate in the salary investment option grant
program in the event that program is put into effect for one or more calendar
years.
PLAN FEATURES. Our 2000 plan will include the following features:
- The exercise price for any options granted under the plan may be paid in
cash or in shares of our common stock valued at fair market value on the
exercise date. The option may also be exercised through a same-day sale
program without any cash outlay by the optionee.
- The compensation committee will have the authority to cancel outstanding
options under the discretionary option grant program, including any
transferred options from our 1999 plan, in
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<PAGE>
return for the grant of new options for the same or different number of
option shares with an exercise price per share based upon the fair market
value of our common stock on the new grant date.
- Stock appreciation rights may be issued under the discretionary option
grant program. These rights will provide the holders with the election to
surrender their outstanding options for a payment from us equal to the
fair market value of the shares subject to the surrendered options less
the exercise price payable for those shares. We may make the payment in
cash or in shares of our common stock. None of the options under our 1999
plan have any stock appreciation rights.
CHANGE IN CONTROL. The 2000 plan will include the following change in
control provisions which may result in the accelerated vesting of outstanding
option grants and stock issuances:
- In the event that we are acquired by merger, asset sale or sale of more
than 50% of our voting securities by the stockholders, each outstanding
option under the discretionary option grant program which is not to be
assumed by the successor corporation or otherwise continued will
immediately become exercisable for all the option shares, and all
outstanding unvested shares will immediately vest, except to the extent
our repurchase rights with respect to those shares are to be assigned to
the successor corporation.
- The compensation committee may grant options which will become exercisable
for all the option shares (i) in the event those options are assumed in
the acquisition but the optionee's service with us or the acquiring entity
is subsequently terminated, or (ii) in connection with a successful tender
offer for more than fifty percent of our outstanding voting stock or a
change in the majority of our board through one or more contested
elections. The vesting of any outstanding shares under our 2000 plan may
be accelerated upon similar terms and conditions.
The options currently outstanding under our 1999 plan currently do not have
any acceleration features.
SALARY INVESTMENT OPTION GRANT PROGRAM. In the event the compensation
committee decides to put this program into effect for one or more calendar
years, each of our executive officers and other highly compensated employees may
elect to reduce his or her base salary for the calendar year by an amount not
less than $ nor more than $ . Each selected individual who makes such an
election will automatically be granted, on the first trading day in January of
the calendar year for which his or her salary reduction is to be in effect, an
option to purchase that number of shares of common stock determined by dividing
the salary reduction amount by two-thirds of the fair market value per share of
our common stock on the grant date. The option will have an exercise price per
share equal to one-third of the fair market value of the option shares on the
grant date. As a result, the option will be structured so that the fair market
value of the option shares on the grant date less the exercise price payable for
those shares will be equal to the amount of the salary reduction. The option
will become exercisable in a series of twelve equal monthly installments over
the calendar year for which the salary reduction is to be in effect.
AUTOMATIC OPTION GRANT PROGRAM. Upon adoption and approval of the 2000
Stock Incentive Plan, each individual who first becomes a non-employee board
member at any time after the effective date of this offering will receive an
option grant to purchase shares of common stock on the date such
individual joins the board. In addition, on the date of each annual stockholders
meeting held after the effective date of this offering, each non-employee board
member who is to continue to serve as a non-employee board member, including
each of our current non-employee board members, will automatically be granted an
option to purchase shares of common stock, provided such individual has
served on the board for at least six months.
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Each automatic grant will have an exercise price per share equal to the fair
market value per share of our common stock on the grant date and will have a
term of 10 years, subject to earlier termination following the optionee's
cessation of board service. The option will be immediately exercisable for all
of the option shares; however, we may repurchase, at the exercise price paid per
share, any shares purchased under the option which are not vested at the time of
the optionee's cessation of board service. The shares subject to each initial
-share automatic option grant will vest in a series of three
(3) successive annual installments upon the optionee's completion of each year
of board service over the three (3)-year period measured from the grant date.
The shares subject to each annual -share automatic grant will vest upon
the optionee's completion of one (1) year of board service measured from the
grant date. However, the shares will immediately vest in full upon certain
changes in control or ownership or upon the optionee's death or disability while
a board member.
DIRECTOR FEE OPTION GRANT PROGRAM. If this program is put into effect in
the future, then each non-employee board member may elect to apply all or a
portion of any cash retainer fee for the year to the acquisition of a
below-market option grant. The option grant will automatically be made on the
first trading day in January in the year for which the non-employee board member
would otherwise be paid the cash retainer fee in the absence of his or her
election. The option will have an exercise price per share equal to one-third of
the fair market value of the option shares on the grant date, and the number of
shares subject to the option will be determined by dividing the amount of the
retainer fee applied to the program by two-thirds of the fair market value per
share of our common stock on the grant date. Accordingly, the fair market value
of the option shares on the grant date less the exercise price payable for those
shares will be equal to the portion of the retainer fee applied to that option.
The option will become exercisable in a series of twelve equal monthly
installments over the calendar year for which the election is in effect.
However, the option will become immediately exercisable for all the option
shares upon the death or disability of the optionee while serving as a board
member.
Additional Program Features. Our 2000 plan will also have the following
features:
- Outstanding options under the salary investment and director fee option
grant programs will immediately vest if we are acquired by a merger or
asset sale or if there is a successful tender offer for more than 50% of
our outstanding voting stock or a change in the majority of our board
through one or more contested elections.
- Limited stock appreciation rights will automatically be included as part
of each grant made under the salary investment option grant program and
the automatic and director fee option grant programs, and these rights may
also be granted to one or more officers as part of their option grants
under the discretionary option grant program. Options with this feature
may be surrendered to us upon the successful completion of a hostile
tender offer for more than 50% of our outstanding voting stock. In return
for the surrendered option, the optionee will be entitled to a cash
distribution from us in an amount per surrendered option share based upon
the highest price per share of our common stock paid in that tender offer.
The board may amend or modify the 2000 plan at any time, subject to any
required stockholder approval. The 2000 plan will terminate no later than
, 2010.
2000 EMPLOYEE STOCK PURCHASE PLAN
We intend to adopt a 2000 Employee Stock Purchase Plan. Subject to approval
by our stockholders, the plan will become effective immediately upon the signing
of the underwriting agreement for this offering. The plan is designed to allow
our eligible employees to purchase shares of common stock, at semi-annual
intervals, with their accumulated payroll deductions.
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SHARE RESERVE. shares of our common stock will initially be reserved
for issuance. The reserve will automatically increase on the first trading day
in January of each calendar year, beginning in calendar year 2001, by an amount
equal to the total number of shares of our common stock issued under the plan in
the prior calendar year. In no event will any such annual increase exceed
shares.
OFFERING PERIODS. The plan will have a series of successive offering
periods, each with a maximum duration of 24 months. The initial offering period
will start on the date the underwriting agreement for this offering is signed
and will end on the last business day in January 2002. The next offering period
will start on the first business day in February 2002, and subsequent offering
periods will set by our compensation committee.
ELIGIBLE EMPLOYEES. Individuals scheduled to work more than 20 hours per
week for more than 5 calendar months per year may join an offering period on the
start date or any semi-annual entry date within that period. Semi-annual entry
dates will occur on the first business day of February and August each year.
Individuals who become eligible employees after the start date of an offering
period may join the plan on any subsequent semi-annual entry date within that
offering period.
PAYROLL DEDUCTIONS. A participant may contribute up to 15% of his or her
base salary through payroll deductions, and the accumulated deductions will be
applied to the purchase of shares on each semi-annual purchase date. The
purchase price per share will be equal to 85% of the fair market value per share
on the participant's entry date into the offering period or, if lower, 85% of
the fair market value per share on the semi-annual purchase date. Semi-annual
purchase dates will occur on the last business day of January and July each
year. However, a participant may not purchase more than shares on any purchase
date, and not more than shares may be purchased in total by all participants
on any purchase date. Our compensation committee will have the authority to
change these limitations for any subsequent offering period.
RESET FEATURE. If the fair market value per share of our common stock on
any purchase date is less than the fair market value per share on the start date
of the two-year offering period, then that offering period will automatically
terminate, and a new two-year offering period will begin on the next business
day. All participants in the terminated offering will be transferred to the new
offering period.
CHANGE IN CONTROL. Should we be acquired by merger or sale of substantially
all of our assets or more than fifty percent of our voting securities, then all
outstanding purchase rights will automatically be exercised immediately prior to
the effective date of the acquisition. The purchase price will be equal to 85%
of the market value per share on the participant's entry date into the offering
period in which an acquisition occurs or, if lower, 85% of the fair market value
per share immediately prior to the acquisition.
PLAN PROVISIONS. The following provisions will also be in effect under the
plan:
The plan will terminate no later than the last business day of
January 2010. The board may at any time amend, suspend or discontinue the plan.
However, certain amendments may require stockholder approval.
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CERTAIN TRANSACTIONS
SALES OF COMMON STOCK
From December 1998 through January 1999, we sold an aggregate of 19,236,000
shares to 35 purchasers, including founders, employees, officers, directors and
other investors for an aggregate purchase price of $1,387,731 in cash and
services rendered to TradeOut.com.
SERIES A PREFERRED STOCK AND WARRANTS
On April 19, 1999, we sold an aggregate of 2,931,200 shares of Series A
preferred stock and warrants to purchase 3,772,454 shares of our common stock at
an exercise price of $7.95 per share to Catterton-Simon Partners III, L.P.,
JFI-TO, L.L.C., GFI-TO, L.L.C., Channel-TO, LLC and seven other investors for an
aggregate purchase price of $7,200,000. Marc Cummins, one of our directors, is
an affiliate of Catterton-Simon Partners III, L.P. and Channel-TO, LLC. Each
share of Series A preferred stock is convertible into one share of our common
stock. In addition, the Series A preferred stock investors entered into an
investors' rights agreement pursuant to which they received registration rights
in connection with their shares of stock and the shares issuable upon the
exercise of their warrants.
SERIES B PREFERRED STOCK
On August 23, 1999, we sold an aggregate of 953,361 shares of Series B
preferred stock to Ailsa Partners, L.P., Ailsa Partners QP, L.P., Arran
Partners, L.P., Allerion Associates, LLC, Thomas Dale, Ian Murray, Ropart
Investments LLC, Ventec Ventures Limited, Kenneth D. Cron and U. Bertram Ellis
for an aggregate purchase price of $7,639,975. Robert Goergen, one of our
directors, is an affiliate of Ropart Investments, LLC. Each share of Series B
preferred stock is convertible into one share of our common stock. The Series B
preferred stock investors received registration rights in connection with their
shares of stock and became parties to the investors' rights agreement.
SERIES C PREFERRED STOCK AND WARRANTS
On October 18, 1999, we sold an aggregate of 9,288,273 shares of Series C
preferred stock and warrants to purchase 7,368,491 shares of our common stock at
an exercise price of $8.94 per share to Benchmark Capital Partners IV, L.P.,
eBay, Inc., Ariba Inc., Morgan Stanley Dean Witter Equity Funding, Inc. for an
aggregate purchase price of $20,813,961. Margaret Whitman, one of our directors,
is Chief Executive Officer, President and a director of eBay, Inc. J. William
Gurley and David Beirne, two of our directors, are affiliates of Benchmark
Capital Partners IV, L.P. and directly hold 6,675 and 33,378 shares of Series C
preferred stock, respectively. Each share of Series C preferred stock is
convertible into one-half of a share of our common stock. The Series C preferred
stock investors received registration rights in connection with their shares of
stock and became parties to the investors' rights agreement.
At that time, the Series A preferred stock holders exchanged their warrants
for new warrants with an exercise price of $7.95 per share. The warrants are
exercisable, in whole or in part, until the earlier of October 8, 2001 or
90 days after the closing of this offering. All outstanding warrants sold in
connection with the Series A preferred stock and Series C preferred stock expire
on October 18, 2001. In addition, upon closing of the sale of the Series C
preferred stock, we issued an aggregate of 114,714 additional shares of
Series A preferred stock in connection with a pay-in-kind dividend on our
Series A preferred stock.
SERIES D PREFERRED STOCK
On March 14, 2000, we sold an aggregate of 5,577,825 shares of Series D
preferred stock for an aggregate purchase price of approximately $15.0 million
and issued a warrant to purchase up to 2,392,500 shares of common stock at an
exercise price of $2.00 per share to GE Capital Equity Investments, Inc., an
affiliate of General Electric Capital Corporation. The Series D preferred stock
is non-voting. Each share of Series D preferred stock will convert automatically
into voting preferred stock upon termination of the applicable waiting period
under the Hart Scott Rodino Act. In the event
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the waiting period under the Hart Scott Rodino Act does not terminate by May 15,
2000, we are obligated to redeem the Series D preferred stock. Each share of
Series D preferred stock is convertible into one-half of a share of our common
stock. Upon conversion of the Series D preferred stock into voting preferred
stock, GE Capital Equity Investments will have the right to designate one member
of our board of directors. If revenues attributable to GE Capital and its
affiliates under our strategic alliance agreement with GE Capital do not exceed
specified target levels for the one-year period beginning July 1, 2000, or a
later date if the parties agree, then we are obligated to repurchase up to
929,613 shares of common stock held by GE Capital Equity Investments at a price
equal to 125% of the amount GE Capital Equity Investments paid for those shares.
In addition, we granted registration rights to GE Capital Equity Investments
with respect to its stock.
SERIES E PREFERRED STOCK
On March 14, 2000, we sold to EVO Capital Fund I.L.P. and five other
investors an aggregate of 2,455,588 shares of Series E preferred stock and
warrants to purchase a number of shares of our common stock to be determined
upon the closing of this offering based upon the fully diluted capitalization of
TradeOut.com on that date. The exercise price for these warrants will be equal
to the initial public offering price. The aggregate purchase price for the
Series E preferred stock and warrants was approximately $25.0 million. Each
share of Series E preferred stock is convertible into one-half of a share of our
common stock. The Series E preferred stock investors received registration
rights in connection with their shares of stock and became parties to the
investors' rights agreement.
STRATEGIC ALLIANCE AGREEMENTS
In February 2000, we entered into an agreement with Quality King
Distributors, Inc., a wholesale and retail distributor of health and beauty care
products, fragrances, grocery and pharmaceutical products, pursuant to which we
will pay Quality King 10% of the commission we receive for transactions
involving Quality King customers in excess of specified minimum transaction
amounts. In addition, we have issued Quality King a warrant to purchase up to
325,000 shares of our common stock at an exercise price of $2.00 per share. The
warrant shares vest quarterly over a five-year period contingent upon completion
of a minimum level of transactions involving either Quality King or customers
referred to us by Quality King. Quality King pays us listing fees for items it
posts on our Web site. The agreement terminates on December 31, 2004.
In March 2000, we entered into an agreement with General Electric Capital
Corporation. Under our agreement, we expect GE Capital to encourage its business
units and affiliates to post assets for sale on our marketplace, promote these
assets to their customers and provide remarketing services to their customers.
We receive a commission on the sale of these assets on our site. In addition, we
issued GE Capital Equity Investments Inc. a warrant to purchase up to 2,932,500
shares of our common stock at an exercise price of $2.00 per share. The warrant
shares vest quarterly over a five-year period contingent upon GE Capital
achieving specified performance goals related to commission fees paid to us by
GE Capital and its business units and affiliates on transactions through our
site. We will also market GE Capital's services to our customers. The agreement
terminates on March 31, 2005.
RECENT OPTION GRANTS TO EXECUTIVE OFFICERS
In January 2000, we granted options to George Samenuk, our Chief Executive
Officer and President, to purchase 1,640,000 shares of our common stock at an
exercise price of $2.00 per share. The options vest in 60 equal installments
over a five-year period.
In January 2000, we granted options to James Mooney, our Chief Financial
Officer to purchase 625,000 shares of our common stock, at an exercise price of
$2.00 per share. Twenty-five percent of the options vest one year from the date
of grant, and the remainder vest in 48 monthly installments over the next four
years.
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In January 2000, we granted options to Ken Fairleigh, our Vice President of
Worldwide Sales, to purchase 625,000 shares of our common stock at an exercise
price of $2.00 per share. Twenty-five percent of the options vest one year from
the date of grant, and the remainder vest in 48 monthly installments over the
next four years.
In January 2000, we granted options to Jack Dowling, our Chief Information
Officer, to purchase 500,000 shares of our common stock at an exercise price of
$2.00 per share. Twenty-five percent of the options vest one year from the date
of grant, and the remainder vest in 48 monthly installments over the next four
years.
In February 2000, we granted options to Alexander D. Lynch, our Vice
President of Strategic Development, to purchase 260,000 shares of our common
stock at an exercise price of $2.00 per share. Twenty-five percent of the
options vest one year from the date of grant, and the remainder vest in 48
monthly installments over the next four years.
In February 2000, we granted options to Karin Princivalle, our Vice
President of People, to purchase 137,500 shares of our common stock at an
exercise price of $2.00 per share. Twenty-five percent of the options vest one
year from the date of grant, and the remainder vest in 48 monthly installments
over the next four years.
OTHER TRANSACTIONS
We utilize office space leased by WorldSpy Corporation, a corporation
controlled by Henry Schachar, a member of our board of directors. We pay
WorldSpy $12,673 for each month we utilize office space under this arrangement.
We believe the terms and conditions of our arrangement with WorldSpy are no less
favorable to us than we could have obtained from unaffiliated third parties.
On December 7, 1999, we entered into an agreement with Ramsey Beirne
Associates, Inc. pursuant to which Ramsey Beirne referred key executive
financial and sales officer candidates to us. For these services, we paid Ramsey
Beirne fees and expenses totaling $456,086 and issued it a warrant to purchase
14,050 shares of our common stock at an exercise price of $0.02 per share. On
March 9, 2000, Ramsey Beirne exercised the warrant in full for an aggregate
exercise price of $281.00. In addition, RB Investment Partners II, LLC, an
affiliate of Ramsey Beirne acquired shares of Series E preferred stock and
warrants to purchase a number of shares of our common stock to be determined
upon the closing of this offering based upon the fully diluted capitalization of
TradeOut.com on that date, for an aggregate purchase price of $1.0 million.
David Beirne, a member of our board of directors, owns 17% of the equity of
Ramsey Beirne.
In January 2000, in connection with the employment of George Samenuk, our
Chief Executive Officer and President, we made a restricted stock grant to
Mr. Samenuk of 410,000 shares of our common stock in exchange for a five-year
promissory note for $820,000 that bears interest at 6.04% compounded monthly.
In February 2000, in connection with the exercise by our executive officers
of options to purchase an aggregate of 4,572,857 shares of our common stock, we
loaned these officers an aggregate of $11,886,308 in exchange for
interest-bearing promissory notes secured by the shares of common stock issued
upon exercise of the options. The amount of the loans represents the exercise
price of the options plus an amount equal to the income tax applicable upon
exercise. The shares of common stock are subject to repurchase by TradeOut.com
if the officers terminate employment before the shares would have vested under
their options.
In connection with the sale of our Series E preferred stock, James Mooney,
our Chief Financial Officer, purchased 294,671 shares of our Series E preferred
stock in exchange for a promissory note in the amount of $3,000,000. The note is
secured by the shares of stock purchased by Mr. Mooney, bears interest at a rate
of 8% compounded annually and has a 90-day term.
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PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to beneficial
ownership of our common stock, as of March 14, 2000, and as adjusted to reflect
the sale of common stock offered by us in this offering for:
- each person known by us to beneficially own more than 5% of our common
stock;
- each executive officer named in the Summary Compensation Table;
- each of our directors; and
- all of our executive officers and directors as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting or investment power with
respect to the securities. Unless otherwise indicated, the address for those
listed below is c/o TradeOut.com, 410 Saw Mill River Road, Suite 2065, Ardsley,
New York 10502. Except as indicated by footnote, and subject to applicable
community property laws, the persons named in the table have sole voting and
investment power with respect to all shares of common stock shown as
beneficially owned by them. The number of shares of common stock outstanding
used in calculating the percentage for each listed person includes the shares of
common stock underlying options or warrants held by such persons that are
exercisable within 60 days of March 14, 2000, but excludes shares of common
stock underlying options or warrants held by any other person. Percentage of
beneficial ownership assumes conversion of all shares of preferred stock
outstanding as of March 14, 2000 into shares of common stock, which will occur
upon completion of this offering.
<TABLE>
<CAPTION>
PERCENTAGE OF
COMMON STOCK
BENEFICIALLY OWNED
-------------------
PRIOR TO AFTER
NAME OF BENEFICIAL OWNER SHARES BENEFICIALLY OWNED OFFERING OFFERING
- ------------------------ ------------------------- -------- --------
<S> <C> <C> <C>
Brin McCagg......................................... 7,440,000 20.1%
Thomas Boyle........................................ 485,357 *
Peter C. Schilling.................................. 130,000 1.3
David Beirne (1).................................... 9,117,711 21.3
Marc Cummins (2).................................... 3,314,626 8.5
Robert Goergen (3).................................. 424,786 1.1
J. William Gurley (1)............................... 9,117,711 21.3
George Samenuk...................................... 2,050,000 5.3
Henry Schachar...................................... 1,125,000 3.0
Margaret Whitman.................................... -- *
Benchmark Capital Partners IV, L.P. (4)............. 9,117,711 21.3
Inter Republic Holdings S.A. (5).................... 6,375,000 17.2
Catterton Partners Management Co., LLC (6).......... 3,314,626 8.5
GE Capital Equity Investments, Inc.................. 2,788,913 7.5
eBay, Inc. (7)...................................... 2,279,429 5.9
All directors and executive officers as a group (17
persons).......................................... 26,627,316 54.1
</TABLE>
- ------------------------
* Indicates less than one percent of the common stock.
(1) The address of each stockholder is c/o Benchmark Capital Partners IV, L.P.,
2480 Sand Hill Road, Suite 200, Menlo Park, CA 94025. All shares indicated
represent shares of common stock held by Benchmark Capital Partners IV, L.P.
as nominee for Benchmark Capital
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Partners IV, L.P., Benchmark Founders' Fund IV, L.P., Benchmark Founders'
Fund IV-A, L.P. and related individuals. Includes 16,689 shares held
directly by Mr. Beirne and 3,338 shares held directly by Mr. Gurley. Each
holder is a Managing Member of Benchmark Capital Management Co. IV, L.L.C.,
the general partner of Benchmark Capital Partners IV, L.P. Each holder
disclaims beneficial ownership of these shares, except to the extent of his
pecuniary interest in the Benchmark funds.
(2) All shares indicated represent shares of common stock held by Catterton
Partners Management Co., LLC. Mr. Cummins is a General Partner of Catterton
Partners Management Co., L.L.C. Mr. Cummins disclaims beneficial ownership
of these shares except to the extent of his pecuniary interest in Catterton
Partners Management Co., LLC.
(3) All shares indicated represent common stock held by Ropart Investments, LLC.
Mr. Goergen is an affiliate of Ropart Investments, LLC. Mr. Goergen
disclaims beneficial ownership of these shares except to the extent of his
pecuniary interest in Ropart Investments, LLC.
(4) Includes 5,706,504 shares issuable upon the exercise of a warrant that is
immediately exercisable. The address of Benchmark Capital Partners IV, L.P.
is 2480 Sand Hill Road, Suite 200, Menlo Park, CA 94025.
(5) The address of Inter Republic Holdings S.A. is 120 Bloomingdale Road, White
Plains, NY 10605.
(6) Includes 1,657,311 shares owned by Catterton-Simon Partners III, L.P. ("CSP
III") and 1,657,315 shares owned by Channel-TO, LLC ("Channel"). Catterton
is the managing partner of CSP III and the managing member of Channel.
Includes 1,833,834 shares issuable upon the exercise of a warrant that is
immediately exercisable.
(7) Includes 1,607,897 shares issuable upon the exercise of a warrant that is
immediately exercisable. The address of eBay, Inc. is 2415 Hamilton Avenue,
San Jose, CA 95125.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
TradeOut.com's amended and restated certificate of incorporation, which will
become effective upon the closing of this offering, will authorize the issuance
of up to 200,000,000 shares of common stock, par value $.0001 per share, and
10,000,000 shares of preferred stock, par value $.0001 per share, the rights and
preferences of which may be established from time to time by our board of
directors. As of March 14, 2000, 37,043,030 shares of common stock were
outstanding, assuming the conversion of all shares of preferred stock
outstanding as of that date into common stock. As of March 14, 2000, we had 89
stockholders.
COMMON STOCK
Holders of our common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders, including the
election of directors. They do not have cumulative voting rights. Subject to
preferences that may be applicable to any then-outstanding preferred stock,
holders of our common stock are entitled to receive ratably dividends, if any,
as may be declared by the board of directors out of legally available funds. In
case of a liquidation, dissolution or winding up of TradeOut.com, the holders of
common stock will be entitled to share ratably in the net assets legally
available for distribution to shareholders after payment of all of our
liabilities and any preferred stock then outstanding. Holders of common stock
have no preemptive or conversion rights or other subscription rights. There are
no redemption or sinking fund provisions applicable to the common stock. The
rights, preferences and privileges of holders of common stock are subject to the
rights of the holders of shares of any series of preferred stock that we may
designate and issue in the future. After the closing of this offering, there
will be no shares of preferred stock outstanding.
PREFERRED STOCK
Under our amended and restated certificate of incorporation, our board of
directors will have the authority, without further action by the stockholders,
to issue from time to time, shares of preferred stock in one or more series. The
board of directors may fix the number of shares, designations, preferences,
powers and other special rights of the preferred stock. The preferences, powers,
rights and restrictions of different series of preferred stock may differ. The
issuance of preferred stock could decrease the amount of earnings and assets
available for distribution to holders of common stock or affect adversely the
rights and powers, including voting rights, of the holders of common stock. Such
issuance may also have the effect of delaying, deferring or preventing a change
in control of TradeOut.com. We have no current plans to issue any shares of
preferred stock.
COMMON STOCK WARRANTS
As of the date of this prospectus, the holders of our Series A preferred
stock, Series C preferred stock and Series D preferred stock hold warrants to
purchase an aggregate of up to 13,533,445 shares of our common stock at exercise
prices ranging from $2.00 to $8.94 per share. All of the warrants held by the
holders of the Series A preferred stock and Series C preferred stock expire
90 days following the closing of this offering. The warrant held by the holder
of the Series D preferred stock expires six years from the launch of our
strategic alliance with GE Capital. The holders of our Series E preferred stock
hold warrants to purchase a number of shares of our common stock to be
determined upon the closing of this offering based upon the fully diluted
capitalization of TradeOut.com on that date. The exercise price for these
warrants will be equal to the initial public offering price. In 1999, we issued
warrants to purchase 14,050 shares of our
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common stock, at an exercise price of $0.02 per share, in exchange for
consulting services provided to us. In 2000, we issued a warrant to purchase
2,000 shares of common stock at an exercise price of $0.02 per share to a
customer in connection with its listings on TradeOut.com and a warrant to
purchase 10,000 shares of common stock at an exercise price of $2.00 per share
in exchange for consulting services provided to us. These warrants were fully
exercisable at the date of grant and have three year terms. In 2000, we issued
warrants to purchase an aggregate of up to 3,409,394 shares of our common stock
at an exercise price of $2.00 per share to our strategic partners. Each warrant
vests only upon achievement of certain revenue criteria. The warrants are not
exercisable until after this offering, and the warrants have terms ranging from
one to five years.
REGISTRATION RIGHTS
Under an investors' rights agreement, the holders of 12,660,123 shares of
our capital stock, the holders of up to 13,533,445 shares of capital stock
issuable upon exercise of warrants are entitled to registration rights in
connection with the registration of their shares under the Securities Act of
1933, subject to various limitations. The holders of the Series E Preferred
Stock also have registration rights with respect to the shares issuable upon
exercise of their warrants, the number of which will be determined upon closing
of this offering. At any time after we become eligible to file a registration
statement on Form S-3, the holders of these shares may require us to file up to
four registration statements under the Securities Act of 1933 on Form S-3 in
connection with their shares of common stock. In addition, GE Capital Equity
Investments has the right, beginning six months after the closing of this
offering, to require that we register the shares of common stock issued upon
conversion of the Series D Preferred Stock and the warrant held by GE Capital
Equity Investments. These registration rights are subject to conditions and
limitations, among them the right of underwriters of an offering to limit the
number of shares of common stock held by securityholders with registration
rights to be included in a registration. Generally, we are required to bear all
expenses of all of these registrations, except underwriting discounts and
selling commissions. Registration of any shares of common stock held by security
holders with registration rights would result in shares becoming freely tradable
without restriction under the Securities Act of 1933 immediately upon
effectiveness of such registration.
ANTI-TAKEOVER EFFECTS OF DELAWARE LAW AND OUR AMENDED AND RESTATED CERTIFICATE
OF INCORPORATION AND BYLAWS
Provisions of our amended and restated certificate of incorporation and
amended and restated bylaws to be effective upon closing of this offering, which
are summarized in the following paragraphs, may have an anti-takeover effect and
may delay, defer or prevent a tender offer or takeover attempt that a
stockholder might consider in its best interest, including those attempts that
might result in a premium over the market price for the shares held by
stockholders.
CLASSIFIED BOARD OF DIRECTORS
Our board of directors will be divided into three classes of directors
serving staggered three-year terms. As a result, approximately one-third of the
board of directors will be elected each year. These provisions, when coupled
with the provision of our amended and restated certificate of incorporation
authorizing the board of directors to fill vacant directorships or increase the
size of the board of directors, may delay a stockholder from removing incumbent
directors and simultaneously gaining control of the board of directors by
filling the vacancies created by such removal with its own nominees.
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STOCKHOLDER ACTION; SPECIAL MEETING OF STOCKHOLDERS
Our amended and restated certificate of incorporation will eliminate the
ability of stockholders to act by written consent. It will further provide that
special meetings of our stockholders may be called only by the chairman of the
board of directors or a majority of the board of directors.
ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTOR
NOMINATIONS
Our amended and restated by-laws will provide that stockholders seeking to
bring business before an annual meeting of stockholders, or to nominate
candidates for election as directors at an annual meeting of stockholders, must
provide timely notice thereof in writing. To be timely, a stockholder's notice
must be received at our principal executive offices not less than 60 days nor
more than 90 days prior to the anniversary date of the immediately preceding
annual meeting of stockholders. In the event that the annual meeting is called
for a date that is not within 30 days before or after the anniversary date, in
order to be timely, notice from the stockholder must be received no later than
the tenth day following the date on which notice of the annual meeting was
mailed to stockholders or made public, whichever occurred earlier. In the case
of a special meeting of stockholders called for the purpose of electing
directors, notice by the stockholder in order to be timely must be received not
later than the close of business on the tenth day following the day on which
notice was mailed or public disclosure of the date of the special meeting was
made, whichever first occurs. Our amended and restated by-laws also will specify
certain requirements as to the form and content of a stockholder's notice. These
provisions may preclude stockholders from bringing matters before an annual or
special meeting of stockholders or from making nominations for directors at
these meetings.
AUTHORIZED BUT UNISSUED SHARES
The authorized but unissued shares of common stock and preferred stock are
available for future issuance without stockholder approval, subject to
compliance with applicable Nasdaq National Market requirements. These additional
shares may be utilized for a variety of corporate purposes, including future
public offerings to raise additional capital, corporate acquisitions and
employee benefit plans. The existence of authorized but unissued shares of
common stock and preferred stock could render more difficult or discourage an
attempt to obtain control of us by means of a proxy contest, tender offer,
merger or otherwise.
The Delaware General Corporation Law provides generally that the affirmative
vote of a majority of the shares entitled to vote on any matter is required to
amend a corporation's certificate of incorporation or bylaws, unless a
corporation's certificate of incorporation or bylaws, as the case may be,
requires a greater percentage. Our amended and restated certificate of
incorporation imposes supermajority vote requirements in connection with various
business combination transactions and the amendment of various provisions of our
amended and restated certificate of incorporation and amended and restated
bylaws, including those provisions relating to the classified board of
directors, action by written consent and special meetings by stockholders.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for TradeOut.com's common stock will be
American Stock Transfer & Trust Company, New York, New York.
LISTING
We intend to apply to list our common stock on the Nasdaq National Market
under the trading symbol "TOUT".
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SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of our common stock in the public market could
adversely affect prevailing market prices of our common stock. Furthermore,
since no shares held by our existing stockholders will be available for sale
shortly after this offering because of the contractual and legal restrictions on
resale described below, sales of substantial amounts of 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.
Upon completion of this offering, we will have outstanding an aggregate of
shares of our common stock, assuming no exercise of the Underwriters'
over-allotment option and no exercise of outstanding options. Of these shares,
all of the shares sold in this offering will be freely tradable without
restriction or further registration under the Securities Act, unless the shares
are purchased by "affiliates" as that term is defined in Rule 144 under the
Securities Act. The remaining shares of common stock held by
existing stockholders are "restricted securities" as that term is defined in
Rule 144 under the Securities Act. Restricted securities may be sold in the
public market following registration or pursuant to an exemption from
registration under Rule 144 promulgated under the Securities Act, which rules
are summarized below.
LOCK-UP AGREEMENTS
All of our officers, directors and all of our stockholders have signed
lock-up agreements under which they agreed not to transfer or dispose of,
directly or indirectly, or hedge any shares of common stock or any securities
convertible into or exercisable or exchangeable for shares of common stock, for
a period of 180 days after the date of this prospectus. Transfers or
dispositions can be made sooner with the prior written consent of Goldman,
Sachs & Co.
Subject to the provisions of Rule 144, 144(k) and 701, restricted shares
totaling will be available for sale in the public market, subject in the
case of shares held by affiliates to the volume restrictions contained in those
rules, 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 who has beneficially owned shares of our
common stock for at least one year, including the holding period of any prior
owner other than an affiliate, 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 such sale.
Sales under Rule 144 are also subject to certain manner of sale provisions
and notice requirements and to the availability of current public information
about us.
RULE 144(K)
Under Rule 144(k), a person who is not deemed to have 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 other than an affiliate, is
entitled to sell those shares without complying with the manner of sale, public
information, volume
60
<PAGE>
limitation or notice provisions of Rule 144. Therefore, unless otherwise
restricted, "144(k) shares" may be sold immediately upon the completion of this
offering.
RULE 701
In general, under Rule 701 of the Securities Act as currently in effect,
each of our employees, consultants or advisors who purchases shares from us
prior to our public offering pursuant to securities issued under a compensatory
stock plan or other written agreement is eligible to resell such shares 90 days
after the effective date of this offering in reliance on Rule 144, but without
compliance with some of the restrictions, including the holding period,
contained in Rule 144.
REGISTRATION RIGHTS
Upon completion of this offering, the holders of 12,660,123 shares of our
capital stock, the holders of up to 13,533,445 shares of capital stock issuable
upon exercise of warrants and the holders of the warrants issued in connection
with the sale of our Series E preferred stock, will be entitled to registration
rights under the Securities Act of 1933, as amended.
STOCK PLANS
Promptly after this offering, we intend to file a registration statement
under the Securities Act covering shares of common stock reserved
for issuance under our 2000 stock plans. This registration statement is expected
to be filed as soon as practicable after the completion of this offering.
At , 2000, options to purchase shares were issued and
outstanding under our plan. Once this registration statement has been filed, all
of these shares will be eligible for sale in the public market from time to time
subject to vesting provisions, Rule 144 volume limitations applicable to our
affiliates and, in the case of some of the options, the expiration of lock-up
agreements.
61
<PAGE>
UNDERWRITING
TradeOut.com and the underwriters named below have entered into an
underwriting agreement with respect to the shares being offered. Subject to
certain conditions, each underwriter has severally agreed to purchase the number
of shares indicated in the following table. Goldman, Sachs & Co., Donaldson,
Lufkin & Jenrette Securities Corporation, Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Chase Securities Inc. are the representatives of the
underwriters.
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
----------- ----------------
<S> <C>
Goldman, Sachs & Co.........................................
Donaldson, Lufkin & Jenrette Securities Corporation.........
Merrill Lynch, Pierce, Fenner & Smith
Incorporated......................................
Chase Securities Inc. ......................................
-------
Total.....................................................
=======
</TABLE>
If the underwriters sell more shares than the total number set forth in the
table above, the underwriters have an option to buy up to an additional
shares from TradeOut.com to cover such sales. They may exercise
that option for 30 days. If any shares are purchased pursuant to this option,
the underwriters will severally purchase shares in approximately the same
proportion as set forth in the table above.
The following table shows the per share and total underwriting discounts and
commissions to be paid to the underwriters by TradeOut.com. Such amounts are
shown assuming both no exercise and full exercise of the underwriters' option to
purchase additional shares.
<TABLE>
<CAPTION>
PAID BY TRADEOUT.COM
---------------------------
NO EXERCISE FULL EXERCISE
----------- -------------
<S> <C> <C>
Per Share................................................... $ $
Total....................................................... $ $
</TABLE>
Shares sold by the underwriters to the public will initially be offered at
the initial public offering price set forth on the cover of this prospectus. Any
shares sold by the underwriters to securities dealers may be sold at a discount
of up to $ per share from the initial public offering price. Any such
securities dealers may resell any shares purchased from the underwriters to
certain other brokers or dealers at a discount of up to $ per share from
the initial public offering price. If all the shares are not sold at the initial
public offering price, the representatives may change the offering price and the
other selling terms.
TradeOut.com, its directors, officers, employees and other holders have
agreed with the underwriters not to dispose of or hedge any of their common
stock or securities convertible into or exchangeable for shares of common stock
during the period from the date of this prospectus continuing through the date
180 days after the date of this prospectus, except with the prior written
consent of Goldman, Sachs & Co. See "Shares Eligible for Future Sale" for a
discussion of certain transfer restrictions.
Prior to this offering, there has been no public market for the shares. The
initial public offering price will be negotiated among TradeOut.com and the
representatives. Among the factors to be considered in determining the initial
public offering price of the shares, in addition to prevailing market
conditions, will be TradeOut.com's historical performance, estimates of the
business potential and earnings prospects of TradeOut.com, an assessment of
TradeOut.com's management and the consideration of the above factors in relation
to the market valuation of companies in related businesses.
62
<PAGE>
TradeOut.com intends to apply for quotation of the common stock on the
Nasdaq National Market under the symbol "TOUT".
In connection with the offering, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in the offering. Stabilizing
transactions consist of certain bids or purchases made for the purpose of
preventing or retarding a decline in the market price of the common stock while
the offering is in progress.
The underwriters may also impose a penalty bid. This occurs when a
particular underwriter repays to other underwriters a portion of the
underwriting discount received by it because the representatives have
repurchased shares sold by or for the account of such underwriter in stabilizing
or short covering transactions.
These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the common stock. As a result, the price of the
common stock may be higher than the price that otherwise might exist in the open
market. If these activities are commenced, they may be discontinued by the
underwriters at any time. These transactions may be effected on the Nasdaq
National Market, in the over-the-counter market or otherwise.
At the request of TradeOut.com, the underwriters are reserving up to
shares of common stock for sale at the initial public offering
price to officers, directors, employees, business associates and persons
affiliated with TradeOut.com through a directed share program. The number of
shares of common stock available for sale to the general public in the public
offering will be reduced to the extent these persons purchase these reserved
shares. Any shares not so purchased will be offered by the underwriters to the
general public on the same basis as other shares offered hereby.
The underwriters do not expect sales to discretionary accounts to exceed
five percent of the total number of shares offered.
At the request of TradeOut.com, the underwriters expect to reserve, at the
initial public offering price, up to 300,000 shares of common stock for sale to
an affiliate of GE Capital and up to shares of common stock for sale to
directors and employees of TradeOut.com. GE Capital is a stockholder and
strategic alliance partner of TradeOut.com.
TradeOut.com estimates that its share of the total expenses of the offering,
excluding underwriting discounts and commissions, will be approximately $ .
TradeOut.com has agreed to indemnify the several underwriters against
certain liabilities, including liabilities under the Securities Act of 1933.
On March 14, 2000, H&Q Access Technology Partners, L.P., an affiliate of
Chase Securities Inc., purchased 98,224 shares of TradeOut.com's Series E
preferred stock, which will be converted into 49,112 shares of common stock upon
consummation of this offering. The aggregate purchase price paid for these
shares was $1,000,000.
63
<PAGE>
VALIDITY OF COMMON STOCK
The validity of the common stock offered by this prospectus will be passed
upon for us by Brobeck, Phleger & Harrison LLP, New York, New York. Certain
legal matters relating to the offering will be passed upon for the underwriters
by Morgan, Lewis & Bockius LLP, Pittsburgh, Pennsylvania.
EXPERTS
The financial statements and schedule of TradeOut.com, Inc. as of
December 31, 1998 and 1999 and for the period from December 11, 1998 (date of
inception) to December 31, 1998 and the year 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 reports thereon appearing
elsewhere herein, and are included in reliance upon such reports given upon the
authority of such firm as experts in auditing and accounting.
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 concerning the common stock
offered in this offering. This prospectus does not contain all of the
information set forth in the registration statement or its exhibits and
schedules. For further information about TradeOut.com and our common stock, we
refer you to the registration statement and to its attached exhibits and
schedules. Statements made in this prospectus concerning the contents of any
document are not necessarily complete. With respect to each document filed as an
exhibit to the registration statement, we refer you to the exhibit for a more
complete description of the matter involved.
You may inspect our registration statement and the attached exhibits and
schedules without charge at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
regional offices of the Commission located at Seven World Trade Center, 13th
Floor, New York, NY 10048, and at 500 West Madison Street, Suite 1400, Chicago,
IL 60661. You may obtain copies of all or any part of our registration statement
from the Commission upon payment of prescribed fees. You may call the Commission
at 1-800-SEC-0330 for further information on the operation of the public
reference rooms. You may also inspect reports, proxy and information statements
and other information that we file electronically with the Commission without
charge at the Commission's Internet site, http://www.sec.gov.
We intend to furnish our stockholders with annual reports containing
financial statements audited by our independent auditors and to make available
to our stockholders quarterly reports containing unaudited financial data for
each of the first three quarters of each year.
64
<PAGE>
TRADEOUT.COM, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Auditors.............................. F-2
Balance Sheets as of December 31, 1998 and 1999............. F-3
Statements of Operations for the period from December 11,
1998 (date of inception) through December 31, 1998 and for
the year ended December 31, 1999.......................... F-4
Statements of Changes in Stockholders' Equity for the period
from December 11, 1998 (date of inception) through
December 31, 1998 and for the year ended December 31,
1999...................................................... F-5
Statements of Cash Flows for the period from December 11,
1998 (date of inception) through December 31, 1998 and for
the year ended December 31, 1999.......................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
TradeOut.com, Inc.
We have audited the accompanying balance sheets of TradeOut.com, Inc. (the
"Company") as of December 31, 1998 and 1999, and the related statements of
operations, changes in stockholders' equity and cash flows for the period from
December 11, 1998 (date of inception) to December 31, 1998 and the year 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 TradeOut.com, Inc. at
December 31, 1998 and 1999, and the results of its operations and its cash flows
for the period from December 11, 1998 (date of inception) to December 31, 1998
and the year ended December 31, 1999 in conformity with accounting principles
generally accepted in the United States.
ERNST & YOUNG LLP
New York, New York
February 15, 2000, except for Note 8,
as to which the date is March 15, 2000
F-2
<PAGE>
TRADEOUT.COM, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31,
DECEMBER 31, 1999
----------------------- (UNAUDITED,
1998 1999 NOTE 8)
--------- ----------- ----------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................... $ 75,509 $18,977,240 $18,977,240
Accounts receivable, net of allowance of $45,000........ - 318,909 318,909
Prepaid expenses and other current assets............... - 132,821 132,821
-------- ----------- -----------
Total current assets...................................... 75,509 19,428,970 19,428,970
Property and equipment, net............................... - 1,686,915 1,686,915
Other assets.............................................. - 122,298 122,298
-------- ----------- -----------
Total assets.............................................. $ 75,509 $21,238,183 $21,238,183
======== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................ $ - $ 1,226,964 $ 1,226,964
Accrued expenses........................................ 15,471 1,036,310 1,036,310
Accrued salaries and commissions........................ - 469,955 469,955
Accrued advertising expenses............................ - 257,756 257,756
Current portion of capital lease obligation............. - 61,311 61,311
-------- ----------- -----------
Total current liabilities................................. 15,471 3,052,296 3,052,296
-------- ----------- -----------
Capital lease obligation.................................. - 21,767 21,767
Commitments
Stockholders' equity:
Series A preferred stock - $.0001 par value, 3,046,200
shares authorized; no shares and 3,045,914 shares issued
and outstanding in 1998 and 1999, respectively; no
shares authorized, issued and outstanding on a pro forma
basis................................................... - 304 -
Series B preferred stock - $.0001 par value, 953,361
shares authorized; no shares and 953,361 shares issued
and outstanding in 1998 and 1999, respectively; no
shares authorized, issued and outstanding on a pro forma
basis................................................... - 95 -
Series C preferred stock - $.0001 par value, 9,750,000
shares authorized; no shares and 9,288,273 shares issued
and outstanding in 1998 and 1999, respectively; no
shares authorized, issued and outstanding on a pro forma
basis................................................... - 929 -
Common stock-$.0001 par value, 125,000,000 shares
authorized; 31,170,000 shares and 38,472,000 shares
issued and outstanding in 1998 and 1999, respectively
and 55,758,823 shares issued and outstanding on a pro
forma basis............................................. 3,117 3,847 5,576
Additional paid-in capital................................ 167,633 37,985,757 37,985,356
Stock subscription receivable............................. (60,750) - -
Deferred compensation..................................... - (776,667) (776,667)
Accumulated deficit....................................... (49,962) (19,050,145) (19,050,145)
-------- ----------- -----------
Total stockholders' equity................................ 60,038 18,164,120 18,164,120
-------- ----------- -----------
Total liabilities and stockholders' equity................ $ 75,509 $21,238,183 $21,238,183
======== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES.
F-3
<PAGE>
TRADEOUT.COM, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 11, 1998
(DATE OF INCEPTION) YEAR ENDED
TO DECEMBER 31, DECEMBER 31,
1998 1999
------------------- ---------------
<S> <C> <C>
Revenues.................................................... $ -- $ 827,735
Cost of revenues............................................ -- 528,397
------------------- ------------
Gross profit................................................ -- 299,338
Operating expenses:
Sales and marketing....................................... -- 14,089,949
Research and development.................................. 8,331 2,197,603
General and administrative................................ 41,631 3,044,703
Stock-based compensation expense.......................... -- 91,106
------------------- ------------
49,962 19,423,361
------------------- ------------
Operating loss.............................................. (49,962) (19,124,023)
Other income (expense):
Interest income........................................... -- 398,419
Interest expense.......................................... -- (5,716)
Loss on disposal of fixed assets.......................... -- (12,581)
------------------- ------------
-- 380,122
------------------- ------------
Net loss.................................................... (49,962) (18,743,901)
Preferred stock dividends................................... -- (256,271)
------------------- ------------
Net loss available for common shareholders.................. $ (49,962) $(19,000,172)
=================== ============
Basic and diluted loss per common share..................... $ (0.00) $ (0.50)
=================== ============
Number of shares used in computing basic and diluted loss
per share................................................. 30,461,429 38,142,609
=================== ============
Pro forma basic and diluted loss per share.................. $ (0.34)
============
Number of shares used in computing pro forma basic and
diluted loss per share.................................... 55,200,004
============
</TABLE>
SEE ACCOMPANYING NOTES.
