<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH , 2000
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
PAPEREXCHANGE.COM, INC.
(exact name of registrant as specified in charter)
<TABLE>
<S> <C> <C>
DELAWARE 5113 04-3505848
(STATE OF INCORPORATION) PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
CLASSIFICATION CODE NUMBER INDENTIFICATION NO.)
</TABLE>
545 BOYLSTON STREET
8(TH) FLOOR
BOSTON, MA 02116
(617) 536-4310
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------------
KENT DOLBY, CHIEF EXECUTIVE OFFICER
PAPEREXCHANGE.COM, INC.
545 BOYLSTON STREET
8(TH) FLOOR
BOSTON, MA 02116
(617) 536-4310
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES OF ALL COMMUNICATIONS, INCLUDING COMMUNICATIONS SENT TO THE AGENT FOR
SERVICE, SHOULD BE SENT TO:
<TABLE>
<S> <C>
JOHN UTZSCHNEIDER KEITH F. HIGGINS
JONATHAN K. BERNSTEIN JOHN B. AYER
BINGHAM DANA LLP ROPES & GRAY
150 FEDERAL STREET ONE INTERNATIONAL PLACE
BOSTON, MA 02110 BOSTON, MA 02110
(617) 951-8852 (617) 951-7000
(617) 951-8736 (FAX) (617) 951-7050 (FAX)
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO 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. / /
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 SECURITIES AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED PRICE(1) REGISTRATION FEE
<S> <C> <C>
Common Stock, $0.001..................... $115,000,000 $30,360
</TABLE>
(1) Estimated solely for the purpose of computing the amount of the registration
fee; based on a bona fide estimate of the maximum offering price per share
of the securities being registered in accordance with Rule 457(a) under the
Securities Act.
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
Subject to Completion. Dated March , 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 AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
Shares
PAPEREXCHANGE.COM, INC.
[LOGO]
Common Stock
--------------
This is an initial public offering of shares of common stock of
PaperExchange.com, Inc. All of the shares of common stock are being sold by
PaperExchange.
Prior to this offering, there has been no public market for the common
stock. PaperExchange anticipates that the public offering price will be between
$ and $ per share. Application has been made for quotation of the
common stock on the Nasdaq National Market under the symbol "PPEX".
SEE "RISK FACTORS" BEGINNING ON PAGE 4 TO READ ABOUT FACTORS YOU SHOULD
CONSIDER BEFORE BUYING SHARES OF OUR COMMON STOCK.
-------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY
HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR
ACCURACY 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 PaperExchange................ $ $
</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 PaperExchange 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.
CHASE H&Q
ROBERTSON STEPHENS
BANC OF AMERICA SECURITIES LLC
Prospectus dated , 2000.
<PAGE>
Inside Front Cover--a foldout of graphics and text
RED HERRING COVER
This cover will be a gloss-coated bifold. It has 6 sides, 4 at the front and
2 at the back.
LAYOUT:
- -------------------------------------------------------------------------------
Inside Front Cover Outside Front Cover Outside Back Cover
(First Fold)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Double Page Spread - Inside Front Cover Inside Back Cover
(Inside Bi-Fold)
- -------------------------------------------------------------------------------
DESIGN:
The Outside Back Cover will have the PaperExchange logo centered.
The Inside Front Cover will have the PaperExchange logo and 2 color graphics.
Graphic 1 will be a sub-section of the PaperExchange model and how it fits
into the paper industry. Graphic 2 will be a pointer to turn the page/open
the bi-fold.
The Double Page spread inside the bi-fold will have 2 major graphics. One
diagrammatically depicts the paper industry supply chain. The second graphics
depicts the PaperExchange model and how it fits within the industry supply
chain.
The Inside Back Cover will be a different graphical representation of the
PaperExchange model.
COLORS:
All pages except the outside covers will be 4-color. Outside Front Cover will
be 3-color. Outside Back Cover will be a 2-color.
PaperExchange uses Panton 287 for the blue in our logo. The gray is a black
screen with 35% black and 65% black.
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY HIGHLIGHTS SOME OF THE IMPORTANT INFORMATION IN THE
PROSPECTUS. IT MAY NOT CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU.
YOU SHOULD READ THIS SUMMARY TOGETHER WITH THE MORE DETAILED INFORMATION ABOUT
US AND OUR FINANCIAL STATEMENTS AND RELATED NOTES APPEARING ELSEWHERE IN THIS
PROSPECTUS.
PAPEREXCHANGE.COM, INC.
PaperExchange is a leading business-to-business vertically-focused
marketplace that enables buyers and sellers in the pulp and paper industry to
transact business on the Internet. Our marketplace includes a real time exchange
that enables participants to list offers to sell or requests to purchase
products and services in a secure and neutral environment. Using our proprietary
technology, our members can review products offered online, negotiate pricing,
and complete transactions. This technology enables buyers and sellers to
customize the use of our marketplace in a manner that allows members to preserve
existing business relationships. We also offer several fulfillment services,
such as logistics and credit clearing, as well as quality inspection through a
third party provider. In addition, we offer industry specific content, such as
real time industry news, information on upcoming expositions and conferences,
feature articles and a career center that allows members to post and explore job
opportunities.
Our marketplace has attracted and registered more than 3,100 corporate
members from over 80 countries. To date, our members have completed in excess of
100 transactions representing a total of approximately 6,000 tons of pulp and
paper. We have recently signed strategic agreements with producers such as
International Paper and Asia Pulp & Paper to list products for sale through our
marketplace. We have also entered into strategic agreements with buyers, such as
Staples, for commitments to purchase products.
The pulp and paper industry represents over $500 billion of sales globally
and over $182 billion in North America. The industry is extremely fragmented,
with approximately 1,800 producer mills and approximately 275,000 converting and
printing plants worldwide. Traditional marketing and procurement methods in the
industry are inefficient, costly, and time consuming for both buyers and
sellers. The lack of widely available pricing and other market information, the
capital intensive nature of the industry, the complexity of the paper production
process, and poor technology adoption further limit the efficiency of the
industry. These factors create the opportunity for a business-to-business
e-commerce marketplace that streamlines industry participants' procurement
methods, reduces inefficiencies in production and the supply chain, and broadens
sales and marketing channels.
We intend to be the leading provider of an Internet-based e-commerce
solution across all pulp and paper product categories, and are led by a
management team with extensive experience in the pulp and paper industry and in
technology. We intend to leverage and expand our strategic relationships while
maintaining a neutral marketplace. Our strategy is to concentrate on attracting
new members to our marketplace through a focused sales and marketing effort, and
to continue to enhance the functionality and performance of our technology
platform. As we add more suppliers and purchasers to our marketplace, we intend
to create a network effect, whereby the addition of each new member increases
the overall value of the marketplace to all members.
1
<PAGE>
CORPORATION INFORMATION
We were formed in Delaware in April 1998 as a limited liability company
under the name "PaperExchange.com, LLC". We converted to a Delaware corporation
in February 2000 under the name "PaperExchange.com, Inc.". Our principal
executive offices are located at 545 Boylston Street, 8(th) Floor, Boston,
Massachusetts 02116, and our telephone number at that address is
(617) 536-4310. Our address on the World Wide Web is
http://www.paperexchange.com. References to our Web site do not incorporate by
reference the information contained at our Web site into this prospectus. This
prospectus assumes no exercise of the underwriters' over-allotment option.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by PaperExchange....... shares
Common Stock to be outstanding after this
offering.................................. shares
Proposed Nasdaq National Market symbol...... "PPEX"
Use of proceeds............................. For working capital and general corporate
purposes. See "Use of Proceeds".