F-4
<PAGE>
TRADEOUT.COM, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK COMMON STOCK
-------------------- ------------------- ---------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- -------- -------- -------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 11,
1998..................... -- $ -- -- $-- -- $ -- -- $ --
Issuance of common stock... -- -- -- -- -- -- 31,170,000 3,117
Net loss................... -- -- -- -- -- -- -- --
--------- ---- ------- --- --------- ---------- ---------- ----------
Balance at December 31,
1998..................... -- $ -- -- $-- -- $ -- 31,170,000 $ 3,117
Issuance of common stock... -- -- -- -- -- -- 7,302,000 730
Receipt of stock
subscription
receivable............... -- -- -- -- -- -- -- --
Issuance of Series A
preferred stock and
warrants................. 2,931,200 293 -- -- -- -- -- --
Issuance of Series B
preferred stock.......... -- -- 953,361 95 -- -- -- --
Issuance of Series C
preferred stock and
warrants................. -- -- -- -- 9,288,273 929 -- --
Issuance of warrants in
exchange for consulting
services rendered........ -- -- -- -- -- -- -- --
Deferred compensation
related to stock options,
net of cancellations..... -- -- -- -- -- -- -- --
Amortization of deferred
compensation expense..... -- -- -- -- -- -- -- --
Net loss................... -- -- -- -- -- -- -- --
Dividends on Series A
preferred stock.......... 114,714 11 -- -- -- -- -- --
--------- ---- ------- --- --------- ---------- ---------- ----------
Balance at December 31,
1999..................... 3,045,914 $304 953,361 $95 9,288,273 $ 929 38,472,000 $ 3,847
========= ==== ======= === ========= ========== ========== ==========
<CAPTION>
ADDITIONAL TOTAL
PAID-IN ACCUMULATED DEFERRED SUBSCRIPTION STOCKHOLDERS'
CAPITAL DEFICIT COMPENSATION RECEIVABLE EQUITY
------------ ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance at December 11,
1998..................... $ -- $ -- $ -- $ -- $ --
Issuance of common stock... 167,633 -- -- (60,750) 110,000
Net loss................... -- (49,962) -- -- (49,962)
----------- ------------ --------- ---------- ------------
Balance at December 31,
1998..................... 167,633 $ (49,962) $ -- $ (60,750) 60,038
Issuance of common stock... 1,216,250 -- -- -- 1,216,980
Receipt of stock
subscription
receivable............... -- -- -- 60,750 60,750
Issuance of Series A
preferred stock and
warrants................. 7,078,505 -- -- -- 7,078,798
Issuance of Series B
preferred stock.......... 7,585,894 -- -- -- 7,585,989
Issuance of Series C
preferred stock and
warrants................. 20,750,653 -- -- -- 20,751,582
Issuance of warrants in
exchange for consulting
services rendered........ 62,778 -- -- -- 62,778
Deferred compensation
related to stock options,
net of cancellations..... 867,773 -- (867,773) -- --
Amortization of deferred
compensation expense..... -- -- 91,106 -- 91,106
Net loss................... -- (18,743,901) -- -- (18,743,901)
Dividends on Series A
preferred stock.......... 256,271 (256,282) -- -- --
----------- ------------ --------- ---------- ------------
Balance at December 31,
1999..................... 37,985,757 $(19,050,145) $(776,667) $ -- $ 18,164,120
=========== ============ ========= ========== ============
</TABLE>
SEE ACCOMPANYING NOTES.
F-5
<PAGE>
TRADEOUT.COM, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 11, 1998
(DATE OF INCEPTION) TO YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1999
---------------------- -----------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss................................................ $(49,962) $(18,743,901)
Adjustments to reconcile net loss to net cash used in
operating activities:
Provision for losses on accounts receivable........... - 57,187
Depreciation and amortization......................... - 340,009
Loss on disposal of fixed assets...................... - 12,581
Amortization of deferred compensation................. - 91,106
Common stock issued for services...................... 10,000 -
Warrants issued in exchange for consulting services... - 62,778
Changes in operating assets and liabilities:
Accounts receivable................................. - (376,096)
Prepaid expenses and other current assets........... - (132,821)
Other assets........................................ - (122,298)
Accounts payable.................................... - 1,226,964
Accrued expenses.................................... 15,471 1,020,839
Accrued salaries and commissions.................... - 469,955
Accrued advertising................................. - 257,756
-------- ------------
Net cash used in operating activities................... (24,491) (15,835,941)
INVESTING ACTIVITIES
Expenditures for property and equipment................. - (1,939,183)
Proceeds from sale of equipment......................... - 21,440
-------- ------------
Net cash used in investing activities................... - (1,917,743)
FINANCING ACTIVITIES
Payments of capital lease obligation.................... - (38,684)
Receipt of stock subscription receivable................ - 60,750
Proceeds from issuance of common stock.................. 100,000 1,216,980
Proceeds from issuance of Series A preferred stock and
warrants.............................................. - 7,078,798
Proceeds from issuance of Series B preferred stock...... - 7,585,989
Proceeds from issuance of Series C preferred stock and
warrants.............................................. - 20,751,582
-------- ------------
Net cash provided by financing activities............... 100,000 36,655,415
-------- ------------
Net increase in cash and cash equivalents............... 75,509 18,901,731
Cash and cash equivalents at beginning of year.......... - 75,509
-------- ------------
Cash and cash equivalents at end of year................ $ 75,509 $ 18,977,240
======== ============
Non-cash investing and financing activity:
Property and equipment acquired under capital
leases.............................................. $ - $ 121,762
======== ============
Stock issued for subscription........................... $ 60,750 $ --
======== ============
</TABLE>
SEE ACCOMPANYING NOTES.
F-6
<PAGE>
TRADEOUT.COM, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
TradeOut.com, Inc. ("TradeOut" or the "Company"), was incorporated in the
State of Delaware on December 11, 1998 and launched its Web site in April 1999.
The Company is a business-to-business Internet marketplace for buyers and
sellers of business surplus.
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
footnotes thereto. Actual results could differ from those estimates.
CASH EQUIVALENTS
The Company considers all financial instruments with a maturity of three
months or less when purchased to be cash equivalents. Such amounts are stated at
cost, which approximates market value.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the balance sheets for cash and cash
equivalents, accounts receivable, and accounts payable are stated at cost, which
approximates fair value.
PROPERTY AND EQUIPMENT
Property and equipment, including those assets acquired under capital
leases, are stated at cost and depreciated or amortized on the straight-line
method over the shorter of the lease term or the estimated useful lives of the
assets, which are generally five years or less.
SOFTWARE DEVELOPMENT COSTS
In accordance with Statement of Position No. 98-1, "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use", the Company
capitalized approximately $554,000 of costs attributable to the development of
its Web site. Amortization of these capitalized software development costs
amounted to $138,000 for the year ended December 31, 1999.
REVENUE RECOGNITION
The Company derives its revenues primarily from sales commissions and, to a
lesser extent, listing fees, both of which are paid by sellers. Sales
commissions represent a percentage of the purchase price the seller pays upon
completion of a transaction. Sales commissions are recognized at the time an
item is sold or the sale or auction for the item is successfully concluded, net
of provisions for sales returns. Revenues from listing fees are recognized over
the period of time that the related merchandise is listed on the Company's Web
site.
F-7
<PAGE>
TRADEOUT.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company does not take possession or ownership of either the item sold or
the buyer's payment for the item. The Company has no procurement, carrying or
shipping costs. The Company does not charge fees to buyers and to date has
chosen not to sell advertising on its Web site.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs consist of expenses incurred by the Company
to enhance, manage, maintain and operate its Web site. All such research and
development costs are expensed as incurred.
SALES AND MARKETING COSTS
Sales and marketing costs primarily consist of compensation for sales and
marketing personnel, advertising, trade show and other promotional costs and are
expensed as incurred.
STOCK-BASED COMPENSATION
The Company grants stock options generally for a fixed number of shares to
certain employees with an exercise price equal to or below the fair value of the
shares at the date of grant. The Company accounts for this stock-based employee
compensation in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees", ("APB 25") and, accordingly,
recognizes compensation expense only if the fair value of the underlying common
stock exceeds the exercise prices of the stock option on the date of grant.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), which provides an alternative to APB 25 in
accounting for stock-based compensation. As permitted by SFAS 123, the Company
accounts for stock-based compensation in accordance with APB 25 and has elected
the pro forma disclosure alternative permitted by SFAS 123.
INCOME TAXES
The Company uses the liability method of accounting for income taxes,
whereby deferred income taxes are provided on items recognized for financial
reporting purposes over different periods than for income tax purposes.
Valuation allowances are provided when the expected realization of tax assets
does not meet a more likely than not criteria.
COMPUTATION OF NET LOSS PER SHARE
The Company calculates earnings per share in accordance with SFAS No. 128,
"Computation of Earnings Per Share" and SEC Staff Accounting Bulletin No. 98.
Accordingly, basic earnings per share are computed using the weighted average
number of common and dilutive common equivalent shares outstanding during the
period. Common equivalent shares consist of the incremental common shares
issuable upon the conversion of the Preferred Stock (using the if-converted
method) and shares issuable upon the exercise of stock options and warrants
(using the treasury stock method); common equivalent shares are excluded from
the calculation if their effect is anti-dilutive.
F-8
<PAGE>
TRADEOUT.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CONCENTRATION OF CREDIT RISK, MAJOR CUSTOMERS AND GEOGRAPHIC INFORMATION
Financial instruments which potentially subject the Company to a
concentration of credit risk consist of cash and cash equivalents and accounts
receivable. The Company maintains the majority of its cash and cash equivalents
with one financial institution.
The Company generates revenue principally from customers located in North
America, many of which are large multi-national organizations. Two customers
accounted for 67% of the Company's revenues for the year ended December 31,
1999. Accounts receivable are due principally from two customers, whose combined
account balances amount to 76% of accounts receivable at December 31, 1999. The
Company routinely assesses the financial strength of its customers and does not
require collateral or other security to support customer receivables. Credit
losses are provided for in the financial statements in the form of an allowance
for doubtful accounts.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1999:
<TABLE>
<S> <C>
Office equipment and furniture.............................. $1,419,205
Leasehold improvements...................................... 50,648
Software costs.............................................. 553,656
----------
2,023,509
Less accumulated depreciation and amortization.............. 336,594
----------
Property and equipment, net................................. $1,686,915
==========
</TABLE>
Office equipment includes assets acquired under capital leases at a cost of
$121,762 and accumulated depreciation of $40,587.
3. STOCKHOLDERS' EQUITY
STOCK SPLITS
In March 1999, the Company effected a three hundred-for-one stock split of
the common stock by which each share of the Company's common stock outstanding
prior to the split was converted into three hundred shares of the Company's
common stock. In August 1999, the Company effected a further two-for-one stock
split of the common stock by which each share of the Company's common stock
outstanding prior to the split was converted into two shares of the Company's
common stock. All common stock share information in the accompanying financial
statements has been adjusted to reflect the three hundred-for-one stock split
and the two-for-one stock split. All preferred stock conversion rights
information in the accompanying financial statements has been adjusted to
reflect both of these common stock splits.
COMMON STOCK
In December 1998, the Company received upon its initial capitalization
$170,750, of which $60,750 was a subscription receivable and $10,000 represented
services provided to the Company, in exchange for which it issued 31,170,000
shares of common stock. The subscription receivable
F-9
<PAGE>
TRADEOUT.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. STOCKHOLDERS' EQUITY (CONTINUED)
was collected in full in January and February 1999. In January and
February 1999, the Company issued an additional 7,302,000 shares of common stock
in exchange for approximately $1,217,000.
PREFERRED STOCK
SERIES A PREFERRED STOCK
In April and May 1999, the Company authorized 4,300,000 and issued 2,931,200
shares of Series A preferred stock, par value $.0001 per share (the "Series A
preferred stock"), for a purchase price of $2.43 per share. At the same time,
the Company issued warrants for an aggregate purchase price of $72,000 (the
"Series A warrants") to purchase an additional 7,544,908 shares of the Company's
common stock at an exercise price of $3.98 per share.
The exercise price of the Series A warrants may be adjusted to account for
stock splits or other subdivisions, combinations or issuances such that the
aggregate purchase price payable for the total shares purchasable remains the
same. Each share of Series A preferred stock is convertible into two shares of
common stock. The Series A preferred stock has certain preferential rights upon
liquidation and was entitled to an 8% cumulative dividend payable in additional
Series A preferred stock shares. Generally, the holders of the Series A
preferred stock have the same voting rights as the holders of the Company's
common stock, except with regard to the election of the Board of Directors. The
holders of the Series A preferred stock, voting as a separate class, are
currently entitled to elect one individual to the Board of Directors.
In October 1999, the Company declared and paid an 8% cumulative dividend in
additional Series A preferred stock. This resulted in the issuance of 114,714
additional shares of Series A preferred stock. Upon issuance of the Company's
Series C preferred stock, the rights of the Series A preferred stock holders
were amended to eliminate the 8% cumulative dividend.
SERIES B PREFERRED STOCK
In August 1999, the Company issued 953,361 shares of Series B preferred
stock, par value $.0001 per share (the "Series B preferred stock"), for a
purchase price of $8.01 per share. Each share of Series B preferred stock is
convertible into two shares of common stock. The Series B preferred stock has
certain preferential rights upon liquidation. Generally, the holders of the
Series B preferred stock have the same voting rights as the holders of the
Company's common stock, except with regard to the election of the Board of
Directors.
SERIES C PREFERRED STOCK
In 1999, the Company issued 9,288,273 shares of Series C preferred stock,
par value $.0001 per share (the "Series C preferred stock"), for a purchase
price of $2.23 per share. At the same time, the Company issued warrants, for an
aggregate purchase price of $63,959 (the "Series C warrants"), to purchase an
additional 14,736,981 shares of the Company's common stock at an exercise price
of $4.47 per share. Each share of Series C preferred stock is convertible into
one share of our common stock. The exercise price of the Series C warrants may
be adjusted to account for stock splits or other subdivisions, combinations or
issuances such that the aggregate purchase price payable for the total shares
purchasable remains the same. The Series C preferred stock has certain
preferential rights upon liquidation. Generally, the holders of the Series C
F-10
<PAGE>
TRADEOUT.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. STOCKHOLDERS' EQUITY (CONTINUED)
preferred stock have the same voting rights as the holders of the Company's
common stock, except with regard to the election of the Board of Directors. The
holders of the Series C preferred stock, voting as a separate class, are
currently entitled to elect one individual to the Board of Directors.
WARRANTS
In 1999, the Company issued warrants to purchase 28,100 shares of its common
stock in exchange for certain consulting services provided to the Company. These
warrants were fully vested at the date of grant and are exercisable for a period
of three years at $0.01 per share. The warrants were valued at approximately
$63,000, which the Company determined to be the value of the services received,
and were charged to expense in 1999.
RESERVED SHARES
The Company has reserved 39,596,812 shares of common stock to be issued upon
the conversion of the Series A, B and C preferred stock, the exercise of the
Series A warrants and the Series C warrants, and warrants issued in exchange for
certain consulting services.
4. NET LOSS PER SHARE
The following table sets forth the computation of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 11, 1998
(DATE OF INCEPTION) TO YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1999
---------------------- -----------------
<S> <C> <C>
Numerator:
Net loss.............................................. $ (49,962) $(18,743,901)
Preferred stock dividends............................. -- (256,271)
----------- ------------
Numerator for basic and diluted loss per share--net loss
available for common stockholders..................... $ (49,962) $(19,000,172)
=========== ============
Denominator:
Denominator for basic and diluted loss per share--
weighted average shares............................. 30,461,429 38,142,609
=========== ============
Basic and diluted net loss per share.................... $ (0.00) $ (0.50)
=========== ============
</TABLE>
F-11
<PAGE>
TRADEOUT.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. NET LOSS PER SHARE (CONTINUED)
Diluted net loss per share for the year ended December 31, 1999 does not
include the effect of options to purchase 3,785,464 shares of common stock,
warrants to purchase 22,309,989 shares of common stock, or 17,286,823 shares of
common stock issuable upon the conversion of Series A, B and C preferred stock
on an "as if converted" basis, respectively, as the effect of their inclusion is
anti-dilutive during the period. No options or warrants to purchase common
stock, or shares of Series A, B or C preferred stock were outstanding during the
period from December 11, 1998 (date of inception) to December 31, 1998.
The following table sets forth the computation of the unaudited pro forma
basic and diluted loss per share, assuming conversion of the Series A, B and C
preferred stock, at December 31, 1999:
<TABLE>
<S> <C>
Numerator:
Net loss available to common stockholders................. $(19,000,172)
Preferred stock dividends................................. 256,271
------------
Numerator for pro forma loss available for common
stockholders.............................................. $(18,743,901)
============
Denominator:
Weighted average number of common shares.................. 38,142,609
Assumed conversion of preferred stock to common shares (if
converted method)....................................... 17,057,395
------------
Denominator for pro forma basic and diluted loss per
share..................................................... 55,200,004
============
Pro forma basic and diluted net loss per share.............. $ (0.34)
============
</TABLE>
5. STOCK OPTION PLAN
In 1999, the Company approved and adopted the TradeOut.com, Inc. 1999 Stock
Option Plan (the "1999 Plan") and reserved 13,135,830 shares of its common stock
for issuance pursuant to the 1999 Plan. The 1999 Plan provides for the grant of
stock options to qualified employees and consultants of the Company. Options are
granted with an exercise price equal to the Company's then current estimate of
the fair market value of its common stock. The options are exercisable for a
period not to exceed ten years. The vesting schedule is determined at the date
of each grant. Stock options granted pursuant to the 1999 Plan generally vest
over periods of between three and five years.
In connection with options granted in 1999, the Company recorded deferred
compensation of $867,773. The Company has, for financial reporting purposes,
used a fair market value of $0.17 to $3.00 per share from January 1, 1999
through December 31, 1999 to record deferred compensation. This value is based
upon analyses prepared by the Company. Deferred compensation is being amortized
over the vesting period of the options granted. The amount recognized as expense
during the year ended December 31, 1999 was approximately $91,000.
F-12
<PAGE>
TRADEOUT.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. STOCK OPTION PLAN (CONTINUED)
The following is a summary of the options outstanding under the 1999 Plan:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE
SHARES EXERCISE PRICE
--------- --------------
<S> <C> <C>
Outstanding at December 31, 1998................... --
Granted............................................ 4,721,464 $0.67
Canceled........................................... (936,000) $0.94
---------
Outstanding at December 31, 1999................... 3,785,464 $0.60
=========
</TABLE>
The outstanding options at December 31, 1999 had a weighted average
remaining contractual life of 9.44 years and could be exercised at a weighted
average price of $0.60 per share. At December 31, 1999, there were 228,571
outstanding exercisable options, with an exercise price of $0.17 per share and a
remaining contractual life of 9.19 years.
Pro forma information regarding net loss is required by SFAS 123, which also
requires that the information be determined as if the Company has accounted for
its stock options under the fair value method of the statement. The fair market
value for these options was estimated at the grant date using the Black-Scholes
option valuation model with the following weighted average assumptions:
risk-free interest rate ranging from 4.66% to 6.24%; no dividend yield; a
volatility of 1.89; and a three-year expected life of the option at the date of
grant. The weighted average fair value of the options granted during the year
was $1.08. The Company's pro forma information for the year ended December 31,
1999 is as follows:
<TABLE>
<S> <C>
Pro forma net loss available to common stockholders......... $(19,338,507)
============
Pro forma basic and diluted loss per share.................. $ (0.51)
============
</TABLE>
Options granted during 1999 the exercise price of which was less than the
fair market price of the Company's common stock at the time of issuance had a
weighted average exercise price of $0.78 per share and a weighted average fair
value of $1.40.
Options granted during 1999 the exercise price of which exceeds the fair
market price of the Company's common stock at the time of issuance had a
weighted average exercise price of $0.98 per share and a weighted average fair
value of $0.55.
Options granted during 1999 the exercise price of which is equal to the fair
market price of the Company's common stock at the time of issuance had a
weighted average exercise price of $0.17 per share and a weighted average fair
value of $0.15.
6. INCOME TAXES
At December 31, 1999, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $18,406,000. These net operating
loss carryforwards begin to expire in 2018. The net operating loss carryforwards
may be subject to Section 382 of the Internal
F-13
<PAGE>
TRADEOUT.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES (CONTINUED)
Revenue Code, which imposes annual limitations on their utilization. A valuation
allowance has been recognized to fully offset the deferred tax assets, after
considering deferred tax liabilities.
Significant components of the Company's deferred tax assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1999
---------- -----------
<S> <C> <C>
Net operating loss carryforward.................... $ 15,000 $ 6,626,000
Start-up costs..................................... 3,000 203,000
Depreciation and amortization...................... -- 8,000
Other.............................................. -- 31,000
---------- -----------
18,000 6,868,000
Valuation allowance................................ (18,000) (6,868,000)
---------- -----------
$ -- $ --
========== ===========
</TABLE>
The effective income tax rate differs from the statutory rate as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1999
-------- --------
<S> <C> <C>
Statutory rate...................................... (34)% (34)%
Valuation allowance................................. 33 33
Other............................................... 1 1
--- ---
Effective tax rate.................................. 0 % 0 %
=== ===
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
LEASES
At December 31, 1999, future minimum rental payments applicable to operating
and capital leases are as follows:
<TABLE>
<CAPTION>
CAPITAL
OPERATING LEASES LEASES TOTAL
---------------- -------- ---------
<S> <C> <C> <C>
2000.................................................... $318,000 $66,600 $384,600
2001.................................................... 185,000 22,201 207,201
2002.................................................... 47,000 - 47,000
-------- ------- --------
Total minimum lease payments............................ $550,000 88,801 $638,801
======== ========
Amount representing interest............................ 5,723
-------
Present value of net minimum lease payments............. 83,078
Less current portion.................................... 61,311
-------
Long-term portion....................................... $21,767
=======
</TABLE>
F-14
<PAGE>
TRADEOUT.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Total rent expense under operating leases amounted to $0 for the period from
December 11, 1998 (date of inception) to December 31, 1998 and approximately
$219,000 for the year ended December 31, 1999.
STRATEGIC BUSINESS ALLIANCES
During 1999, the Company entered into several strategic business alliance
agreements whereby the Company pays a sales commission to its strategic alliance
partners based on a percentage of the commission revenue or gross sales dollars
arising from the successful sale of merchandise listed or referred by the
strategic partner.
8. SUBSEQUENT EVENTS AND PRO FORMA ADJUSTMENTS
SERIES D PREFERRED STOCK
In March 2000, the Company agreed to issue 5,577,825 shares of Series D
preferred stock (the "Series D preferred stock") for approximately $15,000,000,
a stated value of approximately $2.69 per share. The Company also agreed to
issue warrants to purchase up to 4,785,000 shares of its common stock (the
"Series D warrants") at an exercise price of $1.00 per share. Each share of
Series D preferred stock is convertible into one share of our common stock. The
issuance of the Series D warrants is dependent upon the holder of the Series D
preferred stock, which has also entered into a contractual strategic business
relationship with the Company, meeting certain performance criteria related to
target sales levels. The Company will recognize a "stock-based strategic
alliance cost" for the estimated fair market value of the warrants in each
quarter in which the sales target is achieved and the warrants are earned. The
charge will be based on the fair market value of the warrants at the time the
quarterly sales target is achieved or achievement is probable. Such charges
could be significant.
SERIES E PREFERRED STOCK
In March 2000, the Company agreed to issue 2,455,588 shares of Series E
preferred stock (the "Series E preferred stock") for approximately $25,000,000,
a stated value of approximately $10.18 per share. The Company also agreed to
issue warrants (the "Series E warrants") to purchase shares of its common stock,
with the total number of shares that may be purchased upon exercise to be
determined based on a formula related to the price of the Company's common
stock. Each share of Series E preferred stock is convertible into one share of
our common stock. The Series E warrants will have an exercise price equal to the
Initial Public Offering price per share of the Company's common stock.
STRATEGIC BUSINESS ALLIANCES
During January and February 2000, the Company entered into several strategic
business alliance agreements whereby the Company pays a sales commission to its
strategic alliance partners based on a percentage of the commission revenue or
gross sales dollars arising from the successful sale of merchandise listed or
referred by the strategic partner.
In addition to the above payment arrangements, certain strategic alliance
partners have been issued warrants to purchase up to a maximum number of
2,034,868 shares of the Company's
F-15
<PAGE>
TRADEOUT.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. SUBSEQUENT EVENTS AND PRO FORMA ADJUSTMENTS (CONTINUED)
common stock at $1.00 per share. The vesting of these warrants is conditioned
upon the attainment of certain target sales levels over the terms of the
strategic alliance agreements.
The Company will recognize a "stock-based strategic alliance cost" for the
estimated fair market value of the warrants in each quarter in which the sales
target is achieved and the warrants are earned. The charge will be based on the
fair market value of the warrants at the time the quarterly sales target is
achieved or achievement is probable. Such charges could be significant.
EMPLOYMENT AGREEMENT
The Company expects to enter into an employment agreement with its current
Chief Executive Officer and President, which is expected to provide for an
annual base salary of $250,000 and, if the agreement were to be terminated for
reasons other than for cause or permanent disability, an additional payment of
$250,000. In connection with commencement of his employment, the Chief Executive
Officer and President received a ten-year option to acquire 3,280,000 shares of
the Company's common stock, representing 4% of the outstanding common stock.
These options may be exercised at a price of $1.00 per share and vest in sixty
equal installments over a five-year period. The Company made a restricted stock
grant to the Chief Executive Officer and President of 820,000 shares of its
common stock in return for a five-year promissory note for $820,000 that bears
interest at 6.04%, compounded monthly, payable at maturity.
PRO FORMA FINANCIAL INFORMATION
Upon the completion of an initial public offering at a per share price to
the public of not less than and in which the gross proceeds paid by the
public are at least $ , all outstanding preferred shares will automatically
be converted into shares of common stock in the manner described in Note 3. The
pro forma balance sheet at December 31, 1999 gives effect to such conversion as
if it occurred on that date. The pro forma loss for the year ended December 31,
1999 gives effect to the conversion of such shares as if it occurred on the
dates the shares were issued.
COMMON STOCK
In March 2000, the Company increased the number of authorized shares of
common stock to 125,000,000.
LITIGATION
On February 23, 2000, a complaint was filed against the Company alleging
trademark and logo infringement. The Company believes that the allegations of
the complaint are without merit, and the Company intends to contest the
allegations vigorously.
F-16
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No dealer, salesperson or other person is authorized to give any information
or to represent anything not contained in this prospectus. You must not rely on
any unauthorized information or representations. This prospectus is an offer to
sell only the shares offered hereby, but only under circumstances and in
jurisdictions where it is lawful to do so. The information contained in this
prospectus is current only as of its date.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
--------
<S> <C>
Prospectus Summary.................... 1
Risk Factors.......................... 5
Forward-Looking Statements............ 17
Use of Proceeds....................... 18
Dividend Policy....................... 18
Capitalization........................ 19
Dilution.............................. 20
Selected Financial Data............... 21
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 22
Business.............................. 27
Management............................ 41
Certain Transactions.................. 52
Principal Stockholders................ 55
Description of Capital Stock.......... 57
Shares Eligible for Future Sale....... 60
Underwriting.......................... 62
Validity of Common Stock.............. 64
Experts............................... 64
Where You Can Find More Information... 64
Index to Financial Statements......... F-1
</TABLE>
Through and including , 2000 (the 25(th) day after the date of
this prospectus), all dealers effecting transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to a dealer's obligation to deliver a prospectus
when acting as an underwriter and with respect to an unsold allotment or
subscription.
Shares
TRADEOUT.COM, INC.
Common Stock
------------------
[LOGO]
---------------
GOLDMAN, SACHS & CO.
DONALDSON, LUFKIN & JENRETTE
MERRILL LYNCH & CO.
CHASE H&Q
Representatives of the Underwriters
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than the
underwriting discounts and commissions, payable by the registrant in connection
with the issuance and distribution of the common stock being registered. All
amounts are estimates except the SEC registration fee, the NASD filing fee and
the Nasdaq National Market listing fee.
<TABLE>
<CAPTION>
AMOUNT TO
BE PAID
---------
<S> <C>
SEC registration fee........................................ $30,360
NASD filing fee............................................. 12,000
Nasdaq National Market listing fee.......................... *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Printing and engraving...................................... *
Blue sky fees and expenses (including legal fees)........... *
Transfer Agent and Registrar fees and expenses.............. *
Miscellaneous............................................... *
-------
Total..................................................... $ *
=======
</TABLE>
- ------------------------
* to be supplied by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The registrant's Amended and Restated Certificate of Incorporation in effect
as of the date hereof (the "Certificate") provides that, except to the extent
prohibited by the Delaware General Corporation Law, as amended (the "DGCL"), the
registrant's directors shall not be personally liable to the registrant or its
stockholders for monetary damages for any breach of fiduciary duty as directors
of the registrant. Under the DGCL, the directors have a fiduciary duty to the
registrant which is not eliminated by this provision of the Certificate and, in
appropriate circumstances, equitable remedies such as injunctive or other forms
of nonmonetary relief will remain available. In addition, each director will
continue to be subject to liability under the DGCL for breach of the director's
duty of loyalty to the registrant, for acts or omissions which are found by a
court of competent jurisdiction to be not in good faith or involving intentional
misconduct, for knowing violations of law, for actions leading to improper
personal benefit to the director, and for payment of dividends or approval of
stock repurchases or redemptions that are prohibited by the DGCL. This provision
also does not affect the directors' responsibilities under any other laws, such
as the federal securities laws or state or federal environmental laws. The
registrant has liability insurance for its officers and directors.
Section 145 of the DGCL empowers a corporation to indemnify its directors
and officers and to purchase insurance with respect to liability arising out of
their capacity or status as directors and officers, provided that this provision
shall not eliminate or limit the liability of a director: (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders; (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law; (iii) arising under Section 174 of the DGCL; or
(iv) for any transaction from which the director derived an improper personal
benefit. The DGCL provides further that the indemnification permitted thereunder
shall not be deemed exclusive of any other rights to which the directors and
officers may be entitled under the corporation's bylaws, any agreement, a vote
of stockholders or
II-1
<PAGE>
otherwise. The Certificate eliminates the personal liability of directors to the
fullest extent permitted by Section 102(b)(7) of the DGCL and provides that the
registrant may fully indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding (whether civil, criminal, administrative or investigative) by reason
of the fact that such person is or was a director or officer of the registrant,
or is or was serving at the request of the Registrant as a director or officer
of another corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise, against expenses (including attorney's fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by such
person in connection with such action, suit or proceeding.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent as to which indemnification will be
required or permitted under the Certificate. The registrant is not aware of any
threatened litigation or proceeding that may result in a claim for such
indemnification.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The registrant has sold and issued the following securities (calculated to
reflect a one-for-two reverse split of the registrant's common stock to be
effected prior to the effective date of this registration statement) since
December 11, 1998 (inception):
COMMON STOCK. From December 11, 1998 through January 15, 1999, the
registrant issued and sold an aggregate of 19,236,000 shares to thirty-five
purchasers, including founders, employees, officers, directors and other
accredited investors for, an aggregate purchase price of $1,387,731 in cash and
other services rendered.
PREFERRED STOCK AND WARRANTS. On April 19, 1999, the registrant sold an
aggregate of 2,931,200 shares of Series A preferred stock and warrants to
purchase 3,772,454 shares of common stock at an exercise price of $7.95 per
share to Catterton-Simon Partners III, L.P., JFI-TO, L.L.C., GFI-TO, L.L.C.,
Channel-TO, LLC and seven other investors for an aggregate purchase price of
$7,200,000.
On August 23, 1999, the registrant sold an aggregate of 953,361 shares of
Series B preferred stock to Ailsa Partners, L.P., Ailsa Partners QP, L.P., Arran
Partners, L.P., Allerion Associates, LLC, Thomas Dale, Ian Murray, Ropart
Investments LLC, Ventec Ventures Limited, Kenneth D. Cron and U. Bertram Ellis
for an aggregate purchase price of $7,639,975.
On October 18, 1999, the registrant sold an aggregate of 9,288,273 shares of
Series C preferred stock and warrants to purchase 7,368,491 shares of common
stock at an exercise price of $8.94 per share to Benchmark Capital Partners IV,
L.P., eBay, Inc., Ariba Inc., Morgan Stanley Dean Witter Equity Funding Inc. for
an aggregate purchase price of $20,813,961.
In addition, on October 18, 1999, the Series A preferred stock holders
exchanged their warrants for new warrants with an exercise price of $7.95 per
share. All outstanding warrants expire on October 18, 2001. At that time, the
registrant issued an aggregate of 114,714 additional shares of Series A
preferred stock in connection with a pay-in-kind dividend on its Series A
preferred stock.
On December 7, 1999, the registrant issued a warrant to purchase 14,050
shares of Common Stock to the Ramsey Beirne Associates, LLC, for consulting
services provided to the registrant at an exercise price of $0.02 per share.
Ramsey Beirne Associates, LLC exercised the warrant in full for an aggregate
exercise price of $281.00 on March 9, 2000.
On January 14, 2000, the registrant issued a warrant to purchase 2,000
shares of common stock to Icon International, Inc. ("Icon") at an exercise price
of $0.02 per share in connection with the sale of some of Icon's assets through
the registrant's Web site.
II-2
<PAGE>
On January 28, 2000, in connection with the commencement of George Samenuk's
employment, the registrant issued Mr. Samenuk 410,000 shares of its common stock
in exchange for a five-year promissory note in the amount of $820,000 that bears
interest at 6.04% compounded monthly, payable at maturity.
On February 1, 2000, the registrant issued a warrant to purchase 10,000
shares of common stock to Robin Reed for consulting services provided to the
registrant at an exercise price of $2.00 per share. Robin Reed exercised the
warrant in full for an aggregate exercise price of $20,000 on March 9, 2000.
On February 18, 2000 the registrant issued a warrant to purchase up to
325,000 shares of common stock at an exercise price of $2.00 per share to
Quality King Distributors, Incorporated.
On February 28, 2000 the registrant issued a warrant to purchase up to
262,500 shares of common stock at an exercise price of $2.00 per share to Norman
Levy Associates in connection with strategic alliance agreement.
On March 7, 2000, the registrant issued a warrant to purchase up to 330,000
shares of common stock at an exercise price of $2.00 per share to Purity
Wholesale Grocers, Inc., in connection with a strategic alliance agreement dated
March 3, 2000.
On March 7, 2000, the registrant issued a warrant to purchase up to 99,934
shares of common stock at an exercise price of $2.00 per share to Rumarson
Technologies, Inc., in connection with a strategic alliance agreement dated
March 7, 2000.
On March 14, 2000, the registrant sold an aggregate of 5,577,825 shares of
Series D preferred stock for an aggregate purchase price of approximately
$15.0 million and issued a warrant to purchase up to 2,392,500 shares of common
stock at an exercise price of $2.00 per share to GE Capital Equity
Investments, Inc.
On March 14, 2000, the registrant sold to EVO Capital Fund I, L.P. and five
other investors an aggregate of 2,455,588 shares of Series E preferred stock and
warrants to purchase a number of shares of common stock to be determined upon
the closing of this offering based upon the fully diluted capitalization of the
registrant on that date. The exercise price for the warrants will be equal to
the initial public offering price. The aggregate purchase price for the
Series E preferred stock and warrants was approximately $25.0 million.
OPTIONS. Since March 1, 1999, the registrant from time to time has granted
stock options to employees, directors and consultants. From March 1, 1999 to
March 14, 2000, the registrant reserved 6,291,992 shares of common stock upon
the exercise of these options at prices ranging from $0.33 to $2.00 per share.
The above securities were sold by the registrant in reliance upon exemptions
from registration pursuant either to (i) Section 4(2) of the Securities Act of
1933, as transactions not involving any public offering, or (ii) Rule 701 under
the Securities Act of 1933. No underwriters were involved in connection with the
sales of securities referred to in this Item 15.
II-3
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ ------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Second Amended and Restated Certificate of Incorporation.
3.2* Form of Amended and Restated Certificate of Incorporation to
be in effect upon the closing of the offering.
3.3 By-Laws.
3.4* Form of Amended and Restated By-Laws to be in effect upon
the closing of this offering.
4.1* Specimen common stock certificate.
4.2 See Exhibits 3.1, 3.2, 3.3 and 3.4 for provisions of the
Certificate of Incorporation and By-laws of the Registrant
defining the rights of holders of Common Stock of the
Registrant.
4.3 Form of Warrant, dated October 18, 1999, to Purchase Common
Stock issued to holders of the Series A Preferred Stock.
4.4 Form of Warrant, dated October 18, 1999, to Purchase Common
Stock issued to holders of the Series C Preferred Stock.
4.5 Warrant, dated February 15, 2000, to Purchase Common Stock
issued to Quality King Distributors, Incorporated.
4.6 Warrant, dated February 28, 2000, to Purchase Common Stock
issued to Norman Levy Associates.
4.7 Warrant, dated March 7, 2000, to Purchase Common Stock
issued to Rumarson Technologies, Inc.
4.8 Warrant, dated March 3, 2000, to Purchase Common Stock
issued to Purity Wholesale Grocers, Inc.
4.9 Warrant, dated January 14, 2000, to Purchase Common Stock
issued to Icon International, Inc.
4.10 Warrant dated March 14, 2000 to purchase common stock issued
to GE Capital Equity Investments, Inc.
4.11 Investor's Rights Agreement, dated March 14, 2000 by and
between TradeOut.com and GE Capital Equity Investments, Inc.
4.12 Amended and Restated Investors' Rights Agreement, dated
March 14, 2000 by and between TradeOut.com and certain of
the company's investors.
5.1* Opinion of Brobeck, Phleger & Harrison LLP.
10.1* 2000 Stock Incentive Plan.
10.2* 2000 Employee Stock Purchase Plan.
10.3* Employment Agreement, dated March , 2000, by and between
TradeOut.com and George Samenuk.
10.4*+ Strategic Alliance Agreement, dated February 15, 2000 by and
between TradeOut.com and Quality King Distributors, Inc.
10.5*+ Strategic Alliance Agreement, dated March 14, 2000 by and
between TradeOut.com and General Electric Capital
Corporation.
11.1 Statement re: Computation of Basic and Diluted Net Loss Per
Share.
23.1 Consent of Ernst & Young LLP.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ ------------------------------------------------------------
<C> <S>
23.2* Consent of Brobeck, Phleger & Harrison LLP (included in
Exhibit 5.1).
24.1 Powers of attorney (please see Signature Page).
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment.
+ Confidential treatment requested for certain portions of this Exhibit
pursuant to Rule 406 promulgated under the Securities Act.
(b) Financial Statement Schedules.
Schedule II--Valuation and Qualifying Accounts
Other financial statement schedules have been omitted because they are not
applicable or because the information required to be set forth therein is
presented elsewhere 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 purchaser.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, 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 of 1933, shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and this offering of such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act, and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
State of New York, on this day of March, 2000.
<TABLE>
<S> <C> <C>
TRADEOUT.COM, INC.
By:
-----------------------------------------
Name: George Samenuk
Title: CHIEF EXECUTIVE OFFICER AND
PRESIDENT
</TABLE>
POWER OF ATTORNEY
We, the undersigned directors and/or officers of TradeOut.com (the
"Company"), hereby severally constitute and appoint George Samenuk, Chief
Executive Officer and President, and James Mooney, Chief Financial Officer, and
each of them individually, with full powers of substitution and resubstitution,
our true and lawful attorneys, with full powers to them and each of them to sign
for us, in our names and in the capacities indicated below, the Registration
Statement on Form S-1 filed with the Securities and Exchange Commission, and any
and all amendments to said Registration Statement (including post-effective
amendments), and any registration statement filed pursuant to Rule 462(b) under
the Securities Act of 1933, as amended, in connection with the registration
under the Securities Act of 1933, as amended, of equity securities of
TradeOut.com, and to file or cause to be filed the same, with all exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys, 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 connection therewith, as fully to all intents and
purposes as each of them might or could do in person, and hereby ratifying and
confirming all that said attorneys, and each of them, or their substitute or
substitutes, shall do or cause to be done by virtue of this Power of Attorney.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities indicated on March , 2000:
<TABLE>
<CAPTION>
SIGNATURE TITLE(S) DATE
--------- -------- ----
<C> <S> <C>
Chief Executive Officer,
President and Director
------------------------------------------- (principal executive March , 2000
George Samenuk officer)
Chief Financial Officer
------------------------------------------- (principal financial and March , 2000
James Mooney accounting officer)
Chairman of the Board of
------------------------------------------- Directors March , 2000
Brin McCagg
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE(S) DATE
--------- -------- ----
<C> <S> <C>
Director
------------------------------------------- March , 2000
David Beirne
Director
------------------------------------------- March , 2000
Marc Cummins
Director
------------------------------------------- March , 2000
Robert Goergen
Director
------------------------------------------- March , 2000
J. William Gurley
Director
------------------------------------------- March , 2000
Henry Schachar
Director
------------------------------------------- March , 2000
Margaret Whitman
</TABLE>
II-7
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
of TradeOut.com, Inc.
We have audited the financial statements of TradeOut.com, Inc. as of
December 31, 1998 and 1999, and for the period from December 11, 1998 (date of
inception) to December 31, 1998 and the year ended December 31, 1999 and have
issued our report thereon dated February 15, 2000 (except Note 8, as to which
the date is March 15, 2000) (included elsewhere in this Registration Statement).
Our audits also included the financial statement schedule listed in Item 16(b)
of this Registration Statement. This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
New York, New York
February 15, 2000
S-1
<PAGE>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNT
TRADEOUT.COM, INC.
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
- ----------------------- ------------ ----------------------------------- ----------- -------------
ADDITIONS
-----------------------------------
BALANCE AT CHARGED TO OTHER
BEGINNING OF CHARGED TO COSTS ACCOUNTS- DEDUCTIONS- BALANCE AT
DESCRIPTION PERIOD AND EXPENSES DESCRIBE DESCRIBE END OF PERIOD
----------- ------------ ---------------- ---------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31,
1998:
Reserves and
allowances deducted
from assets accounts:
Allowance for
uncollectible
accounts $ -- $ -- $ -- $ -- $ --
YEAR ENDED DECEMBER 31,
1999:
Reserves and
allowances deducted
from assets accounts:
Allowance for
uncollectible
accounts $ -- $57,000 $ -- $12,000(1) $45,000
</TABLE>
- ------------------------------
(1) Uncollectible accounts written off, net of recoveries.
S-2
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ ------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Second Amended and Restated Certificate of Incorporation.
3.2* Form of Amended and Restated Certificate of Incorporation to
be in effect upon the closing of the offering.
3.3 By-Laws.
3.4* Form of Amended and Restated By-Laws to be in effect upon
the closing of this offering.
4.1* Specimen common stock certificate.
4.2 See Exhibits 3.1, 3.2, 3.3 and 3.4 for provisions of the
Certificate of Incorporation and By-laws of the Registrant
defining the rights of holders of Common Stock of the
Registrant.
4.3 Form of Warrant, dated October 18, 1999, to Purchase Common
Stock issued to holders of the Series A Preferred Stock.
4.4 Form of Warrant, dated October 18, 1999, to Purchase Common
Stock issued to holders of the Series C Preferred Stock.
4.5 Warrant, dated February 15, 2000, to Purchase Common Stock
issued to Quality King Distributors, Incorporated.
4.6 Warrant, dated February 28, 2000, to Purchase Common Stock
issued to Norman Levy Associates.
4.7 Warrant, dated March 7, 2000, to Purchase Common Stock
issued to Rumarson Technologics, Inc.
4.8 Warrant, dated March 3, 2000, to Purchase Common Stock
issued to Purity Wholesale Grocers, Inc.
4.9 Warrant, dated January 14, 2000, to Purchase Common Stock
issued to Icon International, Inc.
4.10 Warrant, dated March 14, 2000, to Purchase Common Stock
issued to GE Capital Equity Investments, Inc.
4.11 Investor's Rights Agreement, dated March 14, 2000 by and
between TradeOut.com and GE Capital Equity Investments, Inc.
4.12 Amended and Restated Investors' Rights Agreement, dated
March 14, 2000 by and between TradeOut.com and certain of
the company's investors.
5.1* Opinion of Brobeck, Phleger & Harrison LLP.
10.1* 2000 Stock Incentive Plan.
10.2* 2000 Employee Stock Purchase Plan.
10.3* Employment Agreement, dated March , 2000 by and between
TradeOut.com and George Samenuk.
10.4*+ Strategic Alliance Agreement, dated February 15, 2000 by and
between TradeOut.com and Quality King Distributors, Inc.
10.5*+ Strategic Alliance Agreement, dated March 14, 2000 by and
between TradeOut.com and General Electric Capital
Corporation.
11.1 Statement re: Computation of Basic and Diluted Net Loss Per
Share.
23.1 Consent of Ernst & Young LLP.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ ------------------------------------------------------------
<C> <S>
23.2* Consent of Brobeck, Phleger & Harrison LLP (included in
Exhibit 5.1).
24.1 Powers of attorney (please see Signature Page).
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment.
+ Confidential treatment requested for certain portions of this Exhibit
pursuant to Rule 406 promulgated under the Securities Act.
<PAGE>
EXHIBIT 3.1
SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
TRADEOUT.COM, INC.,
A DELAWARE CORPORATION
TradeOut.com, Inc. (the "Corporation"), a corporation
organized and existing under the General Corporation Law of the State of
Delaware (the "General Corporation Law"),
DOES HEREBY CERTIFY:
FIRST: That the Corporation was originally incorporated in
Delaware, and the date of its filing of its original Certificate of
Incorporation with the Secretary of State of Delaware was December 11, 1998, as
corrected by a Certificate of Correction filed with the Secretary of State of
the State of Delaware on December 14, 1998. A Restated Certificate of
Incorporation was filed with the Secretary of State of the State of Delaware on
October 13, 1999, and an Amended and Restated Certificate of Incorporation was
filed with the Secretary of State of Delaware on March 14, 2000.
SECOND: That the Board of Directors duly adopted resolutions
proposing to amend and restate the Amended and Restated Certificate of
Incorporation of the Corporation, declaring said amendment and restatement to be
advisable and in the best interests of the Corporation and its stockholders, and
authorizing the appropriate officers of the Corporation to solicit the written
consent of the requisite stockholders of the currently issued and outstanding
capital stock of the Corporation, all in accordance with the applicable
provisions of Sections 228, 242 and 245 of the General Corporation Law of the
State of Delaware.
THIRD: That the resolution setting forth the proposed
amendment and restatement is as follows:
RESOLVED, that the Restated Certificate of Incorporation of
the Corporation be amended and restated in its entirety as follows:
ARTICLE I
The name of the Corporation is TradeOut.com, Inc.
ARTICLE II
The address of the registered office of the Corporation in the
State of Delaware is The Corporation Trust Center, 1209 Orange Street, in the
City of Wilmington, County of New Castle. The name of its registered agent at
such address is The Corporation Trust Company.
ARTICLE III
The nature of the business or purposes to be conducted or
promoted is to engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of Delaware.
<PAGE>
ARTICLE IV
A. CLASSES OF STOCK. The Corporation is authorized to issue two classes
of stock to be designated, respectively, "Common Stock" and "Preferred Stock".
The total number of shares that the Corporation is authorized to issue is one
hundred forty-seven million (147,000,000). One hundred twenty-five million
(125,000,000) shares shall be Common Stock, par value $0.0001 per share, and
twenty-two million (22,000,000) shares shall be Preferred Stock, par value
$0.0001 per share.
B. RIGHTS, PREFERENCES AND RESTRICTIONS OF PREFERRED STOCK. The
Preferred Stock authorized by this Amended and Restated Certificate of
Incorporation may be issued from time to time in one or more series. The rights,
preferences, privileges, and restrictions granted to and on the Series A
Preferred Stock, which series shall consist of three million forty-six thousand
two hundred (3,046,200) shares (the "Series A Preferred Stock"), the Series B
Preferred Stock, which series shall consist of nine hundred fifty-three thousand
three hundred sixty-one (953,361) shares (the "Series B Preferred Stock), the
Series C Preferred Stock, which series shall consist of nine million seven
hundred fifty thousand (9,750,000) shares (the "Series C Preferred Stock"), the
Series D Preferred Stock, which series shall consist of five million, five
hundred seventy-seven thousand eight hundred twenty-five (5,577,825) shares (the
"Series D Preferred Stock") and the Series E Preferred Stock, which series shall
consist of two million four hundred fifty-five five hundred eighty-eight
(2,455,588) shares (the "Series E Preferred Stock") are as set forth below in
this Article IV(B).
1. DIVIDEND PROVISIONS. The holders of shares of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock and Series E Preferred Stock shall be entitled to receive dividends, out
of any assets legally available therefor, as determined on a per annum basis and
on an as converted basis for the Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred
Stock, in an amount equal to that paid on any other outstanding shares of the
Corporation, payable when, as, and if declared by the Board of Directors. Such
dividends shall not be cumulative.
2. LIQUIDATION PREFERENCE.
(a) In the event of any liquidation, dissolution or winding up of the
Corporation, either voluntary or involuntary, the holders of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock and Series E Preferred Stock shall be entitled to receive, prior and in
preference to any distribution of any of the assets of the Corporation to the
holders of Common Stock by reason of their ownership thereof (A) in the case of
the Series A Preferred Stock, an amount per share equal to the sum of (i) $2.432
for each outstanding, share of Series A Preferred Stock (the "Original Series A
Issue Price") and (ii) an amount equal to declared but unpaid dividends on such
share (subject to adjustment of such fixed dollar amounts for any stock splits,
stock dividends, combinations,
2
<PAGE>
recapitalizations or the like), (B) in the case of the Series B Preferred Stock,
an amount per share equal to the sum of (i) $8.014 for each outstanding share of
Series B Preferred Stock (the "Original Series B Issue Price") and (ii) an
amount equal to declared but unpaid dividends on such share (subject to
adjustment of such fixed dollar amounts for any stock splits, stock dividends,
combinations, recapitalizations or the like), (C) in the case of the Series C
Preferred Stock, an amount per share equal to the sum of (i) $2.234 for each
outstanding share of Series C Preferred Stock (the "Original Series C Issue
Price") and (ii) an amount equal to declared but unpaid dividends on such share
(subject to adjustment of such fixed dollar amounts for any stock splits, stock
dividends, combination, recapitalizations or the like), (D) in the case of the
Series D Preferred Stock, an amount per share equal to the sum of (i) $2.68922
for each outstanding share of Series D Preferred Stock (the "Original Series D
Issue Price") and (ii) an amount equal to declared but unpaid dividends on such
share (subject to adjustment of such fixed dollar amounts for any stock splits,
stock dividends, combination, recapitalizations or the like), and (E) in the
case of the Series E Preferred Stock, an amount per share equal to the sum of
(i) $10.18 for each outstanding share of Series E Preferred Stock (the "Original
Series E Issue Price") and (ii) an amount equal to declared but unpaid dividends
on such share (subject to adjustment of such fixed dollar amounts for any stock
splits, stock dividends, combinations, recapitalizations or the like). If upon
the occurrence of such event, the assets and funds thus distributed among the
holders of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and Series E Preferred Stock shall be
insufficient to permit the payment to such holders of the full aforesaid
preferential amounts, then the entire assets and funds of the Corporation
legally available for distribution shall be distributed ratably among the
holders of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and Series E Preferred Stock in
proportion to the full preferential amount each such holder is otherwise
entitled to receive under this subsection (a).
(b) Upon completion of the distribution required by subsection (a) of
this Section 2, all of the remaining assets of the Corporation available for
distribution to stockholders shall be distributed among the holders of Common
Stock pro rata based on the number of shares of Common Stock held by each.
(c) (i) For purposes of this Section 2, a liquidation, dissolution
or winding up of the Corporation shall be deemed to be occasioned by, or to
include (unless the holders of (a) at least a majority of the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and
Series E Preferred Stock (voting together as single class, and not as
separate series, and on an as-converted basis) and (b) at least a majority of
the Series D Preferred Stock (voting as a separate series and on an
as-converted basis) shall determine otherwise), (A) the acquisition of the
Corporation by another entity by means of any transaction or series of
related transactions (including, without limitation, any reorganization,
merger or consolidation) that results in the transfer of fifty percent (50%)
or more of the outstanding voting power if the Corporation; or (B) a sale of
all or substantially all of the assets of the Corporation.
(ii) In any of such events, if the consideration received by
the Corporation is other than cash, its value will be deemed its fair market
value. Any securities shall be valued as follows:
(A) Securities not subject to investment letter or
other similar restrictions on free marketability covered by (B) below:
(1) If traded on a securities exchange or
through the Nasdaq National Market, the value shall be deemed to be the
average of the closing
3
<PAGE>
prices of the securities on such exchange or system over the thirty
(30) day period ending three (3) days prior to the closing;
(2) If actively traded over-the-counter, the
value shall be deemed to be the average of the closing bid or sale
prices (whichever is applicable) over the thirty (30) day period ending
three (3) days prior to the closing; and
(3) If there is no active public market, the
value shall be the fair market value thereof, as mutually determined by
the Corporation and the holders of at least a majority of the voting
power of all then outstanding shares of Preferred Stock.
(B) The method of valuation of securities subject to
investment letter or other restrictions on free marketability (other than
restrictions arising solely by virtue of a stockholder's status as an affiliate
or former affiliate) shall be to make an appropriate discount from the market
value determined as above in (A) (1), (2) or (3) to reflect the approximate fair
market value thereof, as mutually determined by the Corporation and the holders
of at least a majority of the voting power of all then outstanding shares of
such Preferred Stock.
(iii) In the event the requirements of this subsection 2(c)
are not complied with, the Corporation shall forthwith either:
(A) cause such closing to be postponed until such
time as the requirements of this Section 2 have been complied with; or
(B) cancel such transaction, in which event the
rights, preferences and privileges of the holders of the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock and Series E Preferred Stock shall revert to and be the same as such
preferences and privileges existing immediately prior to the date of the first
notice referred to in Subsection 2(c)(iv) hereof.
(iv) The Corporation shall give each holder of record of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock and Series E Preferred Stock written notice of such
impending transaction not later than twenty (20) days prior to the stockholders'
meeting called to approve such transaction, or twenty (20) days prior to the
closing of such transaction, whichever is earlier, and shall also notify such
holders in writing of the final approval of such transaction. The first of such
notices shall describe the material terms and conditions of the impending
transaction and the provisions of this Section 2, and the Corporation shall
thereafter give such holders prompt notice of any material changes. The
transaction shall in no event take place sooner than twenty (20) days after the
Corporation has given the first notice provided for herein or sooner than ten
(10) days after the Corporation has given notice of any material changes
provided for herein; provided, however, that such periods may be shortened upon
the written consent of the holders of Preferred Stock that are entitled to such
notice rights or similar notice rights and that represent at least a majority of
the voting power of all then outstanding shares of such Preferred Stock.
3. REDEMPTION.
4
<PAGE>
(a) Subject to the rights of series of Preferred Stock which may
from time to time come into existence, (i) at any time after December 31,
2001, but within thirty (30) days (the "Redemption Date") after the receipt
by the Corporation of a written request from any holder of the then
outstanding Series D Preferred Stock that all or some of such holders' shares
be redeemed, and concurrently with surrender by such holders of the
certificates representing such shares, the Corporation shall, to the extent
it may lawfully do so, redeem the shares specified in such request or (ii) at
any time after May 15, 2000 (but within five (5) days after request from the
holders of the Series D Preferred Stock, which request must be exercised by
May 31, 2000) (the "HSR Redemption Date") in the event the termination or
expiration of the waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (the "HSR Act") applicable to the Corporation and
the holders of the Series D Preferred Stock in connection with the Series D
Preferred Stock and Warrant Purchase Agreement among the Corporation and the
purchasers of the Series D Preferred Stock (the "Series D Purchase
Agreement") has not been received by May 15, 2000, provided the holders of
the certificates representing the shares of Series D Preferred Stock have
surrendered such shares, the Corporation shall, to the extent it may lawfully
do so, redeem all of the shares of Series D Preferred Stock by paying in cash
therefor a sum per share equal to $2.68922 per share of Series D Preferred
Stock (as adjusted for any stock dividends, combinations or splits with
respect to such shares) plus all declared but unpaid dividends on such shares
(the "Redemption Price"). Any redemption effected pursuant to this subsection
3(a) shall be made on a pro rata basis among the holders of the Series D
Preferred Stock in proportion to the number of shares of Series D Preferred
Stock then held by such holders that have requested redemption of Series D
Preferred Stock, to the extent all such shares cannot be lawfully redeemed.
(b) Subject to the rights of series of Preferred Stock which may from
time to time come into existence, at least fifteen (15) but no more than thirty
(30) days prior to the Redemption Date, or at least 5 days prior to the HSR
Redemption Date, as the case may be, written notice shall be mailed, first class
postage prepaid, to each holder of record (at the close of business on the
business day next preceding the day on which notice is given) of the Series D
Preferred Stock to be redeemed, at the address last shown on the records of the
Corporation for such holder, notifying such holder of the redemption to be
effected, specifying the number of shares to be redeemed from such holder, the
Redemption Date or the HSR Redemption Date, as the case may be, the Redemption
Price, the place at which payment may be obtained and calling upon such holder,
in the case of a redemption pursuant to Section 3(a)(i) to surrender to the
Corporation, in the manner and at the place designated, his, her or its
certificate or certificates representing the shares to be redeemed (the
"Redemption Notice"). Except as provided in subsection (3)(c) on or after the
Redemption Date, each holder of Series D Preferred Stock to be redeemed (in the
case of a redemption pursuant to Section 3(a)(i)) or to be redeemed shall
surrender to the Corporation the certificate or certificates representing such
shares, in the manner and at the place designated in the Redemption Notice, and
thereupon the Redemption Price of such shares shall be payable to the order of
the person whose name appears on such certificate or certificates as the owner
thereof and each surrendered certificate shall be cancelled. In the event less
than all the shares represented by any such certificate are redeemed, a new
certificate shall be issued representing the unredeemed shares.
(c) From and after the Redemption Date, unless there shall have been a
default in payment of the Redemption Price, all rights of the holders of shares
of Series D
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Preferred Stock designated for redemption pursuant to Section 3(a)(i) or
designated for redemption pursuant to Section 3(a)(ii) in the Redemption Notice
as holders of Series D Preferred Stock (except the right to receive the
Redemption Price without interest upon surrender of their certificate or
certificates) shall cease with respect to such shares, and such shares shall not
thereafter be transferred on the books of the Corporation or be deemed to be
outstanding for any purpose whatsoever. Subject to the rights of series of
Preferred Stock which may from time to time come into existence, if the funds of
the Corporation legally available for redemption of shares of Series D Preferred
Stock on any Redemption Date are insufficient to redeem the total number of
shares of Series D Preferred Stock to be redeemed on such date, those funds
which are legally available will be used to redeem the maximum possible number
of such shares ratably among the holders of such shares to be redeemed based
upon their holdings of Series D Preferred Stock. If any shares of Series D
Preferred Stock are not redeemed for the foregoing reason or because the
Corporation otherwise failed to pay or tender to pay the aggregate Redemption
Price on all shares of Series D Preferred Stock required to be do redeemed, all
such shares which have not been redeemed shall remain outstanding and entitled
to all the rights and preferences provided herein, and the Corporation shall pay
a dividend with respect to the Redemption Price for the unredeemed portion at an
aggregate per annum rate equal to eight percent (8%), with such dividend to
accrue daily in arrears and to be compounded annually. Subject to the rights of
series of Preferred Stock which may from time to time come into existence, at
any time thereafter when additional funds of the Corporation are legally
available for the redemption of shares of Series D Preferred Stock, such funds
will immediately be used to redeem the balance of the shares which the
Corporation has become obliged to redeem on any Redemption Date but which it has
not redeemed.
(d) Neither the Series A Preferred Stock, the Series B Preferred Stock
nor the Series C Preferred Stock is redeemable.
4. CONVERSION. The holders of the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and
Series E Preferred Stock shall have conversion rights as follows (the
"Conversion Rights"):
(a) RIGHT TO CONVERT. Each share of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E
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 such stock, into such number of fully paid and
nonassessable shares of Common Stock as is determined by dividing the Original
Issue Price for such series by the Conversion Price applicable to such share,
determined as hereafter provided, in effect on the date the certificate is
surrendered for conversion; provided, however, that the series D Preferred Stock
shall only be convertible after the Corporation has received notice of the
termination or expiration of the waiting period under the HSR Act applicable to
the Series D Purchase Agreement. The initial Conversion Price per share for
shares of Series A Preferred Stock shall be $1.216, the initial Conversion Price
per share for shares of Series B Preferred Stock shall be $4.007, the initial
Conversion Price per share for shares of Series C Preferred Stock shall be the
Original Series C Issue Price, the initial Conversion Price per share for shares
of Series D Preferred Stock shall be the Original Series D Issue Price, and the
initial Conversion Price for the Series E Preferred Stock shall be the Original
Series E Issue Price; provided, however, that the Conversion Price for the
Series A Preferred Stock, Series B
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Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock shall be subject to adjustment as set forth in subsection 4(d)
and, with respect to the Series D Preferred Stock, as set forth in subsection
4(e).
(b) AUTOMATIC CONVERSION. Each share of Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock shall automatically be
converted into shares of Common Stock at the Conversion Price at the time in
effect for such series immediately upon the earlier of (i) the Corporation's
sale of its Common Stock in a firm commitment underwritten public offering
pursuant to a registration statement on Form S-1 or Form SB-2 under the
Securities Act of 1933, as amended, the public offering price of which was not
less than $20,000,000 in the aggregate or (ii) the date specified by written
consent or agreement of the holders of at least seventy percent (70%) of the
then outstanding shares of Series A Preferred Stock, Series B Preferred Stock
and Series C Preferred Stock (voting together as a single class, and not as
separate series, and on an as-converted basis). Each share of Series D Preferred
Stock and Series E Preferred Stock shall automatically be converted into shares
of Common Stock subject to the provisos set forth in Section 4(a) above, at the
Conversion Price at the time in effect for such series immediately upon the
earlier of (i) the Corporation's sale of its Common Stock in a firm commitment
underwritten public offering pursuant to a registration statement on Form S-1 or
Form SB-2 under the Securities Act of 1933, as amended, the public offering
price of which is not less than $35,000,000 in the aggregate and a per share
price of $5.38 (subject to adjustment for any stock splits, stock dividends,
combinations, recapitalizations or the like) or (ii) the date specified by
written consent or agreement of the holders of at least fifty-one percent (51%)
of the then outstanding shares of Series D Preferred Stock and Series E
Preferred Stock, voting separately.
(c) MECHANICS OF CONVERSION. Before any holder of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock or Series E Preferred Stock shall be entitled to convert the same, into
shares of Common Stock, he, she or it shall surrender the certificate or
certificates therefor, duly endorsed, at the office of the Corporation or of any
transfer agent for the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock or Series E Preferred Stock,
and shall give written notice 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 Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or Series E
Preferred Stock, or to the 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 surrender of the
shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock or Series E Preferred Stock, to be converted,
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 offering of securities
registered pursuant to the Securities Act of 1933, the conversion may, at the
option of any holder tendering Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock or Series E Preferred
Stock for conversion, be conditioned upon the closing with the underwriters
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of the sale of securities pursuant to such offering, in which event the persons
entitled to receive the Common Stock upon conversion of the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock or Series E Preferred Stock shall not be deemed to have converted such
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock or Series E Preferred Stock until immediately prior to
the closing of such sale of securities. Upon conversion of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock or Series E Preferred Stock, the Corporation shall pay in cash all
declared and unpaid dividends with respect thereto.
(d) CONVERSION PRICE ADJUSTMENTS OF PREFERRED STOCK FOR CERTAIN SPLITS
AND COMBINATIONS. The Conversion Price of the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock shall be subject to adjustment from time to time as follows:
(i) In the event the Corporation should at any time or from
time to time after the date hereof 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, 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 Conversion
Price of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and Series E 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.
(ii) If the number of shares of Common Stock outstanding at
any time after the date hereof is decreased by a combination of the outstanding
shares of Common Stock, then, following the record date of such combination, the
Conversion Price for the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock,
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.
(e) CONVERSION PRICE ADJUSTMENTS OF SERIES D PREFERRED STOCK FOR
CERTAIN DILUTIVE ISSUANCES. The Conversion Price of the Series D Preferred Stock
shall be subject to adjustment from time to time as follows:
(i) (A) If the Corporation shall issue, after the date upon
which any shares of Series D Preferred Stock were first issued (the "Series D
Purchase Date"), any Additional Stock (as defined below) without consideration
or for 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
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issuance shall forthwith (except as otherwise provided in this clause (i)) be
adjusted to a price determined by multiplying such Conversion Price by a
fraction, 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 that the aggregate consideration received by the Corporation for
such issuance would purchase at such Conversion Price; and 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 Additional Stock.
(B) No adjustment of the Conversion Price for the
Series D Preferred Stock shall be made in an amount less than one cent per
share. Except to the limited extent provided for in subsections (E)(3) and
(E)(4), no adjustment of such Conversion Price pursuant to this subsection
4(e)(i)) shall have the effect of increasing the Conversion Price above the
Conversion Price in effect immediately prior to such adjustment.
(C) 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.
(D) 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
Board of Directors irrespective of any accounting treatment.
(E) 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 this subsection 4(e)(i) and subsection 4(e)(ii):
(1) The aggregate maximum number of shares of
Common Stock deliverable upon exercise (to the extent then exercisable) 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 subsections 4(e)(i)(C) and (e)(i)(D)), if any, received
by the Corporation upon the issuance of such options or rights plus the
minimum exercise price provided in such options or rights for the Common
Stock covered thereby.
(2) The aggregate maximum number of shares of
Common Stock deliverable upon conversion of or in exchange (to the extent
then convertible or exchangeable) 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
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received on account of accrued interest or accrued dividends), plus the
minimum additional consideration, if any, to be received by the Corporation
upon the conversion or exchange or such securities or the exercise of any
related options or rights (the consideration in each case to be determined
in the manner provided in subsections 4(e)(i)(C) and (e)(i)(D)).
(3) 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 securities,
including, but not limited to, a change resulting from the antidilution
provisions thereof, the Conversion Price of the Series D Preferred Stock,
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.
(4) Upon the expiration of any such options
or rights, the termination of any such rights to convert or exchange or the
expiration of any options or rights related to such convertible or
exchangeable securities, the Conversion Price of the Series D Preferred
Stock, 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.
(5) The number of shares of Common Stock
deemed issued and the consideration deemed paid thereof pursuant to
subsections 4(e)(i)(E)(1) and (2) shall be appropriately adjusted to
reflect any change, termination or expiration of the type described in
either subsection 4(e)(i)(E)(3) or (4).
(ii) "Additional Stock" shall mean any shares of Common Stock
issued (or deemed to have been issued pursuant to subsection 4(e)(i)(E) by the
Corporation after the Series D Purchase Date other than:
(A) Common Stock issued pursuant to a transaction
described in subsection 4(d)(i) hereof,
(B) shares of Common Stock (or other securities
convertible or exercisable into such Common Stock) issuable or issued to (i)
employees, consultants, directors or strategic partners/vendors (if in
transactions with primarily non-financing purposes) of the Corporation directly
or pursuant to a stock option plan or restricted stock plan approved by the
Board of Directors of the Corporation or (ii) strategic partners/vendors in
connection with arrangements pursuant to which the Corporation shall derive
revenues and which have been approved by the Board of Directors, at any time
when the aggregate number of shares of Common Stock so issuable or issued (and
not repurchased at cost by the Corporation) does not
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exceed 15,000,000 (including shares of Common Stock issuable or issued as of the
date hereof pursuant to any such stock option plan or restricted stock plan),
(C) shares of Common Stock issuable upon exercise of
securities which by their terms are convertible or exchangeable for Common Stock
outstanding as of the Series D Purchase Date.
(f) OTHER DISTRIBUTIONS. 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 not referred to in subsection 4(d) and 4(e), then, in each
such case for the purpose of this subsection 4(f), the holders of the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Series E Preferred Stock shall be entitled to a
proportionate share of any such distribution as though they were the holders of
the number of shares of Common Stock of the Corporation into which their shares
of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock and Series E 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.
(g) RECAPITALIZATIONS. If at any time or from time to time there shall
be a recapitalization of the Common Stock (other than a subdivision, combination
on or merger or sale of assets transaction provided for elsewhere in this
Section 4 or Section 2) provision shall be made so that the holders of the
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock and Series E Preferred Stock shall thereafter be
entitled to receive upon conversion of the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E
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 case,
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 Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Series E 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 Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and Series E Preferred Stock) shall be
applicable after that event as nearly equivalent as may be practicable.
(h) 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 provision 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 Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and Series E Preferred Stock against
impairment.
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(i) NO FRACTIONAL SHARES AND CERTIFICATE AS TO ADJUSTMENT.
(i) No fractional shares shall be issued upon the conversion
of any share or shares or the Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock or Series E Preferred
Stock, and the number of shares of Common Stock to be issued shall be rounded to
the nearest whole share (with one-half being rounded upward). Whether or not
fractional shares are issuable upon such conversion shall be determined on the
basis of the total number of shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock the holder is at the time converting into Common Stock and the
number of shares of Common Stock issuable upon such aggregate conversion.
(ii) Upon the occurrence of each adjustment or readjustment of
the Conversion Price of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock or Series E 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 Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based.
The Corporation shall, upon the written request at any time of any holder of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock or Series E 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 for such series of Preferred Stock at
the time in effect, and (C) the number of shares of Common Stock and the amount,
if any, of other property that at the time would be received upon the conversion
of a share of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock or Series E Preferred Stock.
(j) NOTICES OF RECORD DATE. In the event of any taking by the
Corporation of a record or the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, the Corporation
shall mail to each holder of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock,
at least twenty (20) 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.
(k) 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 Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and Series E Preferred Stock, such
number of its shares of Common
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Stock as shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock and Series E 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 Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock and Series E 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,
including, without limitation, engaging in best efforts to obtain the requisite
stockholder approval of any necessary amendment to this Amended and Restated
Certificate of Incorporation.
(l) NOTICES. Any notice required by the provisions of this Section 4 to
be given to the holders of shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock shall be deemed given if deposited in the United States mail,
postage prepaid, and addressed to each holder of record at his address appearing
on the books of the Corporation.
5. VOTING RIGHTS.
(a) GENERAL VOTING RIGHTS. Subject to Section 5(c) below, the holder of
each share of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and Series E Preferred Stock shall
have the right to one vote for each share of Common Stock into which such Series
A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock or Series E Preferred Stock could then be converted, 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 shall have the right to vote. Fractional
votes shall not, however, be permitted and any fractional voting rights
available on an as-converted basis (after aggregating all shares into which
shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock and Series E Preferred Stock held by each holder
could be converted) shall be rounded to the nearest whole number (with one-half
being rounded upward).
(b) VOTING FOR THE ELECTION OF DIRECTORS.
(i) Until October 12, 2000, provided that at least a majority
of the shares of Series A Preferred Stock originally issued remain outstanding,
the holders of such shares of Series A Preferred Stock shall be entitled to
elect one (1) director of the Corporation at each annual election of directors.
(ii) As long as at least a majority of the shares of Series C
Preferred Stock originally issued remain outstanding, the holders of such shares
of Series C Preferred Stock shall be entitled to elect three (3) directors of
the Corporation at each annual election of directors.
(iii) Subject to Section 5(c) below, as long as at least a
majority of shares of Series D Preferred Stock originally issued remain
outstanding, the holders of such
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shares of Series D Preferred Stock shall be entitled to elect one (1) director
of the Corporation at each annual election of directors.
(iv) The holders of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E
Preferred Stock and Common Stock (voting together as a single class, and not as
separate series and on an as-converted basis) shall be entitled to elect any
remaining directors of the Corporation.
(v) In the case of any vacancy (other than a vacancy caused by
removal) in the office of a director occurring among the directors elected by
the holders of a class or series of stock pursuant to this Section 5(b), the
remaining directors so elected by that class or series may by affirmative vote
of a majority thereof (or the remaining director so elected if there be but one,
or if there are no such directors remaining, by the affirmative vote of the
holders of a majority of the shares of that class or series), elect a successor
or successors to hold office for the unexpired term of the director or directors
whose place or places shall be vacant. Any director who shall have been elected
by the holders of a class or series of stock or by any directors so elected as
provided in the immediately preceding sentence hereof may be removed during the
aforesaid term of office, either with or without cause, by, and only by, the
affirmative vote of the holders or the shares or the class or series of stock
entitled to elect such director or directors, given either at a special meeting
of such stockholders duty called for that purpose or pursuant to a written
consent of stockholders, and any vacancy thereby created may be filled by the
holders of that class or series of stock represented at the meeting or pursuant
to unanimous written consent.
(c) Notwithstanding the foregoing, the holders of the Series D
Preferred Stock shall not be entitled to exercise the voting rights set forth in
Section 5(a) or (b) until the termination or expiration of the waiting period
under the HSR Act applicable to the Series D Purchase Agreement.
6. PROTECTIVE PROVISIONS.
(a) So long as at least a majority of the shares of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock and/or Series E
Preferred Stock originally issued 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 a majority of the then outstanding shares of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and
Series E Preferred Stock (voting together as a single class, and not as separate
series, and on an as-converted basis):
(i) sell, convey, or otherwise dispose of all or substantially
all of its property or business or merge into or consolidate with any other
corporation (other than a wholly-owned subsidiary corporation) or effect any
transaction or series of related transactions in which more than fifty percent
(50%) of the voting power of the Corporation is disposed of;
(ii) alter or change the rights, preferences or privileges of
the shares of Series A Preferred Stock, Series B Preferred Stock or Series C
Preferred Stock so as to affect adversely the shares;
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(iii) increase or decrease (other than by redemption or
conversion) the total number of authorized shares of Preferred Stock or of any
series thereof;
(iv) authorize or issue, or obligate itself to issue, any
other equity security, including any other security convertible into or
exercisable for any equity security having a preference over, or being on a
parity with, the Series A Preferred Stock, Series B Preferred Stock or Series C
Preferred Stock with respect to dividends, liquidation, redemption or voting;
(v) declare or pay any dividend on its capital stock, or
redeem, purchase or otherwise acquire (or pay into or set aside for a sinking
fund for such purpose) any share or shares of Preferred Stock or Common Stock;
provided, however, that this restriction shall not apply to the repurchase of
shares of Common Stock from employees, officers, directors, consultants or other
persons performing services for the Corporation or any subsidiary pursuant to
agreements under which the Corporation has the option to repurchase such shares
at cost or at cost upon the occurrence of certain events, such as the
termination of employment; or
(vi) change the authorized number of directors of the
Corporation.
(b) So long as at least a majority of the shares of Series A Preferred
Stock initially issued 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 a majority of the then outstanding shares of Series A
Preferred Stock:
(i) alter or change the rights, preferences or privileges of
the shares of Series A Preferred Stock so as to affect adversely the shares of
Series A Preferred Stock in a manner differently from the shares of Series B
Preferred Stock and/or Series C Preferred Stock; or
(ii) amend the Corporation's Certificate of Incorporation or
Bylaws to amend, reduce or impair the voting nights for the election of
directors of the Series A Preferred Stock set forth in Article IV(B) Section
5(b)(i) of this Certificate of Incorporation.
(c) So long as at least a majority of the shares of Series D Preferred
Stock, originally issued 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 a majority of the then outstanding shares of Series D
Preferred Stock:
(i) sell, convey, or otherwise dispose of all or substantially
all of its property or business or merge into or consolidate with any other
corporation (other than a wholly-owned subsidiary corporation) or effect any
transaction or series of related transactions in which more than fifty percent
(50%) of the voting power of the Corporation is disposed of;
(ii) alter or change the rights, preferences or privileges of
the shares of Series D Preferred Stock so as to affect adversely the shares;
(iii) increase or decrease (other than by redemption or
conversion) the total number of authorized shares of Preferred Stock or of any
series thereof;
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(iv) authorize or issue, or obligate itself to issue, any
other equity security, including any other security convertible into or
exercisable for any equity security having a preference over, or being on a
parity with, the Series D with respect to dividends, liquidation, redemption or
voting;
(v) declare or pay any dividend on its capital stock, or
redeem, purchase or otherwise acquire (or pay into or set aside for a sinking
fund for such purpose) any share or shares of Preferred Stock or Common Stock;
provided, however, that this restriction shall not apply to the repurchase of
shares of Common Stock from employees, officers, directors, consultants or other
persons performing services for the Corporation or any subsidiary pursuant to
agreements under which the Corporation has the option to repurchase such shares
at cost or at cost upon the occurrence of certain events, such as the
termination of employment; or
(vi) amend the Corporation's Certificate of Incorporation or
Bylaws to amend, reduce or impair the voting nights for the election of
directors of the Series D Preferred Stock set forth in Article IV(B) Section
5(b)(iii) of this Certificate of Incorporation.
(d) So long as at least a majority of the shares of Series E Preferred
Stock originally issued 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 a majority of the then outstanding shares of Series E
Preferred Stock:
(i) alter or change the rights, preferences or privileges of
the shares of Series E Preferred Stock so as to affect adversely the shares; or
(ii) authorize the sale of Common Stock in an underwritten
public offering under the Securities Act of 1933, as amended, the public
offering price of which is less than $35,000,000 in the aggregate or $5.38 per
share of Common Stock.
7. STATUS OF CONVERTED STOCK. In the event any shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock or Series E Preferred Stock shall be converted pursuant to
Section 4 hereof, the shares so converted shall be cancelled and shall not be
issuable by the Corporation. The Certificate of Incorporation of the
Corporation shall be appropriately amended to effect the corresponding,
reduction in the Corporation's authorized capital stock.
C. COMMON STOCK. The rights, preferences, privileges and restrictions
granted to and imposed on the Common Stock are as set forth below in this
Article IV(C).
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,
the holders of the Common Stock shall be entitled to receive, when and as
declared by the Board of Directors, out of any assets or 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 Division (13) of Article IV hereof.
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3. REDEMPTION. The Common Stock is not redeemable.
4. VOTING RIGHTS. The holder of each share of Common Stock shall have
the right to one vote for each such share, 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.
ARTICLE V
Except as otherwise provided in this Amended and Restated
Certificate of Incorporation, in furtherance and not in limitation of the powers
conferred by statute, the Board of Directors is expressly authorized to make,
repeal, alter, amend and rescind any or all of the Bylaws of the Corporation.
ARTICLE VI
The number of directors of the Corporation shall be fixed from
time to time by a Bylaw or amendment thereof duly adopted by the Board of
Directors or by the stockholders.
ARTICLE VII
Elections of directors need not be by written ballot unless
the Bylaws of the Corporation shall so provide.
ARTICLE VIII
Meetings of stockholders may be held within or without the
State of Delaware, as the Bylaws may provide. The books of the Corporation may
be kept (subject to any provision contained in the statutes) outside the State
of Delaware at such place or places as may be designated from time to time by
the Board of Directors or in the Bylaws of the Corporation.
ARTICLE IX
Directors and officers of the Corporation shall, to the
fullest extent permitted by the General Corporation Law as it now exists or as
it may hereafter be amended, not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
that involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the General Corporation Law, or (iv) for any transaction from
which the officer and director derived any improper personal benefit. If the
General Corporation Law is amended, after approval by the stockholders of this
Article, to authorize corporation action further eliminating or limiting the
personal liability of directors, then the liability of a director of the
Corporation shall be eliminated or limited to the fullest extent permitted by
the General Corporation Law, as so amended.
Any amendment, repeal or modification of this Article IX,
or the adoption of any provision of this Amended and Restated Certificate of
Incorporation inconsistent with this
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Article IX, by the stockholders of the Corporation shall not apply to or
adversely affect any right or protection of a director of the Corporation
existing at the time of such amendment, repeal, modification or adoption.
ARTICLE X
The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and all
rights conferred upon stockholders herein are granted subject to this
reservation.
ARTICLE XI
To the fullest extent permitted by applicable law, the
Corporation shall provide indemnification of (and advancement of expenses to)
agents of the Corporation (and any other persons to which General Corporation
Law permits the Corporation to provide indemnification) through Bylaw
provisions, agreements with such agents or other persons, vote of stockholders
or disinterested directors or otherwise, in excess of the indemnification and
advancement otherwise permitted by Section 145 of the General Corporation Law,
subject only to limits created by applicable General Corporation Law (statutory
or non-statutory), with respect to actions for breach of duty to the
Corporation, its stockholders, and others.
Any amendment, repeal or modification of the forgoing
provisions of this Article XI shall not adversely affect any right or protection
of a director, officer, agent, or other person existing at the time of, or
increase the liability of any director of the Corporation with respect to any
acts or omissions of such director, officer or agent occurring prior to, such
amendment, repeal or modification.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, this Amended and Restated Certificate of
Incorporation has been executed by the President and the Secretary of this
corporation on this 14th day of March, 2000.
/s/ George Samenuk
-------------------------------------------
George Samenuk, Chief Executive Officer and
President
/s/ Alexander Lynch
-------------------------------------------
Alexander Lynch, Secretary
<PAGE>
EXHIBIT 3.3
AMENDED AND RESTATED
BY-LAWS
OF TRADEOUT.COM, INC.
ARTICLE I
OFFICES
Section 1. The registered office be in the City of Wilmington, County
of New Castle, State of Delaware.
Section 2. The Corporation may also have offices at such other places
both within and, without the State of Delaware as the board of directors may
from time to time determine or the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. All meetings of the stockholders for the election of
directors shall be held in such place, either within or without the State of
Delaware, at such place as may be fixed from time to time by the board of
directors and as shall be designated from time to time by the board of directors
and stated in the notice of the meeting. Meetings of stockholders for any other
purpose may 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. Annual meetings of stockholders shall be held at such date
and time as shall be designated from time to time by the board of directors and
stated in the notice of the meeting, at which they shall elect by a plurality
vote a board of directors, and transact such other business as may properly be
brought before the meeting.
Section 3. Written notice of the annual meeting stating the place, date
and hour of the meeting shall be given to each stockholder entitled to vote at
such meeting not less than ten nor more than sixty days before the date of the
meeting.
Section 4. 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 the 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, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
Section 5. Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the certificate of
incorporation, may be called by the
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president and shall be called by the president or secretary at the request in
writing of a majority of the board of directors, or at the request in writing of
stockholders owning not less than fifty percent in amount of the entire capital
stock of the Corporation issued and outstanding and entitled to vote. Such
request shall state the purpose or purposes of the proposed meeting.
Section 6. Written notice of a special meeting stating the place, date
and hour of the meeting and the purpose or purposes for which the meeting is
called, shall be given not less than ten nor more than sixty days before the
date of the meeting, to each stockholder entitled to vote at such meeting.
Section 7. Business transacted at any special meeting of stockholders
shall be limited to the purposes stated in the notice.
Section 8. 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 at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, 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
notified. 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.
Section 9. When a quorum is present at any meeting, the vote of the
holders of a majority of the 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 the statutes 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.
Section 10. 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, but no proxy shall be voted on or
after three years from its date, unless the proxy provides for a longer period.
Section 11. Unless otherwise provided in the certificate of
incorporation, any action required to be taken at any annual or special meeting
of stockholders of the Corporation, or any action which may be taken at any
annual or special meeting of such stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voted. Prompt notice of the taking of the corporate action
without a meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
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ARTICLE III
DIRECTORS
Section 1. The number of directors which shall constitute the whole
board shall be determined from time to time by resolution of the board of
directors and shall be no less than one. The directors shall be elected at the
annual meeting of the stockholders, except as provided in Section 2 of this
Article, and each director elected shall hold until his successor is elected and
qualified. Directors need not be stockholders, residents of Delaware or citizens
of the United States.
Section 2. Vacancies and newly created directorships resulting from any
increase in the authorized number of directors may be filled by a majority of
the directors then in office, though less than a quorum, or by a sole remaining
director, and the directors so chosen shall hold office until the next annual
election and until their successors are duly elected and shall qualify, unless
sooner displaced. If there are no directors in office, then an election of
directors may be held in the manner provided by statute. If, at the time of
filling any vacancy or any newly created directorship, the directors then in
office shall constitute less than a majority of the whole board (as constituted
immediately prior to any such increase), the Court of Chancery may, upon
application of any stockholder or stockholders holding at least ten percent of
the total number of the shares at the time outstanding having the right to vote
for such directors, summarily order an election to be held to fill any such
vacancies or newly created directorships, or to replace the directors chosen by
the directors then in office.
Section 3. The business of the Corporation shall be managed by or under
the direction of its board of directors which may exercise all such powers of
the Corporation and do all such lawful acts and things as are not by statute or
by the certificate of incorporation or by these by-laws directed or required to
be exercised or done by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 4. The board of directors of the Corporation may hold meetings,
both regular and special, either within or without the State of Delaware.
Section 5. The first meeting of each newly elected board of directors
shall be held at such time and place as shall be fixed by the vote of the
stockholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present. In the event of the failure of the
stockholders to fix the time or place of such first meeting of the newly elected
board of directors, or in the event such meeting is not held at the time and
place so fixed by the stockholders, the meeting may be held at such time and
place as shall be specified in a notice given as hereinafter provided for
special meetings of the board of directors, or as shall be specified in a
written waiver signed by all of the directors.
Section 6. Regular meetings of the board of directors may be held upon
such no'! notice or without notice at such time and at such place as shall from
time to time be determined by the board.
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Section 7. Special meetings of the full board may be called by the
president on three days' notice to each director, given as set forth in these
by-laws; special meetings shall be called by the president or secretary in like
manner and on like notice on the written request of two directors.
Section 8. Notice of a meeting need not be given to any director who
attends the meeting without protesting, prior thereto or at its commencement,
the lack of notice. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the board of directors need be specified
in the notice or a waiver of notice of such meeting.
Section 9. At all meetings of the board a majority of the directors
shall 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 of directors, except as may be otherwise
specifically provided by statute or by the certificate of incorporation. If a
quorum shall not be present at any meeting of the board of directors the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
Section 10. Unless otherwise restricted by the certificate of
incorporation or these by-laws, any action required or permitted to be taken at
any meeting of the board of directors or of any committee thereof may be taken
without a meeting if all members of the board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the board or committee.
Section 11. Unless otherwise restricted by the certificate of
incorporation or these by-laws, members of the board of directors, or any
committee designated by the board of directors, may participate in a meeting of
the board of directors, or any committee, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
COMMITTEES
Section 12. The board of directors may, by resolution passed by a
majority of the whole board, designate an executive committee and other
committees, each committee to consist of one or more 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. In the absence or disqualification of a member of a
committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he, she or they constitute a quorum,
may unanimously appoint another member of the board of directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the board of directors,
shall have and may exercise all the powers and authority of the board of
directors 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 which may
require it; but no such committee shall have the power or authority in reference
to amending the certificate of incorporation, adopting an agreement of merger or
consolidation, recommending to the stockholders the sale, lease or
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exchange of all or substantially all of the Corporation's property and assets,
recommending to the stockholders a dissolution of the Corporation or a
revocation of a dissolution, or amending the by-laws of the Corporation; and,
unless the resolution or the certificate of incorporation expressly so provide,
no such committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock. Such committee or committees shall have such
name or names as may be determined from time to time by resolution adopted by
the board of directors.
Section 13. Each committee shall keep regular minutes of its meetings
and report the same to the board of directors when required.
COMPENSATION OF DIRECTORS
Section 14. Unless otherwise restricted by the certificate of
incorporation or these by-laws, the board of directors shall have the authority
to fix the compensation of directors. The directors may be paid their expenses,
if any, of attendance at each meeting of the board of directors and may be paid
a fixed sum for attendance at each meeting of the board of directors or a stated
salary as director. Nothing herein shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
REMOVAL OF DIRECTORS
Section 15. Unless otherwise restricted by the certificate of
incorporation or by-laws, any director or the entire board of directors may be
removed, with or without cause, by the holders of a majority of shares entitled
to vote at an election of directors at a special meeting of stockholders called
for that purpose.
ARTICLE IV
NOTICES
Section 1. Whenever, under the provisions of the statutes or of the
certificate of incorporation or of these by-laws, notice is required to be given
to any director or stockholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, addressed to such
director or stockholder, at his address as it appears on the records of the
Corporation with postage thereon prepaid, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United States mail.
Notice to directors may also be given by telegram, telex or telecopy with
receipt confirmed by telecopy.
Section 2. Whenever any notice is required to be given under the
provisions of the statutes or of the certificate of incorporation or of these
by-laws, 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. A person entitled to notice of any meeting of the board of
directors or stockholders, as the case may be, waives such notice if he or she
appears in person or, in the case of a stockholder, by proxy at such meeting,
except when the person attends a meeting for the express purposes of objecting,
at the beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened.
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ARTICLE V
OFFICERS
Section 1. The officers of the Corporation shall be chosen by the board
of directors and shall be a president, a secretary and a treasurer. The board of
directors may also choose a chairman of the board, controller, one or more vice
presidents, one or more assistant secretaries and assistant treasurers. Any such
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.
Any number of offices may be held by the same person, unless the certificate of
incorporation or these by-laws otherwise provide.
Section 2. The board of directors at its first meeting after each
annual meeting of stockholders shall choose a president, a secretary and a
treasurer.
Section 3. The board of directors may appoint such other officers and
agents, as it shall deem necessary who 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.
Section 4. The salaries of all officers and agents of the Corporation
shall be fixed by the board of directors.
Section 5. The officers of the Corporation shall hold office until
their successors are chosen and qualify. Any officer elected or appointed by the
board of directors may be removed at any time with or without cause by the
affirmative vote of a majority of the board of directors. Any vacancy occurring
in any office of the Corporation shall be filled by the board of directors.
THE PRESIDENT
Section 6. The president shall preside at all meetings of the board and
the stockholders and shall be the chief executive officer of the Corporation and
shall have general direction and supervision over day-to-day matters relating to
the business and affairs of the Corporation, shall implement or supervise the
implementation of corporate policies as established by the board of directors
and shall be in charge of stockholder relations. He or she shall have such other
powers and perform such other duties as the board of directors may from time to
time prescribe.
Section 7. He or she shall execute bonds, mortgages and other contracts
requiring a seal under the seal of the Corporation, except where required or
permitted by law to be otherwise signed and executed and except where the
signing and execution thereof shall be delegated by the board of directors to
some other officer or agent of the Corporation.
THE VICE PRESIDENTS
Section 8. The vice president, if any, or, if there shall be more than
one, the vice presidents in the order determined by the board of directors (or,
in the absence of any designation, then in the order of their election) shall,
in the absence or disability of the president,
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perform the duties and exercise the powers of the president and shall perform
such other duties and have such other powers as the board of directors may from
time to time prescribe.
THE SECRETARY AND ASSISTANT SECRETARY
Section 9. The secretary shall attend all meetings of the board of
directors and all meetings of the stockholders and record all the proceedings of
the meetings of the Corporation and of the board of directors in a book to be
kept for that purpose and shall perform like duties for the standing committees
when required. He or she shall give, or cause to be given, notice of all
meetings of the stockholders and special meetings of the board of directors, and
shall perform such other duties as may be prescribed by the board of directors
or person serving as chief executive officer, whose supervision he or she shall
be. He or she shall have custody of the corporate seal of the Corporation and he
or she, or an assistant secretary, shall have authority to affix the same to any
instrument requiring it and, when so affixed, it may be attested by his
signature or by the signature of such assistant secretary. The board of
directors may give general authority to any other officer to affix the seal of
the Corporation and to attest the affixing by his or her signature.
Section 10. The assistant secretary or, if there be more than one, the
assistant secretaries in the order determined by the board of directors (or, in
the absence of any designation, then in the order of their election), shall, in
the absence or disability of the secretary, perform the duties and exercise the
powers of the secretary and shall perform such other duties and have such other
powers as the board of directors may from time to time prescribe.
THE TREASURER AND ASSISTANT TREASURERS
Section 11. The treasurer shall have the 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 moneys
and other valuable effects in the name and to the credit of the Corporation in
such depositories as may be designated by the board of directors.
Section 12. He or she shall disburse the funds of the Corporation as
may be ordered by the board of directors, taking proper vouchers for such
disbursements, and shall render to the person serving as chief executive
officer,, the president and board of directors at its regular meetings, or when
the board of directors so requires, an account of all his or her transactions as
treasurer and of the financial condition of the Corporation.
Section 13. If required by the board of directors, he or she shall give
the Corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the board of directors for the faithful performance of the
duties of his office and for the restoration to the Corporation, in ease of his
death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his or her control belonging to the Corporation.