</TABLE>
The number of shares to be outstanding excludes 2,464,750 shares of common
stock issuable upon exercise of options outstanding under our 1998 Equity Option
Plan on December 31, 1999 at a weighted average exercise price of $0.45 per
share, 5,000,001 shares of common stock issuable upon exercise of warrants at a
weighted average exercise price of $2.00 per share, and options to purchase
1,767,020 shares of common stock at an exercise price of $2.38 per share.
2
<PAGE>
SUMMARY FINANCIAL DATA
The following summary financial data are derived from our financial
statements. You should read this summary financial information in conjunction
with our financial statements and the related notes. Potentially dilutive common
shares have been excluded from the shares used to compute earnings per share in
each loss year because their inclusion would be antidilutive. The pro forma
balance sheet data give effect to our conversion from a limited liability
company to a corporation. The pro forma as adjusted balance sheet data give
effect to our sale of the shares in this offering at an assumed initial public
offering price of $ per share and after deducting the estimated
underwriting discounts and commissions and our estimated offering expenses.
<TABLE>
<CAPTION>
APRIL 10, 1998
(INCEPTION) THROUGH YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1999
------------------- -------------------
(IN THOUSANDS, EXCEPT PER INTEREST DATA)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues...................................... $ 2 $ 114
Cost of revenues.................................. -- 92
---------- ----------
Gross profit...................................... 2 22
Operating costs:
Sales and marketing............................. 541 3,376
Technology...................................... 141 3,104
General and administrative...................... 207 2,116
Write-off of capitalized software............... -- 209
---------- ----------
Operating loss.................................... (887) (8,783)
---------- ----------
Net loss.......................................... $ (860) $ (9,051)
========== ==========
Basic and diluted loss per interest............... $ (0.03) $ (0.26)
========== ==========
Weighted average interests used to compute basic
and diluted loss per interest................... 30,000,000 34,881,564
========== ==========
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
-------------------------
PRO FORMA
AS
PRO FORMA ADJUSTED
----------- -----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $16,279 $
Working capital............................................. 13,141
Total assets................................................ 18,486
Long-term debt.............................................. 8,468
Total liabilities........................................... 11,772
Total stockholders' equity.................................. 6,714
</TABLE>
3
<PAGE>
RISK FACTORS
THIS OFFERING AND AN INVESTMENT IN OUR COMMON STOCK INVOLVE A HIGH DEGREE OF
RISK. YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISKS BEFORE MAKING AN
INVESTMENT DECISION. THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE DUE TO
ANY OF THESE RISKS, AND YOU COULD LOSE ALL OR PART OF YOUR INVESTMENT. YOU ALSO
SHOULD REFER TO THE OTHER INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS,
INCLUDING OUR FINANCIAL STATEMENTS AND THE RELATED NOTES.
WE HAVE A LIMITED OPERATING HISTORY AND FACE DIFFICULTIES ENCOUNTERED BY EARLY
STAGE COMPANIES IN NEW AND RAPIDLY EVOLVING MARKETS
PaperExchange has a very limited operating history. Our company was founded
in April 1998 and has not yet generated significant revenue. 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 such as electronic commerce, or e-commerce. In order to
overcome these risks and difficulties, we must, among other things:
- establish and increase awareness of our PaperExchange brand and strengthen
member loyalty;
- attract and retain members at a reasonable cost;
- attract a sufficient number of new suppliers to sell their products
through our electronic marketplace;
- reliably process transactions through our marketplace;
- manage rapidly changing and expanding operations;
- maintain our current strategic relationships and develop new ones;
- implement and successfully execute our business and marketing strategy;
- provide superior customer service;
- respond effectively to competitive pressures and developments;
- continue to develop and enhance our technology and systems; and
- attract, retain and motivate qualified personnel.
If we fail to achieve these objectives, we may not realize sufficient revenues
or we may incur too many costs to succeed. Because of our limited operating
history and the early stage of development of our market, we have limited
insight into trends that may emerge and affect our business. We cannot be
certain that our business strategy will be successful or that we will
successfully address these risks.
WE ANTICIPATE THE INCURRENCE OF FUTURE LOSSES, WHICH MAY CAUSE OUR STOCK PRICE
TO DECLINE
We experienced net losses of $9,051,000 in 1999 and $860,000 in 1998. As of
December 31, 1999 we had an accumulated deficit of $9,911,000, and we expect to
continue to incur losses on a quarterly basis through the foreseeable future.
Our 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.
4
<PAGE>
BECAUSE WE WILL CONTINUE TO USE SIGNIFICANTLY MORE CASH THAN WE GENERATE, WE MAY
NEED TO RAISE ADDITIONAL CAPITAL THROUGH ISSUANCE OF EQUITY AND DEBT SECURITIES,
WHICH MAY CAUSE OUR STOCKHOLDERS TO EXPERIENCE DILUTION
Since our inception, our operating and investing activities have used
significantly 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 operating and investing 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 dilution to the value of their equity ownership.
THE UNPREDICTABILITY OF OUR QUARTERLY REVENUES MAY NEGATIVELY AFFECT THE TRADING
PRICE OF OUR COMMON STOCK
As a result of our limited operating history and the emerging nature of the
markets in which we compete, we may be unable to accurately forecast our
revenue. If our revenue for a quarter falls below our expectations and we are
not able to quickly reduce our spending in response, our operating results for
that quarter would be harmed. We currently intend to increase substantially our
operating expenses to develop new service offerings, fund increased sales and
marketing activities, enter into and implement strategic relationships with
buyers and sellers, and further develop our technology and
transaction-processing systems. To the extent these expenses precede or are not
subsequently followed by increased revenue, our operating results will be
significantly below expectations.
As a result of the foregoing factors, our annual or quarterly operating
results may be below the expectations of securities analysts and investors,
which would adversely affect the trading price of our common stock.
OUR BUSINESS MODEL IS UNPROVEN AND MAY NOT BE SUCCESSFUL
Our business-to-business e-commerce model is based on the development of our
marketplace for the purchase and sale of pulp and paper products over the
Internet. This business model is new and unproven. We cannot be certain that our
business model will be successful or that we can achieve or sustain revenue
growth or generate any profits. The success of our business model will require,
among other things, that we develop an e-commerce marketplace with broad market
acceptance by buyers and sellers of pulp and paper products. We cannot be
certain that business-to-business commerce on the Internet generally, or our
marketplace, services and brand in particular, will achieve broad market
acceptance. For example, pulp and paper industry participants may continue
transacting business in person or by phone with parties with whom they may have
long-standing personal relationships and may not adopt an electronic
marketplace. The costs and resources required to switch purchasing methods, the
need for products not offered through the marketplace, security and privacy
concerns, or general reluctance to use technology or the Internet may also deter
or discourage some companies from using our marketplace.