Section 14. The assistant treasurer, or, if there shall be more than
one, the assistant treasurers in the order determined by the board of directors
(or, in the absence of any designation, then in the order of their election),
shall, in the absence or disability of the treasurer,
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perform the duties and exercise the powers of the treasurer and shall perform
such other duties and have such other powers as the board of directors may from
time to time prescribe.
ARTICLE VI
CERTIFICATES OF STOCK
Section 1. 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
president or a vice-president and the treasurer or an assistant treasurer, or
the secretary or an assistant secretary of the Corporation, certifying the
number of shares owned by him or her in the Corporation.
Section 2. Any of or all the signatures on the certificate may be
facsimile. In case 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 he or she
were such officer, transfer agent or registrar at the date of issue.
LOST CERTIFICATES
Section 3. The board of directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the Corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate or certificates, the board of directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or certificates, or his
legal representative, to advertise the same in such manner as it shall require
and/or 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
certificate alleged to have been lost, stolen or destroyed.
TRANSFERS OF STOCK
Section 4. Upon surrender to the Corporation or the transfer agent of
the Corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignation 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.
FIXING RECORD DATE
Section 5. In order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or 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 any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the board of directors may fix, in advance, a record date,
which shall not be more than sixty nor less than ten days before the date of
such meetings, nor more than sixty days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
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<PAGE>
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the board of directors may fix a new record date for the adjourned
meeting.
REGISTERED STOCKHOLDERS
Section 6. The Corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE VII
INDEMNIFICATION
Section 1. The Corporation shall indemnify any director or officer of
the corporation and may indemnify any other person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Corporation) by reason of the
fact that he or she is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another Corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines, and amounts paid in settlement actually and reasonably
incurred by him or her in connection with such action, suit or proceeding if he
or she acted in good faith and in a manner he or she reasonably believed to be
in or not opposed to the best interests of the Corporation, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of NOLO CONTENDERE or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he or she reasonably believed to be
in or not opposed to the best interests of the Corporation, and, with respect to
any criminal action or proceeding, had reasonable cause to believe that his
conduct was unlawful.
Section 2. The Corporation shall indemnify any director or officer of
the corporation and may indemnify any other person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he or she is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another Corporation, partnership,
joint venture, trust or other enterprise against expenses (including attorneys'
fees) actually and reasonably incurred by him or her in connection with the
defense or settlement of such action or suit if he or she acted in good faith
and in a manner he or she reasonably believed to be in or not opposed to the
best interest of the Corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the Corporation unless and only to the extent that
the Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
9
<PAGE>
reasonably entitled to indemnity for such expenses which the Court of Chancery
or such other court shall deem proper.
Section 3. To the extent that a director, a employee or agent or
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Sections 1 or 2 of this Article VII or
in defense of any claim, issue or matter therein, he or she shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred by
him or her in connection therewith.
Section 4. Any indemnification under Sections 1 or 2 of this Article
VII (unless ordered by a court) shall be made by the Corporation only as
authorized in the specific case upon a determination that indemnification of the
director, officer, employee or agent is proper in the circumstances because he
or she has met the applicable standard of conduct set forth in Sections 1 or 2
or this Article VII. Such determination shall be made (a) by the board of
directors by a majority vote of a quorum consisting of directors who were not
parties to such action, suit or proceedings, or (b) if such a quorum is not
obtainable, or, even if obtainable, a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (c) by the
stockholders.
Section 5. Expenses (including attorneys' fees) incurred by an officer
or director of the Corporation in defending any civil, criminal, administrative
or investigative action, suit or proceeding shall be paid by the Corporation in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of such officer or director to repay such
amount if it shall ultimately be determined that he or she is not entitled to be
indemnified by the Corporation as authorized in this Article. Such expenses
(including attorneys' fees) incurred by other employees and agents may be so
paid upon such terms and conditions, if any, as the board of directors deems
appropriate.
Section 6. The indemnification and advancement of expenses provided by,
or granted pursuant to, this Article shall not be deemed exclusive of any other
rights to which those seeking indemnification or advancement of expenses may be
entitled under any by-law, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, and shall, unless
otherwise provided when authorized or ratified, continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a person.
Section 7. The Corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, or agent of
the Corporation, or is or was serving at the request of the Corporation, as a
director, officer, employee or agent of another Corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him or
her and incurred by him or her in any such capacity, or arising out of his
status as such, whether or not the Corporation would have the power to indemnify
him or her against such liability under the provisions of this Article.
Section 8. For purposes of Article VII, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on a
10
<PAGE>
person with respect to any employee benefit plan; and references to "serving at
the request of the Corporation" shall include any service as a director,
officer, employee or agent of the Corporation which imposes duties on, or
involves service by, such director, officer, employee, or agent with respect to
an employee benefit plan, its participants, or beneficiaries; and a person who
acted in good faith and in a manner he or she reasonably believed to be in the
interest of the participants and beneficiaries of an employee benefit plan shall
be deemed to have acted in a manner "not opposed to the best interests of the
Corporation" as referred to in Article VII.
ARTICLE VIII
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the capital stock of the Corporation subject
to the provisions of the certificate of incorporation, if any, may be declared
by the board of directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property, or in shares of the capital stock,
subject to the provisions of the certificate of incorporation.
Section 2. Before payment of any dividend, there may be set aside out
of any funds of the Corporation available for dividends such sum or 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 think conducive to the interest of the
Corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
ANNUAL STATEMENT
Section 3. The board of directors shall present at each annual meeting,
and at any special meeting of the stockholders when called for by vote of the
stockholders, a full and clear statement of the business and condition of the
Corporation.
CHECKS
Section 4. All checks or demands for money and notes of the Corporation
shall be signed by such officer or such other person or persons as the board of
directors may from time to time designate.
FISCAL YEAR
Section 5. The fiscal year of the Corporation shall be fixed, and shall
be subject to change, by the Board of Directors.
SEAL
Section 6. The corporate seal shall have inscribed thereon the name of
the Corporation, the year of its organization and the words "Corporate Seal,
Delaware". The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
11
<PAGE>
ARTICLE IX
AMENDMENTS
Section 1. These by-laws may be altered, amended or repealed or new
by-laws may be adopted by the stockholders or by the board of directors, when
such power is conferred upon the board of directors by the certificate of
incorporation, at any regular meeting of the stockholders or of the board of
directors or at any special meeting of the stockholders or of the board of
directors. If the power to adopt, amend or repeal by-laws is conferred upon the
board of directors by the certificate of incorporation it shall not divest or
limit the power of the stockholders to adopt, amend or repeal by-laws.
12
<PAGE>
Exhibit 4.3
THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE
HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED,
HYPOTHECATED, OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
1933, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR UNLESS
SOLD PURSUANT TO RULE 144 UNDER SUCH ACT.
No. W-_______
WARRANT TO PURCHASE COMMON STOCK
OF
TRADEOUT.COM, INC.
VOID AFTER OCTOBER 18, 2001
This Warrant is issued to __________, or its registered
assigns ("Holder") by TradeOut.com, Inc., a Delaware corporation (the
"Company"), on October 18, l999 (the "Warrant Issue Date").
With respect to the persons and entities set forth under the
heading "Series C Investors' on Schedule A hereto, this Warrant is issued to
such Holder pursuant to the terms of that certain Series C Preferred Stock and
Warrant Purchase Agreement dated as of the date hereof (the "Purchase
Agreement").
With respect to the persons and entities set forth under the
heading "Series A investors" on SCHEDULE A hereto, this Warrant is issued to
such Holder as an amendment and restatement of the warrant issued to such Holder
pursuant to that certain Warrant Agreement dated as of April 19, 1999 (the
"Existing Warrant Agreement"). In consideration of the transactions contemplated
by the Purchase Agreement and other good and valid consideration, such Holder
represents, warrants and agrees that it has submitted for cancellation the
warrant that such Holder received pursuant to the Existing Warrant Agreement and
that this Warrant amends and restates such warrant in its entirety. Such Holder
represents, warrants and agrees that the Existing Warrant Agreement has been
terminated and is of no further force and effect.
Collectively, the Warrants referred to in the preceding two
paragraphs shall be referred to as the "Warrants."
1. PURCHASE SHARES. Subject to the terms and conditions
hereinafter set forth and set forth in the Purchase Agreement, the Holder
is entitled, upon surrender of this Warrant at the principal office of the
Company (or at such other place as the Company shall notify the holder hereof
in writing), to purchase from the Company up to ___________ ( ) fully
paid and nonassessable shares of
<PAGE>
Common Stock of the Company, as constituted on the Warrant Issue Date (the
"Common Stock"). The number of shares of Common Stock issuable pursuant to this
Section 1 (the "Shares") shall be subject to adjustment pursuant to Section 8
hereof.
(a) EXERCISE PRICE. The purchase price for the Shares
shall be $3.97691828, as adjusted from time to time pursuant to Section 8 hereof
(the "Exercise Price").
2. EXERCISE PERIOD. This Warrant shall be exercisable,
in whole or in part, during the term commencing on the Warrant Issue Date and
ending at 5:00 p.m. on the earlier of (i) October 18, 2001 or (ii) the date that
is ninety (90) days after the closing of the Company's sale of its Common Stock
in a firm commitment underwritten public offering pursuant to a registration
statement on Form S-1 or Form SB-2 under the Securities Act of 1933, as amended,
the public offering price of which was not less than $20,000,000 in the
aggregate.
3. METHOD OF EXERCISE. While this Warrant remains
outstanding and exercisable in accordance with Section 3 above, the Holder may
exercise, in whole or in part, the purchase rights evidenced hereby. Such
exercise shall be effected by:
(a) the surrender of the Warrant, together with a duly
executed copy of the form of Notice of Election attached hereto, to the
Secretary of the Company at its principal offices; and
(b) the payment to the Company of an amount equal to the
aggregate Exercise Price for the number of Shares being purchased
4. NET EXERCISE. In lieu of exercising this Warrant pursuant
to Section 4, the Holder may elect to receive, without the payment by the Holder
of any additional consideration, shares of Common Stock equal to the value of
this Warrant (or the portion thereof being canceled) by surrender of this
Warrant at the principal office of the Company together with notice of such
election, in which event the Company shall issue to the holder hereof a number
of shares of Common Stock computer using the following formula:
Y (A - B)
---------
X = A
Where: X = The number of shares of Common Stock to be issued
to the Holder pursuant to this net exercise;
Y = The number of Shares in respect of which the net
issue election is made;
A = The fair market value of one share of the Common
Stock at the time the net issue election is made;
B = The Exercise Price (as adjusted to the date of the
net issuance).
For purposes of this Section 5, the fair market value of one share of Common
Stock as of a particular date shall be determined as follows: (i) if traded on a
securities exchange or through
2
<PAGE>
the National Market, the value shall be deemed to be the average of the closing
prices of the securities on such exchange over the thirty (30) day period ending
three (3) days prior to the net exercise election; (ii) if traded
over-the-counter, the value shall be deemed to be the average of the closing bid
or sale prices (whichever is applicable) over the thirty (30) day period ending
three (3) days prior to the net exercise; and (iii) if there is no active public
market, the value shall be the fair market value thereof, as determined in good
faith by the Board of Directors of the Company. The right of the Holder to elect
to net exercise this Warrant pursuant to this Section 5 shall terminate upon the
date that is ninety (90) days following the Company's closing of a sale of its
Common Stock in a firm commitment underwritten public offering pursuant to a
registration statement on Form S-1 or Form SB-2 (or any successor form) under
the Securities Act of 1933, as amended, the public offering price of which was
not less than $20,000,000 in the aggregate. The preceding sentence shall not
terminate or modify the Holder's right to elect to exercise this Warrant
pursuant to Section 4.
5. CERTIFICATES FOR SHARES. Upon the exercise of the
purchase rights evidenced by this Warrant, one or more certificates for the
number of Shares so purchased shall be issued as soon as practicable thereafter
(with appropriate restrictive legends, if applicable), and in any event within
thirty (30) days of the delivery of the subscription notice.
6. ISSUANCE OF SHARES. The Company covenants that the
Shares, when issued pursuant to the exercise of this Warrant, will be duly and
validly issued, fully paid and nonassessable and free from all taxes, liens, and
charges with respect to the issuance thereof.
7. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES. The
number of and kind of securities purchasable upon exercise of this Warrant and
the Exercise Price shall be subject to adjustment from time to time as follows:
(a) SUBDIVISIONS, COMBINATIONS AND OTHER ISSUANCES. If
the Company shall at any time prior to the expiration of this Warrant subdivide
its Common Stock, by split-up or otherwise or combine its Common Stock, or issue
additional shares of its Common Stock or Preferred Stock as a dividend with
respect to any shares of its Common Stock, the number of Shares issuable on the
exercise of this Warrant shall forthwith be proportionately increased in the
case of a subdivision or stock dividend, or proportionately decreased in the
case of a combination. Appropriate adjustments shall also be made to the
purchase price payable per share, but the aggregate purchase price payable for
the total number of Shares purchasable under this Warrant (as adjusted) shall
remain the same. Any adjustment under this Section 8(a) shall become effective
at the close of business on the date the subdivision or combination becomes
effective, or as of the record date of such dividend, or in the event that no
record date is fixed, upon the making of such dividend.
(b) RECLASSIFICATION, REORGANIZATION AND CONSOLIDATION.
In case of any reclassification, capital reorganization, or change in the Common
Stock of the Company (other than as a result of a subdivision, combination, or
stock dividend provided for in Section 8(a) above), then, as a condition of such
reclassification, reorganization, or change, lawful provision shall be made, and
duly executed documents evidencing the same from the Company or its successor
shall be delivered to the Holder, so that the Holder shall have the right at any
time prior to the expiration of this Warrant to purchase, at a total price equal
to that payable upon the
3
<PAGE>
exercise of this Warrant, the kind and amount of shares of stock and other
securities and property receivable in connection with such reclassification,
reorganization, or change by a holder of the same number of shares of Common
Stock as were purchasable by the Holder immediately prior to such
reclassification, reorganization, or change. In any such case appropriate
provisions shall be made with respect to the rights and interest of the Holder
so that the provisions hereof shall thereafter be applicable with respect to any
shares of stock or other securities and property deliverable upon exercise
hereof, and appropriate adjustments shall be made to the purchase price per
share payable hereunder, provided the aggregate purchase price shall remain the
same.
(c) NOTICE OF ADJUSTMENT. When any adjustment is required
to be made in the number or kind of shares purchasable upon exercise of the
Warrant, or in the Warrant Price, the Company shall promptly notify the holder
of such event and of the number of shares of Common Stock or other securities or
property thereafter purchasable upon exercise of this Warrant.
8. NO FRACTIONAL SHARES OR SCRIP. No fractional shares or
scrip representing fractional shares shall be issued upon the exercise of this
Warrant, but in lieu of such fractional shares the Company shall make a cash
payment therefor on the basis of the Exercise Price then in effect.
9. NO STOCKHOLDER RIGHTS. Except as otherwise provided in
the Purchase Agreement, the Restated Certificate (as defined in the Purchase
Agreement), the Investors' Rights Agreement (as defined in the Purchase
Agreement) the Co-Sale Agreement (as defined in the Purchase Agreement) or
herein, prior to exercise of this Warrant, the Holder shall not be entitled to
any rights of a stockholder with respect to the Shares, including (without
limitation) the right to vote such Shares, receive dividends or other
distributions thereon, exercise preemptive rights or be notified of stockholder
meetings, and such holder shall not be entitled to any notice or other
communication concerning the business or affairs of the Company.
10. TRANSFERS OF WARRANT. Subject to compliance with
applicable federal and state securities laws, this Warrant and all rights
hereunder are transferable in whole or in part by the Holder to any person or
entity upon written notice to the Company. The transfer shall be recorded on the
books of the Company upon the surrender of this Warrant, properly endorsed, to
the Company at its principal offices, and the payment to the Company of all
transfer taxes and other governmental charges imposed on such transfer. In the
event of a partial transfer, the Company shall issue to the holders one or more
appropriate new warrants.
11. SUCCESSORS AND ASSIGNS. The terms and provisions of this
Warrant and the Purchase Agreement shall inure to the benefit of, and be binding
upon, the Company and the Holders hereof and their respective successors and
assigns.
12. AMENDMENTS AND WAIVERS. Any term of this Warrant may be
amended and the observance of any term of this Warrant may be waived (either
generally or in a particular instance and either retroactively or
prospectively), with the written consent of the Company and the holders of
seventy percent (70%) of the shares of Common Stock issued or issuable upon
exercise of the Warrants. Any waiver or amendment effected in accordance with
this Section shall be binding upon each holder of any Shares purchased under
this Warrant at the time
4
<PAGE>
outstanding (including securities into which such Shares have been converted),
each future holder of all such Shares, and the Company.
13. EFFECT OF AMENDMENT OR WAIVER. The Holder acknowledges
that by the operation of Section 13 hereof, the holders of seventy percent (70%)
of the shares of Common Stock issued or issuable upon exercise of the Warrants,
will have the right and power to diminish or eliminate all rights of such holder
under this Warrant or under the Purchase Agreement.
14. ASSUMPTION OF WARRANT. If at any time, while this
Warrant, or any portion thereof, is outstanding and unexpired there shall be (i)
the acquisition of the Company by another entity by means of any transaction or
series of related transactions (including, without limitation, any
reorganization, merger or consolidation) that results in the transfer of fifty
percent (50%) or more of the outstanding voting power of the Company or (ii) a
sale of all or substantially all of the assets of the Company, then, as a part
of such acquisition, sale or transfer, lawful provision shall be made so that
the Holder shall thereafter be entitled to receive upon exercise of this
Warrant, during the period specified herein and upon payment of the Exercise
Price then in effect (including by net exercise), the number of shares of stock
or other securities or property of the successor corporation resulting from such
acquisition, sale or transfer which a holder of the shares deliverable upon
exercise of this Warrant would have been entitled to receive in such
acquisition, sale or transfer if this Warrant had been exercised immediately
before such acquisition, sale or transfer, all subject to further adjustment as
provided in this Section 15; and, in any such case, appropriate adjustment (as
determined by the Company's Board of Directors) shall be made in the application
of the provisions herein set forth with respect to the rights and interests
thereafter of the Holder to the end that the provisions set forth herein
(including provisions with respect to changes in and other adjustments of the
number of Warrant Shares of the Holder is entitled to purchase) shall thereafter
by applicable, as nearly as possible, in relation to any shares of Common Stock
or other securities or other property thereafter deliverable upon the exercise
of this Warrant.
15. NOTICES. All notices required under this Warrant and
shall be deemed to have been given or made for all purposes (i) upon personal
delivery, (ii) upon confirmation receipt that the communication was successfully
sent to the applicable number if sent by facsimile; (iii) one day after being
sent, when sent by professional overnight courier service, or (iv) five days
after posting when sent by registered or certified mail. Notices to the Company
shall be sent to the principal office of the Company (or at such other place as
the Company shall notify the Holder hereof in writing). Notices to the Holder
shall be sent to the address of the Holder on the books of the Company (or at
such other place as the Holder shall notify the Company hereof in writing).
16. ATTORNEYS' FEES. If any action of law or equity is
necessary to enforce or interpret the terms of this Warrant, the prevailing
party shall be entitled to its reasonable attorneys' fees, costs and
disbursements in addition to any other relief to which it may be entitled.
17. CAPTIONS. The section and subsection headings of this
Warrant are inserted for convenience only and shall not constitute a part of
this Warrant in construing or interpreting any provision hereof.
5
<PAGE>
18. GOVERNING LAW. This Warrant shall be governed by the laws
of the State of New York as applied to agreements among New York residents made
and to be performed entirely within the State of New York.
IN WITNESS WHEREOF, TradeOut.com, Inc. caused this Warrant to
be executed by an officer thereunto duly authorized.
TRADEOUT.COM, INC.
By: /s/ B McCagg
_________________________________________
Title: President and Chief Executive Officer
6
<PAGE>
SCHEDULE A
SERIES C INVESTORS
Benchmark Capital Partners IV, L.P.
eBay, Inc.
SERIES A INVESTORS
Catterton-Simon Partners III, L.P.
JFI-TO, L.L.C.
GFI-TO, L.L.C.
Channel-TO, L.L.C.
Jules Reich
MRB Holding Co., LLC
Gerald Rosenfeld
Fairbairn Trust Company Limited as Trustees of the Gadjzus Trust
Interlink Metals and Chemicals S.A.
Allison K. Stilp
David F. Cary
7
<PAGE>
EXHIBIT 4.4
THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, OR AN OPINION
OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER
SUCH ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SUCH ACT.
No. W-____
WARRANT TO PURCHASE COMMON STOCK
OF
TRADEOUT.COM, INC.
VOID AFTER OCTOBER 18, 2001
This Warrant is issued to __________________________________, or its
registered assigns ("Holder") by TradeOut.com, Inc., a Delaware corporation (the
"Company"), on October 18, 1999 (the "Warrant Issue Date").
With respect to the persons and entities set forth under the heading
"Series C Investors" on SCHEDULE A hereto, this Warrant is issued to much Holder
pursuant to the terms of that certain Series C Preferred Stock and Warrant
Purchased Agreement dated as of the date hereof (the "Purchase Agreement").
With respect to the persons and entities set forth under the heading
"Series A investors" on SCHEDULE A hereto, this Warrant is issued to such Holder
as an amendment and restatement of the warrant issued to such Holder pursuant to
that certain Warrant Agreement dated as of April l9, 1999 (the "Existing Warrant
Agreement"). In consideration of the transactions contemplated by the Purchase
Agreement and other good and valid consideration, such Holder represents,
warrants and agrees that it has submitted for cancellation the warrant that such
Holder received pursuant to the Existing Warrant Agreement and that this Warrant
amends and restates such warrant in its entirety. Such Holder represents,
warrants and agrees that the Existing Warrant Agreement has been terminated and
is of no further force and effect.
Collectively, the Warrants referred to in the preceding two paragraphs
shall be referred to as the "Warrants."
1. PURCHASE SHARES. Subject to the terms and conditions hereinafter
set forth and set forth in the Purchase Agreement, the Holder is entitled, upon
surrender of this Warrant at the principal office of the Company (or at such
other place as the Company shall notify the holder hereof in writing), to
purchase from the Company up to ____________________________________________
( ) fully paid and nonassessable shares of Common Stock of
the Company, as constituted on the Warrant Issue Date (the "Common Stock"). The
<PAGE>
number of shares of Common Stock issuable pursuant to this Section I (the
"Shares") shall be subject to adjustment pursuant to Section 8 hereof.
2. EXERCISE PRICE. The purchase price for the Shares shall be $4.468,
as adjusted from time to time pursuant to Section 8 hereof (the "Exercise
Price").
3. EXERCISE PERIOD. This Warrant shall be exercisable, in whole or in
part, during the term commencing on the Warrant Issue Date and ending at 5:00
p.m. on the earlier of (i) October 18, 2001 or (ii) the date that is ninety (90)
days after the closing of the Company's sale of its Common Stock in a firm
commitment underwritten public offering pursuant to a registration statement on
Form S-1 or Form SB-2 under the Securities Act of 1933, as amended, the public
price of which was not less than $20,000,000 in the aggregate.
4. METHOD OF EXERCISE. While this Warrant remains outstanding and
exercisable in accordance with Section 3 above, the Holder may exercise, in
whole or in part, the purchase rights evidenced hereby. Such exercise shall be
effected by:
(a) the surrender of the Warrant, together with a duly executed
copy of the form of Notice of Election attached hereto, to the Secretary of the
Company at its principal offices; and
(b) the payment to the Company of an amount equal to the
aggregate Exercise Price for the number of Shares being purchased.
5. NET EXERCISE. In lieu of exercising this Warrant pursuant to
Section 4, the Holder may elect to receive, without the payment by the Holder of
any additional consideration, shares of Common Stock equal to the value of this
Warrant (or the portion thereof being canceled) by surrender of this Warrant at
the principal office of the Company together with notice of such election, in
which event the Company shall issue to the holder hereof a number of shares of
Common Stock computed using the following formula:
X = Y (A-B)
-------
A
Where: X = The number of shares of Common Stock to be issued to the
Holder pursuant to this net exercise;
Y = The number of Shares in respect of which the net issue
election is made;
A = The fair market value of one share of the Common
Stock at the time the net issue election is made;
B = The Exercise Price (as adjusted to the date of the net
issuance).
For purposes of this Section 5, the fair market value of one share of Common
Stock as of a particular date shall be determined as follows: (i) if traded on a
securities exchange or through the Nasdaq National Market, the value shall be
deemed to be the average of the closing prices of
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the securities on such exchange over the thirty (30) day period ending three (3)
days prior to the net exercise election; (ii) if traded over-the-counter, the
value shall be deemed to be the average of the closing bid or sale prices
(whichever is applicable) over the thirty (30) day period ending three (3) days
prior to the net exercise; and (iii) if there is no active public market, the
value shall be the fair market value thereof, as determined in good faith by the
Board of Directors of the Company. The right of the Holder to elect to net
exercise this Warrant pursuant to this Section 5 shall terminate upon the date
that is ninety (90) days following the Company's closing of a sale of its Common
Stock in a firm commitment underwritten public offering pursuant to a
registration statement on Form S-1 or Form SB-2 (or any successor form) under
the Securities Act of 1933, as amended, the public offering price of which was
not less than $20,000,000 in the aggregate. The preceding sentence shall not
terminate or modify the Holder's right to elect to exercise this Warrant
pursuant to Section 4.
6. CERTIFICATES FOR SHARES. Upon the exercise of the purchase rights
evidenced by this Warrant, one or more certificates for the number of Shares so
purchased shall be issued as soon as practicable thereafter (with appropriate
restrictive legends, if applicable), and in any event within thirty (30) days of
the delivery of the subscription notice.
7. ISSUANCE OF SHARES. The Company covenants that the Shares, when
issued pursuant to the exercise of this Warrant, will be duly and validly
issued, fully paid and nonassessable and free from all taxes, liens, and charges
with respect to the issuance thereof.
8. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES. The number of
and kind of securities purchasable upon exercise of this Warrant and the
Exercise Price shall be subject to adjustment from time to time as follows:
(a) SUBDIVISIONS, COMBINATIONS AND OTHER ISSUANCES. If the
Company shall at any time prior to the expiration of this Warrant subdivide its
Common Stock, by split-up or otherwise, or combine its Common Stock, or issue
additional shares of its Common Stock or Preferred Stock as a dividend with
respect to any shares of its Common Stock, the number of Shares issuable on the
exercise of this Warrant shall forthwith be proportionately increased in the
case of a subdivision or stock dividend, or proportionately decreased in the
case of a combination. Appropriate adjustments shall also be made to the
purchase price payable per share, but the aggregate purchase price payable for
the total number of Shares purchasable under this Warrant (as adjusted) shall
remain the same. Any adjustment under this Section 8(a) shall become effective
at the close of business on the date the subdivision or combination becomes
effective, or as of the record date of such dividend, or in the event that no
record date is fixed, upon the making of such dividend.
(b) RECLASSIFICATION, REORGANIZATION AND CONSOLIDATION. In case
of any reclassification, capital reorganization, or change in the Common Stock
of the Company (other than as a result of a subdivision, combination, or stock
dividend provided for in Section 8(a) above), then, as a condition of such
reclassification, reorganization, or change, lawful provision shall be made, and
duly executed documents evidencing the same from the Company or its successor
shall be delivered to the Holder, so that the Holder shall have the right at any
time prior to the expiration of this Warrant to purchase, at a total price equal
to that payable upon the exercise of this Warrant, the kind and amount of shares
of stock and other securities and property
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receivable in connection with such reclassification, reorganization, or change
by a holder of the same number of shares of Common Stock as were purchasable by
the Holder immediately prior to such reclassification, reorganization, or
change. In any such case appropriate provisions shall be made with respect to
the rights and interest of the Holder so that the provisions hereof shall
thereafter be applicable with respect to any shares of stock or other securities
and property deliverable upon exercise hereof, and appropriate adjustments shall
be made to the purchase price per share payable hereunder, provided the
aggregate purchase price shall remain the same.
(C) NOTICE OF ADJUSTMENT. When any adjustment is required to be
made in the number or kind of shares purchasable upon exercise of the Warrant,
or in the Warrant Price, the Company shall promptly notify the holder of such
event and of the number of shares of Common Stock or other securities or
property thereafter purchasable upon exercise of this Warrant.
9. NO FRACTIONAL SHARES OR SCRIP. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant, but in lieu of such fractional shares the Company shall make a cash
payment therefor on the basis of the Exercise Price then in effect.
10. NO STOCKHOLDER RIGHTS. Except as otherwise provided in the
Purchase Agreement the Restated Certificate (as defined in the Purchase
Agreement), the Investors' Rights Agreement (as defined in the Purchase
Agreement) the Co-Sale Agreement (as defined in the Purchase Agreement) or
herein, prior to exercise of this Warrant, the Holder shall not be entitled to
any rights of a stockholder with respect to tile Shares, including (without
limitation) the right to vote such Shares, receive dividends or other
distributions thereon, exercise preemptive rights or be notified of stockholder
meetings, and such holder shall not be entitled to any notice or other
communication concerning the business or affairs of tile Company.
11. TRANSFERS OF WARRANT. Subject to compliance with applicable
federal and state securities laws, this Warrant and all rights hereunder are
transferable in whole or in part by the Holder to any person or entity upon
written notice to tile Company. The transfer shall be recorded on the books of
the Company upon the surrender of this Warrant, properly endorsed, to the
Company at its principal offices, and the payment to the Company of all transfer
taxes and other governmental charges imposed on such transfer. In the event of a
partial transfer, the Company shall issue to the holders one or more appropriate
new warrants.
12. SUCCESSORS AND ASSIGNS. The terms and provisions of this Warrant
and the Purchase Agreement shall inure to the benefit of, and be binding upon,
the Company and the Holders hereof and their respective successors and assigns.
13. AMENDMENTS AND WAIVERS. Any term of this Warrant may be amended
and the observance of any term of this Warrant may be waived (either generally
or in a particular instance and either retroactively or prospectively), with the
written consent of the Company and the holders of seventy percent (70%) of the
shares of Common Stock issued or issuable upon exercise of the Warrants. Any
waiver or amendment effected in accordance with this Section shall be binding
upon each holder of any Shares purchased under this Warrant at the time
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outstanding (including securities into which such Shares have been converted),
each future holder of all such Shares, and the Company.
14. EFFECT OF AMENDMENT OR WAIVER. The Holder acknowledges that by the
operation of Section 13 hereof, the holders of seventy percent (70%) of the
shares of Common Stock issued or issuable upon exercise of the Warrants, will
have the right and power to diminish or eliminate all rights of such holder
under this Warrant or under the Purchase Agreement.
15. ASSUMPTION OF WARRANT. If at any time, while this Warrant or any
portion thereof, is outstanding and unexpired there shall be (i) the acquisition
of the Company by another entity by means of any transaction or series of
related transactions (including, without limitation, any reorganization, merger
or consolidation) that results in the transfer of fifty percent (50%) or more of
the outstanding voting power of the Company or (ii) a sale of all or
substantially all of the assets of the Company, then, as a part of such
acquisition, sale or transfer, lawful provision shall be made so that the Holder
shall thereafter be entitled to receive upon exercise of this Warrant, during
the period specified herein and upon payment of the Exercise Price then in
effect (including by net exercise), the number of shares of stock or other
securities or property of the successor corporation resulting from such
acquisition, sale or transfer which a holder of the shares deliverable upon
exercise of this Warrant would have been entitled to receive in such
acquisition, sale or transfer if this Warrant had been exercised immediately
before such acquisition, sale or transfer, all subject to further adjustment as
provided in this Section 15; and, in any such case, appropriate adjustment (as
determined by the Company's Board of Directors) shall be made in the application
of the provisions herein set portly with respect to the rights and interests
thereafter of the Holder to the end that the provisions set forth herein
(including provisions with respect to changes in and other adjustments of the
number of Warrant Shares of the Holder is entitled to purchase) shall thereafter
by applicable, as nearly as possible, in relation to any shares of Common Stock
or other securities or other property thereafter deliverable upon the exercise
of this Warrant.
16. NOTICES. All notices required under this Warrant and shall be
deemed to have been given or made for all purposes (i) upon personal delivery,
(ii) upon confirmation receipt that the communication was successfully sent to
the applicable number if sent by facsimile; (iii) one day after being sent, when
sent by professional overnight courier service, or (iv) five days after posting
when sent by registered or certified mail. Notices to the Company shall be sent
to the principal office of the Company (or at such other place as the Company
shall notify the Holder hereof in writing). Notices to the Holder shall be sent
to the address of the Holder on the books of the Company (or at such other place
as the Holder shall notify the Company hereof in writing).
17. ATTORNEYS' FEES. If any action of law or equity is necessary to
enforce or interpret the terms of this Warrant, the prevailing party shall be
entitled to its reasonable attorneys' fees, costs and disbursements in addition
to any other relief to which it may be entitled.
18. CAPTIONS. The section and subsection headings of this Warrant are
inserted for convenience only and shall not constitute a part of this Warrant in
construing or interpreting any provision hereof.
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19. GOVERNING LAW. This Warrant shall be governed by the laws of the
State of New York as applied to agreements among New York residents made and to
be performed entirely within the State of New York.
IN WITNESS WHEREOF, TradeOut.com, Inc. caused this Warrant to be
executed by an officer thereunto duly authorized.
TRADEOUT.COM, INC.
By: /s/ B McCagg
_________________________________________
Title: President and Chief Executive Officer
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SCHEDULE A
SERIES C INVESTORS
Benchmark Capital Partners IV, L.P.
eBay, Inc.
SERIES A INVESTORS
Catterton-Simon Partners III, L.P.
JFI-TO, L.L.C.
GFI-TO, L.L.C.
Channel-TO, L.L.C.
Jules Reich
MRB Holding Co., LLC
Gerald Rosenfeld
Fairbairn Trust Company Limited as Trustees of the Gadjzus Trust
Interlink Metals and Chemicals S.A.
Allison K. Stilp
David F. Cary
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<PAGE>
NOTICE OF EXERCISE
To: TRADEOUT.COM, INC.
The undersigned hereby elects to [CHECK APPLICABLE SUBSECTION]:
(a) Purchase _______________ shares of Common Stock of,
_______________, pursuant to the terms of the attached Warrant and
payment of the Exercise Price per share required under such
Warrant accompanies this notice;
OR
(b) Exercise the attached Warrant for [___ of the shares]
[____________ of the shares] [CROSS OUT INAPPLICABLE PHRASE]
purchasable under the Warrant pursuant to the net exercise
provisions of Section 5 of such Warrant.
The undersigned hereby represents and warrants that the undersigned is
acquiring such shares for its own account for investment purposes only, and not
for resale or with a view to distribution of such shares or any part thereof.
WARRANTHOLDER:
____________________________________
By:_________________________________
[NAME]
Address:____________________________
Date:_____________________________________
Name in which shares should be registered:
__________________________________________
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Exhibit 4.5
EXHIBIT B
NEITHER THIS WARRANT, NOR THE COMMON STOCK TO BE ISSUED UPON EXERCISE HEREOF,
HAS BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
QUALIFIED UNDER THE APPLICABLE SECURITIES LAWS OF ANY OTHER JURISDICTION (THE
"LAW"), AND THIS WARRANT HAS BEEN, AND THE COMMON STOCK TO BE ISSUED UPON
EXERCISE HEREOF WILL BE, ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR
RESALE IN CONNECTION WITH, ANY DISTRIBUTION THEREOF. NO SUCH SALE OR OTHER
DISPOSITION MAY BE MADE WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
ACT AND QUALIFICATION UNDER THE LAW RELATED THERETO OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY (AS THAT TERM IS DEFINED BELOW) AND ITS COUNSEL,
THAT SAID REGISTRATION AND QUALIFICATION ARE NOT REQUIRED UNDER THE ACT AND LAW,
RESPECTIVELY.
TRADEOUT.COM, INC.
February 15, 2000 650,000 Shares
of Common Stock
Warrant for Common Stock
This certifies that Quality King Distributors Incorporated,
whose address is 2060 Ninth Avenue, Ronkonkoma, New York 11779 ("HOLDER") is
entitled to subscribe for and purchase up to six hundred fifty thousand
(650,000) shares of fully paid and nonassessable Common Stock, $0.001 par
value per share ("COMMON Stock"), of TradeOut.com, Inc., a Delaware
corporation (the "COMPANY"), subject to the terms and conditions herewith set
forth. The purchase price of each such share shall be the amount set forth in
Section 1.4 herein. Except as set forth in Sections 7.1 and 11, this Warrant
shall not be assignable, and shall only be exercisable, by Holder.
1. EXERCISE; PAYMENT
1.1. EXERCISABILITY. This Warrant, and the right to purchase vested
Common Stock hereunder, shall be exercisable, at any time and from time to time,
commencing on the date of closing of an underwritten initial public offering of
the Common Stock pursuant to an effective registration statement under the
Securities Act of 1933, as amended (the "ACT"), and terminating at 5:00 P.M.,
New York local time on June 30, 2005.
1.2. PAYMENT. The purchase rights under this Warrant may be exercised by
Holder, in whole or in part, by the surrender of this Warrant at the principal
office of the Company located at 410 Saw Mill River Road, Suite 2065, Ardsley,
New York 10502, and by the payment to the Company, by certified, cashier's or
other check acceptable to the Company, of an amount equal to the aggregate
Warrant Price of the shares being purchased.
1.3. STOCK CERTIFICATES. In the event of any exercise of the rights to
acquire Common Stock granted under this Warrant, certificates for the shares of
Common Stock so purchased shall be delivered to Holder within a reasonable time
and, unless this Warrant has been fully exercised or has expired, a new Warrant
representing the shares with respect to which this Warrant shall not have been
exercised shall also be issued to Holder within such time.
1.4. WARRANT PRICE. The purchase price for the shares of Common Stock to
be issued upon exercise of this Warrant shall be $1.00 per share, subject to
adjustment as provided in Section 4 herein (the "WARRANT PRICE").
<PAGE>
1.5. VESTING SCHEDULE.
(a) Subject to the terms and conditions of the Strategic Alliance
Agreement dated as of February ___, 2000 by and between Holder and the Company
(the "AGREEMENT"), this Warrant shall vest in equal quarterly installments of
32,500 shares of Common Stock (each, a "QUARTERLY WARRANT AMOUNT") 31 calendar
days after the last day of each quarter for a period of 20 calendar quarters as
set forth on SCHEDULE A hereto, in each case only if Qualifying Transactions (as
defined in the Agreement) have been completed for such calendar quarter in the
amount listed on SCHEDULE A hereto (the "QUARTERLY GROSS TRANSACTION TARGET").
In the event Qualifying Transactions have been completed in an amount less than
the Quarterly Gross Transaction Target set forth on SCHEDULE A for a particular
quarter, then the Quarterly Warrant Amount for that quarter shall be adjusted in
accordance with the partial vesting schedule set forth on SCHEDULE B hereto.
(b) The Company may, at any time, without any further action by Holder,
by action of the Board of Directors of the Company, amend this Warrant such that
the vesting schedule set forth in this Section 1.5 shall be accelerated with
respect to all or a portion of the Common Stock.
(c) Notwithstanding the foregoing provisions of this Section 1.5 this
Warrant shall not become exercisable until Holder has executed a written
agreement to be bound by that certain Right of First Refusal and Co-Sale
Agreement, dated as of October 18, 1999, by and among the Company and the
stockholders of the Company.
2. REPRESENTATIONS AND WARRANTIES OF HOLDER
Holder represents and warrants to and covenants with the Company and
each officer, director, and agent of the Company that:
2.1. Holder has all requisite capacity to enter into the Agreement and to
perform all the obligations required to be performed by Holder thereunder and
hereunder.
2.2. Holder has such knowledge, skill and experience in business,
financial and investment matters so that Holder is capable of evaluating the
merits and risks of an investment in this Warrant and the Common Stock issuable
hereunder (the "SECURITIES") and has the ability to suffer the total loss of the
investment. To the extent necessary, Holder has retained, at Holder's own
expense, and relied upon, appropriate professional advice regarding the
investment, tax and legal merits and consequences of this Warrant and owning the
Securities. Holder further represents that it has had the opportunity to ask
questions of and receive answers from the Company concerning the terms and
conditions of the Securities, the business of the Company, and to obtain
additional information to such Holder's satisfaction.
2.3. Holder is an "accredited investor" as defined in Rule 501(a) under
the Act. Holder agrees to furnish any additional information requested to assure
compliance with applicable federal and state securities laws in connection with
the purchase and sale of the Securities.
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2.4. Holder is acquiring the Securities solely for its own account, for
investment purposes, and not with a view to, or for resale in connection with,
any distribution thereof. Holder understands that the Securities have not been
registered under the Act, or any state securities laws by reason of specific
exemptions under the provisions thereof which depend in part upon the investment
intent of Holder and of the other representations made by Holder in this
Warrant. Holder understands that the Company is relying upon the representations
and agreements contained in this Warrant (and any supplemental information) for
the purpose of determining whether this transaction meets the requirements for
such exemptions.
2.5. Holder acknowledges and agrees that this Warrant and all shares of
Common Stock issued upon exercise hereof shall be stamped or imprinted with a
legend in substantially the following form (in addition to any legend required
by state securities law):
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR QUALIFIED UNDER THE APPLICABLE SECURITIES LAWS OF ANY
OTHER JURISDICTION (THE "LAW"), AND THESE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR FOR RESALE IN CONNECTION WITH, ANY
DISTRIBUTION THEREOF. NO SUCH SALE OR OTHER DISPOSITION MAY BE MADE WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND QUALIFICATION UNDER THE LAW
RELATED THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS
COUNSEL, THAT SAID REGISTRATION AND QUALIFICATION ARE NOT REQUIRED UNDER THE ACT
AND LAW, RESPECTIVELY.
3. STOCK FULLY PAID; RESERVATION OF SHARES
The Company covenants and agrees that all securities which may
be issued upon the exercise of the rights represented by this Warrant will, upon
issuance, be fully paid and nonassessable and free from all taxes, liens and
charges with respect to the issuance thereof (excluding taxes based on the
income of Holder). The Company further covenants and agrees that during the
period within which the rights represented by this Warrant may be exercised, the
Company will at all times have authorized and reserved for issuance a sufficient
number of shares of its Common Stock or other securities as would be required
upon the full exercise of the rights represented by this Warrant.
4. ADJUSTMENT
The kind of securities purchasable upon the exercise of this
Warrant, the number of shares under this Warrant and the Warrant Price shall be
subject to adjustment from time to time upon the happening of certain events, as
follows:
4.1. RECLASSIFICATION, CONSOLIDATION OR MERGER. In case of: (i) any
reclassification or change of outstanding securities issuable upon exercise of
this Warrant; (ii) any consolidation or merger of the Company with or into
another corporation (other than a merger with another corporation in which the
Company is a continuing corporation and which does not result in any
reclassification, change or exchange of outstanding securities issuable upon
exercise of this Warrant); or (iii) any sale or transfer to another corporation
of all, or substantially all, of the property of the Company, then, and in each
such event, the Company or such successor or purchasing corporation, as the case
may be, shall execute a new Warrant which will provide that Holder shall have
the right to exercise such new Warrant and purchase upon such exercise, in lieu
of each share of Common Stock theretofore issuable upon exercise of this
Warrant, the kind
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<PAGE>
of securities, money and property receivable upon such reclassification, change,
consolidation, merger, sale or transfer by a holder of Common Stock issuable
upon exercise of this Warrant had this Warrant been considered exercised
immediately prior to such reclassification, change, consolidation, merger, sale
or transfer. Such new Warrant shall provide for adjustments which shall be as
nearly equivalent as may be practicable to the adjustments provided in this
Section 4 and the provisions of this Section 4 and the provisions of this
Section 4.1 shall similarly apply to successive reclassifications, changes,
consolidations, mergers, sales and transfers.
4.2. SUBDIVISIONS OR COMBINATION OF SHARES. If the Company at any time
while this Warrant remains outstanding and unexercised, in whole or in part, (i)
shall divide its Common Stock, the Warrant Price shall be proportionately
reduced and the number of shares under this Warrant shall be proportionately
increased; or (ii) shall combine shares of its Common Stock, the Warrant Price
shall be proportionately increased and the number of shares under this Warrant
shall be proportionately reduced.
4.3. STOCK DIVIDENDS. If the Company, at any time while this Warrant is
outstanding and unexpired, shall pay a dividend payable in, or make any other
distribution to shareholders of, its capital stock (except any distribution
described in Sections 4.1 and 4.2 hereof), then and in each case, this Warrant
shall represent the right to acquire, in addition to the number of shares of the
security receivable upon exercise of this Warrant, and without payment of any
additional consideration therefor, the amount of such additional stock of the
Company which such holder would hold on the date of such exercise had it been
the holder of record of the security receivable upon exercise of this Warrant on
the date hereof and had thereafter, during the period from the date hereof to
and including the date of such exercise, retained such shares and/or all other
additional stock available by it as aforesaid during such period, giving effect
to all adjustments called for during such period by the provisions of this
Section 4.
4.4. TIME OF ADJUSTMENTS. All adjustments, unless otherwise specified
herein, shall be effective as of the earlier of:
4.4.1. the date of issuance of the security causing the
adjustment;
4.4.2. the effective date of a division or combination of shares;
4.4.3. the record date of any action of holders of the Company's
capital stock of any class taken for the purpose of dividing or combining shares
or entitling shareholders to receive a distribution or dividends payable in the
Company's capital stock.
4.5. NOTICE OF ADJUSTMENTS. In each case of an adjustment the Company, at
its expense, shall cause the Chief Financial Officer (or other such similar
officer) of the Company to compute such adjustments and prepare a certificate
setting forth such adjustments and showing in detail the facts upon which such
adjustment is based. The Company shall promptly mail a copy of each such
certificate to Holder pursuant to Section 15 hereof.
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5. FRACTIONAL SHARES
No fractional share of Common Stock will be issued in
connection with any exercise hereof, but in lieu of a fractional share upon
complete exercise hereof, Holder may purchase a whole share at the then
effective Warrant Price.
6. SHAREHOLDER RIGHTS
Holder shall not, solely by virtue hereof, be entitled to any
rights of a shareholder of the Company. Holder shall have all rights of a
shareholder with respect to securities purchased upon exercise hereof at the
time the exercise price for such securities is delivered pursuant to Section l
hereof and this Warrant is surrendered.
7. RESTRICTIONS ON TRANSFER
7.1. TRANSFER OF WARRANT. This Warrant shall not be transferable by
Holder except pursuant to prior written consent of the Company, which consent
shall not be unreasonably withheld or delayed, and provided that such transferee
executes a written agreement to be bound by the provisions of this Warrant.
7.2. SECURITIES LAWS RESTRICTIONS. Holder, by acceptance hereof, agrees
that, absent an effective registration statement under the Act covering the
disposition of Common Stock issued or issuable upon exercise hereof, Holder will
not sell or transfer any or all of such Common Stock, without first providing
the Company with an opinion of counsel reasonably acceptable to the Company and
its counsel to the effect that such sale or transfer will be exempt from the
registration requirements of the Act, and Holder consents to the Company making
a notation on its records in order to implement such restriction on
transferability.
8. "MARKET STAND-OFF" AGREEMENT
You hereby agree that, during the period specified by the
Company and any underwriter of Common Stock or other securities of the Company
following the effective date of a registration statement of the Company filed
under the Act, you will not, to the extent requested by the Company and such
underwriter, directly or indirectly sell, offer to sell, contract to sell
(including, without limitation, any short sale), grant any option to purchase or
otherwise transfer or dispose of (other than to donees who agree to be similarly
bound) any securities of the Company held by you at any time during such period
except Common Stock included in such registration. To enforce the foregoing
covenant, the Company may impose stop-transfer instructions with respect to the
shares of Common Stock issued or issuable upon exercise of this Warrant held by
you until the end of such period. In addition, the foregoing covenant may be
enforced by the underwriters who are parties with the Company to an underwriting
agreement under which such public offering is being undertaken.
9. LOSS OR MUTILATION
Upon receipt by the Company of evidence satisfactory to it of
the ownership of, and the loss, theft, destruction or mutilation of, this
Warrant and (in the case of loss, theft or
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destruction) of indemnity satisfactory to it, and (in the case of mutilation)
upon surrender and cancellation hereof, the Company will execute and deliver in
lieu hereof a new Warrant.
10. GOVERNING LAW
The internal laws of the State of Delaware (irrespective of
its choice of law principles) shall govern the validity of this Warrant, the
construction of its terms, and the interpretation and enforcement of the rights
and duties of the parties hereto.
11. BINDING UPON SUCCESSORS AND ASSIGNS
Subject to, and unless otherwise provided in, this Warrant,
each and all of the covenants, terms, provisions, and agreements contained
herein shall be binding upon, and inure to the benefit of the permitted
successors, executors, heirs, representatives, administrators and assigns of the
parties hereto. Holder shall not assign this Warrant or any rights or
obligations hereunder without the prior written consent of the Company, which
consent shall not be unreasonably withheld. For purposes of this Section 11, the
sale of all or substantially all of Holder's assets or capital stock shall
constitute an assignment.
12. SEVERABILITY
If any provision of this Warrant, or the application hereof,
shall for any reason and to any extent, be invalid or unenforceable, the
remainder of this Warrant and application of such provisions to other persons or
circumstances shall be interpreted so as best to reasonably effect the intent of
the parties hereto. The parties further agree to replace such void or
unenforceable provisions of this Warrant with valid or enforceable provisions
which will achieve, to the extent possible, the economic, business and other
purposes of the void or unenforceable provisions.
13. AMENDMENT
This Warrant may be amended upon the written consent of the
Company and Holder.
14. NO WAIVER
The failure of any party to enforce any of the provisions
hereof shall not be construed to be a waiver of the right of such party
thereafter to enforce such provisions.
15. NOTICES
Whenever any party hereto desires or is required to give any
notice, demand, or request with respect to this Warrant, each such communication
shall be in writing and shall be effective only if it is delivered by personal
service or mailed, United States certified mail, postage prepaid, return receipt
requested, addressed as follows:
Company: Address set forth in Section 1 hereof
Attn: Chief Executive Officer
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Holder: Address as set forth in Section 1 hereof
Attn: [ ]
Such communications shall be effective when they are received by the addresses
thereof; but if sent by certified mail in the manner set forth above, they shall
be effective five (5) days after being deposited in the United States mail. Any
party may change its address for such communications by giving notice thereof to
the other party in conformity with this Section.
16. CONSTRUCTION OF AGREEMENT
A reference in this Warrant to any Section shall include a
reference to every Section the number of which begins with the number of the
Section to which reference is specifically made. The titles and headings herein
are for reference purposes only and shall not in any manner limit the
construction of this Warrant which shall be considered as a whole.
17. NO ENDORSEMENT
Holder understands that no federal or state securities
administrator has made any finding or determination relating to the fairness of
investment in the Company or purchase of the Common Stock hereunder and that no
federal or state securities administrator has recommended or endorsed the
offering of securities by the Company hereunder.
18. PRONOUNS
All pronouns and any variations thereof shall be deemed to
refer to the masculine, feminine or neuter, singular or plural, as the identity
of the person, persons, entity or entities may require.
19. FURTHER ASSISTANCE
Each party agrees to cooperate fully with the other parties
and to execute such further instruments, documents and agreements and to give
such further written assurances, as may be reasonably requested by any other
party to better evidence and reflect the transactions described herein and
contemplated hereby, and to carry into effect the intents and purposes of this
Warrant.
TradeOut.com, Inc.
By: /s/ James Mooney
--------------------------
Title: CFO
ACCEPTED THIS ___ DAY OF FEBRUARY 2000
7
<PAGE>
QUALITY KING DISTRIBUTORS INCORPORATED
By: /s/ Glenn Nussdorf
______________________________________
Name: Glenn Nussdorf
Title: President & CEO
8
<PAGE>
FORM OF WARRANT EXERCISE
(TO BE SIGNED ONLY ON EXERCISE OF WARRANT)
TO _______________________
The undersigned, the holder of the within Warrant, hereby
irrevocably elects to exercise this Warrant for, and to purchase thereunder,
______ shares of Common Stock of TradeOut.com, Inc., a Delaware corporation, and
herewith makes payment of $__________ therefor, and requests that the
certificates for such shares be issued in the name of, and delivered to
_____________, whose address is __________________________.
Dated:
_____________________________________________
(Signature must conform to name of holder as
specified on the face of the Warrant)
_____________________________________________
(Address)
Tax Identification Number: __________________
<PAGE>
SCHEDULE A
SCHEDULE OF VESTING OF WARRANT
<TABLE>
<CAPTION>
- ---------------------------------------- -------------------------------------- --------------------------------------
PERIOD QUARTERLY GROSS QUARTERLY WARRANT AMOUNT
(Q = CALENDAR QUARTER) TRANSACTION TARGET
- ---------------------------------------- -------------------------------------- --------------------------------------
<S> <C> <C>
Q1 2000 $5.4 million 32,500
- ---------------------------------------- -------------------------------------- --------------------------------------
Q2 2000 $10.8 million 32,500
- ---------------------------------------- -------------------------------------- --------------------------------------
Q3 2000 $18 million 32,500
- ---------------------------------------- -------------------------------------- --------------------------------------
Q4 2000 $25.5 million 32,500
- ---------------------------------------- -------------------------------------- --------------------------------------
Q1 2001 $19.5 million 32,500
- ---------------------------------------- -------------------------------------- --------------------------------------
Q2 2001 $19.5 million 32,500
- ---------------------------------------- -------------------------------------- --------------------------------------
Q3 2001 $19.5 million 32,500
- ---------------------------------------- -------------------------------------- --------------------------------------
Q4 2001 $19.5 million 32,500
- ---------------------------------------- -------------------------------------- --------------------------------------
Q1 2002 $25.5 million 32,500
- ---------------------------------------- -------------------------------------- --------------------------------------
Q2 2002 $25.5 million 32,500
- ---------------------------------------- -------------------------------------- --------------------------------------
Q3 2002 $25.5 million 32,500
- ---------------------------------------- -------------------------------------- --------------------------------------
Q4 2002 $25.5 million 32,500
- ---------------------------------------- -------------------------------------- --------------------------------------
Q1 2003 $33 million 32,500
- ---------------------------------------- -------------------------------------- --------------------------------------
Q2 2003 $33 million 32,500
- ---------------------------------------- -------------------------------------- --------------------------------------
Q3 2003 $33 million 32,500
- ---------------------------------------- -------------------------------------- --------------------------------------
Q4 2003 $33 million 32,500
- ---------------------------------------- -------------------------------------- --------------------------------------
Q1 2004 $42 million 32,500
- ---------------------------------------- -------------------------------------- --------------------------------------
Q2 2004 $42 million 32,500
- ---------------------------------------- -------------------------------------- --------------------------------------
Q3 2004 $42 million 32,500
- ---------------------------------------- -------------------------------------- --------------------------------------
Q4 2004 $42 million 32,500
- ---------------------------------------- -------------------------------------- --------------------------------------
</TABLE>
<PAGE>
SCHEDULE B
PARTIAL VESTING SCHEDULE:
If Holder does not achieve the Quarterly Gross Transaction Target in a
particular quarter, the Quarterly Warrant Amount for that quarter shall be
adjusted as follows:
% of Quarterly Gross % of Quarterly Warrant
TRANSACTION TARGET ACHIEVED AMOUNT VESTED
0.01% - 54.99% 0% (0 shares)
55.00% - 79.99% 50% (16,250 shares)
80.00% - 99.99% 70% (22,750 shares)
100% and above 100% (32,500 shares)
<PAGE>
Exhibit 4.6
EXHIBIT B
NEITHER THIS WARRANT, NOR THE COMMON STOCK TO BE ISSUED UPON EXERCISE HEREOF,
HAS BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
QUALIFIED UNDER THE APPLICABLE SECURITIES LAWS OF ANY OTHER JURISDICTION (THE
"LAW"), AND THIS WARRANT HAS BEEN, AND THE COMMON STOCK TO BE ISSUED UPON
EXERCISE HEREOF WILL BE, ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR
RESALE IN CONNECTION WITH, ANY DISTRIBUTION THEREOF. NO SUCH SALE OR OTHER
DISPOSITION MAY BE MADE WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
ACT AND QUALIFICATION UNDER THE LAW RELATED THERETO OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY (AS THAT TERM IS DEFINED BELOW) AND ITS COUNSEL,
THAT SAID REGISTRATION AND QUALIFICATION ARE NOT REQUIRED UNDER THE ACT AND LAW,
RESPECTIVELY.
TRADEOUT.COM, INC.
February 28, 2000 525,000 Shares
of Common Stock
Warrant for Common Stock
This certifies that Norman Levy Associates, whose address
is 21415 Civic Center Drive, Suite 306, Southfield, MI 48076 ("HOLDER") is
entitled to subscribe for and purchase up to five hundred twenty-five
thousand (525,000) shares of fully paid and nonassessable Common Stock,
$0.001 par value per share ("COMMON STOCK"), of TradeOut.com, Inc., a
Delaware corporation (the "COMPANY"), subject to the terms and conditions
herewith set forth. The purchase price of each such share shall be the amount
set forth in Section 1.4 herein. Except as set forth in Sections 7.1 and 11,
this Warrant shall not be assignable, and shall only be exercisable, by
Holder.
1. EXERCISE; PAYMENT
1.1. EXERCISABILITY. This Warrant, and the right to purchase vested
Common Stock hereunder, shall be exercisable, at any time and from time to time,
commencing on the date of closing of an underwritten initial public offering of
the Common Stock pursuant to an effective registration statement under the
Securities Act of 1933, as amended (the "ACT"), and terminating at 5:00 P.M.,
New York local time on June 30, 2001.
1.2. PAYMENT. The purchase rights under this Warrant may be exercised by
Holder, in whole or in part, by the surrender of this Warrant at the principal
office of the Company located at 410 Saw Mill River Road, Suite 2065, Ardsley,
New York 10502, and by the payment to the Company, by certified, cashier's or
other check acceptable to the Company, of an amount equal to the aggregate
Warrant Price of the shares being purchased.
1.3. STOCK CERTIFICATES. In the event of any exercise of the rights to
acquire Common Stock granted under this Warrant, certificates for the shares of
Common Stock so purchased shall be delivered to Holder within a reasonable time
and, unless this Warrant has been fully exercised or has expired, a new Warrant
representing the shares with respect to which this Warrant shall not have been
exercised shall also be issued to Holder within such time.
1.4. WARRANT PRICE. The purchase price for the shares of Common Stock to
be issued upon exercise of this Warrant shall be $1.00 per share, subject to
adjustment as provided in Section 4 herein (the "WARRANT PRICE").
<PAGE>
1.5. VESTING SCHEDULE.
(a) Subject to the terms and conditions of the Strategic Alliance
Agreement dated as of February ___, 2000 by and between Holder and the Company
(the "AGREEMENT"), this Warrant shall vest in equal quarterly installments of
62,500 shares of Common Stock (each, a "QUARTERLY WARRANT AMOUNT") 31 calendar
days after the last day of each quarter for a period of 4 calendar quarters as
set forth on SCHEDULE A hereto, in each case only if Specified Transactions (as
defined in the Agreement) have been completed for such calendar quarter in the
amount listed on SCHEDULE A hereto (the "QUARTERLY HURDLE AMOUNT TARGET"). In
the event Specified Transactions have been completed in an amount more or less
than the Quarterly Hurdle Amount Target set forth on SCHEDULE A for a particular
quarter, then the Quarterly Warrant Amount for that quarter shall be adjusted in
accordance with the proportional vesting schedule set forth on SCHEDULE B
hereto.
(b) The Company may, at any time, without any further action by Holder,
by action of the Board of Directors of the Company, amend this Warrant such that
the vesting schedule set forth in this Section 1.5 shall be accelerated with
respect to all or a portion of the Common Stock.
(c) Notwithstanding the foregoing provisions of this Section 1.5, this
Warrant shall not become exercisable until Holder has agreed to become a party
to that certain Right of First Refusal and Co-Sale Agreement, dated as of
October 18, 1999, by and among the Company and the stockholders of the Company
(the "Right of First Refusal Agreement").
2. REPRESENTATIONS AND WARRANTIES OF HOLDER
Holder represents and warrants to and covenants with the
Company and each officer, director, and agent of the Company that:
2.1. Holder has all requisite capacity to enter into the Agreement and to
perform all the obligations required to be performed by Holder thereunder and
hereunder.
2.2. Holder has such knowledge, skill and experience in business,
financial and investment matters so that Holder is capable of evaluating the
merits and risks of an investment in this Warrant and the Common Stock issuable
hereunder (the "Securities") and has the ability to suffer the total loss of the
investment. To the extent necessary, Holder has retained, at Holder's own
expense, and relied upon, appropriate professional advice regarding the
investment, tax and legal merits and consequences of this Warrant and owning the
Securities. Holder further represents that it has had the opportunity to ask
questions of and receive answers from the Company concerning the terms and
conditions of the Securities, the business of the Company, and to obtain
additional information to such Holder's satisfaction.
2.3. Holder is an "accredited investor" as defined in Rule 501(a) under
the Act. Holder agrees to furnish any additional information requested to assure
compliance with applicable federal and state securities laws in connection with
the purchase and sale of the Securities.
2
<PAGE>
2.4. Holder is acquiring the Securities solely for its own account, for
investment purposes, and not with a view to, or for resale in connection with,
any distribution thereof. Holder understands that the Securities have not been
registered under the Act, or any state securities laws by reason of specific
exemptions under the provisions thereof which depend in part upon the investment
intent of Holder and of the other representations made by Holder in this
Warrant. Holder understands that the Company is relying upon the representations
and agreements contained in this Warrant (and any supplemental information) for
the purpose of determining whether this transaction meets the requirements for
such exemptions.
2.5. Holder acknowledges and agrees that this Warrant and all shares of
Common Stock issued upon exercise hereof shall be stamped or imprinted with a
legend in substantially the following form (in addition to any legend required
by state securities law):
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR QUALIFIED UNDER THE APPLICABLE SECURITIES LAWS OF ANY
OTHER JURISDICTION (THE "LAW"), AND THESE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR FOR RESALE IN CONNECTION WITH, ANY
DISTRIBUTION THEREOF. NO SUCH SALE OR OTHER DISPOSITION MAY BE MADE WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND QUALIFICATION UNDER THE LAW
RELATED THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS
COUNSEL, THAT SAID REGISTRATION AND QUALIFICATION ARE NOT REQUIRED UNDER THE ACT
AND LAW, RESPECTIVELY.
3. STOCK FULLY PAID; RESERVATION OF SHARES
The Company covenants and agrees that all securities which may
be issued upon the exercise of the rights represented by this Warrant will, upon
issuance, be fully paid and nonassessable and free from all taxes, liens and
charges with respect to the issuance thereof (excluding taxes based on the
income of Holder). The Company further covenants and agrees that during the
period within which the rights represented by this Warrant may be exercised, the
Company will at all times have authorized and reserved for issuance a sufficient
number of shares of its Common Stock or other securities as would be required
upon the full exercise of the rights represented by this Warrant.
4. ADJUSTMENT
The kind of securities purchasable upon the exercise of this
Warrant, the number of shares under this Warrant and the Warrant Price shall be
subject to adjustment from time to time upon the happening of certain events, as
follows:
4.1. RECLASSIFICATION, CONSOLIDATION OR MERGER. In case of: (i) any
reclassification or change of outstanding securities issuable upon exercise of
this Warrant; (ii) any consolidation or merger of the Company with or into
another corporation (other than a merger with another corporation in which the
Company is a continuing corporation and which does not result in any
reclassification, change or exchange of outstanding securities issuable upon
exercise of this Warrant); or (iii) any sale or transfer to another corporation
of all, or substantially all, of the property of the Company, then, and in each
such event, the Company or such successor or purchasing corporation, as the case
may be, shall execute a new Warrant which will provide that Holder shall have
the right to exercise such new Warrant and purchase upon such exercise, in lieu
of each share of Common Stock theretofore issuable upon exercise of this
Warrant, the kind
3
<PAGE>
of securities, money and property receivable upon such reclassification, change,
consolidation, merger, sale or transfer by a holder of Common Stock issuable
upon exercise of this Warrant had this Warrant been considered exercised
immediately prior to such reclassification, change, consolidation, merger, sale
or transfer. Such new Warrant shall provide for adjustments which shall be as
nearly equivalent as may be practicable to the adjustments provided in this
Section 4 and the provisions of this Section 4 and the provisions of this
Section 4.1 shall similarly apply to successive reclassifications, changes,
consolidations, mergers, sales and transfers.
4.2. SUBDIVISIONS OR COMBINATION OF SHARES. If the Company at any time
while this Warrant remains outstanding and unexercised, in whole or in part, (i)
shall divide its Common Stock, the Warrant Price shall be proportionately
reduced and the number of shares under this Warrant shall be proportionately
increased; or (ii) shall combine shares of its Common Stock, the Warrant Price
shall be proportionately increased and the number of shares under this Warrant
shall be proportionately reduced.
4.3. STOCK DIVIDENDS. If the Company, at any time while this Warrant is
outstanding and unexpired, shall pay a dividend payable in, or make any other
distribution to shareholders of, its capital stock (except any distribution
described in Sections 4.1 and 4.2 hereof), then and in each case, this Warrant
shall represent the right to acquire, in addition to the number of shares of the
security receivable upon exercise of this Warrant, and without payment of any
additional consideration therefor, the amount of such additional stock of the
Company which such holder would hold on the date of such exercise had it been
the holder of record of the security receivable upon exercise of this Warrant on
the date hereof and had thereafter, during the period from the date hereof to
and including the date of such exercise, retained such shares and/or all other
additional stock available by it as aforesaid during such period, giving effect
to all adjustments called for during such period by the provisions of this
Section 4.
4.4. TIME OF ADJUSTMENTS. All adjustments, unless otherwise specified
herein, shall be effective as of the earlier of:
4.4.1. the date of issuance of the security causing the
adjustment;
4.4.2. the effective date of a division or combination of shares;
4.4.3. the record date of any action of holders of the Company's
capital stock of any class taken for the purpose of dividing or combining shares
or entitling shareholders to receive a distribution or dividends payable in the
Company's capital stock.
4.5. NOTICE OF ADJUSTMENTS. In each case of an adjustment the Company, at
its expense, shall cause the Chief Financial Officer (or other such similar
officer) of the Company to compute such adjustments and prepare a certificate
setting forth such adjustments and showing in detail the facts upon which such
adjustment is based. The Company shall promptly mail a copy of each such
certificate to Holder pursuant to Section 15 hereof.
4
<PAGE>
5. FRACTIONAL SHARES
No fractional share of Common Stock will be issued in
connection with any exercise hereof, but in lieu of a fractional share upon
complete exercise hereof, Holder may purchase a whole share at the then
effective Warrant Price.
6. SHAREHOLDER RIGHTS
Holder shall not, solely by virtue hereof, be entitled to any
rights of a shareholder of the Company. Holder shall have all rights of a
shareholder with respect to securities purchased upon exercise hereof at the
time the exercise price for such securities is delivered pursuant to Section l
hereof and this Warrant is surrendered.
7. RESTRICTIONS ON TRANSFER
7.1. TRANSFER OF WARRANT. This Warrant shall not be transferable by
Holder except pursuant to prior written consent of the Company, which consent
shall not be unreasonably withheld or delayed, and provided that such transferee
executes a written agreement to be bound by the provisions of this Warrant.
Notwithstanding the foregoing, Holder shall be permitted to transfer a portion
of this Warrant to key employees of Holder (excluding Robert Levy and David
Levy) in accordance with Section 2.4 of the Agreement; provided that each such
key employee executes a written agreement to be bound by the provisions of this
Warrant and the Right of First Refusal Agreement.
7.2. SECURITIES LAWS RESTRICTIONS. Holder, by acceptance hereof,
agrees that, absent an effective registration statement under the Act
covering the disposition of Common Stock issued or issuable upon exercise
hereof, Holder will not sell or transfer any or all of such Common Stock,
without first providing the Company with an opinion of counsel reasonably
acceptable to the Company and its counsel to the effect that such sale or
transfer will be exempt from the registration requirements of the Act, and
Holder consents to the Company making a notation on its records in order to
implement such restriction on transferability.
8. "MARKET STAND-OFF" AGREEMENT
You hereby agree that, during the period specified by the
Company and any underwriter of Common Stock or other securities of the Company
following the effective date of a registration statement of the Company filed
under the Act, you will not, to the extent requested by the Company and such
underwriter, directly or indirectly sell, offer to sell, contract to sell
(including, without limitation, any short sale), grant any option to purchase or
otherwise transfer or dispose of (other than to donees who agree to be similarly
bound) any securities of the Company held by you at any time during such period
except Common Stock included in such registration. To enforce the foregoing
covenant, the Company may impose stop-transfer instructions with respect to the
shares of Common Stock issued or issuable upon exercise of this Warrant held by
you until the end of such period. In addition, the foregoing covenant may be
enforced by the underwriters who are parties with the Company to an underwriting
agreement under which such public offering is being undertaken.
5
<PAGE>
9. LOSS OR MUTILATION
Upon receipt by the Company of evidence satisfactory to it of
the ownership of, and the loss, theft, destruction or mutilation of, this
Warrant and (in the case of loss, theft or destruction) of indemnity
satisfactory to it, and (in the case of mutilation) upon surrender and
cancellation hereof, the Company will execute and deliver in lieu hereof a new
Warrant.
10. GOVERNING LAW
The internal laws of the State of Delaware (irrespective of
its choice of law principles) shall govern the validity of this Warrant, the
construction of its terms, and the interpretation and enforcement of the rights
and duties of the parties hereto.
11. BINDING UPON SUCCESSORS AND ASSIGNS
Subject to, and unless otherwise provided in, this Warrant,
each and all of the covenants, terms, provisions, and agreements contained
herein shall be binding upon, and inure to the benefit of the permitted
successors, executors, heirs, representatives, administrators and assigns of the
parties hereto. Holder shall not assign this Warrant or any rights or
obligations hereunder without the prior written consent of the Company, which
consent shall not be unreasonably withheld. For purposes of this Section 11, the
sale of all or substantially all of Holder's assets or capital stock shall
constitute an assignment.
12. SEVERABILITY
If any provision of this Warrant, or the application hereof,
shall for any reason and to any extent, be invalid or unenforceable, the
remainder of this Warrant and application of such provisions to other persons or
circumstances shall be interpreted so as best to reasonably effect the intent of
the parties hereto. The parties further agree to replace such void or
unenforceable provisions of this Warrant with valid or enforceable provisions
which will achieve, to the extent possible, the economic, business and other
purposes of the void or unenforceable provisions.
13. AMENDMENT
This Warrant may be amended upon the written consent of the
Company and Holder.
14. NO WAIVER
The failure of any party to enforce any of the provisions
hereof shall not be construed to be a waiver of the right of such party
thereafter to enforce such provisions.
15. NOTICES
Whenever any party hereto desires or is required to give any
notice, demand, or request with respect to this Warrant, each such communication
shall be in writing and shall be
6
<PAGE>
effective only if it is delivered by personal service or mailed, United States
certified mail, postage prepaid, return receipt requested, addressed as follows:
Company: Address set forth in Section 1 hereof
Attn: Chief Executive Officer
Holder: Address as set forth in Section 1 hereof
Attn: [ ]
Such communications shall be effective when they are received by the addresses
thereof; but if sent by certified mail in the manner set forth above, they shall
be effective five (5) days after being deposited in the United States mail. Any
party may change its address for such communications by giving notice thereof to
the other party in conformity with this Section.
16. CONSTRUCTION OF AGREEMENT
A reference in this Warrant to any Section shall include a
reference to every Section the number of which begins with the number of the
Section to which reference is specifically made. The titles and headings herein
are for reference purposes only and shall not in any manner limit the
construction of this Warrant which shall be considered as a whole.
17. NO ENDORSEMENT
Holder understands that no federal or state securities
administrator has made any finding or determination relating to the fairness of
investment in the Company or purchase of the Common Stock hereunder and that no
federal or state securities administrator has recommended or endorsed the
offering of securities by the Company hereunder.
18. PRONOUNS
All pronouns and any variations thereof shall be deemed to
refer to the masculine, feminine or neuter, singular or plural, as the identity
of the person, persons, entity or entities may require.
19. FURTHER ASSISTANCE
Each party agrees to cooperate fully with the other parties
and to execute such further instruments, documents and agreements and to give
such further written assurances, as may be reasonably requested by any other
party to better evidence and reflect the transactions described herein and
contemplated hereby, and to carry into effect the intents and purposes of this
Warrant.
7
<PAGE>
TradeOut.com, Inc.
/s/ B McCagg
________________________________________________
By: Brin McCagg
Title: Chairman
__________________________________________
ACCEPTED THIS 28 DAY OF FEBRUARY 2000
NORMAN LEVY ASSOCIATES
By: /s/ J Sklar
______________________________________
Name: James Sklar
Title: Secretary
8
<PAGE>
FORM OF WARRANT EXERCISE
(TO BE SIGNED ONLY ON EXERCISE OF WARRANT)
TO _______________________
The undersigned, the holder of the within Warrant, hereby
irrevocably elects to exercise this Warrant for, and to purchase thereunder,
______ shares of Common Stock of TradeOut.com, Inc., a Delaware corporation, and
herewith makes payment of $__________ therefor, and requests that the
certificates for such shares be issued in the name of, and delivered to
_____________, whose address is __________________________.
Dated:
__________________________________________________
(Signature must conform to name of holder as
specified on the face of the Warrant)
__________________________________________________
(Address)
Tax Identification Number:________________________
<PAGE>
SCHEDULE A
SCHEDULE OF VESTING OF WARRANT
<TABLE>
<CAPTION>
QUARTERLY HURDLE AMOUNT TARGET
--------------------------------------------------------------
PERIOD AGGREGATE GROSS COMMISSION FEE PER QUARTERLY WARRANT
(Q = CALENDAR DOLLAR AMOUNT PER QUARTER AMOUNT
QUARTER) QUARTER
- --------------------------------- ------------------------------ ------------------------------- ------------------------------
<S> <C> <C> <C>
Q1 2000 $5,000,000 $250,000 62,500
- --------------------------------- ------------------------------ ------------------------------- ------------------------------
Q2 2000 $7,000,000 $350,000 62,500
- --------------------------------- ------------------------------ ------------------------------- ------------------------------
Q3 2000 $9,000,000 $450,000 62,500
- --------------------------------- ------------------------------ ------------------------------- ------------------------------
Q4 2000 $11,000,000 $550,000 62,500
- --------------------------------- ------------------------------ ------------------------------- ------------------------------
</TABLE>
<PAGE>
SCHEDULE B
PROPORTIONAL VESTING SCHEDULE
If Holder completes more or less than the Hurdle Amount for a
quarter, the Warrants will vest as follows:
<TABLE>
<CAPTION>
% OF QUARTERLY HURDLE % OF QUARTERLY WARRANT
AMOUNT TARGET ACHIEVED AMOUNT VESTED
<S> <C>
0.01% - 49.99% 0% (0 shares)
50.00% - 59.99% 40% (25,000 shares)
60.00% - 79.99% 50% (31,250 shares)
80.00% - 99.99% 70% (43,750 shares)
100.00% - 119.99% 100% (62,500 shares)
120.00% - 149.99% 130% (81,250 shares)
150.00% - 199.99% 160% (100,000 shares)
200% and above 210% (131,250 shares)
</TABLE>
<PAGE>
EXHIBIT 4.7
EXHIBIT B
NEITHER THIS WARRANT, NOR THE COMMON STOCK TO BE ISSUED UPON EXERCISE HEREOF,
HAS BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
QUALIFIED UNDER THE APPLICABLE SECURITIES LAWS OF ANY OTHER JURISDICTION (THE
"LAW"), AND THIS WARRANT HAS BEEN, AND THE COMMON STOCK TO BE ISSUED UPON
EXERCISE HEREOF WILL BE, ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR
RESALE IN CONNECTION WITH, ANY DISTRIBUTION THEREOF. NO SUCH SALE OR OTHER
DISPOSITION MAY BE MADE WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
ACT AND QUALIFICATION UNDER THE LAW RELATED THERETO OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY (AS THAT TERM IS DEFINED BELOW) AND ITS COUNSEL,
THAT SAID REGISTRATION AND QUALIFICATION ARE NOT REQUIRED UNDER THE ACT AND LAW,
RESPECTIVELY.
TRADEOUT.COM, INC.
March 7, 2000 199,868 Shares
of Common Stock
Warrant for Common Stock
This certifies that Rumarson Technologies, Inc., whose address
is 650 Liberty Avenue, Union, New Jersey 07083 ("HOLDER") is entitled to
subscribe for and purchase up to one hundred ninety nine thousand eight hundred
and sixty eight (199,868) shares of fully paid and nonassessable Common Stock,
$0.001 par value per share ("COMMON STOCK"), of TradeOut.com, Inc., a Delaware
corporation (the "COMPANY"), subject to the terms and conditions herewith set
forth. The purchase price of each such share shall be the amount set forth in
Section 1.5 herein. Except as set forth in Sections 7.1 and 11, this Warrant
shall not be assignable, and shall only be exercisable, by Holder.
1. EXERCISE; PAYMENT
1.1 EXERCISABILITY. This Warrant, and the right to purchase vested
Common Stock hereunder, shall be exercisable, at any time and from time to time,
in whole or in part, commencing on the date of closing of an underwritten
initial public offering of the Common Stock pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the "ACT"),
and terminating at 5:00 p.m., New York local time on June 30, 2005.
1.2 PAYMENT. The purchase rights under this Warrant may be exercised by
Holder, in whole or in part, by the surrender of this Warrant at the principal
office of the Company located at 410 Saw Mill River Road, Suite 2065, Ardsley,
New York 10502, and by the payment to the Company, by certified, cashier's or
other check acceptable to the Company, of an amount equal to the aggregate
Warrant Price of the shares being purchased.
1.3 NET ISSUE EXERCISE.
(a) In lieu of exercising this Warrant pursuant to Section 1.2, Holder
may elect to receive shares equal to the value of this Warrant (or the portion
thereof being canceled) by surrender of this Warrant at the principal office of
the Company together with notice of such election, in which event the Company
shall issue to Holder a number of shares of the Company's Common Stock computed
using the following formula:
X = Y (A-B)
-------
A
<PAGE>
Where:
X = the number of shares of Common Stock to be
issued to Holder
Y = the number of shares of Common Stock
purchasable under this Warrant (at the date
of such calculation);
A = the fair market value of one share of the
Company's Common Stock (at the date of such
calculation); and
B = Warrant Price (as adjusted to the date of
such calculation).
(b) For purposes of this Section 1.3, the "fair market value" of one
share of the Company's Common Stock shall mean:
(i) The average of the closing bid and asked prices
of the Common Stock in the over-the-counter market or the closing sale
price quoted on any exchange on which the Common Stock is listed as
published in THE WALL STREET JOURNAL for the ten (10) trading days
prior to the date of determination of fair market value;
(ii) If the Common Stock is not traded in the
over-the-counter market or on an exchange, fair market value of the
Common Stock per share shall be the price per share which the Company
could obtain from a willing buyer for shares sold by the Company from
authorized but unissued shares as determined by the Company's Board of
Directors.
1.4 STOCK CERTIFICATES. In the event of any exercise of the rights to
acquire Common Stock granted under this Warrant, certificates for the shares of
Common Stock so purchased shall be delivered to Holder within a reasonable time
and, unless this Warrant has been fully exercised or has expired, a new Warrant
representing the shares with respect to which this Warrant shall not have been
exercised shall also be issued to Holder within such time.
1.5 WARRANT PRICE. The purchase price for the shares of Common Stock to
be issued upon exercise of this Warrant shall be $1.00 per share, subject to
adjustment as provided in Section 4 herein (the "WARRANT PRICE").
1.6 VESTING SCHEDULE.
(a) MONTHLY VESTING. Subject to the terms and conditions of the
Strategic Alliance Agreement dated as of March ___, 2000 by and between Holder
and the Company (the "AGREEMENT"), this Warrant shall vest in monthly
installments of Common Stock (each, a "Monthly Warrant Amount") thirty-one (31)
calendar days after the last day of each month for a period of 60 calendar
months as set forth on SCHEDULE A hereto, in each case only if Qualifying
Transactions (as defined in the Agreement) have been completed for such calendar
month in the amount listed on SCHEDULE A hereto under the heading "Aggregate
Gross Sales Price Per Month" (the "MONTHLY GROSS TRANSACTION TARGET").
2
<PAGE>
(b) QUARTERLY RECONCILIATION. Notwithstanding Section 1.6(a), within
14 days from the end of each calendar quarter, the parties shall jointly
determine the following: (a) the aggregate amount of Qualifying Transactions
actually completed during such quarter (the "ACTUAL QUALIFYING TRANSACTIONS
COMPLETED"), (b) the aggregate Monthly Gross Transaction Targets for the three
months constituting such calendar quarter, as set forth in SCHEDULE B hereto
under the heading "Aggregate Gross Sales Price Per Quarter" (the "QUARTERLY
GROSS TRANSACTION TARGET"), (c) the percentage of the Quarterly Gross
Transaction Target that was actually achieved by Holder in such quarter, which
percentage is determined by dividing the Actual Qualifying Transactions
Completed for such quarter by the Quarterly Gross Transaction Target for such
quarter (the "TRANSACTION PERCENTAGE") and (d) the aggregate number of shares
that Holder was entitled to in such quarter under SCHEDULE B hereto under the
heading "Number of Warrants Per Quarter" (the "QUARTERLY WARRANT AMOUNT"). The
parties will then use the Transaction Percentage applicable to such quarter to
determine the actual number of shares that Holder is entitled to in such
quarter. The range of percentages within which the Transaction Percentage falls
will be determined by consulting the ranges listed on SCHEDULE C hereto under
the heading "Transaction Percentage." The number of shares will be calculated by
multiplying the Quarterly Warrant Amount by the percentage of quarterly shares
set forth in SCHEDULE C hereto under the heading "Percentage of Quarterly
Warrants Achieved" and corresponding to the applicable Transaction Percentage
(the "FINAL WARRANT AMOUNT"). If the Final Warrant Amount is greater than the
actual number of shares that vested under Section 1.6(a) during such quarter,
then the difference between the two amounts will immediately become vested.
For example, if in the first, second and third months of Q1 2000,
Holder's gross sales of Qualifying Transactions equal $400,000, $1,100,000, and
$1,400,000, respectively, the Actual Qualifying Transactions Completed would be
$2,900,000. In accordance with SCHEDULE A, the total number of shares that would
vest for these three months would equal 2,700. For purposes of making the
quarterly reconciliation, $2,900,000 would be divided by the Quarterly Gross
Transactions Target for Q1 2000, which is $2,300,000. The resulting percentage,
126.08%, is the Transaction Percentage. This 126.08% falls within the percentage
range of 120.00% - 129.99% on in the Transaction Percentage column in SCHEDULE
C. The corresponding percentage in the Percentage of Quarterly Warrants Achieved
column in SCHEDULE C is 130%. The Quarterly Warrant Amount for the quarter,
3,450, is then multiplied by 130%, resulting in a total of 4,450 shares. As
2,700 shares were already vested in that quarter, 1,750 additional shares would
vest 31 days following the end of Q1 2000.
(c) The Company may, at any time, without any further action by Holder,
by action of the Board of Directors of the Company, amend this Warrant such that
the vesting schedule set forth in this Section 1.6 shall be accelerated with
respect to all or a portion of the Common Stock.
(d) Notwithstanding the foregoing provisions of this Section 1.6, this
Warrant shall not vest until Holder has agreed to become a party to that certain
Right of First Refusal and Co-Sale Agreement, dated as of October 18, 1999, by
and among the Company and the stockholders of the Company.
3
<PAGE>
2. REPRESENTATIONS AND WARRANTIES OF HOLDER
Holder represents and warrants to and covenants with the
Company and each officer, director, and agent of the Company that:
2.1 Holder has all requisite capacity to enter into the Agreement and
to perform all the obligations required to be performed by Holder thereunder and
hereunder.
2.2 Holder has such knowledge, skill and experience in business,
financial and investment matters so that Holder is capable of evaluating the
merits and risks of an investment in this Warrant and the Common Stock issuable
hereunder (the "SECURITIES") and has the ability to suffer the total loss of the
investment. To the extent necessary, Holder has retained, at Holder's own
expense, and relied upon, appropriate professional advice regarding the
investment, tax and legal merits and consequences of this Warrant and owning the
Securities. Holder further represents that it has had the opportunity to ask
questions of and receive answers from the Company concerning the terms and
conditions of the Securities, the business of the Company, and to obtain
additional information to such Holder's satisfaction.
2.3 Holder is an "accredited investor" as defined in Rule 501(a) under
the Act. Holder agrees to furnish any additional information requested to assure
compliance with applicable federal and state securities laws in connection with
the purchase and sale of the Securities.
2.4 Holder is acquiring the Securities solely for its own account, for
investment purposes, and not with a view to, or for resale in connection with,
any distribution thereof. Holder understands that the Securities have not been
registered under the Act, or any state securities laws by reason of specific
exemptions under the provisions thereof which depend in part upon the investment
intent of Holder and of the other representations made by Holder in this
Warrant. Holder understands that the Company is relying upon the representations
and agreements contained in this Warrant (and any supplemental information) for
the purpose of determining whether this transaction meets the requirements for
such exemptions.
2.5 Holder acknowledges and agrees that this Warrant and all shares of
Common Stock issued upon exercise hereof shall be stamped or imprinted with a
legend in substantially the following form (in addition to any legend required
by state securities law):
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR QUALIFIED UNDER THE APPLICABLE SECURITIES LAWS OF ANY
OTHER JURISDICTION (THE "LAW"), AND THESE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR FOR RESALE IN CONNECTION WITH, ANY
DISTRIBUTION THEREOF. NO SUCH SALE OR OTHER DISPOSITION MAY BE MADE WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND QUALIFICATION UNDER THE LAW
RELATED THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS
COUNSEL, THAT SAID REGISTRATION AND QUALIFICATION ARE NOT REQUIRED UNDER THE ACT
AND LAW, RESPECTIVELY.
4
<PAGE>
3. STOCK FULLY PAID; RESERVATION OF SHARES
3.1 The Company covenants and agrees that all securities which may be
issued upon the exercise of the rights represented by this Warrant will, upon
issuance, be duly and validly issued, fully paid and nonassessable and free from
all taxes, liens and charges with respect to the issuance thereof (excluding
taxes based on the income of Holder). The Company further covenants and agrees
that during the period within which the rights represented by this Warrant may
be exercised, the Company will at all times have authorized and reserved for
issuance a sufficient number of shares of its Common Stock or other securities
as would be required upon the full exercise of the rights represented by this
Warrant.
3.2 The execution, delivery and performance by the Company of this
Warrant and the consummation by the Company of the transactions contemplated
hereby are within the Company's powers and have been duly authorized by all
necessary action on the part of the Company. This Warrant constitutes, and when
executed and delivered, will constitute, a valid and binding agreement of the
Company, enforceable against the Company in accordance with its respective
terms, except (i) as such enforceability may be limited by or subject to any
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally and (ii) as such obligations are subject
to general principles of equity.
3.3 The execution, delivery and performance by the Company of the
Warrant does not and will not (i) contravene or conflict with the Certificate of
Incorporation or By-laws of the Company, (ii) contravene or conflict with or
constitute a violation of any provision of any law, regulation, judgment,
injunction, order or decree binding upon or applicable to the Company, or (iii)
require any consent, approval or other action by any person, or constitute a
default under or give rise to any right of termination, cancellation or
acceleration of any right or obligation of the Company or to a loss of any
benefit to which the Company is entitled under any provision of any contract or
other instrument binding upon the Company or any license, authorization, permit,
consent or approval held by the Company.
4. ADJUSTMENT
The kind of securities purchasable upon the exercise of this
Warrant, the number of shares under this Warrant and the Warrant Price shall be
subject to adjustment from time to time upon the happening of certain events, as
follows:
4.1 RECLASSIFICATION, CONSOLIDATION OR MERGER. In case of: (i) any
reclassification or change of outstanding securities issuable upon exercise of
this Warrant; (ii) any consolidation or merger of the Company with or into
another corporation (other than a merger with another corporation in which the
Company is a continuing corporation and which does not result in any
reclassification, change or exchange of outstanding securities issuable upon
exercise of this Warrant); or (iii) any sale or transfer to another corporation
of all, or substantially all, of the property of the Company, then, and in each
such event, the Company or such successor or purchasing corporation, as the case
may be, shall execute a new Warrant which will provide that Holder shall have
the right to exercise such new Warrant and purchase upon such exercise, in lieu
of each share of Common Stock theretofore issuable upon exercise of this
Warrant, the kind of securities, money and property receivable upon such
reclassification, change, consolidation,
5
<PAGE>
merger, sale or transfer by a holder of Common Stock issuable upon exercise of
this Warrant had this Warrant been considered exercised immediately prior to
such reclassification, change, consolidation, merger, sale or transfer. Such new
Warrant shall provide for adjustments which shall be as nearly equivalent as may
be practicable to the adjustments provided in this Section 4 and the provisions
of this Section 4 and the provisions of this Section 4.1 shall similarly apply
to successive reclassifications, changes, consolidations, mergers, sales and
transfers.
4.2 SUBDIVISIONS OR COMBINATION OF SHARES. If the Company at any time
while this Warrant remains outstanding and unexercised, in whole or in part, (i)
shall divide its Common Stock, the Warrant Price shall be proportionately
reduced and the number of shares under this Warrant shall be proportionately
increased; or (ii) shall combine shares of its Common Stock, the Warrant Price
shall be proportionately increased and the number of shares under this Warrant
shall be proportionately reduced.
4.3 STOCK DIVIDENDS. If the Company, at any time while this Warrant is
outstanding and unexpired, shall pay a dividend payable in, or make any other
distribution to shareholders of, its capital stock (except any distribution
described in Sections 4.1 and 4.2 hereof), then and in each case, this Warrant
shall represent the right to acquire, in addition to the number of shares of the
security receivable upon exercise of this Warrant, and without payment of any
additional consideration therefor, the amount of such additional stock of the
Company which such holder would hold on the date of such exercise had it been
the holder of record of the security receivable upon exercise of this Warrant on
the date hereof and had thereafter, during the period from the date hereof to
and including the date of such exercise, retained such shares and/or all other
additional stock available by it as aforesaid during such period, giving effect
to all adjustments called for during such period by the provisions of this
Section 4.
4.4 TIME OF ADJUSTMENTS. All adjustments, unless otherwise specified
herein, shall be effective as of the earlier of:
4.4.1 the date of issuance of the security causing the
adjustment;
4.4.2 the effective date of a division or combination of
shares;
4.4.3 the record date of any action of holders of the
Company's capital stock of any class taken for the purpose of dividing or
combining shares or entitling shareholders to receive a distribution or
dividends payable in the Company's capital stock.
4.5 NOTICE OF ADJUSTMENTS. In each case of an adjustment the Company,
at its expense, shall cause the Chief Financial Officer (or other such similar
officer) of the Company to compute such adjustments and prepare a certificate
setting forth such adjustments and showing in detail the facts upon which such
adjustment is based. The Company shall promptly mail a copy of each such
certificate to Holder pursuant to Section 15 hereof.
5. FRACTIONAL SHARES
No fractional share of Common Stock will be issued in
connection with any exercise hereof, but in lieu of a fractional share upon
complete exercise hereof, Holder may purchase a whole share at the then
effective Warrant Price.
6
<PAGE>
6. SHAREHOLDER RIGHTS
Holder shall not, solely by virtue hereof, be entitled to any
rights of a shareholder of the Company. Holder shall have all rights of a
shareholder with respect to securities purchased upon exercise hereof at the
time the exercise price for such securities is delivered pursuant to Section l
hereof and this Warrant is surrendered.
7. RESTRICTIONS ON TRANSFER
7.1 TRANSFER OF WARRANT. This Warrant shall not be transferable by
Holder, except pursuant to prior written consent of the Company, which consent
shall not be unreasonably withheld or delayed and provided that such transferee
executes a written agreement to be bound by the provisions of this Warrant.
7.2 SECURITIES LAWS RESTRICTIONS. Holder, by acceptance hereof, agrees
that, absent an effective registration statement under the Act covering the
disposition of Common Stock issued or issuable upon exercise hereof, Holder will
not sell or transfer any or all of such Common Stock, without first providing
the Company with an opinion of counsel reasonably acceptable to the Company and
its counsel to the effect that such sale or transfer will be exempt from the
registration requirements of the Act and Holder consents to the Company making a
notation on its records in order to implement such restriction on
transferability.