IF WE CANNOT BUILD A CRITICAL MASS OF SUPPLIERS AND PURCHASERS, WE WILL NOT BE
ABLE TO INCREASE OUR MARKETPLACE VOLUME AND DRAW MORE MEMBERS, WHICH MAY PREVENT
OUR BUSINESS FROM GROWING
Our business model depends in large part on our ability to build a critical
mass of suppliers and purchasers of pulp and paper products. To attract and
maintain suppliers, we must build a
5
<PAGE>
critical mass of purchasers. However, purchasers must perceive value in our
online exchange and other transaction services which, in part, depends upon the
breadth of our product offerings from our suppliers. If we are unable to
increase the number of suppliers and draw more purchasers to our online
marketplace, we will not be able to benefit from any network effect, where the
value to each member of our marketplace increases with the addition of each new
member. As a result, our business will not continue to grow and the overall
value of our marketplace will be harmed.
WE DEPEND ON SUPPLIERS TO PROVIDE THE PRODUCTS THAT WE SELL IN OUR MARKETPLACE
Our future success depends in large part upon our ability to offer and
deliver a broad base of paper products. To do so, we rely on independent
suppliers. We carry no inventory and rely exclusively on the listing of pulp and
paper products by independent suppliers. Generally, suppliers who list pulp and
paper products for sale on our marketplace are under no contractual obligation
to do so. We cannot assure you that our current suppliers will continue to list
products, or that new suppliers will list products, on acceptable commercial
terms. Our ability to establish relationships with reputable suppliers and to
convince them to sell their products on our marketplace at competitive prices
and the ability of the suppliers to deliver these products to purchasers are
critical to our success. If we are unable to satisfy any of these elements or
are unable to develop and maintain relationships with suppliers that will allow
us to obtain sufficient quantities of products on acceptable commercial terms,
we will be unable to increase our revenues.
We rely on our suppliers to deliver pulp and paper products that meet
specifications to purchasers in our marketplace in a professional, safe and
timely manner. If our suppliers do not deliver quality products to purchasers in
a professional, safe and timely manner, then our service will not meet
expectations and our reputation and brand will be damaged. In addition,
deliveries that are non-conforming or late could expose us to liability or
result in decreased adoption and use of our electronic marketplace.
OUR STRATEGIC SUPPLIER AND CUSTOMER RELATIONSHIPS, ON WHICH WE EXPECT TO BE
DEPENDENT FOR THE FORESEEABLE FUTURE, ARE NON-EXCLUSIVE, HAVE LIMITED TERMS, AND
ARE SUBJECT TO CANCELLATION
We recently entered into strategic supplier agreements with International
Paper and Asia Pulp & Paper which provide that these suppliers will list pulp
and paper products on our marketplace. We have also recently entered into a
strategic customer agreement with Staples, which agreement provides that this
customer will use commercially reasonable efforts to list certain "requests to
buy" and purchase paper products on our marketplace. Our agreements with these
suppliers and this customer are not exclusive, have a limited term and are
generally terminable at will on fairly short notice. We cannot be certain that
these strategic relationships will continue, that these suppliers and this
customer will not enter into similar relationships with one or more of our
competitors or that they will renew our agreements at the end of their terms.
ANY PERCEPTION OF BIAS IN OUR MARKETPLACE COULD LIMIT OUR ABILITY TO MAINTAIN OR
INCREASE OUR MEMBER BASE
The pulp and paper product industry consists of a complex set of
relationships among manufacturers, suppliers, distributors and customers.
Adoption of our solution by buyers and sellers is dependent on their perception
that we provide a neutral, unbiased marketplace to buy and sell pulp and paper
products. To the extent that we are perceived by our members as favoring one
member over another, members may lose confidence in our marketplace as a fair
and neutral marketplace and choose alternative solutions. Our relationships with
International Paper, Asia Pulp & Paper and others on the supplier side, and
Staples on the customer side, including the fact that each of International
Paper, Asia Pulp & Paper and Staples holds equity interests in us, may
compromise the perception that we provide a neutral and unbiased marketplace for
pulp and paper
6
<PAGE>
products. Any bias, whether perceived or actual, could have a negative impact on
our ability to maintain or increase our supplier base, which in turn may limit
our ability to maintain or increase our member base overall and thus reduce or
limit the growth of our revenues.
IF WE ARE UNABLE TO GENERATE SIGNIFICANT SAVINGS, THE PULP AND PAPER INDUSTRY
MAY NOT TRADE THROUGH OUR MARKETPLACE, WHICH WOULD REDUCE OUR REVENUES AND
INCOME
Today's pulp and paper market operates through a distribution system
involving a great many producers, brokers and other intermediaries, and
end-users who depend on personal relationships and one-to-one communication to
transact business. This system results in limited availability of pricing
information about the same or similar products and multiple mark-up and
commission points prior to the receipt of product by the end-user. If our online
marketplace does not increase the efficiency of any particular market for pulp
and paper, the opportunity for significant savings to our members in that market
will decrease. If significant savings in particular product categories do not
materialize, we may have difficulty in the future selling our online exchange to
buyers or sellers in those or other markets, which will reduce our revenues and
make it more difficult for us to realize or sustain profitability.
WE EXPECT THAT OUR OPERATING MARGINS WILL BE LOW AND IF WE ARE NOT ABLE TO
INCREASE THE DOLLAR VOLUME OF TRANSACTIONS MADE THROUGH OUR ONLINE SITE, WE WILL
NOT BE ABLE TO GENERATE A PROFIT
Our transaction-based model is a low operating margin model. In order to
meet our expected earnings targets, we must significantly increase the dollar
volume of transactions on our marketplace. We can achieve this increase by
generating significantly higher and continuously increasing levels of traffic to
our online site, increasing the percentage of visitors to our online site who
purchase paper products, or through some combination of the two. We must also
increase the number of repeat purchasers of products through our online site.
Although we have implemented strategies designed to accomplish these objectives,
we cannot assure you that these strategies will be effective in increasing the
dollar volume of products purchased through our online site. The failure to do
so will result in our inability to achieve or maintain profitability.
BECAUSE OUR SPENDING ON INCREASED CAPACITY PRECEDES OUR RECEIPT OF REVENUES, OUR
RESULTS OF OPERATIONS ARE LIKELY TO BE VOLATILE
We must hire personnel, acquire equipment and expand our facilities in
anticipation of receiving revenues in future periods. The timing of our expenses
for these activities will cause our results of operations to be volatile. In
addition, unexpected costs or expenses we incur will substantially affect our
ability to achieve or maintain profitability.
THE LOSS OF ANY 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:
- Kent Dolby, our President and Chief Executive Officer;
- Robert Brenner, our Executive Vice President of Product Development;
- Michael Gozon, our Vice President of Sales, North America;
- Carl Katzeff, our Chief Technical Officer;
- Rod Parsley, our Vice President of Business Development; and
- Duane DeSisto, our Chief Financial Officer.
7
<PAGE>
The loss of any of these executives could disrupt the Company's growth or
result in lost revenues.
IF WE ARE UNABLE TO HIRE OR RETAIN QUALIFIED STAFF, WE MAY BE UNABLE TO MANAGE
AND GROW OUR BUSINESS
If we cannot attract and retain enough qualified and skilled staff, the
growth of our business may be limited. Our ability to provide services to our
members and grow our business depends, in part, on our ability to attract and
retain staff with college and graduate degrees, as well as professional
experiences that are relevant for market making, technology development and
other functions we perform. As of December 31, 1999 we had 59 employees, and we
plan to grow to more than 150 employees by December 31, 2000. Competition for
personnel with the skill sets we require 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 ARE UNABLE TO MANAGE OUR GROWTH, OUR REVENUES MAY BE REDUCED
Rapid expansion strains 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, we have hired the
majority of our employees within the last year. This rapid growth has also
strained our ability to integrate and properly train our new employees.