8. "MARKET STAND-OFF" AGREEMENT
Holder hereby agrees that, during the period specified by the
Company and any underwriter of Common Stock or other securities of the Company
following the effective date of a registration statement of the Company filed
under the Act, Holder will not, to the extent requested by the Company and such
underwriter, directly or indirectly sell, offer to sell, contract to sell
(including, without limitation, any short sale), grant any option to purchase or
otherwise transfer or dispose of (other than to donees who agree to be similarly
bound) any securities of the Company held by Holder at any time during such
period except Common Stock included in such registration; PROVIDED, HOWEVER,
that (i) such period shall in no event exceed 180 days following the effective
date of such registration statement; and (ii) all officers and directors of the
Company and all holders of 5% or more of the Company's outstanding Common Stock
agree to enter into similar agreements. To enforce the foregoing covenant, the
Company may impose stop-transfer instructions with respect to the shares of
Common Stock issued or issuable upon exercise of this Warrant held by you until
the end of such period. In addition, the foregoing covenant may be enforced by
the underwriters who are parties with the Company to an underwriting agreement
under which such public offering is being undertaken.
9. LOSS OR MUTILATION
Upon receipt by the Company of evidence satisfactory to it of
the ownership of, and the loss, theft, destruction or mutilation of, this
Warrant and (in the case of loss, theft or destruction) of indemnity
satisfactory to it, and (in the case of mutilation) upon surrender and
cancellation hereof, the Company will execute and deliver in lieu hereof a new
Warrant.
7
<PAGE>
10. GOVERNING LAW
The internal laws of the State of Delaware (irrespective of
its choice of law principles) shall govern the validity of this Warrant, the
construction of its terms, and the interpretation and enforcement of the rights
and duties of the parties hereto.
11. BINDING UPON SUCCESSORS AND ASSIGNS
Subject to, and unless otherwise provided in, this Warrant,
each and all of the covenants, terms, provisions, and agreements contained
herein shall be binding upon, and inure to the benefit of the permitted
successors, executors, heirs, representatives, administrators and assigns of the
parties hereto. Holder shall not assign this Warrant or any rights or
obligations hereunder without the prior written consent of the Company, which
consent shall not be unreasonably withheld. For purposes of this Section 11, the
sale of all or substantially all of Holder's assets or sale or transfer of
fifty-one percent (51%) or more of Holder's capital stock shall constitute an
assignment.
12. SEVERABILITY
If any provision of this Warrant, or the application hereof,
shall for any reason and to any extent, be invalid or unenforceable, the
remainder of this Warrant and application of such provisions to other persons or
circumstances shall be interpreted so as best to reasonably effect the intent of
the parties hereto. The parties further agree to replace such void or
unenforceable provisions of this Warrant with valid or enforceable provisions
which will achieve, to the extent possible, the economic, business and other
purposes of the void or unenforceable provisions.
13. AMENDMENT
This Warrant may be amended upon the written consent of the
Company and Holder.
14. NO WAIVER
The failure of any party to enforce any of the provisions
hereof shall not be construed to be a waiver of the right of such party
thereafter to enforce such provisions.
15. NOTICES
Whenever any party hereto desires or is required to give any
notice, demand, or request with respect to this Warrant, each such communication
shall be in writing and shall be effective only if it is delivered by personal
service or mailed, United States certified mail, postage prepaid, return receipt
requested, addressed as follows:
8
<PAGE>
Company: Address set forth in Section 1 hereof
Attn: Chief Executive Officer
Holder: Address as set forth in Section 1 hereof
Attn: Paul Baum
Such communications shall be effective when they are received by the addresses
thereof; but if sent by certified mail in the manner set forth above, they shall
be effective five (5) days after being deposited in the United States mail. Any
party may change its address for such communications by giving notice thereof to
the other party in conformity with this Section.
16. CONSTRUCTION OF AGREEMENT
A reference in this Warrant to any Section shall include a
reference to every Section the number of which begins with the number of the
Section to which reference is specifically made. The titles and headings herein
are for reference purposes only and shall not in any manner limit the
construction of this Warrant which shall be considered as a whole.
17. NO ENDORSEMENT
Holder understands that no federal or state securities
administrator has made any finding or determination relating to the fairness of
investment in the Company or purchase of the Common Stock hereunder and that no
federal or state securities administrator has recommended or endorsed the
offering of securities by the Company hereunder.
18. PRONOUNS
All pronouns and any variations thereof shall be deemed to
refer to the masculine, feminine or neuter, singular or plural, as the identity
of the person, persons, entity or entities may require.
19. FURTHER ASSISTANCE
Each party agrees to cooperate fully with the other parties
and to execute such further instruments, documents and agreements and to give
such further written assurances, as may be reasonably requested by any other
party to better evidence and reflect the transactions described herein and
contemplated hereby, and to carry into effect the intents and purposes of this
Warrant.
9
<PAGE>
TradeOut.com, Inc.
/s/ George Samenuk
--------------------------------
By:
Title: CEO and President
--------------------------
ACCEPTED AS OF MARCH 7, 2000:
RUMARSON TECHNOLOGIES, INC.
/s/ Paul L. Baum
- ----------------------------------
By:
Title: CEO
----------------------------
10
<PAGE>
FORM OF WARRANT EXERCISE
(TO BE SIGNED ONLY ON EXERCISE OF WARRANT)
TO _______________________
The undersigned, the holder of the within Warrant, hereby
irrevocably elects to exercise this Warrant for, and to purchase thereunder,
______ shares of Common Stock of TradeOut.com, Inc., a Delaware corporation, and
herewith makes payment of $__________ therefor, and requests that the
certificates for such shares be issued in the name of, and delivered to
_____________, whose address is __________________________.
Dated:
--------------------------------------------
(Signature must conform to name of holder as
specified on the face of the Warrant)
--------------------------------------------
(Address)
Tax Identification Number:__________________
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
MONTH AGGREGATE GROSS SALES PRICE NUMBER OF WARRANTS PER
PER MONTH MONTH
- ---------------------------- --------------------------- ----------------------
<S> <C> <C>
March 2000 $1,000,000 1,500
April 2000 $1,200,000 1,800
May 2000 $1,300,000 1,950
June 2000 $1,000,000 1,500
July 2000 $2,000,000 3,000
August 2000 $2,300,000 3,450
September 2000 $2,300,000 3,450
October 2000 $2,600,000 3,900
November 2000 $2,700,000 4,050
December 2000 $2,300,000 3,450
January 2001 $1,833,333 2,500
February 2001 $1,833,333 2,500
March 2001 $1,833,334 2,500
April 2001 $1,833,333 2,500
May 2001 $1,833,333 2,500
June 2001 $1,833,334 2,500
July 2001 $1,833,333 2,500
August 2001 $1,833,333 2,500
September 2001 $1,833,334 2,500
October 2001 $1,833,333 2,500
November 2001 $1,833,333 2,500
December 2001 $1,833,334 2,500
January 2002 $2,016,666 2,500
February 2002 $2,016,667 2,500
March 2002 $2,016,667 2,500
April 2002 $2,016,666 2,500
May 2002 $2,016,667 2,500
June 2002 $2,016,667 2,500
July 2002 $2,016,666 2,500
August 2002 $2,016,667 2,500
September 2002 $2,016,667 2,500
October 2002 $2,016,666 2,500
November 2002 $2,016,667 2,500
December 2002 $2,016,667 2,500
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MONTH AGGREGATE GROSS SALES PRICE NUMBER OF WARRANTS PER
PER MONTH MONTH
- ---------------------------- --------------------------- ----------------------
<S> <C> <C>
January 2003 $2,218,333 2,500
February 2003 $2,218,333 2,500
March 2003 $2,218,334 2,500
April 2003 $2,218,333 2,500
May 2003 $2,218,333 2,500
June 2003 $2,218,334 2,500
July 2003 $2,218,333 2,500
August 2003 $2,218,333 2,500
September 2003 $2,218,334 2,500
October 2003 $2,218,333 2,500
November 2003 $2,218,333 2,500
December 2003 $2,218,334 2,500
January 2004 $2,440,166 2,500
February 2004 $2,440,167 2,500
March 2004 $2,440,167 2,500
April 2004 $2,440,166 2,500
May 2004 $2,440,167 2,500
June 2004 $2,440,167 2,500
July 2004 $2,440,166 2,500
August 2004 $2,440,167 2,500
September 2004 $2,440,167 2,500
October 2004 $2,440,166 2,500
November 2004 $2,440,167 2,500
December 2004 $2,440,167 2,500
Total 148,050
</TABLE>
<PAGE>
SCHEDULE B
<TABLE>
<CAPTION>
CALENDAR QUARTER* AGGREGATE GROSS SALES PRICE NUMBER OF WARRANTS PER
PER QUARTER QUARTER
- --------------------------- --------------------------- -----------------------
<S> <C> <C>
Q1 2000 $1,000,000 1,500
Q2 2000 3,500,000 5,250
Q3 2000 6,600,000 9,900
Q4 2000 7,600,000 11,400
Q1 2001 5,500,000 7,500
Q2 2001 5,500,000 7,500
Q3 2001 5,500,000 7,500
Q4 2001 5,500,000 7,500
Q1 2002 6,050,000 7,500
Q2 2002 6,050,000 7,500
Q3 2002 6,050,000 7,500
Q4 2002 6,050,000 7,500
Q1 2003 6,655,000 7,500
Q2 2003 6,655,000 7,500
Q3 2003 6,655,000 7,500
Q4 2003 6,655,000 7,500
Q1 2004 7,320,500 7,500
Q2 2004 7,320,500 7,500
Q3 2004 7,320,500 7,500
Q4 2004 7,320,500 7,500
TOTAL 148,050
</TABLE>
- ---------------------------
*Q1, Q2, Q3 and Q4 refer to the calendar quarters consisting of January through
March, April through June, July through September and October through December,
respectively.
<PAGE>
SCHEDULE C
<TABLE>
<CAPTION>
TRANSACTION PERCENTAGE PERCENTAGE OF QUARTERLY
WARRANTS ACHIEVED
---------------------- -----------------------
<S> <C>
0.01% - 49.99% 0%
50.00% - 74.99% 40%
75.00% - 99.99% 65%
100.00% - 119.99% 100%
120.00% - 129.99% 130%
130.00% and above 135%
</TABLE>
<PAGE>
EXHIBIT 4.8
EXHIBIT B
NEITHER THIS WARRANT, NOR THE COMMON STOCK TO BE ISSUED UPON EXERCISE HEREOF,
HAS BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
QUALIFIED UNDER THE APPLICABLE SECURITIES LAWS OF ANY OTHER JURISDICTION (THE
"LAW"), AND THIS WARRANT HAS BEEN, AND THE COMMON STOCK TO BE ISSUED UPON
EXERCISE HEREOF WILL BE, ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR
RESALE IN CONNECTION WITH, ANY DISTRIBUTION THEREOF. NO SUCH SALE OR OTHER
DISPOSITION MAY BE MADE WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
ACT AND QUALIFICATION UNDER THE LAW RELATED THERETO OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY (AS THAT TERM IS DEFINED BELOW) AND ITS COUNSEL,
THAT SAID REGISTRATION AND QUALIFICATION ARE NOT REQUIRED UNDER THE ACT AND LAW,
RESPECTIVELY.
TRADEOUT.COM, INC.
March 3, 2000 660,000 Shares
of Common Stock
Warrant for Common Stock
This certifies that Purity Wholesale Grocers, Inc., whose
address is 5400 Broken Sound Blvd. NW, Suite 100, Boca Raton, Florida 33487
("HOLDER") is entitled to subscribe for and purchase up to six hundred sixty
thousand (660,000) shares of fully paid and nonassessable Common Stock, $0.0001
par value per share ("COMMON STOCK"), of TradeOut.com, Inc., a Delaware
corporation (the "COMPANY"), subject to the terms and conditions herewith set
forth. The purchase price of each such share shall be the amount set forth in
Section 1.4 herein. Except as set forth in Sections 7.1 and 11, this Warrant
shall not be assignable, and shall only be exercisable, by Holder.
1. EXERCISE; PAYMENT
1.1. EXERCISABILITY. This Warrant, and the right to purchase vested
Common Stock hereunder, shall be exercisable, at any time and from time to time,
commencing on the date of closing of an underwritten initial public offering of
the Common Stock pursuant to an effective registration statement under the
Securities Act of 1933, as amended (the "ACT"), and terminating at 5:00 p.m.,
New York local time on June 30, 2003.
1.2. PAYMENT. The purchase rights under this Warrant may be exercised
by Holder, in whole or in part, by the surrender of this Warrant at the
principal office of the Company located at 410 Saw Mill River Road, Suite 2065,
Ardsley, New York 10502, and by the payment to the Company, by certified,
cashier's or other check acceptable to the Company, of an amount equal to the
aggregate Warrant Price of the shares being purchased.
1.3. STOCK CERTIFICATES. In the event of any exercise of the rights to
acquire Common Stock granted under this Warrant, certificates for the shares of
Common Stock so purchased shall be delivered to Holder within a reasonable time
and, unless this Warrant has been fully exercised or has expired, a new Warrant
representing the shares with respect to which this Warrant shall not have been
exercised shall also be issued to Holder within such time.
1.4. WARRANT PRICE. The purchase price for the shares of Common Stock
to be issued upon exercise of this Warrant shall be $1.00 per share, subject to
adjustment as provided in Section 4 herein (the "WARRANT PRICE").
<PAGE>
1.5. VESTING SCHEDULE.
(a) Subject to the terms and conditions of the Strategic Alliance
Agreement dated as of March ___, 2000 by and between Holder and the Company (the
"AGREEMENT"), this Warrant shall vest in quarterly installments 31 days after
the last day of each quarter for a period of 11 calendar quarters, in each case
according to the following formula: The "Quarterly Warrant Amount" for each
calendar quarter shall be one (1) share of Common Stock for every $40.00 of Net
Revenues (as defined in the Agreement) actually received by TradeOut during such
quarter. Notwithstanding the foregoing, (i) in the event TradeOut has received
Net Revenues in an amount less than the Minimum Quarterly Net Revenues Target as
set forth on SCHEDULE A hereto for a particular quarter, then the Quarterly
Warrant Amount for that quarter shall be zero, and (ii) in no event shall the
Quarterly Warrant Amount exceed 60,000 shares of Common Stock in any calendar
quarter, regardless of the actual Net Revenues received by TradeOut.
(b) The Company may, at any time, without any further action by Holder,
by action of the Board of Directors of the Company, amend this Warrant such that
the vesting schedule set forth in this Section 1.5 shall be accelerated with
respect to all or a portion of the Common Stock.
(c) Notwithstanding the foregoing provisions of this Section 1.5, this
Warrant shall not become exercisable until Holder has agreed to become a party
to that certain Right of First Refusal and Co-Sale Agreement, dated as of
October 18, 1999, by and among the Company and the stockholders of the Company.
2. REPRESENTATIONS AND WARRANTIES OF HOLDER
Holder represents and warrants to and covenants with the
Company and each officer, director, and agent of the Company that:
2.1. Holder has all requisite capacity to enter into the Agreement and
to perform all the obligations required to be performed by Holder thereunder and
hereunder.
2.2. Holder has such knowledge, skill and experience in business,
financial and investment matters so that Holder is capable of evaluating the
merits and risks of an investment in this Warrant and Common Stock issuable
hereunder (the "SECURITIES") and has the ability to suffer the total loss of the
investment. To the extent necessary, Holder has retained, at Holder's own
expense, and relied upon, appropriate professional advice regarding the
investment, tax and legal merits and consequences of this Warrant and owning the
Securities. Holder further represents that it has had the opportunity to ask
questions of and receive answers from the Company concerning the terms and
conditions of the Securities, the business of the Company, and to obtain
additional information to such Holder's satisfaction.
2.3. Holder is an "accredited investor" as defined in Rule 501(a) under
the Act. Holder agrees to furnish any additional information requested to assure
compliance with applicable federal and state securities laws in connection with
the purchase and sale of the Securities.
2
<PAGE>
2.4. Holder is acquiring the Securities solely for its own account, for
investment purposes, and not with a view to, or for resale in connection with,
any distribution thereof. Holder understands that the Securities have not been
registered under the Act, or any state securities laws by reason of specific
exemptions under the provisions thereof which depend in part upon the investment
intent of Holder and of the other representations made by Holder in this
Warrant. Holder understands that the Company is relying upon the representations
and agreements contained in this Warrant (and any supplemental information) for
the purpose of determining whether this transaction meets the requirements for
such exemptions.
2.5. Holder acknowledges and agrees that this Warrant and all shares of
Common Stock issued upon exercise hereof shall be stamped or imprinted with a
legend in substantially the following form (in addition to any legend required
by state securities law):
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR QUALIFIED UNDER THE APPLICABLE SECURITIES LAWS OF ANY
OTHER JURISDICTION (THE "LAW"), AND THESE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR FOR RESALE IN CONNECTION WITH, ANY
DISTRIBUTION THEREOF. NO SUCH SALE OR OTHER DISPOSITION MAY BE MADE WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND QUALIFICATION UNDER THE LAW
RELATED THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS
COUNSEL, THAT SAID REGISTRATION AND QUALIFICATION ARE NOT REQUIRED UNDER THE ACT
AND LAW, RESPECTIVELY.
3. STOCK FULLY PAID; RESERVATION OF SHARES
The Company covenants and agrees that all securities which may
be issued upon the exercise of the rights represented by this Warrant will, upon
issuance, be fully paid and nonassessable and free from all taxes, liens and
charges with respect to the issuance thereof (excluding taxes based on the
income of Holder). The Company further covenants and agrees that during the
period within which the rights represented by this Warrant may be exercised, the
Company will at all times have authorized and reserved for issuance a sufficient
number of shares of its Common Stock or other securities as would be required
upon the full exercise of the rights represented by this Warrant.
4. ADJUSTMENT
The kind of securities purchasable upon the exercise of this
Warrant, the number of shares under this Warrant and the Warrant Price shall be
subject to adjustment from time to time upon the happening of certain events, as
follows:
4.1. RECLASSIFICATION, CONSOLIDATION OR MERGER. In case of: (i) any
reclassification or change of outstanding securities issuable upon exercise of
this Warrant; (ii) any consolidation or merger of the Company with or into
another corporation (other than a merger with another corporation in which the
Company is a continuing corporation and which does not result in any
reclassification, change or exchange of outstanding securities issuable upon
exercise of this Warrant); or (iii) any sale or transfer to another corporation
of all, or substantially all, of the property of the Company, then, and in each
such event, the Company or such successor or purchasing corporation, as the case
may be, shall execute a new Warrant which will provide that Holder shall have
the right to exercise such new Warrant and purchase upon such exercise, in lieu
of each share of Common Stock theretofore issuable upon exercise of this
Warrant, the kind
3
<PAGE>
of securities, money and property receivable upon such reclassification, change,
consolidation, merger, sale or transfer by a holder of Common Stock issuable
upon exercise of this Warrant had this Warrant been considered exercised
immediately prior to such reclassification, change, consolidation, merger, sale
or transfer. Such new Warrant shall provide for adjustments which shall be as
nearly equivalent as may be practicable to the adjustments provided in this
Section 4 and the provisions of this Section 4 and the provisions of this
Section 4.1 shall similarly apply to successive reclassifications, changes,
consolidations, mergers, sales and transfers.
4.2. SUBDIVISIONS OR COMBINATION OF SHARES. If the Company at any time
while this Warrant remains outstanding and unexercised, in whole or in part, (i)
shall divide its Common Stock, the Warrant Price shall be proportionately
reduced and the number of shares under this Warrant shall be proportionately
increased; or (ii) shall combine shares of its Common Stock, the Warrant Price
shall be proportionately increased and the number of shares under this Warrant
shall be proportionately reduced.
4.3. STOCK DIVIDENDS. If the Company, at any time while this Warrant is
outstanding and unexpired, shall pay a dividend payable in, or make any other
distribution to shareholders of, its capital stock (except any distribution
described in Sections 4.1 and 4.2 hereof), then and in each case, this Warrant
shall represent the right to acquire, in addition to the number of shares of the
security receivable upon exercise of this Warrant, and without payment of any
additional consideration therefor, the amount of such additional stock of the
Company which such holder would hold on the date of such exercise had it been
the holder of record of the security receivable upon exercise of this Warrant on
the date hereof and had thereafter, during the period from the date hereof to
and including the date of such exercise, retained such shares and/or all other
additional stock available by it as aforesaid during such period, giving effect
to all adjustments called for during such period by the provisions of this
Section 4.
4.4. TIME OF ADJUSTMENTS. All adjustments, unless otherwise specified
herein, shall be effective as of the earlier of:
4.4.1 the date of issuance of the security causing the
adjustment;
4.4.2 the effective date of a division or combination of
shares;
4.4.3 the record date of any action of holders of the
Company's capital stock of any class taken for the purpose of dividing or
combining shares or entitling shareholders to receive a distribution or
dividends payable in the Company's capital stock.
4.5. NOTICE OF ADJUSTMENTS. In each case of an adjustment the Company,
at its expense, shall cause the Chief Financial Officer (or other such similar
officer) of the Company to compute such adjustments and prepare a certificate
setting forth such adjustments and showing in detail the facts upon which such
adjustment is based. The Company shall promptly mail a copy of each such
certificate to Holder pursuant to Section 15 hereof.
4
<PAGE>
5. FRACTIONAL SHARES
No fractional share of Common Stock will be issued in
connection with any exercise hereof, but in lieu of a fractional share upon
complete exercise hereof, Holder may purchase a whole share at the then
effective Warrant Price.
6. SHAREHOLDER RIGHTS
Holder shall not, solely by virtue hereof, be entitled to any
rights of a shareholder of the Company. Holder shall have all rights of a
shareholder with respect to securities purchased upon exercise hereof at the
time the exercise price for such securities is delivered pursuant to Section l
hereof and this Warrant is surrendered.
7. RESTRICTIONS ON TRANSFER
7.1. TRANSFER OF WARRANT. This Warrant shall not be transferable by
Holder, except pursuant to prior written consent of the Company, which consent
shall not be unreasonably withheld or delayed, and provided that such transferee
executes a written agreement to be bound by the provisions of this Warrant.
7.2. SECURITIES LAWS RESTRICTIONS. Holder, by acceptance hereof, agrees
that, absent an effective registration statement under the Act, covering the
disposition of Common Stock issued or issuable upon exercise hereof, Holder will
not sell or transfer any or all of such Common Stock, without first providing
the Company with an opinion of counsel reasonably acceptable to the Company and
its counsel to the effect that such sale or transfer will be exempt from the
registration requirements of the Act, and Holder consents to the Company making
a notation on its records in order to implement such restriction on
transferability.
9. "MARKET STAND-OFF" AGREEMENT
You hereby agree that, during the period specified by the
Company and any underwriter of Common Stock or other securities of the Company
following the effective date of a registration statement of the Company filed
under the Act, you will not, to the extent requested by the Company and such
underwriter, directly or indirectly sell, offer to sell, contract to sell
(including, without limitation, any short sale), grant any option to purchase or
otherwise transfer or dispose of (other than to donees who agree to be similarly
bound) any securities of the Company held by you at any time during such period
except Common Stock included in such registration. To enforce the foregoing
covenant, the Company may impose stop-transfer instructions with respect to the
shares of Common Stock issued or issuable upon exercise of this Warrant held by
you until the end of such period. In addition, the foregoing covenant may be
enforced by the underwriters who are parties with the Company to an underwriting
agreement under which such public offering is being undertaken.
9. LOSS OR MUTILATION
Upon receipt by the Company of evidence satisfactory to it of
the ownership of, and the loss, theft, destruction or mutilation of, this
Warrant and (in the case of loss, theft or
5
<PAGE>
destruction) of indemnity satisfactory to it, and (in the case of mutilation)
upon surrender and cancellation hereof, the Company will execute and deliver in
lieu hereof a new Warrant.
10. GOVERNING LAW
The internal laws of the State of Delaware (irrespective of
its choice of law principles) shall govern the validity of this Warrant, the
construction of its terms, and the interpretation and enforcement of the rights
and duties of the parties hereto.
11. BINDING UPON SUCCESSORS AND ASSIGNS
Subject to, and unless otherwise provided in, this Warrant,
each and all of the covenants, terms, provisions, and agreements contained
herein shall be binding upon, and inure to the benefit of the permitted
successors, executors, heirs, representatives, administrators and assigns of the
parties hereto. Holder shall not assign this Warrant or any rights or
obligations hereunder without the prior written consent of the Company, which
consent shall not be unreasonably withheld. For purposes of this Section 11, the
sale of all or substantially all of Holder's assets or capital stock shall
constitute an assignment.
12. SEVERABILITY
If any provision of this Warrant, or the application hereof,
shall for any reason and to any extent, be invalid or unenforceable, the
remainder of this Warrant and application of such provisions to other persons or
circumstances shall be interpreted so as best to reasonably effect the intent of
the parties hereto. The parties further agree to replace such void or
unenforceable provisions of this Warrant with valid or enforceable provisions
which will achieve, to the extent possible, the economic, business and other
purposes of the void or unenforceable provisions.
13. AMENDMENT
This Warrant may be amended upon the written consent of the
Company and Holder.
14. NO WAIVER
The failure of any party to enforce any of the provisions
hereof shall not be construed to be a waiver of the right of such party
thereafter to enforce such provisions.
15. NOTICES
Whenever any party hereto desires or is required to give any
notice, demand, or request with respect to this Warrant, each such communication
shall be in writing and shall be effective only if it is delivered by personal
service or mailed, United States certified mail, postage prepaid, return receipt
requested, addressed as follows:
Company: Address set forth in Section 1 hereof
Attn: Chief Executive Officer
6
<PAGE>
Holder: Address as set forth in Section 1 hereof
Attn: [ ]
Such communications shall be effective when they are received by the addresses
thereof; but if sent by certified mail in the manner set forth above, they shall
be effective five (5) days after being deposited in the United States mail. Any
party may change its address for such communications by giving notice thereof to
the other party in conformity with this Section.
16. CONSTRUCTION OF AGREEMENT
A reference in this Warrant to any Section shall include a
reference to every Section the number of which begins with the number of the
Section to which reference is specifically made. The titles and headings herein
are for reference purposes only and shall not in any manner limit the
construction of this Warrant which shall be considered as a whole.
17. NO ENDORSEMENT
Holder understands that no federal or state securities
administrator has made any finding or determination relating to the fairness of
investment in the Company or purchase of the Common Stock hereunder and that no
federal or state securities administrator has recommended or endorsed the
offering of securities by the Company hereunder.
18. PRONOUNS
All pronouns and any variations thereof shall be deemed to
refer to the masculine, feminine or neuter, singular or plural, as the identity
of the person, persons, entity or entities may require.
19. FURTHER ASSISTANCE
Each party agrees to cooperate fully with the other parties
and to execute such further instruments, documents and agreements and to give
such further written assurances, as may be reasonably requested by any other
party to better evidence and reflect the transactions described herein and
contemplated hereby, and to carry into effect the intents and purposes of this
Warrant.
7
<PAGE>
TradeOut.com, Inc.
By: /s/ B. McCagg
------------------------------
Title: Chairman
ACCEPTED AS OF MARCH 3, 2000
PURITY WHOLESALE GROCERS, INC.
By: /s/ Sal Ricciardi
----------------------------
Name: Sal Ricciardi
Title: CEO
8
<PAGE>
FORM OF WARRANT EXERCISE
(TO BE SIGNED ONLY ON EXERCISE OF WARRANT)
TO _______________________
The undersigned, the holder of the within Warrant, hereby
irrevocably elects to exercise this Warrant for, and to purchase thereunder,
______ shares of Common Stock of TradeOut.com, Inc., a Delaware corporation, and
herewith makes payment of $__________ therefor, and requests that the
certificates for such shares be issued in the name of, and delivered to
_____________, whose address is __________________________.
Dated:
--------------------------------------------
(Signature must conform to name of holder as
specified on the face of the Warrant)
--------------------------------------------
(Address)
Tax Identification Number:
------------------
<PAGE>
SCHEDULE A
SCHEDULE OF VESTING OF WARRANT
<TABLE>
<CAPTION>
MINIMUM QUARTERLY NET
REVENUES TARGET
---------------------
<S> <C>
Q2 2000 $ 75,000
Q3 2000 $75,000
Q4 2000 $225,000
Q1 2001 $400,000
Q2 2001 $400,000
Q3 2001 $400,000
Q4 2001 $400,000
Q1 2002 $500,000
Q2 2002 $500,000
Q3 2002 $500,000
Q4 2002 $500,000
</TABLE>
<PAGE>
EXHIBIT 4.9
NEITHER THIS WARRANT, NOR THE COMMON STOCK TO BE ISSUED UPON EXERCISE HEREOF,
HAS BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
QUALIFIED UNDER THE APPLICABLE SECURITIES LAWS OF ANY OTHER JURISDICTION (THE
"LAW"), AND THIS WARRANT HAS BEEN, AND THE COMMON STOCK TO BE ISSUED UPON
EXERCISE HEREOF WILL BE, ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR
RESALE IN CONNECTION WITH, ANY DISTRIBUTION THEREOF. NO SUCH SALE OR OTHER
DISPOSITION MAY BE MADE WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
ACT AND QUALIFICATION UNDER THE LAW RELATED THERETO OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY (AS THAT TERM IS DEFINED BELOW) AND ITS COUNSEL,
THAT SAID REGISTRATION AND QUALIFICATION ARE NOT REQUIRED UNDER THE ACT AND LAW,
RESPECTIVELY.
TRADEOUT.COM, INC.
January 14, 2000 4,000 Shares
of Common Stock
Warrant for Common Stock
This certifies that Icon International, Inc., whose address is
281 Tresser Blvd., 2 Stamford Plaza, 8th Floor, Stamford, CT 06901 ("HOLDER") is
entitled to subscribe for and purchase up to four thousand (4,000) shares of
fully paid and nonassessable Common Stock, $0.0001 par value per share ("COMMON
STOCK"), of TradeOut.com, Inc., a Delaware corporation (the "COMPANY"), subject
to the terms and conditions herewith set forth. The purchase price of each such
share shall be the amount set forth in Section 1.5 herein. Except as set forth
in Sections 7.1 and 11, this Warrant shall not be assignable, and shall only be
exercisable, by Holder.
1. EXERCISE; PAYMENT
1.1. EXERCISABILITY. This Warrant, and the right to purchase vested
Common Stock hereunder, shall be exercisable, at any time and from time to time,
commencing on the date hereof, and terminating at 5:00 P.M., New York local time
on December 31, 2003. Notwithstanding the foregoing provision of this Section
1.5 this Warrant shall not become exercisable until Holder has executed a
written agreement to be bound by that certain Right of First Refusal and Co-Sale
Agreement, dated as of October 18, 1999, by and among the Company and the
stockholders of the Company.
1.2. PAYMENT. The purchase rights under this Warrant may be exercised
by Holder, in whole or in part, by the surrender of this Warrant at the
principal office of the Company located at 410 Saw Mill River Road, Suite 2065,
Ardsley, New York 10502, and by the payment to the Company, by certified,
cashier's or other check acceptable to the Company, of an amount equal to the
aggregate Warrant Price of the shares being purchased.
1.3. NET ISSUE EXERCISE. (a) In lieu of exercising this Warrant
pursuant to Section 1.2, Holder may elect to receive shares equal to the value
of this Warrant (or the portion thereof being canceled) by surrender of this
Warrant at the principal office of the Company together with notice of such
election, in which event the Company shall issue to Holder a number of shares of
the Company's Common Stock computed using the following formula:
<PAGE>
X = Y (A-B)
-------
A
Where:
X = the number of shares of Common Stock to be
issued to Holder
Y = the number of shares of Common Stock
purchasable under this Warrant (at the date
of such calculation);
A = the fair market value of one share of the
Company's Common Stock (at the date of such
calculation); and
B = Warrant Price (as adjusted to the date of
such calculation).
(b) For purposes of this Section 1.3, the "fair market value" of one
share of the Company's Common Stock shall mean:
(i) The average of the closing bid and asked prices of the
Common Stock in the over-the-counter market or the closing sale price quoted on
any exchange on which the Common Stock is listed as published in THE WALL STREET
JOURNAL for the ten (10) trading days prior to the date of determination of fair
market value;
(ii) If the Common Stock is not traded in the over-the-counter
market or on an exchange, fair market value of the Common Stock per share shall
be the price per share which the Company could obtain from a willing buyer for
shares sold by the Company from authorized but unissued shares as determined by
the Company's Board of Directors.
1.4. STOCK CERTIFICATES. In the event of any exercise of the rights to
acquire Common Stock granted under this Warrant, certificates for the shares of
Common Stock so purchased shall be delivered to Holder within a reasonable time
and, unless this Warrant has been fully exercised or has expired, a new Warrant
representing the shares with respect to which this Warrant shall not have been
exercised shall also be issued to Holder within such time.
1.5. WARRANT PRICE. The purchase price for the shares of Common Stock
to be issued upon exercise of this Warrant shall be $0.01 per share, subject to
adjustment as provided in Section 4 herein (the "WARRANT PRICE").
2. REPRESENTATIONS AND WARRANTIES OF HOLDER
Holder represents and warrants to and covenants with the
Company and each officer, director, and agent of the Company that:
2.1. Holder has all requisite capacity to enter into the Agreement and
to perform all the obligations required to be performed by Holder thereunder and
hereunder.
2.2. Holder has such knowledge, skill and experience in business,
financial and investment matters so that Holder is capable of evaluating the
merits and risks of an investment
2
<PAGE>
in this Warrant and the Common Stock issuable hereunder (the "SECURITIES") and
has the ability to suffer the total loss of the investment. To the extent
necessary, Holder has retained, at Holder's own expense, and relied upon,
appropriate professional advice regarding the investment, tax and legal merits
and consequences of this Warrant and owning the Securities. Holder further
represents that it has had the opportunity to ask questions of and receive
answers from the Company concerning the terms and conditions of the Securities,
the business of the Company, and to obtain additional information to such
Holder's satisfaction.
2.3. Holder is an "accredited investor" as defined in Rule 501(a) under
the Act. Holder agrees to furnish any additional information requested to assure
compliance with applicable federal and state securities laws in connection with
the purchase and sale of the Securities.
2.4. Holder is acquiring the Securities solely for its own account, for
investment purposes, and not with a view to, or for resale in connection with,
any distribution thereof. Holder understands that the Securities have not been
registered under the Act, or any state securities laws by reason of specific
exemptions under the provisions thereof which depend in part upon the investment
intent of Holder and of the other representations made by Holder in this
Warrant. Holder understands that the Company is relying upon the representations
and agreements contained in this Warrant (and any supplemental information) for
the purpose of determining whether this transaction meets the requirements for
such exemptions.
2.5. Holder acknowledges and agrees that this Warrant and all shares of
Common Stock issued upon exercise hereof shall be stamped or imprinted with a
legend in substantially the following form (in addition to any legend required
by state securities law):
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR QUALIFIED UNDER THE APPLICABLE SECURITIES LAWS OF ANY
OTHER JURISDICTION (THE "LAW"), AND THESE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR FOR RESALE IN CONNECTION WITH, ANY
DISTRIBUTION THEREOF. NO SUCH SALE OR OTHER DISPOSITION MAY BE MADE WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND QUALIFICATION UNDER THE LAW
RELATED THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS
COUNSEL, THAT SAID REGISTRATION AND QUALIFICATION ARE NOT REQUIRED UNDER THE ACT
AND LAW, RESPECTIVELY.
3. STOCK FULLY PAID; RESERVATION OF SHARES
The Company covenants and agrees that all securities which may
be issued upon the exercise of the rights represented by this Warrant will, upon
issuance, be fully paid and nonassessable and free from all taxes, liens and
charges with respect to the issuance thereof (excluding taxes based on the
income of Holder). The Company further covenants and agrees that during the
period within which the rights represented by this Warrant may be exercised, the
Company will at all times have authorized and reserved for issuance a sufficient
number of shares of its Common Stock or other securities as would be required
upon the full exercise of the rights represented by this Warrant.
3
<PAGE>
4. ADJUSTMENT
The kind of securities purchasable upon the exercise of this
Warrant, the number of shares under this Warrant and the Warrant Price shall be
subject to adjustment from time to time upon the happening of certain events, as
follows:
4.1. RECLASSIFICATION, CONSOLIDATION OR MERGER. In case of: (i) any
reclassification or change of outstanding securities issuable upon exercise of
this Warrant; (ii) any consolidation or merger of the Company with or into
another corporation (other than a merger with another corporation in which the
Company is a continuing corporation and which does not result in any
reclassification, change or exchange of outstanding securities issuable upon
exercise of this Warrant); or (iii) any sale or transfer to another corporation
of all, or substantially all, of the property of the Company, then, and in each
such event, the Company or such successor or purchasing corporation, as the case
may be, shall execute a new Warrant which will provide that Holder shall have
the right to exercise such new Warrant and purchase upon such exercise, in lieu
of each share of Common Stock theretofore issuable upon exercise of this
Warrant, the kind of securities, money and property receivable upon such
reclassification, change, consolidation, merger, sale or transfer by a holder of
Common Stock issuable upon exercise of this Warrant had this Warrant been
considered exercised immediately prior to such reclassification, change,
consolidation, merger, sale or transfer. Such new Warrant shall provide for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided in this Section 4 and the provisions of this Section 4 and
the provisions of this Section 4.1 shall similarly apply to successive
reclassifications, changes, consolidations, mergers, sales and transfers.
4.2. SUBDIVISIONS OR COMBINATION OF SHARES. If the Company at any time
while this Warrant remains outstanding and unexercised, in whole or in part, (i)
shall divide its Common Stock, the Warrant Price shall be proportionately
reduced and the number of shares under this Warrant shall be proportionately
increased; or (ii) shall combine shares of its Common Stock, the Warrant Price
shall be proportionately increased and the number of shares under this Warrant
shall be proportionately reduced.
4.3. STOCK DIVIDENDS. If the Company, at any time while this Warrant is
outstanding and unexpired, shall pay a dividend payable in, or make any other
distribution to shareholders of, its capital stock (except any distribution
described in Sections 4.1 and 4.2 hereof), then and in each case, this Warrant
shall represent the right to acquire, in addition to the number of shares of the
security receivable upon exercise of this Warrant, and without payment of any
additional consideration therefor, the amount of such additional stock of the
Company which such holder would hold on the date of such exercise had it been
the holder of record of the security receivable upon exercise of this Warrant on
the date hereof and had thereafter, during the period from the date hereof to
and including the date of such exercise, retained such shares and/or all other
additional stock available by it as aforesaid during such period, giving effect
to all adjustments called for during such period by the provisions of this
Section 4.
4.4. TIME OF ADJUSTMENTS. All adjustments, unless otherwise specified
herein, shall be effective as of the earlier of:
4.4.1. the date of issuance of the security causing the
adjustment;
4
<PAGE>
4.4.2. the effective date of a division or combination of
shares;
4.4.3. the record date of any action of holders of the
Company's capital stock of any class taken for the purpose of dividing or
combining shares or entitling shareholders to receive a distribution or
dividends payable in the Company's capital stock.
4.5. NOTICE OF ADJUSTMENTS. In each case of an adjustment the Company,
at its expense, shall cause the Chief Financial Officer (or other such similar
officer) of the Company to compute such adjustments and prepare a certificate
setting forth such adjustments and showing in detail the facts upon which such
adjustment is based. The Company shall promptly mail a copy of each such
certificate to Holder pursuant to Section 15 hereof.
5. FRACTIONAL SHARES
No fractional share of Common Stock will be issued in
connection with any exercise hereof, but in lieu of a fractional share upon
complete exercise hereof, Holder may purchase a whole share at the then
effective Warrant Price.
6. SHAREHOLDER RIGHTS
Holder shall not, solely by virtue hereof, be entitled to any
rights of a shareholder of the Company. Holder shall have all rights of a
shareholder with respect to securities purchased upon exercise hereof at the
time the exercise price for such securities is delivered pursuant to Section l
hereof and this Warrant is surrendered.
7. RESTRICTIONS ON TRANSFER
7.1. TRANSFER OF WARRANT. This Warrant shall not be transferable by
Holder except pursuant to prior written consent of the Company, which consent
shall not be unreasonably withheld or delayed, and provided that such transferee
executes a written agreement to be bound by the provisions of this Warrant.
7.2. SECURITIES LAWS RESTRICTIONS. Holder, by acceptance hereof, agrees
that, absent an effective registration statement under the Act covering the
disposition of Common Stock issued or issuable upon exercise hereof, Holder will
not sell or transfer any or all of such Common Stock, without first providing
the Company with an opinion of counsel reasonably acceptable to the Company and
its counsel to the effect that such sale or transfer will be exempt from the
registration requirements of the Act, and Holder consents to the Company making
a notation on its records in order to implement such restriction on
transferability.
8. "MARKET STAND-OFF" AGREEMENT
Holder hereby agrees that, during the period specified by the
Company and any underwriter of Common Stock or other securities of the Company
following the effective date of a registration statement of the Company filed
under the Act, Holder will not, to the extent requested by the Company and such
underwriter, directly or indirectly sell, offer to sell, contract to sell
(including, without limitation, any short sale), grant any option to purchase or
otherwise transfer or dispose of (other than to donees who agree to be similarly
bound) any securities of the
5
<PAGE>
Company held by Holder at any time during such period except Common Stock
included in such registration. To enforce the foregoing covenant, the Company
may impose stop-transfer instructions with respect to the shares of Common Stock
issued or issuable upon exercise of this Warrant held by Holder until the end of
such period. In addition, the foregoing covenant may be enforced by the
underwriters who are parties with the Company to an underwriting agreement under
which such public offering is being undertaken.
9. LOSS OR MUTILATION
Upon receipt by the Company of evidence satisfactory to it of
the ownership of, and the loss, theft, destruction or mutilation of, this
Warrant and (in the case of loss, theft or destruction) of indemnity
satisfactory to it, and (in the case of mutilation) upon surrender and
cancellation hereof, the Company will execute and deliver in lieu hereof a new
Warrant.
10. GOVERNING LAW
The internal laws of the State of Delaware (irrespective of
its choice of law principles) shall govern the validity of this Warrant, the
construction of its terms, and the interpretation and enforcement of the rights
and duties of the parties hereto.
11. BINDING UPON SUCCESSORS AND ASSIGNS
Subject to, and unless otherwise provided in, this Warrant,
each and all of the covenants, terms, provisions, and agreements contained
herein shall be binding upon, and inure to the benefit of the permitted
successors, executors, heirs, representatives, administrators and assigns of the
parties hereto. Holder shall not assign this Warrant or any rights or
obligations hereunder without the prior written consent of the Company, which
consent shall not be unreasonably withheld. For purposes of this Section 11, the
sale of all or substantially all of Holder's assets or capital stock shall
constitute an assignment.
12. SEVERABILITY
If any provision of this Warrant, or the application hereof,
shall for any reason and to any extent, be invalid or unenforceable, the
remainder of this Warrant and application of such provisions to other persons or
circumstances shall be interpreted so as best to reasonably effect the intent of
the parties hereto. The parties further agree to replace such void or
unenforceable provisions of this Warrant with valid or enforceable provisions
which will achieve, to the extent possible, the economic, business and other
purposes of the void or unenforceable provisions.
13. AMENDMENT
This Warrant may be amended upon the written consent of the
Company and Holder.
6
<PAGE>
14. NO WAIVER
The failure of any party to enforce any of the provisions
hereof shall not be construed to be a waiver of the right of such party
thereafter to enforce such provisions.
15. NOTICES
Whenever any party hereto desires or is required to give any
notice, demand, or request with respect to this Warrant, each such communication
shall be in writing and shall be effective only if it is delivered by personal
service or mailed, United States certified mail, postage prepaid, return receipt
requested, addressed as follows:
Company: Address set forth in Section 1 hereof
Attn: Chief Executive Officer
Holder: Address as set forth in Section 1 hereof
Attn: President
Such communications shall be effective when they are received by the addresses
thereof; but if sent by certified mail in the manner set forth above, they shall
be effective five (5) days after being deposited in the United States mail. Any
party may change its address for such communications by giving notice thereof to
the other party in conformity with this Section.
16. CONSTRUCTION OF AGREEMENT
A reference in this Warrant to any Section shall include a
reference to every Section the number of which begins with the number of the
Section to which reference is specifically made. The titles and headings herein
are for reference purposes only and shall not in any manner limit the
construction of this Warrant which shall be considered as a whole.
17. NO ENDORSEMENT
Holder understands that no federal or state securities
administrator has made any finding or determination relating to the fairness of
investment in the Company or purchase of the Common Stock hereunder and that no
federal or state securities administrator has recommended or endorsed the
offering of securities by the Company hereunder.
18. PRONOUNS
All pronouns and any variations thereof shall be deemed to
refer to the masculine, feminine or neuter, singular or plural, as the identity
of the person, persons, entity or entities may require.
19. FURTHER ASSISTANCE
Each party agrees to cooperate fully with the other parties
and to execute such further instruments, documents and agreements and to give
such further written assurances, as may be reasonably requested by any other
party to better evidence and reflect the transactions
7
<PAGE>
described herein and contemplated hereby, and to carry into effect the intents
and purposes of this Warrant.
TradeOut.com, Inc.
/s/ Dermott Ryan
---------------------------------------
By:
Title: VP Marketing
ACCEPTED THIS 14th DAY OF JANUARY 2000
ICON INTERNATIONAL, INC.
By: /s/ Clarence V. Lee III
----------------------------------
Name: Clarence V. Lee III
Title: Chief Financial Officer
8
<PAGE>
FORM OF WARRANT EXERCISE
(TO BE SIGNED ONLY ON EXERCISE OF WARRANT)
TO _______________________
The undersigned, the holder of the within Warrant, hereby
irrevocably elects to exercise this Warrant for, and to purchase thereunder,
______ shares of Common Stock of TradeOut.com, Inc., a Delaware corporation,
and:
|_| herewith makes a payment of $ _____________ therefor, or
|_| exercises this Warrant pursuant to the Net Issue
Exercise provision as provided in Section 1.3 of this
Warrant.
The undersigned hereby requests that the certificates for such
shares be issued in the name of, and delivered to _________________________,
whose address is ________________________________.
Dated:
--------------------------------------------
(Signature must conform to name of holder as
specified on the face of the Warrant)
--------------------------------------------
(Address)
Tax Identification Number:
-----------------
<PAGE>
Exhibit 4.10
NEITHER THIS WARRANT, NOR THE COMMON STOCK TO BE ISSUED UPON EXERCISE HEREOF,
HAS BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
QUALIFIED UNDER THE APPLICABLE SECURITIES LAWS OF ANY OTHER JURISDICTION (THE
"LAW"), AND THIS WARRANT HAS BEEN, AND THE COMMON STOCK TO BE ISSUED UPON
EXERCISE HEREOF WILL BE, ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR
RESALE IN CONNECTION WITH, ANY DISTRIBUTION THEREOF. NO SUCH SALE OR OTHER
DISPOSITION MAY BE MADE WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
ACT AND QUALIFICATION UNDER THE LAW RELATED THERETO OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY (AS THAT TERM IS DEFINED BELOW) AND ITS COUNSEL,
THAT SAID REGISTRATION AND QUALIFICATION ARE NOT REQUIRED UNDER THE ACT AND LAW,
RESPECTIVELY.