Inadequate integration and training of our employees may result in
underutilization of our workforce and may reduce our revenues and hinder our
ability to achieve or maintain profitability. We expect to continue to hire a
significant number of new employees to support our business. Our current
information systems, procedures and controls may not continue to support our
operations and may hinder our ability to implement successfully our e-commerce
marketplace for the pulp and paper industry. In addition, if we are unable to
undertake new business due to a shortage of staff or technology resources, our
growth will be impeded. If we cannot manage our growth effectively, it is likely
that our revenue and results of operations will not meet expectations.
IF WE DO NOT SUCCEED IN ESTABLISHING AND STRENGTHENING THE PAPEREXCHANGE BRAND,
WE MAY NOT CONTINUE TO ATTRACT BUYERS AND SELLERS TO OUR MARKETPLACE
We believe that establishing, maintaining and enhancing the PaperExchange
brand is a critical aspect of our efforts to attract and expand our online
traffic. Promotion of the PaperExchange brand will depend largely on our success
in providing a high-quality online experience supported by a high level of
customer service, which cannot be assured. In addition, to attract and retain
online buyers and suppliers, and to promote and maintain the PaperExchange brand
in response to competitive pressures, we may find it necessary to increase
substantially our financial commitment to creating and maintaining strong brand
loyalty among buyers and suppliers. If we are unable to provide high-quality
online services or customer support, or otherwise fail to promote and maintain
our brand, or if we incur excessive expenses in an attempt to promote and
maintain our brand, we may not continue to attract buyers and sellers to our
marketplace or retain them as members, and our business may not succeed.
WE MAY NOT BE ABLE TO IMPLEMENT SUCCESSFULLY NEW TECHNOLOGIES WHICH ARE
ESSENTIAL TO OUR PROFITABILITY
We regularly need to upgrade the functionality and performance of our
marketplace through the enhancement of current technology or the introduction of
new technology. Enhancing current and introducing new technology into our
electronic marketplace involve numerous technical
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challenges and substantial personnel resources, and often take many months to
complete. We cannot be certain that we will be successful at enhancing or
integrating technologies into our electronic marketplace on a timely basis, or
in accordance with our objectives. In addition, we cannot be certain that, once
integrated, the technologies or our electronic marketplace will function as
expected. If we are unable to enhance existing and integrate new technologies
into our electronic marketplace on a timely basis, buyers and sellers may
discontinue use of our marketplace and we may experience difficulty attracting
new buyers and sellers, which could reduce our revenues and hinder our ability
to achieve or maintain profitability. In addition, our electronic marketplace is
complex and, despite testing and quality control procedures, new technology that
we integrate with our marketplace may contain undetected errors or "bugs" when
first introduced. Any inability to deliver quality services on a timely basis
would reduce or eliminate the demand for our marketplace.
NEW SERVICE INTRODUCTIONS MAY BE UNSUCCESSFUL AND THUS NEGATIVELY IMPACT OUR
BUSINESS
We plan to introduce new and expanded services, including new pricing
methods such as catalog sales, branded storefronts offering particular products
and auction capabilities, to our members and to enter into new relationships
with third parties in order to generate additional revenue, attract more members
and respond to competition. We cannot assure you that we will be able to offer
these services in a cost-effective or timely manner or that any of these efforts
will be successful. Furthermore, any new service that is not favorably received
by our members could damage our reputation or our brand name. Expansion of
services in this manner will also require significant additional expense and
development and may strain management, financial and operational resources.
Inability to generate revenue from expanded services sufficient to offset their
cost would adversely affect our ability to achieve or maintain profitability.
OUR PRINCIPAL TRANSACTIONS EXPOSE US TO CREDIT RISK FROM OUR BUYER MEMBERS
In most transactions effected through our marketplace we act as principal
and purchase products from sellers and resell them to buyers. In these
transactions we bear the risk of non-payment from the buyer. Although we rely on
third-party credit insurance to reduce our credit risk in principal
transactions, our liquidity and financial condition would be severely adversely
affected if a significant number of buyers default. In addition, if our
third-party credit insurance were no longer available in amounts or on terms
acceptable to us, we would face additional credit risks or we might be required
to limit the transactions in which we act as principal. Any such limitation
might adversely affect our ability to execute successfully our business model.
IF WE ACQUIRE NEW BUSINESSES OR TECHNOLOGIES, WE MAY BE UNABLE TO INTEGRATE THEM
WITH OUR BUSINESS OR WE MAY INCUR SIGNIFICANT EXPENSES IN CONNECTION WITH SUCH
ACQUISITIONS, WHICH MAY RESTRICT OUR BUSINESS OR IMPAIR OUR FINANCIAL
PERFORMANCE
If appropriate opportunities present themselves, we may acquire businesses,
technologies, services or products that we believe are beneficial to our
business. We do not currently have any understandings, commitments or agreements
with respect to any significant 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 little 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. Moreover, we have not made any significant acquisitions, and we
may never achieve any of the benefits that we might anticipate from a future
acquisition. If we make future acquisitions, we may issue shares of stock that
dilute other stockholders, incur debt, assume
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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 other costs.
OUR PLAN TO EXPAND INTO INTERNATIONAL SALES AND OPERATIONS WILL REQUIRE
SIGNIFICANT MANAGEMENT ATTENTION; AND IF WE FAIL TO EXECUTE ON THIS STRATEGY
SUCCESSFULLY, OUR GROWTH WILL BE LIMITED AND OUR OPERATING RESULTS WILL BE
HARMED
In order to enter international markets, we plan to establish international
operations, hire additional personnel and establish relationships with
additional buyers and suppliers and strategic partners. This expansion will
require significant management attention and financial resources and could have
a negative impact on our business. We cannot assure you that we will be able to
create or sustain international demand for our electronic marketplace. In
addition, our international business may be subject to a variety of risks,
including applicable government regulation, difficulties in collecting
international accounts receivable, the introduction of non-tariff barriers and
higher duty rates. Currency fluctuations, price controls, potential adverse tax
consequences and difficulties in enforcement of contractual obligations may also
present problems.
IF OTHERS USE DOMAIN NAMES THAT ARE SIMILAR TO OURS, TRAFFIC TO OUR SITE AND
TRANSACTION VOLUME ON OUR MARKETPLACE COULD DECREASE
We currently hold the Internet domain name "PaperExchange.com" and several
other variations on that domain name. Domain names generally are regulated by
Internet regulatory bodies. The regulation of domain names in the United States
and in foreign countries is subject to change. Regulatory bodies could establish
additional top-level domains, appoint additional domain name registrars or
modify the requirements for holding domain names. As a result, we may not
acquire or maintain the "PaperExchange.com" or the other similar domain names in
all of the countries in which we conduct business. The relationships among
regulations governing domain names and laws protecting trademarks and similar
proprietary names are unclear. Therefore, we could be unable to prevent third
parties from acquiring domain names that are similar to ours, or that infringe
or otherwise decrease the value of our trademarks and other proprietary rights.