TRADEOUT.COM, INC.
March 14, 2000 4,785,000 Shares
of Common Stock
Warrant for Common Stock
This certifies that GE Capital Equity Investments, Inc., whose
address is 120 Long Ridge Road, Stamford, CT 06927 ("HOLDER") is entitled to
subscribe for and purchase up to four million seven hundred eighty five thousand
(4,785,000) shares of fully paid and nonassessable Common Stock, $0.001 par
value per share ("COMMON STOCK"), of TradeOut.com, Inc., a Delaware corporation
(the "COMPANY"), subject to the terms and conditions herewith set forth. The
purchase price of each such share shall be the amount set forth in Section 1.5
herein. Except as set forth in Sections 6.1 and 9, this Warrant shall not be
assignable, and shall only be exercisable, by Holder.
1. EXERCISE; PAYMENT
1.1. EXERCISABILITY. This Warrant, and the right to purchase vested
Common Stock hereunder, shall be exercisable, at any time and from time to time,
commencing on the date hereof and terminating at 5:00 P.M., New York local time
on the sixth anniversary of the Launch Date (as defined in the Strategic
Alliance Agreement dated as of March 14, 2000 by and between General
Electric Capital Corporation and the Company (the "AGREEMENT")).
1.2. PAYMENT. The purchase rights under this Warrant may be exercised
by Holder, in whole or in part, by the surrender of this Warrant at the
principal office of the Company located at 410 Saw Mill River Road, Suite 2065,
Ardsley, New York 10502, and by the payment to the Company, by certified,
cashier's or other check acceptable to the Company, of an amount equal to the
aggregate Warrant Price of the shares being purchased.
1.3. NET ISSUE EXERCISE.
(a) In lieu of exercising this Warrant pursuant to Section 1.2,
Holder may elect to receive shares equal to the value of this Warrant (or the
portion thereof being canceled) by surrender of this Warrant at the principal
office of the Company together with notice of such election, in which event the
Company shall issue to Holder a number of shares of the Company's Common Stock
computed using the following formula:
X = Y (A-B)
-------
A
<PAGE>
Where:
X = the number of shares of Common Stock to be issued to
Holder
Y = the number of shares of Common Stock purchasable under
this Warrant (at the date of such calculation);
A = the fair market value of one share of the Company's
Common Stock (at the date of such calculation); and
B = Warrant Price (as adjusted to the date of such
calculation).
(b) For purposes of this Section 1.3, the "fair market value" of
one share of the Company's Common Stock shall mean:
(i) The average of the closing bid and asked prices of the
Common Stock in the over-the-counter market or the closing sale price
quoted on any exchange on which the Common Stock is listed as published
in THE WALL STREET JOURNAL for the ten (10) trading days prior to the
date of determination of fair market value;
(ii) If the Common Stock is not traded in the
over-the-counter market or on an exchange, fair market value of the
Common Stock per share shall be the price per share which the Company
could obtain from a willing buyer for shares sold by the Company from
authorized but unissued shares as determined by the Company's Board of
Directors.
1.4. STOCK CERTIFICATES. In the event of any exercise of the rights to
acquire Common Stock granted under this Warrant, certificates for the shares of
Common Stock so purchased shall be delivered to Holder within a reasonable time
and, unless this Warrant has been fully exercised or has expired, a new Warrant
representing the shares with respect to which this Warrant shall not have been
exercised shall also be issued to Holder within such time.
1.5. WARRANT PRICE. The purchase price for the shares of Common Stock
to be issued upon exercise of this Warrant shall be $1.00 per share, subject to
adjustment as provided in Section 4 herein (the "WARRANT PRICE").
1.6. VESTING SCHEDULE. Subject to the terms and conditions of the
Agreement, this Warrant shall vest as set forth on SCHEDULE A hereto.
2. STOCK FULLY PAID; RESERVATION OF SHARES
The Company covenants and agrees that all securities which may be
issued upon the exercise of the rights represented by this Warrant will, upon
issuance, be fully paid and nonassessable and free from all taxes, liens and
charges with respect to the issuance thereof (excluding taxes based on the
income of Holder). The Company further covenants and agrees that during the
period within which the rights represented by this Warrant may be exercised, the
Company will at all times have authorized and reserved for issuance a sufficient
number of
2
<PAGE>
shares of its Common Stock or other securities as would be required upon the
full exercise of the rights represented by this Warrant.
3. ADJUSTMENT
The kind of securities purchasable upon the exercise of this
Warrant, the number of shares under this Warrant and the Warrant Price shall be
subject to adjustment from time to time upon the happening of certain events, as
follows:
3.1. RECLASSIFICATION, CONSOLIDATION OR MERGER. In case of: (i) any
reclassification or change of outstanding securities issuable upon exercise of
this Warrant; (ii) any consolidation or merger of the Company with or into
another corporation (other than a merger with another corporation in which the
Company is a continuing corporation and which does not result in any
reclassification, change or exchange of outstanding securities issuable upon
exercise of this Warrant); or (iii) any sale or transfer to another corporation
of all, or substantially all, of the property of the Company, then, and in each
such event, the Company or such successor or purchasing corporation, as the case
may be, shall execute a new Warrant which will provide that Holder shall have
the right to exercise such new Warrant and purchase upon such exercise, in lieu
of each share of Common Stock theretofore issuable upon exercise of this
Warrant, the kind of securities, money and property receivable upon such
reclassification, change, consolidation, merger, sale or transfer by a holder of
Common Stock issuable upon exercise of this Warrant had this Warrant been
considered exercised immediately prior to such reclassification, change,
consolidation, merger, sale or transfer. Such new Warrant shall provide for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided in this Section 3 and the provisions of this Section 3 and
the provisions of this Section 3.1 shall similarly apply to successive
reclassifications, changes, consolidations, mergers, sales and transfers.
3.2. SUBDIVISIONS OR COMBINATION OF SHARES. If the Company at any time
while this Warrant remains outstanding and unexercised, in whole or in part, (i)
shall divide its Common Stock, the Warrant Price shall be proportionately
reduced and the number of shares under this Warrant shall be proportionately
increased or (ii) shall combine shares of its Common Stock, the Warrant Price
shall be proportionately increased and the number of shares under this Warrant
shall be proportionately reduced.
3.3. STOCK DIVIDENDS. If the Company, at any time while this Warrant is
outstanding and unexpired, shall pay a dividend payable in, or make any other
distribution to shareholders of, its capital stock (except any distribution
described in Sections 3.1 and 3.2 hereof), then and in each case, this Warrant
shall represent the right to acquire, in addition to the number of shares of the
security receivable upon exercise of this Warrant, and without payment of any
additional consideration therefor, the amount of such additional stock of the
Company which such holder would hold on the date of such exercise had it been
the holder of record of the security receivable upon exercise of this Warrant on
the date hereof and had thereafter, during the period from the date hereof to
and including the date of such exercise, retained such shares and/or all other
additional stock available by it as aforesaid during such period, giving effect
to all adjustments called for during such period by the provisions of this
Section 3.
3
<PAGE>
3.4. TIME OF ADJUSTMENTS. All adjustments, unless otherwise specified
herein, shall be effective as of the earlier of:
3.4.1. the date of issuance of the security causing the
adjustment;
3.4.2. the effective date of a division or combination of shares;
3.4.3. the record date of any action of holders of the Company's
capital stock of any class taken for the purpose of dividing or combining shares
or entitling shareholders to receive a distribution or dividends payable in the
Company's capital stock.
3.5. NOTICE OF ADJUSTMENTS. In each case of an adjustment, the Company,
at its expense, shall cause the Chief Financial Officer (or other such similar
officer) of the Company to compute such adjustments and prepare a certificate
setting forth such adjustments and showing in detail the facts upon which such
adjustment is based. The Company shall promptly mail a copy of each such
certificate to Holder pursuant to Section 13 hereof.
4. FRACTIONAL SHARES
No fractional share of Common Stock will be issued in connection
with any exercise hereof, but in lieu of a fractional share upon complete
exercise hereof, Holder may purchase a whole share at the then effective Warrant
Price.
5. SHAREHOLDER RIGHTS
Holder shall not, solely by virtue hereof, be entitled to any
rights of a shareholder of the Company. Holder shall have all rights of a
shareholder with respect to securities purchased upon exercise hereof at the
time the exercise price for such securities is delivered pursuant to Section l
hereof and this Warrant is surrendered.
6. RESTRICTIONS ON TRANSFER
6.1. TRANSFER OF WARRANT. This Warrant shall only be transferable with
respect to such portion of the Common Stock that has vested and is immediately
exercisable pursuant to Section 1.6 above and shall not otherwise be
transferable by Holder except pursuant to prior written consent of the Company,
which consent shall not be unreasonably withheld or delayed, and provided that
such transferee executes a written agreement to be bound by the provisions of
this Warrant.
6.2. SECURITIES LAWS RESTRICTIONS. Holder, by acceptance hereof, agrees
that, absent an effective registration statement under the Act covering the
disposition of Common Stock issued or issuable upon exercise hereof, Holder will
not sell or transfer any or all of such Common Stock, without first providing
the Company with an opinion of counsel reasonably acceptable to the Company and
its counsel to the effect that such sale or transfer will be exempt from the
registration requirements of the Act, and Holder consents to the Company making
a notation on its records in order to implement such restriction on
transferability; provided that no such opinion of counsel shall be required with
respect to a transfer by Holder to an affiliate of Holder.
4
<PAGE>
7. LOSS OR MUTILATION
Upon receipt by the Company of evidence satisfactory to it of the
ownership of, and the loss, theft, destruction or mutilation of, this Warrant
and (in the case of loss, theft or destruction) of indemnity satisfactory to it,
and (in the case of mutilation) upon surrender and cancellation hereof, the
Company will execute and deliver in lieu hereof a new Warrant.
8. GOVERNING LAW
The internal laws of the State of New York (irrespective of its
conflict of laws principles) shall govern the validity of this Warrant, the
construction of its terms, and the interpretation and enforcement of the rights
and duties of the parties hereto.
9. BINDING UPON SUCCESSORS AND ASSIGNS
Subject to, and unless otherwise provided in, this Warrant, each
and all of the covenants, terms, provisions, and agreements contained herein
shall be binding upon, and inure to the benefit of the permitted successors,
executors, heirs, representatives, administrators and assigns of the parties
hereto. Except as otherwise set forth in Section 6, holder shall not assign this
Warrant or any rights or obligations hereunder without the prior written consent
of the Company, which consent shall not be unreasonably withheld. For purposes
of this Section 9, the sale of all or substantially all of Holder's assets or
capital stock shall constitute an assignment.
10. SEVERABILITY
If any provision of this Warrant, or the application hereof, shall
for any reason and to any extent, be invalid or unenforceable, the remainder of
this Warrant and application of such provisions to other persons or
circumstances shall be interpreted so as best to reasonably effect the intent of
the parties hereto. The parties further agree to replace such void or
unenforceable provisions of this Warrant with valid or enforceable provisions
which will achieve, to the extent possible, the economic, business and other
purposes of the void or unenforceable provisions.
11. AMENDMENT
This Warrant may be amended upon the written consent of the
Company and Holder.
12. NO WAIVER
The failure of any party to enforce any of the provisions hereof
shall not be construed to be a waiver of the right of such party thereafter to
enforce such provisions.
13. NOTICES
Whenever any party hereto desires or is required to give any
notice, demand, or request with respect to this Warrant, each such communication
shall be in writing and shall be
5
<PAGE>
effective only if it is delivered by personal service or mailed, United States
certified mail, postage prepaid, return receipt requested, addressed as follows:
Company: Address set forth in Section 1 hereof
Attn: Chief Executive Officer
Holder: Address as set forth in Section 1 hereof
Attn: Account Manager - TradeOut
Such communications shall be effective when they are received by the addresses
thereof; but if sent by certified mail in the manner set forth above, they shall
be effective five (5) days after being deposited in the United States mail. Any
party may change its address for such communications by giving notice thereof to
the other party in conformity with this Section.
14. CONSTRUCTION OF AGREEMENT
A reference in this Warrant to any Section shall include a
reference to every Section the number of which begins with the number of the
Section to which reference is specifically made. The titles and headings herein
are for reference purposes only and shall not in any manner limit the
construction of this Warrant which shall be considered as a whole.
15. NO ENDORSEMENT
Holder understands that no federal or state securities
administrator has made any finding or determination relating to the fairness of
investment in the Company or purchase of the Common Stock hereunder and that no
federal or state securities administrator has recommended or endorsed the
offering of securities by the Company hereunder.
16. PRONOUNS
All pronouns and any variations thereof shall be deemed to refer
to the masculine, feminine or neuter, singular or plural, as the identity of the
person, persons, entity or entities may require.
17. FURTHER ASSISTANCE
Each party agrees to cooperate fully with the other parties and to
execute such further instruments, documents and agreements and to give such
further written assurances, as may be reasonably requested by any other party to
better evidence and reflect the transactions described herein and contemplated
hereby, and to carry into effect the intents and purposes of this Warrant.
6
<PAGE>
TradeOut.com, Inc.
By: /s/ George Samenuk
--------------------------
Title: CEO and President
ACCEPTED THIS 14 DAY OF MARCH 2000
GE Capital Equity Investments, Inc.
By /s/ Michael J. Donnelly
---------------------------------------
Name: Michael J. Donnelly
Title: SVP
7
<PAGE>
FORM OF WARRANT EXERCISE
(TO BE SIGNED ONLY ON EXERCISE OF WARRANT)
TO
____________________
The undersigned, the holder of the within Warrant, hereby
irrevocably elects to exercise this Warrant for, and to purchase thereunder,
______ shares of Common Stock of TradeOut.com, Inc., a Delaware corporation, and
/_/ herewith makes payment of $_____ therefor; or
/_/ exercises this warrant pursuant to the Net Issue Exercise
provisions as provided for in Section 1.3 of this Warrant.
The undersigned requests that the certificates for such shares to
be issued in the name of, and delivered to ___________, whose address is
___________.
Dated:
____________________________________________
(Signature must conform to name of holder as
specified on the face of the Warrant)
____________________________________________
(Address)
Tax Identification Number:
___________________
<PAGE>
SCHEDULE A
SCHEDULE OF VESTING OF WARRANT
<PAGE>
EXHIBIT 4.11
INVESTOR'S RIGHTS AGREEMENT
MARCH 14, 2000
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
----
<S> <C> <C>
1. REGISTRATION RIGHTS..................................................1
-------------------
1.1 Definitions.................................................1
1.2 Demand Registration.........................................2
1.3 Company Registration........................................4
1.4 Form S-3 Registration.......................................5
1.5 Obligations of the Company..................................6
1.6 Information from Holder.....................................7
1.7 Expenses of Registration....................................8
1.8 Delay of Registration.......................................8
1.9 Indemnification.............................................8
1.10 Reports Under Securities Exchange Act of 1934..............10
1.11 Assignment of Registration Rights..........................11
1.12 Limitations on Subsequent Registration Rights..............11
1.13 "Market Stand-Off"Agreement................................12
1.14 Termination of Registration Rights.........................12
2. COVENANTS...........................................................12
---------
2.1 Delivery of Financial Statements...........................12
2.2 Inspection.................................................13
2.3 Termination of Information and Inspection Covenants........13
2.4 Right of First Offer.......................................14
2.5 Key-Man Insurance..........................................15
2.6 Certain Corporate Transactions.............................16
2.7 Insurance..................................................16
2.8 Tax Compliance.............................................16
2.9 HSR Filing.................................................16
2.10 Termination of Certain Covenants...........................17
2.11 Right to Participate in Initial Public Offering............17
2.12 Company Required Repurchase................................17
2.13 Board of Directors.........................................18
3. MISCELLANEOUS.......................................................19
-------------
3.1 Successors and Assigns.....................................19
3.2 Governing Law..............................................19
3.3 Counterparts...............................................19
3.4 Titles and Subtitles.......................................19
3.5 Notices....................................................20
3.6 Expenses...................................................20
3.7 Entire Agreement Amendments and Waivers....................20
3.8 Severability...............................................20
3.9 Aggregation of Stock.......................................20
</TABLE>
i
<PAGE>
INVESTOR'S RIGHTS AGREEMENT
THIS INVESTOR'S RIGHTS AGREEMENT is made as of the 14th day of March 14,
2000 by and among TradeOut.com, Inc., a Delaware corporation (the "Company"),
and GE Capital Equity Investments, Inc., a Delaware corporation (the
"Investor").
RECITALS
WHEREAS, the Company and the Investor are party to that certain Series D
Preferred Stock and Warrant Purchase Agreement of even date herewith (the
"Series D Agreement"), which provides that as a condition to the closing of the
sale of the Series D Preferred Stock (the "Series D Preferred Stock") and
Warrants, this Agreement must be executed and delivered by such Investor and the
Company.
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, the parties hereto further agree as follows:
1. REGISTRATION RIGHTS. The Company covenants and agrees as follows:
<PAGE>
1.1 DEFINITIONS. For purposes of this Section 1:
(a) The term "Act" means the Securities Act of 1933, as amended.
(b) The term "Form S-3" means such form under the Act as in effect on
the date hereof or any registration form under the Act subsequently adopted by
the SEC that permits inclusion or incorporation of substantial information by
reference to other documents filed by the Company with the SEC.
(c) The term "Holder" means any person owning or having the right to
acquire Registrable Securities or any assignee thereof in accordance with
Section 1.11 hereof.
(d) The term "Initial Public Offering" means the Company's first firm
commitment underwritten public offering of its Common Stock under the Act.
(e) The term "1934 Act" means the Securities Exchange Act of 1934, as
amended.
(f) The term "Person" shall mean an individual, a corporation, a
partnership, a joint venture, a trust, an unincorporated organization, a limited
liability company, and any other entity or organization, governmental or
otherwise.
(g) The term "register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Act, and the declaration or ordering of
effectiveness of such registration statement or document.
(h) The term "Registrable Securities" means (i) the Common Stock
issuable or issued upon conversion of the Series D Preferred Stock, (ii) the
Common Stock issuable upon exercise of the Warrants and (iii) any Common Stock
of the Company issued as (or issuable upon the conversion or exercise of any
warrant, right or other security that is issued as) a dividend or other
distribution with respect to, or in exchange for, or in replacement of, the
shares referenced in clauses (i) and (ii) above, excluding in all cases,
however, any Registrable Securities sold by a person in a transaction in which
his rights under this Section 1 are not assigned.
(i) The term "Qualified IPO" means the Company's closing of a sale of
its Common Stock in a firm commitment underwritten public offering pursuant to a
registration statement on Form S-1 or Form SB-2 (or any successor form) under
the Securities Act of 1933, as amended, the public offering price of which was
not less than $5.38 per share (subject to appropriate adjustment for stock
splits, stock dividends, combinations and other recapitalizations) and
$35,000,000 in the aggregate, or any other public offering in which all
outstanding shares of the Company's Preferred Stock convert into shares of the
Company's Common Stock.
2
<PAGE>
(j) The number of shares of "Registrable Securities" outstanding shall
be determined by the number of shares of Common Stock outstanding that are, and
the number of shares of Common Stock issuable pursuant to then exercisable or
convertible securities that are, Registrable Securities.
(k) The term "SEC" shall mean the Securities and Exchange Commission.
(l) The term "Warrants" shall mean the warrants to purchase Common
Stock issued to the Investor pursuant to the Series D Agreement.
1.2 DEMAND REGISTRATION.
(a) If the Company shall receive at any time upon the earlier of (i)
six (6) months after the effective date of the first registration statement for
an Initial Public Offering, or (ii) two (2) years after the date hereof, a
written request from the Investor, or its Permitted Transferees, that the
Company file a registration statement under the Securities Act covering the
registration of at least that number of Registrable Securities anticipated to
yield gross proceeds of $10,000,000 in the case of an IPO and $3,000,000
otherwise, then the Company shall use its best efforts to file, as soon as
practicable and in any event within sixty (60) days of the receipt of such
request, a registration statement with the SEC under the Act covering all
Registrable Securities which the Investor or its Permitted Transferees requested
to be registered, subject to the limitations of Section 1.2(b), and thereafter
to use its best efforts to cause the registration statement to be declared
effective as soon as practicable.
(b) If the Holders initiating the registration request hereunder (the
"Initiating Holders") intend to distribute the Registrable Securities by means
of an underwriting, they shall so advise the Company as a part of their request
made pursuant to Section 1.2(a). The managing underwriter will be selected by
the Company and shall be reasonably acceptable to a majority in interest of the
Initiating Holders. In such event, the right of the Investor to include its
Registrable Securities in such registration shall be conditioned upon such
Investor's participation in such underwriting and the inclusion of such
Investor's Registrable Securities in the underwriting to the extent provided
herein. The Investor proposing to distribute its securities through such
underwriting shall enter into an underwriting agreement in customary form with
the underwriter or underwriters selected for such underwriting. Notwithstanding
any other provision of this Section 1.2, if the underwriter advises the
Initiating Holders that marketing factors require a limitation of the number of
shares to be underwritten, then the number of shares of Registrable Securities
that may be included in the underwriting shall be reduced to a number deemed
satisfactory by such managing underwriter, provided that the shares to be
excluded shall be determined in the following sequence: (i) first, securities
held by any other Persons (other than the Investor) having a contractual,
incidental "piggy back" right to include such securities in the registration
statement, (ii) second, shares sought to be registered by the Company, (iii)
third, Registrable Securities of Holders other than the Investor, and (iv)
fourth, Registrable Securities held by the Investor, it being understood that no
shares shall be registered for the account of the Company or any stockholder
other than the Investor unless all Registrable Securities for which Investor
have requested registration have been registered. Any reduction of the number of
Registrable Securities pursuant to clauses (ii), (iii) or (iv) shall be
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made on a PRO RATA basis (based upon the aggregate number of shares of Common
Stock or Registrable Securities held by the holders).
(c) Notwithstanding the foregoing, if the Company shall furnish to the
Initiating Holders a certificate signed by the Chief Executive Officer of the
Company stating that in the good faith judgment of the Board of Directors of the
Company it would be materially detrimental to the Company and its stockholders
for such registration statement to be filed and it is therefore essential to
defer the filing of such registration statement, the Company shall have the
right to defer taking action with respect to such filing for a period of not
more than one hundred and twenty (120) days after receipt of the request of the
Initiating Holders; provided, however, that the Company may not utilize this
right more than once in any twelve (12) month period.
(d) In addition, the Company shall not be obligated to effect, or to
take any action to effect, any registration pursuant to this Section 1.2:
(i) After the Company has effected two (2) registrations pursuant to
this Section 1.2 and such registration has been declared or ordered effective;
(ii) During the period starting with the date thirty (30) days prior
to the Company's good faith estimate of the date of filing of, and ending on a
date ninety (90) days after the effective date of, a registration subject to
Section 1.3 hereof; provided that the Company is actively employing in good
faith its best efforts to cause such registration statement to become effective;
or
(iii) If the Initiating Holders propose to dispose of shares of
Registrable Securities that may be immediately registered on Form S-3 pursuant
to a request made pursuant to Section 1.4 below.
1.3 COMPANY REGISTRATION.
(a) If (but without any obligation to do so) the Company, subsequent
to the earlier of (i) six (6) months after the effective date of the first
registration for an Initial Public Offering or (ii) two (2) years from the date
hereof, proposes to register (including for this purpose a registration effected
by the Company for stockholders other than the Holders) any of its stock or
other securities under the Act in connection with the public offering of such
securities (other than a registration relating solely to the sale of securities
to participants in a Company stock plan, a registration relating to a corporate
reorganization or other transaction under Rule 145 of the Act, a registration on
any form that does not include substantially the same information as would be
required to be included in a registration statement covering the sale of the
Registrable Securities, or a registration in which the only Common Stock being
registered is Common Stock issuable upon conversion of debt securities that are
also being registered), the Company shall, at such time, promptly give each
Holder written notice of such registration. Upon the written request of each
Holder given within twenty (20) days after mailing of such notice by the Company
in accordance with Section 3.5, the Company shall, subject to the
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provisions of Section 1.3(c), use all reasonable efforts to cause to be
registered under the Act all of the Registrable Securities that each such Holder
has requested to be registered.
(b) RIGHT TO TERMINATE REGISTRATION. The Company shall have the right
to terminate or withdraw any registration initiated by it under this Section 1.3
prior to the effectiveness of such registration whether or not any Holder has
elected to include securities in such registration. The expenses of such
withdrawn registration shall be borne by the Company in accordance with Section
1.7 hereof.
(c) UNDERWRITING REQUIREMENTS. In connection with any offering
involving an underwriting of shares of the Company's capital stock, the Company
shall not be required under this Section 1.3 to include any of the Holders'
securities in such underwriting unless they accept the terms of the underwriting
as agreed upon between the Company and the underwriters selected by it (or by
other persons entitled to select the underwriters) and enter into an
underwriting agreement in customary form with an underwriter or underwriters
selected by the Company, and then only in such quantity as the underwriters
determine in their sole discretion will not jeopardize the success of the
offering by the Company. If the total amount of securities, including
Registrable Securities, requested by stockholders to be included in such
offering exceeds the amount of securities sold other than by the Company that
the underwriters determine in their sole discretion is compatible with the
success of the offering, then the Company shall be required to include in the
offering only that number of such securities, including Registrable Securities,
that the underwriters determine in their sole discretion will not jeopardize the
success of the offering (the securities so included to be apportioned PRO RATA
among the selling stockholders according to the total amount of securities
entitled to be included therein owned by each selling stockholder or in such
other proportions as shall mutually be agreed to by such selling stockholders).
For purposes of the preceding parenthetical concerning apportionment, for any
selling stockholder that is a Holder of Registrable Securities and that is a
partnership or corporation, the partners, retired partners and stockholders and
affiliates of such Holder, or the estates and family members of any such
partners and retired partners and any trusts for the benefit of any of the
foregoing persons shall be deemed to be a single "selling Holder," and any PRO
RATA reduction with respect to such "selling Holder" shall be based upon the
aggregate amount of Registrable Securities owned by all such related entities
and individuals.
1.4 FORM S-3 REGISTRATION. In case the Company shall receive from a
Holder a written request or requests that the Company effect a registration on
Form S-3 and any related qualification or compliance with respect to all or a
part of the Registrable Securities owned by such Holder or Holders, the Company
shall:
(a) promptly give written notice of the proposed registration, and any
related qualification or compliance, to all other Holders; and
(b) use all reasonable efforts to effect, as soon as practicable, such
registration and all such qualifications and compliances as may be so requested
and as would permit or facilitate the sale and distribution of all or such
portion of such Holders' Registrable Securities as are specified in such
request, together with all or such portion of the Registrable Securities of any
other Holders joining in such request as are specified in a written request
given within fifteen (15) days after receipt of such written notice from the
Company, provided,
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however, that the Company shall not be obligated to effect any such
registration, qualification or compliance, pursuant to this Section 1.4:
(i) if Form S-3 is not available for such offering by the Holders;
(ii) if the Holders, together with the holders of any other securities
of the Company entitled to inclusion in such registration, propose to sell
Registrable Securities and such other securities (if any) at an aggregate price
to the public (net of any underwriters' discounts or commissions) of less than
$3,000,000;
(iii) if the Company shall furnish to the Holders a certificate signed
by the Chief Executive Officer of the Company stating that in the good faith
judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company and its stockholders for such Form S-3 Registration
to be effected at such time, in which event the Company shall have the right to
defer the filing of the Form S-3 registration statement for a period of not more
than one hundred twenty (120) days after receipt of the request of the Holder or
Holders under this Section 1.4; provided, however, that the Company shall not
utilize this right more than once in any twelve (12)-month period;
(iv) in any particular jurisdiction in which the Company would be
required to qualify to do business or to execute a general consent to service of
process in effecting such registration, qualification or compliance.
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(c) Subject to the foregoing, the Company shall file a registration
statement covering the Registrable Securities and other securities so requested
to be registered as soon as practicable after receipt of the request or requests
of the Holders. Notwithstanding anything to the contrary set forth above, the
Company shall not be obligated to file more than two (2) registration statements
under this Section 1.4 in any calendar year.
1.5 OBLIGATIONS OF THE COMPANY. Whenever required under this Section 1 to
effect the registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
(a) prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use all reasonable efforts to cause
such registration statement to become effective, and, upon the request of the
Holders of a majority of the Registrable Securities registered thereunder, keep
such registration statement effective for a period of up to one hundred twenty
(120) days or, if earlier, until the distribution contemplated in the
Registration Statement has been completed;
(b) prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Act with respect to the disposition of all securities covered by such
registration statement;
(c) furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Act, and such other documents as they may reasonably request in order to
facilitate the disposition of Registrable Securities owned by them;
(d) use all reasonable efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions;
(e) in the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter of such offering;
(f) notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act or the happening of any event as a result
of which the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing;
(g) cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange on which similar securities
issued by the Company are then listed; and
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(h) provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereunder and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration.
1.6 INFORMATION FROM HOLDER. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Section 1 with
respect to the Registrable Securities of any selling Holder that such Holder
shall furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of such securities
as shall be required to effect the registration of such Holder's Registrable
Securities.
1.7 EXPENSES OF REGISTRATION. All expenses other than underwriting
discounts and commissions incurred in connection with registrations, filings or
qualifications pursuant to Sections 1.2, 1.3 and 1.4, including (without
limitation) all registration, filing and qualification fees, printers' and
accounting fees, fees and disbursements of counsel for the Company and the
reasonable fees and disbursements of one counsel for the selling Holders shall
be borne by the Company. Notwithstanding the foregoing, the Company shall not be
required to pay for any expenses of any registration proceeding begun pursuant
to Section 1.4 if the registration request is subsequently withdrawn at the
request of the Holders of a majority of the Registrable Securities to be
registered (in which case all participating Holders shall bear such expenses PRO
RATA based upon the number of Registrable Securities that were to be requested
in the withdrawn registration), provided, however, that if at the time of such
withdrawal, the Holders have learned of a material adverse change in the
condition, business, or prospects of the Company from that known to the Holders
at the time of their request and have withdrawn the request with reasonable
promptness following disclosure by the Company of such material adverse change,
then the Holders shall not be required to pay any of such expenses and shall
retain their rights pursuant to Section 1.4.
1.8 DELAY OF REGISTRATION. No Holder shall have any right to obtain or seek
an injunction restraining or otherwise delaying any such registration as the
result of any controversy that might arise with respect to the interpretation or
implementation of this Section 1.
1.9 INDEMNIFICATION. In the event any Registrable Securities are included
in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder, the partners or officers, directors and stockholders
of each Holder, legal counsel and accountants for each Holder, any underwriter
(as defined in the Act) for such Holder and each person, if any, who controls
such Holder or underwriter within the meaning of the Act or the 1934 Act,
against any losses, claims, damages or liabilities (joint or several) to which
they may become subject under the Act, the 1934 Act or any state securities
laws, insofar as such losses, claims, damages, or liabilities (or actions in
respect thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively a "Violation"): (i) any untrue statement
or alleged untrue statement of a material fact contained in such registration
statement, including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto, (ii) the omission or alleged
omission to state
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therein a material fact required to be stated therein, or necessary to make the
statements therein not misleading, or (iii) any violation or alleged violation
by the Company of the Act, the 1934 Act, any state securities laws or any rule
or regulation promulgated under the Act, the 1934 Act or any state securities
laws; and the Company will reimburse each such Holder, underwriter or
controlling person for any legal or other expenses reasonably incurred by them,
as incurred, in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the indemnity agreement
contained in this subsection 1.9(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld), nor shall the Company be liable in any such case
for any such loss, claim, damage, liability or action to the extent that it
arises out of or is based upon a Violation that occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by any such Holder, underwriter or controlling person;
provided further, however, that the foregoing indemnity agreement with respect
to any preliminary prospectus shall not inure to the benefit of any Holder or
underwriter, or any person controlling such Holder or underwriter, from whom the
person asserting any such losses, claims, damages or liabilities purchased
shares in the offering, if a copy of the prospectus (as then amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto) was not sent or given by or on behalf of such Holder or underwriter to
such person, if required by law so to have been delivered, at or prior to the
written confirmation of the sale of the shares to such person, and if the
prospectus (as so amended or supplemented) would have cured the defect giving
rise to such loss, claim, damage or liability.
(b) To the extent permitted by law, each selling Holder will indemnify
and hold harmless the Company, each of its directors, each of its officers who
has signed the registration statement, each person, if any, who controls the
Company within the meaning of the Act, legal counsel and accountants for the
Company, any underwriter, any other Holder selling securities in such
registration statement and any controlling person of any such underwriter or
other Holder, against any losses, claims, damages or liabilities (joint or
several) to which any of the foregoing persons may become subject, under the
Act, the 1934 Act or any state securities laws, insofar as such losses, claims,
damages or liabilities (or actions in respect thereto) arise out of or are based
upon any Violation, in each case to the extent (and only to the extent) that
such Violation occurs in reliance upon and in conformity with written
information furnished by such Holder expressly for use in connection with such
registration; and each such Holder will reimburse any person intended to be
indemnified pursuant to this subsection 1.9(b), for any legal or other expenses
reasonably incurred by such person, as incurred, in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the indemnity agreement contained in this subsection
1.9(b) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the consent
of the Holder (which consent shall not be unreasonably withheld), provided that
in no event shall any indemnity under this subsection 1.9(b) or contribution by
a Holder under subsection 1.9(d) exceed the net proceeds from the offering
received by such Holder.
(c) Promptly after receipt by an indemnified party under this Section
1.9 of notice of the commencement of any action (including any governmental
action),
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such indemnified party will, if a claim in respect thereof is to be made against
any indemnifying party under this Section 1.9, deliver to the indemnifying party
a written notice of the commencement thereof and the indemnifying party shall
have the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
the defense thereof with counsel mutually satisfactory to the parties; provided,
however, that an indemnified party (together with all other indemnified parties
that may be represented without conflict by one counsel) shall have the right to
retain one separate counsel, with the fees and expenses to be paid by the
indemnifying party, if representation of such indemnified party by the counsel
retained by the indemnifying party would be inappropriate due to actual or
potential differing interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to deliver written
notice to the indemnifying party within a reasonable time of the commencement of
any such action, if prejudicial to its ability to defend such action, shall
relieve such indemnifying party of any liability to the indemnified party under
this Section 1.9, to the extent it has been so prejudiced, but the omission so
to deliver written notice to the indemnifying party will not relieve it of any
liability that it may have to any indemnified party otherwise than under this
Section 1.9.
(d) If the indemnification provided for in this Section 1.9 is held by
a court of competent jurisdiction to be unavailable to an indemnified party with
respect to any loss, liability, claim, damage or expense referred to herein,
then the indemnifying party, in lieu of indemnifying such indemnified party
hereunder, shall contribute to the amount paid or payable by such indemnified
party as a result of such loss, liability, claim, damage or expense in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party on the one hand and of the indemnified party on the other in connection
with the statements or omissions that resulted in such loss, liability, claim,
damage or expense, as well as any other relevant equitable considerations;
provided that such contribution shall not exceed the net proceeds from the
offering received by such Holder. The relative fault of the indemnifying party
and of the indemnified party shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
(e) Notwithstanding the foregoing, to the extent that the provisions
on indemnification and contribution contained in the underwriting agreement
entered into in connection with the underwritten public offering are in conflict
with the foregoing provisions, the provisions in the underwriting agreement
shall control.
(f) The obligations of the Company and Holders under this Section 1.9
shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 1, and otherwise.
1.10 REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a view to making
available to the Holders the benefits of Rule 144 promulgated under the Act and
any other rule or regulation of the SEC that may at any time permit a Holder to
sell securities of the Company to the public without registration or pursuant to
a registration on Form S-3, the Company agrees to:
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(a) make and keep public information available, as those terms are
understood and defined in SEC Rule 144, at all times after ninety (90) days
after the effective date of the Initial Public Offering;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934 Act; and
(c) furnish to any Holder, so long as the Holder owns any Registrable
Securities, forthwith upon request (i) a written statement by the Company that
it has complied with the reporting requirements of SEC Rule 144 (at any time
after ninety (90) days after the effective date of the first registration
statement filed by the Company), the Act and the 1934 Act (at any time after it
has become subject to such reporting requirements), or that it qualifies as a
registrant whose securities may be resold pursuant to Form S-3 (at any time
after it so qualifies), (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably requested in
availing any Holder of any rule or regulation of the SEC that permits the
selling of any such securities without registration or pursuant to such form.
1.11 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the
Company to register Registrable Securities pursuant to this Section 1 may be
assigned (but only with all related obligations) by a Holder to a transferee or
assignee of such securities (a "Permitted Transferee") that (i) is a subsidiary,
affiliate or parent of a Holder or (ii) after such assignment or transfer, holds
at least 300,000 shares of Registrable Securities (subject to appropriate
adjustment for stock splits, stock dividends, combinations and other
recapitalizations), provided: (a) the Company is, within a reasonable time after
such transfer, furnished with written notice of the name and address of such
transferee or assignee and the securities with respect to which such
registration rights are being assigned; (b) such transferee or assignee agrees
in writing to be bound by and subject to the terms and conditions of this
Agreement, including without limitation the provisions of Section 1.13 below;
and (c) such assignment shall be effective only if immediately following such
transfer the further disposition of such securities by the transferee or
assignee is restricted under the Act.
1.12 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and after the
date of this Agreement, the Company shall not, without the prior written consent
of the Holders of a majority of the Registrable Securities, enter into any
agreement with any holder or prospective holder of any securities of the Company
that would allow such holder or prospective holder (a) to include such
securities in any registration filed under Section 1.3 hereof, unless under the
terms of such agreement, such holder or prospective holder may include such
securities in any such registration only to the extent that the inclusion of
such securities will not reduce the amount of the Registrable Securities of the
Holders that are included or (b) to demand registration of their securities.
1.13 "MARKET STAND-OFF" AGREEMENT. Each Holder hereby agrees that it
will not, without the prior written consent of the managing underwriter, during
the period commencing on the date of the final prospectus relating to the
Company's Initial Public Offering and ending on the date specified by the
Company and the managing underwriter (such period not to exceed one hundred
eighty (180) days) (i) lend, offer, pledge, sell, contract to sell, sell any
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option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase, or otherwise transfer or dispose of,
directly or indirectly, any shares of Common Stock or any securities convertible
into or exercisable or exchangeable for Common Stock (whether such shares or any
such securities are then owned by the Holder or are thereafter acquired), or
(ii) enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the Common
Stock, whether any such transaction described in clause (i) or (ii) above is to
be settled by delivery of Common Stock or such other securities, in cash or
otherwise. The foregoing provisions of this Section 1.13 shall apply only to the
Company's Initial Public Offering of equity securities, shall not apply to the
sale of any shares to an underwriter pursuant to an underwriting agreement, and
shall only be applicable to the Holders if all officers and directors and
greater than two percent (2%) stockholders of the Company enter into similar
agreements. Notwithstanding the foregoing, the Holder may make a transfer to an
affiliate, provided that such transferee shall agree in writing to be bound by
the restrictions set forth herein. The underwriters in connection with the
Company's Initial Public Offering are intended third party beneficiaries of this
Section 1.13 and shall have the right, power and authority to enforce the
provisions hereof as though they were a party hereto. The agreement contained in
this Section 1.13 shall be subject to other customary terms to be agreed upon by
the Holder and the managing underwriter.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of each
Holder (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
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1.14 TERMINATION OF REGISTRATION RIGHTS. No Holder shall be entitled
to exercise any right provided for in this Section 1 at such time at which all
Registrable Securities held by such Holder (and any affiliate of the Holder with
whom such Holder must aggregate its sales under Rule 144) can be sold in any
three (3)-month period without registration in compliance with Rule 144 of the
Act.
2. COVENANTS.
2.1 DELIVERY OF FINANCIAL STATEMENTS. The Company shall deliver to the
Investor:
(a) as soon as practicable, but in any event within ninety (90) days
after the end of each fiscal year of the Company, an income statement for such
fiscal year, a balance sheet of the Company and statement of stockholder's
equity as of the end of such year, and a statement of cash flows for such year,
such year-end financial reports to be in reasonable detail, prepared in
accordance with generally accepted accounting principles ("GAAP"), and audited
and certified by independent public accountants of nationally recognized
standing selected by the Company;
(b) as soon as practicable, but in any event within forty-five (45)
days after the end of each of the first three (3) quarters of each fiscal year
of the Company, an unaudited income statement, statement of cash flows for such
fiscal quarter and an unaudited balance sheet as of the end of such fiscal
quarter.
(c) within thirty (30) days of the end of each month, an unaudited
income statement and statement of cash flows and balance sheet for and as of the
end of such month, in reasonable detail;
(d) as soon as practicable, but in any event at least thirty (30) days
prior to the end of each fiscal year, a budget and business plan for the next
fiscal year, prepared on a monthly basis, including balance sheets, income
statements and statements of cash flows for such months and, as soon as
prepared, any other budgets or revised budgets prepared by the Company;
(e) with respect to the financial statements called for in subsections
(b) and (c) of this Section 2.1, an instrument executed by the Chief Financial
Officer or President of the Company certifying that such financials were
prepared in accordance with GAAP consistently applied with prior practice for
earlier periods (with the exception of footnotes that may be required by GAAP)
and fairly present the financial condition of the Company and its results of
operation for the period specified, subject to year-end audit adjustment; and
(f) such other information relating to the financial condition,
business, prospects or corporate affairs of the Company as the Investor or any
assignee of the Investor may from time to time reasonably request, provided,
however, that the Company shall not be obligated under this subsection (f) or
any other subsection of Section 2.1 to provide information that it deems in good
faith to be a trade secret or similar confidential information.
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2.2 INSPECTION. The Company shall permit the Investor, at such
Investor's expense, to visit and inspect the Company's properties, to examine
its books of account and records and to discuss the Company's affairs, finances
and accounts with its officers, all at such reasonable times and upon reasonable
notice, as may be requested by the Investor, provided, however, that the Company
shall not be obligated pursuant to this Section 2.2 to provide access to any
information that it reasonably considers to be a trade secret or similar
confidential information.
2.3 TERMINATION OF INFORMATION AND INSPECTION COVENANTS. The covenants
set forth in Sections 2.1 and 2.2 shall terminate and shall be of no further
force or effect when the sale of securities pursuant to a registration statement
filed by the Company under the Act when (i) the Initial Public Offering is
consummated or (ii) the Company first becomes subject to the periodic reporting
requirements of Sections 12(g) or 15(d) of the 1934 Act, whichever event shall
first occur.
2.4 RIGHT OF FIRST OFFER. Subject to the terms and conditions
specified in this Section 2.4, the Company hereby grants to the Investor a right
of first offer with respect to future sales by the Company of its Shares (as
hereinafter defined). Each time the Company proposes to offer any shares of, or
securities convertible into or exchangeable or exercisable for any shares of,
any class of its capital stock ("Shares"), the Company shall first make an
offering of such Shares to the Investor in accordance with the following
provisions:
(a) The Company shall deliver a notice in accordance with Section 3.6
("Notice") to the Investor stating (i) its BONA FIDE intention to offer such
Shares, (ii) the number of such Shares to be offered, and (iii) the price and
terms upon which it proposes to offer such Shares.
(b) By written notification received by the Company, within twenty
(20) calendar days after receipt of the Notice, the Investor may elect to
purchase or obtain, at the price and on the terms specified in the Notice, up to
that portion of such Shares that equals the proportion that the number of shares
of Common Stock issued and held, or issuable upon conversion of the Series D
Preferred Stock and upon exercise of the then-exercisable Warrants, then held by
such Investor, bears to the total number of shares of Common Stock of the
Company then outstanding (assuming full conversion and exercise of all
convertible and exercisable securities).
(c) If all Shares that the Investor is entitled to obtain pursuant to
subsection 2.4(b) are not elected to be obtained as provided in subsection
2.4(b) hereof, the Company may, during the ninety (90) day period following the
expiration of the period provided in subsection 2.4(b) hereof, offer the
remaining unsubscribed portion of such Shares to any person or persons at a
price not less than, and upon terms no more favorable to the offeree than those
specified in the Notice. If the Company does not enter into an agreement for the
sale of the Shares within such period, or if such agreement is not consummated
within ninety (90) days of the execution thereof, the right provided hereunder
shall be deemed to be revived and such Shares shall not be offered unless first
reoffered to the Investor in accordance herewith.
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(d) The right of first offer in this Section 2.4 shall not be
applicable to (i) the issuance or sale of shares of Common Stock (or options
therefor) to employees, officers, directors and consultants for the primary
purpose of soliciting or retaining their services; (ii) the issuance of
securities pursuant to an Initial Public Offering, (iii) the issuance of
securities pursuant to the conversion or exercise of convertible or exercisable
securities, (iv) the issuance of securities in connection with a BONA FIDE
business acquisition of or by the Company, whether by merger, consolidation,
sale of assets, sale or exchange of stock or otherwise or (v) the issuance of
stock, warrants or other securities or rights to persons or entities with which
the Company has business relationships provided such issuances are for other
than primarily equity financing purposes.
If the issuance referred to in the foregoing clause (iv) or (v) is to
an affiliate of the Company, then the issuance shall be subject to the right of
first offer in this Section 2.4 unless the issuance is approved by a majority of
the Board of Directors excluding, for such determination, any director that is
an affiliate of the person or entity to receive the issuance. An "affiliate" of,
or a person "affiliated" with, a specified person shall mean a person that
directly, or indirectly through one or more intermediaries, controls or is
controlled by, or is under common control with, the person specified.
15
<PAGE>
2.5 KEY-MAN INSURANCE. The Company shall maintain in full force and
effect term life insurance in the amount of not less than $1,000,000 on the life
of Brin McCagg, with proceeds payable to the Company, and shall, by no later
than the earlier of the consummation of a Qualified IPO or June 1, 2000, obtain
and maintain in full force and effect term life insurance in the amount of not
less than $1,000,000 on the life of George Samenuk, with proceeds payable to the
Company.
2.6 CERTAIN CORPORATE TRANSACTIONS. The Company shall not without
first obtaining the approval of the holders of at least a majority of the then
outstanding shares of Series D Preferred Stock: (i) sell, convey, or otherwise
dispose of all or substantially all of its property or business to an affiliate
of the Company, (ii) merge into or consolidate with any other corporation or
other entity that is an affiliate of the Company, (iii) effect any transaction
or series of related transactions with an affiliate of the Company after which
such affiliate owns more than fifty percent (50%) of the voting power of the
Company, (iv) make any acquisition or investment outside the ordinary course of
its business in excess of $5,000,000 or, (v) sell, convey or otherwise dispose
of any assets outside the ordinary course of its business in excess of
$5,000,000. An "affiliate" of, or a person "affiliated" with, a specified person
shall mean a person that directly, or indirectly through one or more
intermediaries, controls or is controlled by, or is under common control with,
the person specified.
2.7 INSURANCE. The Company shall and shall cause each subsidiary of
the Company to maintain insurance covering, without limitation, fire, theft,
burglary, public liability, property damage, product liability, workers'
compensation, directors' and officers' insurance and insurance on all property
and assets material to the operation of the business, all in amounts customary
for the industry. The Company shall, and shall cause each of its subsidiaries
to, pay all insurance premiums payable by them.
2.8 TAX COMPLIANCE. The Company shall pay all transfer, excise or
similar taxes (not including income or franchise taxes) in connection with the
issuance, sale, delivery or transfer by the Company to the Investor of the
Series D Preferred Stock and the Common Stock issuable upon conversion thereof,
and shall indemnify and save the Investor harmless without limitation as to time
against any and all liabilities with respect to such taxes. The Company shall
not be responsible for any taxes in connection with the transfer of the Series D
Preferred Stock or such Common Stock by the holder thereof. The obligations of
the Company under this Section 2.8 shall survive the conversion or redemption of
the Series D Preferred Stock and the termination of this Agreement.
2.9 HSR FILING. Each of the Investor and the Company shall use all
reasonable efforts to file the notifications and all other information required
to be filed under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and any rules and regulations promulgated thereunder, with respect to
the transactions contemplated thereby.
2.10 TERMINATION OF CERTAIN COVENANTS. The covenants set forth in
Sections 2.4, 2.5 and 2.6 shall terminate and be of no further force or effect
upon the consummation of a Qualified IPO.
16
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2.11 RIGHT TO PARTICIPATE IN INITIAL PUBLIC OFFERING. The Company
hereby agrees that in connection with the Company's Initial Public Offering, it
shall require the managing underwriter or underwriters of such Initial Public
Offering to offer to the Investor the right to purchase shares of the Company's
Common Stock in an amount equal to the greater of (i) 300,000 shares or (ii) 3%
of the aggregate amount of Common Stock sold by the Company in the Initial
Public Offering, on the same terms and at the same price as the Common Stock is
offered to the public in the Initial Public Offering. All actions taken pursuant
to this Section 2.8 shall be made in accordance with all federal and state
securities laws, including Rule 134 under the Act or any successor provisions.
In the event that, for any reason, the Investor is not offered the right to
participate in the Company's Initial Public Offering, the Company shall offer to
the Investor, pursuant to a sale exempt from the registration requirements of
the Act, the right to purchase an equivalent amount of Common Stock at a price
per share equal to the price at which the Common Stock is offered to the public,
less the underwriter's discount. Such shares shall be deemed Registrable
Securities hereunder.
2.12 COMPANY REQUIRED REPURCHASE. The Company shall be required to
repurchase the Series D Preferred Stock, or the Common Stock issued upon
conversion thereof, at a price per share equal to 125% of the purchase price per
share paid for each such share by the Investor pursuant to the Series D
Agreement (subject to appropriate adjustment for stock splits, stock dividends,
combinations and other recapitalizations), as follows:
(a) in the event that prior to the first anniversary of the Launch
Date Aggregate Revenues are less than $599,999, the Company shall be required to
repurchase 1,859,275 shares; and
(b) in the event that prior to the first anniversary of the Launch
Date Aggregate Revenues are greater than $599,999, but less than $4,200,000, the
Company shall be required to repurchase such shares as set forth below:
Y = (1 - (AR - 600,000)) x 1,394,456
------------
3,600,000
Y = Number of shares to be repurchased
AR = Aggregate Revenues
For purposes of this Section 2.12, "Aggregate Revenues" shall mean the
aggregate of the following (capitalized terms shall have the meanings ascribed
to them in the Strategic Alliance Agreement between the Company and General
Electric Capital Corporation of even date herewith): (i) Revenues collected by
Company during the specified period; (ii) Listing Fees collected during the
specified period by Company from Qualifying Registrants, except for such Listing
Fees with respect to machine tools and electrical equipment posted on the
TradeOut Site or a Promotional Site; and (iii) commissions collected during the
specified period by Company in respect of (a) any Asset bought by a Qualifying
Registrant using either the TradeOut Site or a Promotional Site, except with
respect to machine tools or electrical equipment purchased from a seller other
than GEC, a GEC Affiliate, or another Qualifying Customer, and (b) any Asset,
except for machine tools and electrical equipment, that a Qualified Registrant
has
17
<PAGE>
posted on the TradeOut Site or a Promotional Site and sold using either the
TradeOut Site, a Promotional Site or a TradeOut-authorized liquidation service;
provided, however, that categories (ii) and (iii) shall not include any Listing
Fees or commissions from Qualifying Registrants who prior to the first
anniversary of the Launch Date are designated Qualifying Customers by GEC.
18
<PAGE>
(c) The Company shall deliver a notice to the Investor within 60
days of the first anniversary of the Launch Date stating the number of shares to
be repurchased and the manner of calculation thereof. The purchase of such
shares shall be completed within 30 days of the delivery of such notice.
(d) For purposes hereof, "Launch Date" and "Revenues" shall have
the meaning ascribed to such terms in the Strategic Alliance Agreement (as
defined in the Series D Agreement).
(e) The Investor shall not sell, assign, transfer, pledge,
hypothecate, mortgage, encumber or dispose of all or any of the Series D
Preferred Stock without the Company's prior written consent until the
termination of the period set forth in Section 2.9(c) above, unless any such
transferee shall agree in writing with the Company, as a condition precedent to
such transfer, to be bound by Section 2.9 of this Agreement to the same extent
as such transferee were the Investor.
2.13 BOARD OF DIRECTORS.
(a) The Board of Directors of the Company shall consist of up to
nine (9) members. Subject to applicable laws, rules and regulations, upon
termination or expiration of all waiting periods under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 applicable to the transactions contemplated
by the Series D Agreement, so long as the Investor owns at least fifty percent
(50%) of the Series D Preferred Stock issued to it pursuant to the Series D
Agreement (or common stock issued on conversion thereof), the Investor shall be
entitled to designate one director, whom shall be reasonably acceptable to the
Company and who initially shall be Denis Nayden. The Company shall reimburse
each director designated by the holders of the Series D Preferred Stock (or
common stock issued on conversion thereof) for any reasonable expenses incurred
in connection with meetings of the Board of Directors and committees thereof.
(b) Subject to applicable laws, rules and regulations, so long as
the Investor owns at least fifty percent (50%) of the Series D Preferred Stock
issued to it pursuant to the Series D Agreement (or common stock issued on
conversion thereof), the Investor shall be entitled to designate one individual,
whom shall be acceptable to the Company, to attend the Company's meetings of the
Board of Directors, PROVIDED that such designee shall enter into a
confidentiality agreement, in form and substance reasonably acceptable to the
Company, as a condition precedent to such attendance.
3. MISCELLANEOUS.
3.1 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties (including
transferees of any shares of Registrable Securities); PROVIDED, HOWEVER, that,
except as otherwise set forth in Section 1.11 above, and except for a transfer
by the Investor to a transferee holding at least fifteen percent (15%) of the
Series D Preferred Stock (or common stock upon conversion thereof), the rights
and obligations of the Investor hereunder may not be assigned without the prior
written consent of
19
<PAGE>
the Company, which consent shall not be unreasonably withheld. Nothing in this
Agreement, express or implied, is intended to confer upon any party other than
the parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.
3.2 GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of New York as applied to agreements among New York
residents entered into and to be performed entirely within New York. Each party
hereby irrevocably submits to the jurisdiction of the courts of the State of New
York and the Federal courts of the United States of America located in the
State, City and County of New York solely in respect of the interpretation and
enforcement of the provisions of this Agreement and of the documents referred to
in this Agreement, and hereby waives any objection based on improper venue or
FORUM NON CONVENIENS to the conduct of proceedings in any such court. Each party
hereby waives trial by jury in any judicial proceeding arising out of, related
to or brought in connection with this Agreement and the documents referred to in
this Agreement.
3.3 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
3.4 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
3.5 NOTICES. Unless otherwise provided, any notice required or
permitted by this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or upon
delivery by confirmed facsimile transmission, nationally recognized overnight
courier service, or upon deposit with the United States Post Office, by
registered or certified mail, postage prepaid and addressed to the party to be
notified at the address indicated for such party on the signature page hereof,
or at such other address as such party may designate by ten (10) days' advance
written notice to the other parties.
3.6 EXPENSES. If any action at law or in equity is necessary to enforce
or interpret the terms of this Agreement, the prevailing party shall be entitled
to reasonable attorneys' fees, costs and necessary disbursements in addition to
any other relief to which such party may be entitled.
3.7 ENTIRE AGREEMENT AMENDMENTS AND WAIVERS. This Agreement (including
the Exhibits hereto, if any) constitutes the full and entire understanding and
agreement among the parties with regard to the subjects hereof and thereof. Any
term of this Agreement may be amended and the observance of any term of this
Agreement may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and the holders of at least a majority of the Registrable Securities. Any
amendment or waiver effected in accordance with this paragraph shall be binding
upon each holder of any Registrable Securities each future holder of all such
Registrable Securities, and the Company.
20
<PAGE>
3.8 SEVERABILITY. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, such provision shall be excluded from
this Agreement and the balance of the Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
3.9 AGGREGATION OF STOCK. All shares of Registrable Securities held or
acquired by affiliated entities or persons shall be aggregated together for the
purpose of determining the availability of any rights under this Agreement.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
COMPANY:
TRADEOUT.COM, INC.
By: /s/ George Samenuk
-------------------------------------------
Title: President and Chief Executive Officer
GE CAPITAL EQUITY INVESTMENTS, INC.
By: /s/ Michael J. Donnelly
--------------------------------------------
Title: SVP
22
<PAGE>
Exhibit 4.12
AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
MARCH 14, 2000
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C> <C>
1. Registration Rights...........................................................1
1.1 Definitions..........................................................1
1.2 Intentionally Omitted................................................2
1.3 Company Registration.................................................2
1.4 Form S-3 Registration................................................3
1.5 Obligations of the Company...........................................4
1.6 Information from Holder..............................................5
1.7 Expenses of Registration.............................................5
1.8 Delay of Registration................................................6
1.9 Indemnification......................................................6
1.10 Reports Under Securities Exchange Act of 1934........................8
1.11 Assignment of Registration Rights....................................9
1.12 Limitations on Subsequent Registration Rights........................9
1.13 "Market Stand-Off"Agreement..........................................9
1.14 Termination of Registration Rights..................................10
2. Covenants of the Company.....................................................10
2.1 Delivery of Financial Statements....................................10
2.2 Inspection..........................................................11
2.3 Termination of Information and Inspection Covenants.................11
2.4 Right of First Offer................................................11
2.5 Observation Rights..................................................13
2.6 Key-Man Insurance...................................................13
2.7 Certain Corporate Transactions......................................13
2.8 Right of First Refusal and Co-Sale Agreement........................13
2.9 Termination of Certain Covenants....................................13
3. Miscellaneous................................................................13
3.1 Prior Agreement.....................................................13
3.2 Successors and Assigns..............................................13
3.3 Governing Law.......................................................14
3.4 Counterparts........................................................14
3.5 Titles and Subtitles................................................14
3.6 Notices.............................................................14
3.7 Expenses............................................................14
3.8 Entire Agreement Amendments and Waivers.............................14
3.9 Severability........................................................15
3.10 Aggregation of Stock................................................15
3.9 Severability........................................................16
3.10 Aggregation of Stock................................................16
</TABLE>
i
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AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
THIS INVESTORS' RIGHTS AGREEMENT is made as of the 14 day of
March, 2000, by and among TradeOut.com, Inc., a Delaware corporation (the
"Company"), and the investors listed on SCHEDULE A hereto, each of which is
herein referred to as an "Investor."
RECITALS
WHEREAS, certain of the Investors (the "Existing Investors")
and the Company are parties to an Investors' Rights Agreement dated as of
October 18, 1999 (the "Prior Agreement") which they now desire to amend and
restate in its entirety; and
WHEREAS, certain of the Investors and the Company are parties
to the Series E Preferred Stock and Warrant Purchase Agreement of even date
herewith (the "Series E Agreement"), which provides that as a condition to the
closing of the sale of the Series E Preferred Stock (the "Series E Preferred
Stock") and Warrants, this Agreement must be executed and delivered by such
Investors, the Existing Investors and the Company.
NOW, THEREFORE, in consideration of the mutual promises and
covenants set forth herein, the Existing Investors hereby agree that the Prior
Agreement shall be terminated and superseded by this Agreement, and the parties
hereto further agree as follows:
1. REGISTRATION RIGHTS. The Company covenants and agrees as
follows:
1.1 DEFINITIONS. For purposes of this Section 1:
(a) The term "Act" means the Securities Act of 1933, as
amended.
(b) The term "Form S-3" means such form under the Act
as in effect on the date hereof or any registration form under the Act
subsequently adopted by the SEC that permits inclusion or incorporation of
substantial information by reference to other documents filed by the Company
with the SEC.
(c) The term "Holder" means any person owning or having
the right to acquire Registrable Securities or any assignee thereof in
accordance with Section 1.11 hereof.
(d) The term "Initial Public Offering" means the
Company's first firm commitment underwritten public offering of its Common Stock
under the Act.
(e) The term "1934 Act" means the Securities Exchange
Act of 1934, as amended.
(f) The term "register," "registered," and
"registration" refer to a registration effected by preparing and filing a
registration statement or similar document in
<PAGE>
compliance with the Act, and the declaration or ordering of effectiveness of
such registration statement or document.
(g) The term "Registrable Securities" means (i) the
Common Stock issuable or issued upon conversion of the Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock and the Series E Preferred
Stock, (ii) the Common Stock issuable upon exercise of the Warrants and (iii)
any Common Stock of the Company issued as (or issuable upon the conversion or
exercise of any warrant, right or other security that is issued as) a dividend
or other distribution with respect to, or in exchange for, or in replacement of,
the shares referenced in clauses (i) and (ii) above, excluding in all cases,
however, any Registrable Securities sold by a person in a transaction in which
his rights under this Section 1 are not assigned.
(h) The term "Qualified IPO" means the Company's
closing of a sale of its Common Stock in a firm commitment underwritten public
offering pursuant to a registration statement on Form S-1 or Form SB-2 (or any
successor form) under the Securities Act of 1933, as amended, the public
offering price of which was not less than $5.38 per share and the proceeds of
which are not less than $35,000,000 in the aggregate, or any other public
offering in which all outstanding shares of the Company's Preferred Stock
convert into shares of the Company's Common Stock.
(i) The number of shares of "Registrable Securities"
outstanding shall be determined by the number of shares of Common Stock
outstanding that are, and the number of shares of Common Stock issuable pursuant
to then exercisable or convertible securities that are, Registrable Securities.
(j) The term "SEC" shall mean the Securities and
Exchange Commission.
(k) The term "Warrants" shall mean any warrants to
purchase Common Stock issued to the Investors (including the Existing Investors
and the Investors purchasing the Series E Preferred Stock).
1.2 INTENTIONALLY OMITTED.
1.3 COMPANY REGISTRATION.
(a) If (but without any obligation to do so) the
Company proposes to register (including for this purpose a registration effected
by the Company for stockholders other than the Holders) any of its stock or
other securities under the Act in connection with the public offering of such
securities (other than a registration relating solely to the sale of securities
to participants in a Company stock plan, a registration relating to a corporate
reorganization or other transaction under Rule 145 of the Act, a registration on
any form that does not include substantially the same information as would be
required to be included in a registration statement covering the sale of the
Registrable Securities, or a registration in which the only Common Stock being
registered is Common Stock issuable upon conversion of debt securities that are
also being registered), the Company shall, at such time, promptly give each
Holder written notice of such registration. Upon the written request of each
2
<PAGE>
Holder given within twenty (20) days after mailing of such notice by the Company
in accordance with Section 3.6, the Company shall, subject to the provisions of
Section 1.3(c), use all reasonable efforts to cause to be registered under the
Act all of the Registrable Securities that each such Holder has requested to be
registered.
(b) RIGHT TO TERMINATE REGISTRATION. The Company shall
have the right to terminate or withdraw any registration initiated by it under
this Section 1.3 prior to the effectiveness of such registration whether or not
any Holder has elected to include securities in such registration. The expenses
of such withdrawn registration shall be borne by the Company in accordance with
Section 1.7 hereof.
(c) UNDERWRITING REQUIREMENTS. In connection with any
offering involving an underwriting of shares of the Company's capital stock, the
Company shall not be required under this Section 1.3 to include any of the
Holders' securities in such underwriting unless they accept the terms of the
underwriting as agreed upon between the Company and the underwriters selected by
it (or by other persons entitled to select the underwriters) and enter into an
underwriting agreement in customary form with an underwriter or underwriters
selected by the Company, and then only in such quantity as the underwriters
determine in their sole discretion will not jeopardize the success of the
offering by the Company. If the total amount of securities, including
Registrable Securities, requested by stockholders to be included in such
offering exceeds the amount of securities sold other than by the Company that
the underwriters determine in their sole discretion is compatible with the
success of the offering, then the Company shall be required to include in the
offering only that number of such securities, including Registrable Securities,
that the underwriters determine in their sole discretion will not jeopardize the
success of the offering (the securities so included to be apportioned pro rata
among the selling stockholders according to the total amount of securities
entitled to be included therein owned by each selling stockholder or in such
other proportions as shall mutually be agreed to by such selling stockholders),
but in no event shall (i) the amount of securities of the selling Holders
included in the offering be reduced below thirty percent (30%) of the total
amount of securities included in such offering, unless such offering is the
initial public offering of the Company's securities, in which case the selling
Holders may be excluded if the underwriters make the determination described
above and no other stockholder's securities are included. For purposes of the
preceding parenthetical concerning apportionment, for any selling stockholder
that is a Holder of Registrable Securities and that is a partnership or
corporation, the partners, retired partners and stockholders of such Holder, or
the estates and family members of any such partners and retired partners and any
trusts for the benefit of any of the foregoing persons shall be deemed to be a
single "selling Holder," and any pro rata reduction with respect to such
"selling Holder" shall be based upon the aggregate amount of Registrable
Securities owned by all such related entities and individuals.
1.4 FORM S-3 REGISTRATION. In case the Company shall receive
from the Holders of at least twenty percent (20%) of the Registrable Securities
a written request or requests that the Company effect a registration on Form S-3
and any related qualification or compliance with respect to all or a part of the
Registrable Securities owned by such Holder or Holders, the Company shall:
3
<PAGE>
(a) promptly give written notice of the proposed
registration, and any related qualification or compliance, to all other Holders;
and
(b) use all reasonable efforts to effect, as soon as
practicable, such registration and all such qualifications and compliances as
may be so requested and as would permit or facilitate the sale and distribution
of all or such portion of such Holders' Registrable Securities as are specified
in such request, together with all or such portion of the Registrable Securities
of any other Holders joining in such request as are specified in a written
request given within fifteen (15) days after receipt of such written notice from
the Company, provided, however, that the Company shall not be obligated to
effect any such registration, qualification or compliance, pursuant to this
Section 1.4:
(i) if Form S-3 is not available for such
offering by the Holders;
(ii) if the Holders, together with the holders
of any other securities of the Company entitled to inclusion in such
registration, propose to sell Registrable Securities and such other securities
(if any) at an aggregate price to the public (net of any underwriters' discounts
or commissions) of less than $10,000,000;
(iii) if the Company shall furnish to the
Holders a certificate signed by the Chief Executive Officer or Chairman of the
Board of the Company stating that in the good faith judgment of the Board of
Directors of the Company, it would be seriously detrimental to the Company and
its stockholders for such Form S-3 Registration to be effected at such time, in
which event the Company shall have the right to defer the filing of the Form S-3
registration statement for a period of not more than one hundred twenty (120)
days after receipt of the request of the Holder or Holders under this Section
1.4; provided, however, that the Company shall not utilize this right more than
once in any twelve (12)-month period;
(iv) if the Company has already effected four
(4) registrations on Form S-3 for the Holders pursuant to this Section 1.4; or
(v) in any particular jurisdiction in which
the Company would be required to qualify to do business or to execute a general
consent to service of process in effecting such registration, qualification or
compliance.
(c) Subject to the foregoing, the Company shall file a
registration statement covering the Registrable Securities and other securities
so requested to be registered as soon as practicable after receipt of the
request or requests of the Holders.
1.5 OBLIGATIONS OF THE COMPANY. Whenever required under this
Section 1 to effect the registration of any Registrable Securities, the Company
shall, as expeditiously as reasonably possible:
(a) prepare and file with the SEC a registration
statement with respect to such Registrable Securities and use all reasonable
efforts to cause such registration statement to become effective, and, upon the
request of the Holders of a majority of the Registrable Securities registered
thereunder, keep such registration statement effective for a
4
<PAGE>
period of up to one hundred twenty (120) days or, if earlier, until the
distribution contemplated in the Registration Statement has been completed;
(b) prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Act with respect to the disposition of all securities covered
by such registration statement;
(c) furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as they may reasonably request
in order to facilitate the disposition of Registrable Securities owned by them;
(d) use all reasonable efforts to register and qualify
the securities covered by such registration statement under such other
securities or Blue Sky laws of such jurisdictions as shall be reasonably
requested by the Holders, provided that the Company shall not be required in
connection therewith or as a condition thereto to qualify to do business or to
file a general consent to service of process in any such states or
jurisdictions;
(e) in the event of any underwritten public offering,
enter into and perform its obligations under an underwriting agreement, in usual
and customary form, with the managing underwriter of such offering;
(f) notify each Holder of Registrable Securities
covered by such registration statement at any time when a prospectus relating
thereto is required to be delivered under the Act or the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing;
(g) cause all such Registrable Securities registered
pursuant hereunder to be listed on each securities exchange on which similar
securities issued by the Company are then listed; and
(h) provide a transfer agent and registrar for all
Registrable Securities registered pursuant hereunder and a CUSIP number for all
such Registrable Securities, in each case not later than the effective date of
such registration.
1.6 INFORMATION FROM HOLDER. It shall be a condition precedent
to the obligations of the Company to take any action pursuant to this Section 1
with respect to the Registrable Securities of any selling Holder that such
Holder shall furnish to the Company such information regarding itself, the
Registrable Securities held by it, and the intended method of disposition of
such securities as shall be required to effect the registration of such Holder's
Registrable Securities.
1.7 EXPENSES OF REGISTRATION. All expenses other than
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Sections 1.3 and 1.4,
including (without limitation) all registration, filing and
5
<PAGE>
qualification fees, printers' and accounting fees, fees and disbursements of
counsel for the Company and the reasonable fees and disbursements of one counsel
for the selling Holders shall be borne by the Company. Notwithstanding the
foregoing, the Company shall not be required to pay for any expenses of any
registration proceeding begun pursuant to Section 1.4 if the registration
request is subsequently withdrawn at the request of the Holders of a majority of
the Registrable Securities to be registered (in which case all participating
Holders shall bear such expenses pro rata based upon the number of Registrable
Securities that were to be requested in the withdrawn registration), provided,
however, that if at the time of such withdrawal, the Holders have learned of a
material adverse change in the condition, business, or prospects of the Company
from that known to the Holders at the time of their request and have withdrawn
the request with reasonable promptness following disclosure by the Company of
such material adverse change, then the Holders shall not be required to pay any
of such expenses and shall retain their rights pursuant to Section 1.4.
1.8 DELAY OF REGISTRATION. No Holder shall have any right to
obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section 1.
1.9 INDEMNIFICATION. In the event any Registrable Securities
are included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, the partners or officers, directors and
stockholders of each Holder, legal counsel and accountants for each Holder, any
underwriter (as defined in the Act) for such Holder and each person, if any, who
controls such Holder or underwriter within the meaning of the Act or the 1934
Act, against any losses, claims, damages or liabilities (joint or several) to
which they may become subject under the Act, the 1934 Act or any state
securities laws, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any of the following
statements, omissions or violations (collectively a "Violation"): (i) any untrue
statement or alleged untrue statement of a material fact contained in such
registration statement, including any preliminary prospectus or final prospectus
contained therein or any amendments or supplements thereto, (ii) the omission or
alleged omission to state therein a material fact required to be stated therein,
or necessary to make the statements therein not misleading, or (iii) any
violation or alleged violation by the Company of the Act, the 1934 Act, any
state securities laws or any rule or regulation promulgated under the Act, the
1934 Act or any state securities laws; and the Company will reimburse each such
Holder, underwriter or controlling person for any legal or other expenses
reasonably incurred by them, as incurred, in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the indemnity agreement contained in this subsection 1.9(a) shall not apply
to amounts paid in settlement of any such loss, claim, damage, liability or
action if such settlement is effected without the consent of the Company (which
consent shall not be unreasonably withheld), nor shall the Company be liable in
any such case for any such loss, claim, damage, liability or action to the
extent that it arises out of or is based upon a Violation that occurs in
reliance upon and in conformity with written information furnished expressly for
use in connection with such registration by any such Holder, underwriter or
controlling person; provided further, however, that the foregoing indemnity
agreement with respect to any
6
<PAGE>
preliminary prospectus shall not inure to the benefit of any Holder or
underwriter, or any person controlling such Holder or underwriter, from whom the
person asserting any such losses, claims, damages or liabilities purchased
shares in the offering, if a copy of the prospectus (as then amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto) was not sent or given by or on behalf of such Holder or underwriter to
such person, if required by law so to have been delivered, at or prior to the
written confirmation of the sale of the shares to such person, and if the
prospectus (as so amended or supplemented) would have cured the defect giving
rise to such loss, claim, damage or liability.
(b) To the extent permitted by law, each selling Holder
will indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Act, legal counsel and
accountants for the Company, any underwriter, any other Holder selling
securities in such registration statement and any controlling person of any such
underwriter or other Holder, against any losses, claims, damages or liabilities
(joint or several) to which any of the foregoing persons may become subject,
under the Act, the 1934 Act or any state securities laws, insofar as such
losses, claims, damages or liabilities (or actions in respect thereto) arise out
of or are based upon any Violation, in each case to the extent (and only to the
extent) that such Violation occurs in reliance upon and in conformity with
written information furnished by such Holder expressly for use in connection
with such registration; and each such Holder will reimburse any person intended
to be indemnified pursuant to this subsection 1.9(b), for any legal or other
expenses reasonably incurred by such person, as incurred, in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the indemnity agreement contained in this subsection
1.9(b) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the consent
of the Holder (which consent shall not be unreasonably withheld), provided that
in no event shall any indemnity under this subsection 1.9(b) exceed the net
proceeds from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party
under this Section 1.9 of notice of the commencement of any action (including
any governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party under this Section 1.9,
deliver to the indemnifying party a written notice of the commencement thereof
and the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties that may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
1.9, to the extent it has been so prejudiced, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this Section 1.9.
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<PAGE>
(d) If the indemnification provided for in this Section
1.9 is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any loss, liability, claim, damage or expense
referred to herein, then the indemnifying party, in lieu of indemnifying such
indemnified party hereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such loss, liability, claim, damage or
expense in such proportion as is appropriate to reflect the relative fault of
the indemnifying party on the one hand and of the indemnified party on the other
in connection with the statements or omissions that resulted in such loss,
liability, claim, damage or expense, as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
(e) Notwithstanding the foregoing, to the extent that
the provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
(f) The obligations of the Company and Holders under
this Section 1.9 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 1, and otherwise.
1.10 REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a
view to making available to the Holders the benefits of Rule 144 promulgated
under the Act and any other rule or regulation of the SEC that may at any time
permit a Holder to sell securities of the Company to the public without
registration or pursuant to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as
those terms are understood and defined in SEC Rule 144, at all times after
ninety (90) days after the effective date of the Initial Public Offering;
(b) file with the SEC in a timely manner all reports
and other documents required of the Company under the Act and the 1934 Act; and
(c) furnish to any Holder, so long as the Holder owns
any Registrable Securities, forthwith upon request (i) a written statement by
the Company that it has complied with the reporting requirements of SEC Rule 144
(at any time after ninety (90) days after the effective date of the first
registration statement filed by the Company), the Act and the 1934 Act (at any
time after it has become subject to such reporting requirements), or that it
qualifies as a registrant whose securities may be resold pursuant to Form S-3
(at any time after it so qualifies), (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company, and (iii) such other information as may be reasonably requested in
availing any Holder of any rule or regulation of the SEC that permits the
selling of any such securities without registration or pursuant to such form.
8
<PAGE>
1.11 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause
the Company to register Registrable Securities pursuant to this Section 1 may be
assigned (but only with all related obligations) by a Holder to a transferee or
assignee of such securities that (i) is a limited partnership of which the
Holder is a general partner, or subsidiary, affiliate, parent, partner, limited
partner, retired partner or stockholder of a Holder, (ii) is a Holder's family
member or trust for the benefit of an individual Holder, or (iii) after such
assignment or transfer, holds at least 300,000 shares of Registrable Securities
(subject to appropriate adjustment for stock splits, stock dividends,
combinations and other recapitalizations), provided: (a) the Company is, within
a reasonable time after such transfer, furnished with written notice of the name
and address of such transferee or assignee and the securities with respect to
which such registration rights are being assigned; (b) such transferee or
assignee agrees in writing to be bound by and subject to the terms and
conditions of this Agreement, including without limitation the provisions of
Section 1.13 below; and (c) such assignment shall be effective only if
immediately following such transfer the further disposition of such securities
by the transferee or assignee is restricted under the Act. Notwithstanding the
foregoing, the rights to cause the Company to register Registrable Securities
pursuant to this Section 1 may be assigned as provided herein by a holder of
Series E Preferred Stock to a transferee or assignee of such securities that,
after such assignment or transfer, holds at least 50,000 shares of Registrable
Securities (subject to appropriate adjustment for stock splits, stock dividends,
combinations and other recapitalizations) provided that the conditions set forth
in subsections (a), (b) and (c) of this Section 1.11 are met.
1.12 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and
after the date of this Agreement, the Company shall not, without the prior
written consent of (i) the Holders of a majority of the Registrable Securities
and (ii) the holders of a majority of the Series E Preferred Stock (or Common
Stock issued upon conversion thereof) voting as a separate series, enter into
any agreement with any holder or prospective holder of any securities of the
Company that would allow such holder or prospective holder (a) to include such
securities in any registration filed under Section 1.3 hereof, unless under the
terms of such agreement, such holder or prospective holder may include such
securities in any such registration only to the extent that the inclusion of
such securities will not reduce the amount of the Registrable Securities of the
Holders that are included or (b) to demand registration of their securities.
1.13 "MARKET STAND-OFF" AGREEMENT. Each Holder hereby agrees
that it will not, without the prior written consent of the managing underwriter,
during the period commencing on the date of the final prospectus relating to the
Company's initial public offering and ending on the date specified by the
Company and the managing underwriter (such period not to exceed one hundred
eighty (180) days) (i) lend, offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase, or otherwise transfer or dispose of,
directly or indirectly, any shares of Common Stock or any securities convertible
into or exercisable or exchangeable for Common Stock (whether such shares or any
such securities are then owned by the Holder or are thereafter acquired), or
(ii) enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the Common
Stock, whether any such transaction described in clause (i) or (ii) above is to
be settled by delivery of Common Stock or such other securities, in cash or
otherwise. The foregoing provisions of this Section 1.13 shall apply only to the
Company's initial public offering of equity securities, shall not apply
9
<PAGE>
to the sale of any shares to an underwriter pursuant to an underwriting
agreement, and shall only be applicable to the Holders if all officers and
directors and greater than two percent (2%) stockholders of the Company enter
into similar agreements. The underwriters in connection with the Company's
initial public offering are intended third party beneficiaries of this Section
1.13 and shall have the right, power and authority to enforce the provisions
hereof as though they were a party hereto. Notwithstanding the foregoing, the
provisions of this Section 1.13 shall not apply to shares of Common Stock
purchased by the holders of Series E Preferred Stock (or Common Stock issued
upon conversion of Series E Preferred Stock) in the Initial Public Offering or
purchased or sold in market transactions after the Initial Public Offering.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of each
Holder (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
1.14 TERMINATION OF REGISTRATION RIGHTS. No Holder shall be
entitled to exercise any right provided for in this Section 1 after five (5)
years following the consummation of the Initial Public Offering or, as to any
Holder, such earlier time at which all Registrable Securities held by such
Holder (and any affiliate of the Holder with whom such Holder must aggregate its
sales under Rule 144) can be sold in any three (3)-month period without
registration in compliance with Rule 144 of the Act.
2. COVENANTS OF THE COMPANY.
2.1 DELIVERY OF FINANCIAL STATEMENTS. The Company shall
deliver to each Investor that holds at least 300,000 shares (as adjusted for
subsequent stock splits, stock dividends, combinations, recapitalizations and
the like) of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series E Preferred Stock and/or Warrants (or Common Stock
issuable upon conversion or exercise thereof) of the Company:
(a) as soon as practicable, but in any event within ninety
(90) days after the end of each fiscal year of the Company, an income statement
for such fiscal year, a balance sheet of the Company and statement of
stockholder's equity as of the end of such year, and a statement of cash flows
for such year, such year-end financial reports to be in reasonable detail,
prepared in accordance with generally accepted accounting principles ("GAAP"),
and audited and certified by independent public accountants of nationally
recognized standing selected by the Company;
(b) as soon as practicable, but in any event within
forty-five (45) days after the end of each of the first three (3) quarters of
each fiscal year of the Company, an unaudited income statement, statement of
cash flows for such fiscal quarter and an unaudited balance sheet as of the end
of such fiscal quarter.
(c) within thirty (30) days of the end of each month, an
unaudited income statement and statement of cash flows and balance sheet for and
as of the end of such month, in reasonable detail;
(d) as soon as practicable, but in any event at least thirty
(30) days prior to the end of each fiscal year, a budget and business plan for
the next fiscal year,
10
<PAGE>
prepared on a monthly basis, including balance sheets, income statements and
statements of cash flows for such months and, as soon as prepared, any other
budgets or revised budgets prepared by the Company;
(e) with respect to the financial statements called for in
subsections (b) and (c) of this Section 2.1, an instrument executed by the Chief
Financial Officer or President of the Company certifying that such financials
were prepared in accordance with GAAP consistently applied with prior practice
for earlier periods (with the exception of footnotes that may be required by
GAAP) and fairly present the financial condition of the Company and its results
of operation for the period specified, subject to year-end audit adjustment; and
(f) such other information relating to the financial
condition, business, prospects or corporate affairs of the Company as the
Investor or any assignee of the Investor may from time to time reasonably
request, provided, however, that the Company shall not be obligated under this
subsection (f) or any other subsection of Section 2.1 to provide information
that it deems in good faith to be a trade secret or similar confidential
information.
2.2 INSPECTION. The Company shall permit each Investor that
holds at least 300,000 shares (as adjusted for subsequent stock splits, stock
dividends, combinations, recapitalizations and the like) of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series E Preferred
Stock and/or Warrants (or Common Stock issuable upon conversion or exercise
thereof) of the Company, at such Investor's expense, to visit and inspect the
Company's properties, to examine its books of account and records and to discuss
the Company's affairs, finances and accounts with its officers, all at such
reasonable times and upon reasonable notice, as may be requested by the
Investor, provided, however, that the Company shall not be obligated pursuant to
this Section 2.2 to provide access to any information that it reasonably
considers to be a trade secret or similar confidential information.
2.3 TERMINATION OF INFORMATION AND INSPECTION COVENANTS. The
covenants set forth in Sections 2.1 and 2.2 shall terminate and shall be of no
further force or effect when the sale of securities pursuant to a registration
statement filed by the Company under the Act when (i) the Initial Public
Offering is consummated or (ii) the Company first becomes subject to the
periodic reporting requirements of Sections 12(g) or 15(d) of the 1934 Act,
whichever event shall first occur.
2.4 RIGHT OF FIRST OFFER. Subject to the terms and conditions
specified in this Section 2.4, the Company hereby grants to each Major Investor
(as hereinafter defined) a right of first offer with respect to future sales by
the Company of its Shares (as hereinafter defined). For purposes of this Section
2.4, a Major Investor shall mean any Investor or transferee that holds at least
300,000 shares (as adjusted for subsequent stock splits, stock dividends,
combinations, recapitalizations and the like) of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series E Preferred Stock
and/or Warrants (or Common Stock issuable upon conversion or exercise thereof)
of the Company. For purposes of this Section 2.4, an Investor includes any
general partners and affiliates of an Investor, and any partnership of which an
Investor is a general partner. A Major Investor shall be entitled to apportion
the right of first offer hereby granted it among itself and its partners and
affiliates,
11
<PAGE>
including any partnership of which the Investor is a general partner, in such
proportions as it deems appropriate.
Each time the Company proposes to offer any shares of, or
securities convertible into or exchangeable or exercisable for any shares of,
any class of its capital stock ("Shares"), the Company shall first make an
offering of such Shares to each Major Investor in accordance with the following
provisions.
(a) The Company shall deliver a notice in accordance with
Section 3.6 ("Notice") to the Major Investors stating (i) its bona fide
intention to offer such Shares, (ii) the number of such Shares to be offered,
and (iii) the price and terms upon which it proposes to offer such Shares.
(b) By written notification received by the Company, within
twenty (20) calendar days after receipt of the Notice, the Major Investor may
elect to purchase or obtain, at the price and on the terms specified in the
Notice, up to that portion of such Shares that equals the proportion that the
number of shares of Common Stock issued and held, or issuable upon conversion of
the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock
and Series E Preferred Stock and upon exercise of the Warrants, then held by
such Major Investor, bears to the total number of shares of Common Stock of the
Company then outstanding (assuming full conversion and exercise of all
convertible and exercisable securities).
(c) If all Shares that the Major Investors are entitled to
obtain pursuant to subsection 2.4(b) are not elected to be obtained as provided
in subsection 2.4(b) hereof, the Company may, during the ninety (90) day period
following the expiration of the period provided in subsection 2.4(b) hereof,
offer the remaining unsubscribed portion of such Shares to any person or persons
at a price not less than, and upon terms no more favorable to the offeree than
those specified in the Notice. If the Company does not enter into an agreement
for the sale of the Shares within such period, or if such agreement is not
consummated within ninety (90) days of the execution thereof, the right provided
hereunder shall be deemed to be revived and such Shares shall not be offered
unless first reoffered to the Major Investors in accordance herewith.
(d) Subject to the following sentence, the right of first
offer in this Section 2.4 shall not be applicable to (i) the issuance or sale of
shares of Common Stock (or options therefor) to employees, officers, directors
and consultants for the primary purpose of soliciting or retaining their
services; (ii) the issuance of securities pursuant to a Qualified IPO, (iii) the
issuance of securities pursuant to the conversion or exercise of convertible or
exercisable securities, (iv) the issuance of securities in connection with a
bona fide business acquisition of or by the Company, whether by merger,
consolidation, sale of assets, sale or exchange of stock or otherwise or (v) the
issuance of stock, warrants or other securities or rights to persons or entities
with which the Company has business relationships provided such issuances are
for other than primarily equity financing purposes. If the issuance referred to
in the foregoing clauses (iv) or (v) is to an affiliate of the Company, then the
issuance shall be subject to the right of first offer in this Section 2.4 unless
the issuance is approved by a majority of the Board of Directors excluding, for
such determination, any director that is an affiliate of the person or entity to
receive the issuance. An "affiliate" of, or a person "affiliated" with, a
specified person shall
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<PAGE>
mean a person that directly, or indirectly through one or more intermediaries,
controls or is controlled by, or is under common control with, the person
specified.
2.5 OBSERVATION RIGHTS. Subject to applicable laws, rules and
regulations, so long as Evo Capital Fund I, L.P. ("Evo") owns Series E Preferred
Stock issued to it pursuant to the Series E Agreement (or Common Stock issued on
conversion thereof), Evo shall be entitled to designate one individual, whom
shall be acceptable to the Company, to attend the Company's meetings of the
Board of Directors and, in this respect, the Company shall provide such
individual with copies of all notices, minutes, consents and other material that
it provides to its directors, at the time that it provides such materials to its
directors; provided that such designee shall enter into a confidentiality
agreement, in form and substance reasonably acceptable to the Company, as a
condition precedent to such attendance.
2.6 KEY-MAN INSURANCE. Upon determination of the Board of
Directors, the Company shall obtain and maintain in full force and effect term
life insurance in the amount of not less than $ 1,000,000 on the life of Brin
McCagg, with proceeds payable to the Company, until such time as the Board of
Directors determines that such insurance should be discontinued.
2.7 CERTAIN CORPORATE TRANSACTIONS. The Company shall not
without first obtaining the approval of the holders of at least a majority of
the then outstanding shares of Series A Preferred Stock: (i) sell, convey, or
otherwise dispose of all or substantially all of its property or business to an
affiliate of the Company, (ii) merge into or consolidate with any other
corporation or other entity that is an affiliate of the Company or (iii) effect
any transaction or series of related transactions with an affiliate of the
Company after which such affiliate owns more than fifty percent (50%) of the
voting power of the Company. An "affiliate" of, or a person "affiliated" with, a
specified person shall mean a person that directly, or indirectly through one or
more intermediaries, controls or is controlled by, or is under common control
with, the person specified.
2.8 RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT. Each holder
of one-half percent (0.5%) of the Company's outstanding Common Stock (on a
fully-diluted, as converted basis) immediately prior to the Closing (as defined
in the Series E Agreement) shall have entered into the Co-Sale Agreement (as
defined in the Series E Agreement). The Company shall use its best efforts to
promptly cause each additional holder of the Company's outstanding Common Stock
to become a party to the Co-Sale Agreement.
2.9 TERMINATION OF CERTAIN COVENANTS. The covenants set forth
in Sections 2.4, 2.5, 2.6, 2.7 and 2.8 shall terminate and be of no further
force or effect upon the consummation of a Qualified IPO.
3. MISCELLANEOUS.
3.1 PRIOR AGREEMENT. The Prior Agreement is hereby terminated
with respect to all parties thereto and is of no further force and effect.
3.2 SUCCESSORS AND ASSIGNS. Except as otherwise provided
herein, the terms and conditions of this Agreement shall inure to the benefit of
and be binding upon the
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respective successors and assigns of the parties (including transferees of any
shares of Registrable Securities), provided, however, that, except as otherwise
set forth in Section 1.11 above, the rights and obligations of the Investors
hereunder may not be assigned without the prior written consent of the Company.
Nothing in this Agreement, express or implied, is intended to confer upon any
party other than the parties hereto or their respective successors and assigns
any rights, remedies, obligations, or liabilities under or by reason of this
Agreement, except as expressly provided in this Agreement.
3.3 GOVERNING LAW. This Agreement shall be governed by and
construed under the laws of the State of New York as applied to agreements among
New York residents entered into and to be performed entirely within New York.
3.4 COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
3.5 TITLES AND SUBTITLES. The titles and subtitles used in
this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
3.6 NOTICES. Unless otherwise provided, any notice required or
permitted this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or upon
delivery by confirmed facsimile transmission, nationally recognized overnight
courier service, or upon deposit with the United States Post Office, by
registered or certified mail, or in the case of holders resident outside of the
United States, by registered or certified airmail, postage prepaid and addressed
to the party to be notified at the address indicated for such party on the
signature page hereof, or at such other address as such party may designate by
ten (10) days' advance written notice to the other parties.
3.7 EXPENSES. If any action at law or in equity is necessary
to enforce or interpret the terms of this Agreement, the prevailing party shall
be entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
3.8 ENTIRE AGREEMENT AMENDMENTS AND WAIVERS. This Agreement
(including the Exhibits hereto, if any) constitutes the full and entire
understanding and agreement among the parties with regard to the subjects hereof
and thereof. Any term of this Agreement may be amended and the observance of any
term of this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively), only with the written
consent of the Company and the holders of at least seventy percent (70%) of the
Registrable Securities. Any amendment or waiver effected in accordance with this
paragraph shall be binding upon each holder of any Registrable Securities each
future holder of all such Registrable Securities, and the Company.
Notwithstanding the foregoing, any amendment that affects any holder of Series E
Preferred Stock (or Common Stock issued upon conversion thereof) differently
than it affects all other Holders hereunder shall not be effective against such
holder without the written consent of such holder.
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3.9 SEVERABILITY. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, such provision shall be
excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
3.10 AGGREGATION OF STOCK. All shares of Registrable
Securities held or acquired by affiliated entities or persons shall be
aggregated together for the purpose of determining the availability of any
rights under this Agreement.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
COMPANY:
TRADEOUT.COM, INC.
By: /s/ George Samenuk
-----------------------------------------
Title: President and Chief Executive Officer
INVESTORS:
By:
----------------------------------------
Title:
-------------------------------------
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EXHIBIT 11.1
Exhibit (11)-Statement Re: Computation of Basic and Diluted Net Loss Per Share
<TABLE>
<CAPTION>
Period from
December 11, 1998
(date of inception) Year ended
to December 31, 1998 December 31, 1998
------------------------------------------
(000's omitted, except per share date)
<S> <C> <C>
Basic:
Net loss (50) (18,744)
Preferred stock dividends - (256)
------------------------------------------
Net loss available for
common stockholders (50) (19,000)
Average shares outstanding 30,461 38,143
------------------------------------------
Basic loss per share (0.00) (0.50)
Diluted
Net loss (50) (18,744)
Preferred stock dividends - (256)
------------------------------------------
Net loss available for
common stockholders (50) (19,000)
Average shares outstanding 30,461 38,143
------------------------------------------
Diluted loss per share (0.00) (0.50)
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Experts" and to
the use of our reports dated February 15, 2000 (except Note 8, as to which the
date is March 15, 2000) in the Registration Statement (Form S-1) and the
related Prospectus of TradeOut.com, Inc. for the registration of its common
stock.
Ernst & Young LLP
New York, New York
March 15, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 18,977
<SECURITIES> 0
<RECEIVABLES> 364
<ALLOWANCES> (45)
<INVENTORY> 0
<CURRENT-ASSETS> 19,429
<PP&E> 2,024
<DEPRECIATION> 337
<TOTAL-ASSETS> 21,238
<CURRENT-LIABILITIES> 3,052
<BONDS> 0
0
1
<COMMON> 4
<OTHER-SE> 18,159
<TOTAL-LIABILITY-AND-EQUITY> 21,238
<SALES> 828
<TOTAL-REVENUES> 828
<CGS> 529
<TOTAL-COSTS> 529
<OTHER-EXPENSES> 19,423
<LOSS-PROVISION> 57
<INTEREST-EXPENSE> 6
<INCOME-PRETAX> (18,744)
<INCOME-TAX> 0
<INCOME-CONTINUING> (18,744)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (18,744)
<EPS-BASIC> (0.50)
<EPS-DILUTED> (0.50)
</TABLE>