Also, there are risks that in the future third parties could prevent us from
continuing to use one or more of our domain names. Any of these risks could
result in decreased traffic to our site and decreased transaction volume on our
marketplace.
THERE HAS BEEN NO PRIOR MARKET FOR OUR COMMON STOCK AND WE EXPECT THE PRICE OF
OUR COMMON STOCK TO BE VOLATILE
Prior to this offering, you could not buy or sell our common stock publicly
and an active public market for our common stock may not develop or be sustained
after the offering. The market price after the offering may decline from the
initial offering price. In addition, the market price of our common stock may
fluctuate significantly in response to a number of factors, some of which are
beyond our control, including:
- loss of one or more major buyers, sellers or strategic partners as users
of our marketplace;
- reports reflecting slower levels of transaction activity in our
marketplace than expected;
- quarterly variations in our operating results;
- changes in estimates of our financial performance by securities analysts;
- changes in market valuation of Internet commerce companies generally;
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- announcements by us of significant contracts, acquisitions, strategic
partnerships, joint ventures or capital commitments;
- additions or departures of any of our key personnel;
- future sales of our common stock; and
- stock market price and volume fluctuations, which are particularly common
among highly volatile securities of Internet companies.
IF THE INTERNET DOES NOT CONTINUE TO GROW AS A MEDIUM FOR COMMERCE, OUR BUSINESS
PLAN WILL FAIL
Our long-term viability is substantially dependent upon the development of
the Internet as an effective medium of commerce, especially for the purchase and
sale of pulp and paper products. This development depends upon a number of
factors including continued growth in the number of users, concerns about
transaction security, continued development of the necessary technological
infrastructure, development of enabling technologies, uncertain and increasing
government regulation and the development of complementary services and
products.
Use of the Internet as a means of effecting business transactions is at an
early stage of development. For us to be successful, businesses must accept and
utilize novel ways of conducting business and exchanging information. Convincing
businesses to buy and sell pulp and paper products online may be particularly
difficult, as these businesses have historically relied on traditional off-line
distribution channels which depend on personal relationships and contact. We
cannot assure you that acceptance and use of the Web will continue to develop or
that a sufficiently broad base of businesses will adopt, and continue to use,
the Internet and commercial online services as a medium of commerce.
Growth in the demand for our electronic marketplace depends on the adoption
of e-commerce and Internet solutions by pulp and paper industry participants,
who must accept a new way of conducting business and purchasing supplies. Our
business could suffer dramatically if e-commerce and Internet solutions are not
accepted or not perceived to be effective by participants in the pulp and paper
industry. The Internet may not prove to be a viable commercial marketplace for a
number of reasons, including:
- inadequate development of the necessary infrastructure for Internet-based
communications by participants in the pulp and paper industry;
- security and confidentiality concerns of buyers and sellers;
- lack of development of complementary products, such as high-speed modems
and high-speed communication lines;
- implementation of competing purchasing solutions;
- lack of human contact that traditional sellers provide; and
- governmental regulation.
THE ACCELERATED GROWTH AND INCREASING VOLUME OF INTERNET TRAFFIC MAY CAUSE
PERFORMANCE PROBLEMS THAT MAY SLOW ADOPTION OF OUR ELECTRONIC MARKETPLACE
The growth of Internet traffic to very high volumes over a relatively short
period of time has caused frequent periods of decreased Internet performance,
delays and, in some cases, system outages. This decreased performance is caused
by limitations inherent in the technology infrastructure supporting the Internet
and the internal networks of Internet users. If Internet usage
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continues to grow rapidly, the infrastructure of the Internet and its users may
be unable to support the demands of growing e-commerce usage, and the Internet's
performance and reliability may decline. If existing or potential members of our
marketplace experience frequent outages or delays on the Internet, the adoption
or use of our electronic marketplace may grow more slowly than we expect or may
even decline. Our ability to increase the speed and reliability of our
electronic marketplace is limited by and depends upon the reliability of both
the Internet and the internal networks of our existing and potential members. As
a result, if improvements in the infrastructure supporting both the Internet and
the internal networks of our members are not made in a timely fashion, we may
experience difficulty obtaining new members or maintaining our existing members.
Either of these could reduce our future revenues and otherwise adversely impact
our results of operations.
IF INTERNET SECURITY CONCERNS HINDER THE ADOPTION OF E-COMMERCE, THE DEVELOPMENT
OF OUR MARKETPLACE WILL BE IMPEDED
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 or cause interruptions in our services or operations.
Our activities involve the storage and transmission of proprietary information,
such as confidential buyer and supplier specifications. The Internet is a public
network, and data is 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
members, which could disrupt our electronic marketplace or make it inaccessible
to our members. We may be required to devote 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.
SYSTEM FAILURE OR DELAY MAY CAUSE INTERRUPTION OF OUR SERVICES
Our revenue depends on the number of participants in the pulp and paper
industry who use our marketplace to purchase and sell products. Accordingly, the
satisfactory performance, reliability and availability of our marketplace,
transaction-processing systems and network infrastructure are critical to our
operating results, as well as our ability to attract and retain buyers and
suppliers and to maintain adequate customer service levels. Substantially all of
our computer and communications systems are located in greater Boston,
Massachusetts. Our systems and operations are vulnerable to damage or
interruption from fire, flood, power loss, telecommunications failure,
break-ins, "hacker" attacks and similar events. Despite our implementation of
network security measures, our servers are vulnerable to computer viruses,
physical or electronic break-ins or attacks and similar disruptions, which could
lead to interruptions, delays, loss of data or the inability to accept and
confirm purchases. Any system interruptions that result in the unavailability of
our online site or reduced performance of the transaction system would reduce
the volume of sales and the attractiveness of our service offerings.
Any substantial increase in the volume of traffic or the number of
transactions processed through our Web site will require us to expand and to
upgrade further our technology, transaction-processing systems and network
infrastructure. We cannot assure you that these upgrades will
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prevent unanticipated system disruptions, slower response times or degradation
in levels of customer service. Our insurance policies may not adequately
compensate us for any issues or damages that may arise due to any failures or
interruptions in our systems.
We cannot assure you that our transaction-processing systems and network
infrastructure will be able to accommodate increases in traffic in the future.
In general, we may not be able to project accurately the rate or timing of these
increases or successfully upgrade our systems and infrastructure to accommodate
future traffic levels on our marketplace. In addition, we cannot assure you that
we will be able to, in a timely manner, effectively upgrade and expand our
transaction-processing systems or successfully integrate any newly developed or
purchased modules with our existing systems.
FAILURE OF HARDWARE SYSTEMS OR SOFTWARE COULD UNDERMINE OUR MEMBERS' CONFIDENCE
IN OUR RELIABILITY AND HARM OUR BUSINESS
A significant disruption in our online marketplace or other transaction
services could seriously undermine our members' confidence in our business. Our
members hold us to a high standard of reliability and performance. During a
disruption, participants may lose their online connection or we may not receive
their listings or bids in a timely manner. Any interruptions in our service may
undermine existing and potential members' confidence in the reliability of our
business.
Conducting an online marketplace requires the successful technical operation
of an entire chain of software, hardware and telecommunications equipment. This
chain includes the personal computers and network connections of buyers and
sellers, network servers, operating systems, databases and networking equipment
such as routers. A failure of any element in this chain can partially or
completely disrupt an online transaction. Some of the elements set forth above
are not fully within our control, such as Internet connectivity and software,
hardware and telecommunications equipment we purchase from others. We have
members from outside North America who may use older or inferior technologies,
which may not operate properly. Any reduction in our members' confidence in our
reliability could harm our business.
IF WE DO NOT ADEQUATELY MAINTAIN OUR MEMBERS' CONFIDENTIAL INFORMATION, OUR
REPUTATION COULD BE HARMED AND WE COULD INCUR LEGAL LIABILITY
Any breach of security relating to our members' confidential information
could result in legal liability for us and a reduction in use or cancellation of
our online transaction services, either of which could materially harm our
business. Our personnel receive confidential information from buyers and sellers
that is stored in our files and on our computer systems.
We currently have practices and procedures in place to help ensure the
confidentiality of our members' information. However, our security procedures to
protect against the risk of inadvertent disclosure or intentional breaches of
security might fail to adequately protect information that we are obligated to
keep confidential. We may not be successful in adopting more effective systems
for maintaining confidential information, so our exposure to the risk of
disclosure of the confidential information of others may grow with increases in
the amount of information we possess. If we fail to adequately maintain our
members' confidential information, some of our members could end their business
relationships with us and we could be subject to legal liability.
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IF WE ARE NOT ABLE TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY RIGHTS, THEN
OUR COMPETITORS MAY BE ABLE TO DUPLICATE OUR SERVICES, WHICH WOULD IMPAIR OUR
ABILITY TO SUCCESSFULLY COMPETE
We rely in part on our proprietary technology, such as My MarketProfiler, to
operate our electronic 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 are in the process of obtaining
trademark registrations for some of our brand names and our marketing materials
are copyrighted, but these protections may not be adequate. Although we require
each of our employees to enter into a confidentiality agreement and some key
employees are subject to non-competition agreements, these agreements may not
satisfactorily safeguard our intellectual property.
We cannot be certain that third parties will not infringe on 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. In addition, effective patent, trademark, copyright and trade secret
protection may not be available in every country where we operate our electronic
exchange. We may, at times, have to incur significant legal costs and spend time
defending our trademarks, copyrights and other proprietary information. 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.
In the future, we may license some of our intellectual property, such as
trademarks or copyrighted material, to third parties. While we would attempt to
ensure that any licensees maintain the quality and value of our brand, we cannot
ensure that they would refrain from actions which might diminish this quality
and value.
IF OTHERS ASSERT THAT OUR TECHNOLOGY INFRINGES THEIR INTELLECTUAL PROPERTY
RIGHTS, RESOLVING THE DISPUTE COULD DIVERT OUR MANAGEMENT TEAM AND FINANCIAL
RESOURCES
Recently, many patents have been granted in the United States involving
business methods relating to e-commerce. We may be subject to claims that one or
more of the business methods on our marketplace infringe patents held by others.
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 pay royalties to continue to use our technology. We may not be able
to obtain any necessary licenses on commercially reasonable terms or at all. If
we fail to obtain necessary licenses or other rights, or if these licenses are
costly, our operating results may suffer either from reductions in revenue
through our inability to serve clients 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, WHICH MAY INCREASE OUR COSTS OR HARM OUR
GROWTH
We rely on third parties to provide us with some software and hardware, for
which we pay fees. This software and hardware has been readily available, and to
date we have not paid significant fees for its use. These third parties may
increase their fees significantly or refuse to license their
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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.
We also intend to continue to license certain content for our Web site from
third parties, including content which is integrated with internally-developed
content and used on our Web site to provide important services. We cannot ensure
that third parties will continue to license this content to us on commercially
reasonable terms or that we will be able to successfully integrate third party
content. Licensing content from third parties exposes us to risks associated
with the assimilation of new content, the diversion of resources from the
development of our content, the inability to generate revenue from new content
sufficient to offset associated acquisition costs and the maintenance of
uniform, appealing content. The inability to obtain any of these licenses could
delay site development or services until we can identify, license and integrate
equivalent content. Any delays in site development or services could cause
members to decrease their use of our marketplace.
REGULATION OF THE INTERNET OR TAXATION OF TRANSACTING BUSINESS OVER THE INTERNET
MAY INHIBIT THE GROWTH OF OUR ELECTRONIC MARKETPLACE
Due to the increasing popularity and use of the Internet and of e-commerce,
it is possible that governments in the U.S. and abroad may adopt a number of
taxes, laws and regulations with particular applicability to the Internet and
e-commerce transactions. Governments may adopt taxes and enact legislation
applicable to us in areas such as content, product distribution and network
security. Encryption and the use of data and privacy protection, electronic
authentication or "digital" signatures, illegal and harmful content, access
charges and re-transmission activities may be regulated in the future. Moreover,
the applicability to the Internet of existing laws governing issues such as
property ownership, content, taxation, defamation and personal privacy is
uncertain. Taxes, laws or regulations may limit the growth of the Internet,
inhibit e-commerce and reduce the number of transactions on our marketplace,
increase our cost of doing business or increase our legal exposure. Any of these
factors could have a negative effect on our results of operations or financial
condition.
WE ARE SUBJECT TO GOVERNMENT REGULATION APPLICABLE TO SUPPLIERS THAT EXPOSES US
TO POTENTIAL LIABILITY AND NEGATIVE PUBLICITY
We currently rely upon our suppliers to meet all packaging, distribution,
labeling, hazard information notices to purchasers, record keeping and licensing
requirements applicable to our business during the entire transaction. Our
reliance on the compliance by suppliers and purchasers with applicable
governmental regulations may not be sufficient if the government requires us to
have our own licenses. For example, if we are held to be a seller or a
distributor of products because we took legal title to the products, we may have
violated some governmental regulations by not having the appropriate license or
permit and may be subject to potentially severe civil or criminal penalties and
fines for each offense. In addition, we are unable to verify that our suppliers
have in the past complied, or will in the future comply, with applicable
governmental regulatory requirements, or that their actions satisfy all
governmental or other legal requirements that may be applicable to our sales. We
could be fined or exposed to civil or criminal liability, including monetary
fines and injunctions, and we potentially could receive negative publicity if we
or our suppliers have not met or are not meeting applicable governmental
regulatory requirements. We do not maintain any reserve for potential
liabilities of this type.
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WE MAY BE EXPOSED TO PRODUCT LIABILITY CLAIMS
We face potential liability for claims based on the nature, use or
merchantability of the products that are posted on our marketplace. This
includes claims for breach of warranty or product liability, misrepresentation,
violation of governmental regulations and other commercial claims. In
particular, during periods where we hold title to products or are otherwise
liable for the disposition or transfer of the products, we bear the risk of
liability for product loss and resulting damages to persons and property. In
some instances, we pass through the manufacturers' warranties on the products we
purchase and sell as principal; however, those warranties are generally limited
in terms of scope and liability. Although we maintain commercial general
liability insurance, including products liability, our insurance may not cover
some claims. It is also subject to policy limits and exclusions, and may not
fully indemnify us or our employees for any civil, governmental or criminal
liability that may be imposed. Furthermore, this insurance may not be available
at commercially reasonable rates in the future.
WE MAY BE SUED FOR INFORMATION AND PRODUCTS RETRIEVED FROM THE WEB
As a publisher and distributor of online content, we face potential
liability for defamation, negligence, copyright, patent or trademark
infringement and other claims based on the nature and content of the materials
that we publish or distribute. These claims have been brought, and sometimes
successfully pressed, against online services. We could also be subjected to
claims based upon the content that is accessible from PaperExchange through
links to other Web sites. Although we carry general liability insurance, our
insurance may not cover claims of these types or may not be adequate to
indemnify us for all liability that may be imposed.
OFFICERS AND DIRECTORS AND THEIR AFFILIATES WILL CONTINUE TO HAVE SUBSTANTIAL
CONTROL OVER PAPEREXCHANGE AFTER THE OFFERING
Upon completion of this offering, our executive officers and directors and
their affiliates will beneficially own approximately % of the shares of
common stock ( % if the underwriters exercise the over-allotment option in
full). As a result, our officers, directors and their affiliates will have the
ability to control the election of our board of directors and the outcome of
corporate actions requiring stockholder approval. This concentration of
ownership may have the effect of delaying or preventing a change in control of
PaperExchange. See "Principal Stockholders."
OUR MANAGEMENT HAS BROAD DISCRETION OVER HOW TO USE THE PROCEEDS OF THIS
OFFERING. IF OUR PROCEEDS ARE NOT USED EFFECTIVELY, OUR BUSINESS MAY SUFFER
We estimate that our net proceeds from this offering will be $ million, at
an assumed initial public offering price of $ per share and after deducting the
estimated 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
results of operations will be substantially adversely affected.
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PROVISIONS OF OUR CORPORATE CHARTER AND BYLAWS AND DELAWARE LAW MAY DISCOURAGE
OTHER COMPANIES FROM ACQUIRING US, WHICH MAY LIMIT THE PRICE INVESTORS MIGHT BE
WILLING TO PAY IN THE FUTURE FOR OUR COMMON STOCK
Provisions in our Certificate of Incorporation, in our Bylaws and under
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 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. For a more complete discussion of these provisions of
Delaware law, please see "Delaware Law and Certain Certificate of Incorporation
and By-Laws Provisions".
THE TRADING PRICE OF OUR STOCK MAY DECLINE AS A RESULT OF SUBSTANTIAL SALES OF
OUR COMMON STOCK AFTER THE OFFERING
Sales of a substantial number of shares of our common stock after the
offering could negatively affect the market price of our common stock and could
impair our ability to raise capital through the sale of additional equity
securities. Upon completion of this offering, we will have shares of
common stock outstanding ( shares if the underwriters'
over-allotment option is exercised in full). The shares sold in this
offering ( shares if the underwriters' over-allotment option is
exercised in full) will be freely tradable without restriction or further
registration under the federal securities laws unless purchased by our
"affiliates" as that term is defined in Rule 144. The remaining
shares of common stock outstanding upon completion of the offering will be
"restricted securities" as that term is defined in Rule 144. Upon completion of
this offering, we will also have shares of common stock subject to
issuance upon exercise of stock options that are presently exercisable or will
become exercisable within 180 days after the date of this prospectus.
Stockholders holding approximately % of the common stock outstanding
upon completion of this offering and options to purchase common stock
exercisable within 180 days after the date of this prospectus have executed
lock-up agreements that limit their ability to sell common stock. These
stockholders and option holders have agreed not to sell or otherwise dispose of
any shares of common stock for a period of at least 180 days after the date of
this prospectus without the prior written approval of Goldman Sachs. When the
lock-up agreements expire, these shares and the shares underlying the options
will become eligible for sale, in some cases freely and in other cases only
pursuant to the volume, manner of sale and notice requirements of Rule 144.
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
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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. For more information, please see "Dilution".
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements, which involve risks and
uncertainties. Our actual results, levels of activity, performance or
achievements could differ materially from those anticipated in the
forward-looking statements as a result of certain factors, including those set
forth under "Risk Factors" and elsewhere in this prospectus. In some cases, you
can identify forward-looking statements by terms such as "may", "will",
"should", "expects", "plans", "anticipates", "believes", "estimates",
"predicts", "potential", "continue" or the negative of these terms or other
comparable terms.
Although we believe that the expectations in the forward-looking statements
are reasonable, we cannot guarantee future results, levels of activity,
performance or achievements. We are under no duty to update any of the
forward-looking statements after the date of this prospectus to conform these
statements to actual results.
USE OF PROCEEDS
We estimate that the net proceeds we will receive from the sale of the
shares in this offering will be $ million, at an assumed initial public
offering price of $ per share and after deducting the estimated
underwriting discounts and commissions and offering expenses payable by us. If
the underwriters exercise their over-allotment option in full, then we estimate
that the net proceeds we will receive from this offering will be $ million.
We are engaging in this offering in order 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 use of the net proceeds of this offering other than
for working capital and other general corporate purposes, and our specific use
of these proceeds will be in the discretion of our management. We may in the
future use a portion of the net proceeds to acquire complementary technologies
or businesses; however, we currently have no commitments or agreements and are
not involved in any negotiations involving any of these transactions. Pending
any immediate uses of the net proceeds of this offering, we intend to invest the
net proceeds in interest-bearing, investment grade securities.
DIVIDEND POLICY
PaperExchange has not declared or paid any cash dividends on its capital
stock since its inception and does not expect to pay any cash dividends in the
foreseeable future. PaperExchange currently intends to retain future earnings,
if any, to finance the expansion of its business.
18
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999:
- on an actual basis; and
- on an actual as adjusted basis to reflect the conversion of PaperExchange
from a limited liability company to a corporation, the expected filing of
an amendment to our certificate of incorporation to provide for authorized
capital stock consisting of 250,000,000 shares of common stock and
1,000,000 shares of undesignated preferred stock, the issuance of an
additional shares of common stock, and our issuance and sale of
shares of common stock in this offering at an assumed initial public
offering price of $ per share and after deducting estimated
underwriting discount and offering expenses.
The table does not reflect options to purchase 2,464,750 shares of common
stock outstanding as of December 31, 1999 at a weighted average exercise price
of $0.45 per share, 5,000,001 shares of common stock issuable upon the exercise
of warrants at a weighted average exercise price of $2.00 per share, and options
to purchase 1,767,020 shares of common stock at an exercise price of $2.38 per
share.
You should read the table below along with our balance sheet as of
December 31, 1999 and the related notes to the financial statements, which are
included elsewhere in this prospectus.
All equity issued by us prior to February 28, 2000 was issued in the form of
limited liability company membership interests, which converted on a one-for-one
basis into shares of common stock when we converted to a corporation at that
time.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------------
ACTUAL
ACTUAL AS ADJUSTED
-------- ------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT
SHARE DATA)
<S> <C> <C>
Long-term debt.............................................. $ 8,468 $
Stockholders' equity
Common Stock, $.001 par value; 60,000,000 shares authorized;
39,280,983 shares issued and outstanding at Pro Forma
December 31, 1999......................................... --
Membership interests, 30,000,000 issued and outstanding in
1998, 39,280,983 issued and outstanding in 1999 (including
142,748 Economic Interests outstanding in 1999)........... 15,580
Additional paid in capital................................ 4,246
Deferred compensation..................................... (2,117)
Notes receivable--officers................................ (1,084)
Deficit accumulated during the development stage.......... (9,911)
-------
Total stockholders' equity.............................. 6,714
-------
Total capitalization.................................... $15,182
=======
</TABLE>
19
<PAGE>
DILUTION
Our pro forma net tangible book value as of December 31, 1999, was
approximately $ million, or $ per share. Pro forma net tangible book
value per share represents the amount of our total tangible assets reduced by
the amount of our total liabilities and then divided by the total number of
shares of common stock outstanding on December 31, 1999 assuming our conversion
to a corporation as of such date. Dilution in pro forma net tangible book value
per share represents the difference between the amount per share paid by
purchasers of shares of common stock in this offering and the pro forma as
adjusted net tangible book value per share of common stock immediately after the
completion of this offering. After giving effect to the sale of the shares
of common stock offered by us at an assumed initial public offering price of
$ per share, and after deducting the estimated underwriting discount and
estimated offering expenses payable by us, our pro forma as adjusted net
tangible book value on December 31, 1999 would have been approximately $
million, or $ per share of common stock. This represents an immediate
increase in pro forma as adjusted net tangible book value of $ per share to
existing stockholders and an immediate dilution of $ per share to new
investors purchasing shares of common stock. The following table illustrates
this dilution on a per share basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share before this
offering................................................ $
Increase per share attributable to new investors..........
-------
Adjusted 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 as adjusted basis, after
giving effect to the differences between the existing stockholders and new
investors with respect to the number of shares of common stock purchased from
us, the total consideration paid by investors and the average price per share
paid by existing stockholders and by new investors at an assumed initial
offering price of $ per share before deducting estimated underwriting
discount and offering expenses:
<TABLE>
<CAPTION>
SHARES TOTAL AVERAGE
PURCHASED CONSIDERATION PRICE
------------------- ------------------- PER
NUMBER PERCENT AMOUNT PERCENT SHARE
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Existing stockholders..................... % $ % $
New investors.............................
------ ------ ------- ------ -------
Totals.................................. 100.0% 100.0%
====== ====== ======= ======
</TABLE>
The preceding tables exclude 2,464,750 shares of common stock issuable upon
exercise of options outstanding under our 1998 Equity Option Plan on
December 31, 1999 at a weighted average exercise price of $0.45 per share,
5,000,001 shares of common stock issuable upon exercise of warrants at a
weighted average exercise price of $2.00 per share, and options to purchase
1,767,020 shares of common stock at an exercise price of $2.38 per share. To the
extent outstanding options and warrants are exercised, there will be further
dilution to new investors.
20
<PAGE>
SELECTED FINANCIAL DATA
When you read this selected financial data, it is important that you read
along with it the historical financial statements and related notes as well as
"Management's Discussion and Analysis of Financial Condition and Results of
Operations". In the table below, we provide you with summary historical
financial data of PaperExchange.com, LLC. We have prepared this information
using the financial statements of PaperExchange.com, LLC for the period from
April 10, 1998 (date of inception) to December 31, 1998 and the year ended
December 31, 1999, which have been audited by Ernst & Young LLP, independent
auditors.
<TABLE>
<CAPTION>
APRIL 1998 (INCEPTION)
THROUGH YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1999
---------------------- -------------------
(IN THOUSANDS, EXCEPT PER INTEREST DATA)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues.................................... $ 2 $ 114
Cost of revenues................................ -- 92
---------- ----------
Gross profit.................................... 2 22
Operating costs:
Sales and marketing........................... 541 3,376
Technology.................................... 141 3,104
General and administrative.................... 207 2,116
Write-off of capitalized software............. -- 209
---------- ----------
Operating loss.................................. (887) (8,783)
Interest and other income (expense), net........ 27 (268)
---------- ----------
Net loss........................................ $ (860) $ (9,051)
========== ==========
Basic and diluted loss per interest............. $ (0.03) $ (0.26)
========== ==========
Weighted average interests used to compute basic
and diluted loss per interest................. 30,000,000 34,881,564
========== ==========
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------
1998 1999
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 493 $ 16,279
Working capital............................................. 444 13,141
Total assets................................................ 818 18,486
Long-term debt.............................................. -- 8,468
Total liabilities........................................... 52 11,772
Total members' equity....................................... 765 6,714
</TABLE>
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS SHOULD BE READ IN CONJUNCTION WITH OUR FINANCIAL STATEMENTS AND
RELATED NOTES INCLUDED ELSEWHERE IN THIS PROSPECTUS. THIS DISCUSSION CONTAINS
FORWARD-LOOKING STATEMENTS THAT INCLUDE RISKS AND UNCERTAINTY. OUR ACTUAL
RESULTS MAY DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING
STATEMENTS, SUCH AS THOSE SET FORTH UNDER "RISK FACTORS" AND ELSEWHERE IN THIS
PROSPECTUS.
OVERVIEW
PaperExchange provides a business-to-business e-commerce marketplace for
buyers and sellers of pulp and paper and related products. Our marketplace
enables members to efficiently buy and sell products through a secure
Internet-based neutral marketplace tailored to this industry.
We were formed in April 1998 and began offering products for sale on our
marketplace in the fourth quarter of 1998. From inception through
December 1999, we were a development stage enterprise and did not have
significant revenue. Our operating activities during this period related
primarily to designing and developing our marketplace, building our corporate
infrastructure, establishing relationships with suppliers and purchasers, and
raising capital. To date, revenues have been derived from transactions executed
on the exchange component of our marketplace. We intend to continue developing
our marketplace to enhance functionality and to add service offerings.
We have not generated significant revenue to date and our ability to
generate significant revenue in the future is uncertain. We have incurred
significant losses since inception and, as of December 31, 1999, we had an
accumulated deficit of approximately $9.9 million. We expect our losses to
increase in the future and we cannot assure you that we will achieve or sustain
profitability.
From inception, we have increased our level of spending to build our
corporate infrastructure, develop our marketplace, and attract an experienced
management team. We believe our success depends on establishing additional key
strategic supplier and purchaser relationships, enhancing the features and
functionality of our marketplace, and accelerating market awareness and demand
for the services we provide. We intend to increase our marketing, sales,
technology, and other operating expenses as required to continue to build our
marketplace, as well as expand internationally. We anticipate that these
expenses could significantly precede any revenues generated by such increased
spending.
REVENUES
Beginning in December 1999 we began to act as a principal in our marketplace
by purchasing products from our seller members and reselling them to our buyer
members, and we expect this model will be the primary method of effecting
transactions in our marketplace in the future. In transactions in which we are
the principal, we recognize revenue from product sales when products are shipped
to customers. We are responsible for selling products, collecting payment from
customers, ensuring that the shipment reaches customers, and processing returns.
In addition, we take title to the product upon shipment and bear the risk of
loss for collection, delivery of goods, and product returns from customers. We
provide an allowance for sales returns at the time of sale. The Company had a
bad debt allowance of approximately $4,000 and an allowance for sales returns of
approximately $31,000 at December 31, 1999.
From inception through December 1999, we derived our revenue primarily
through product sales to customers on our marketplace on an agency basis. Under
these agency-based
22
<PAGE>
transactions, we recognize as revenue our commission equal to a percentage of
the purchase price of products sold at the time the products are shipped to the
buyer. In transactions in which we are the agent, we neither take title to
products nor bear the risk of loss for collection or product returns. While we
expect principal-based transactions to be the primary method of conducting
business on our marketplace, agency-based transactions may continue.
COST OF REVENUES
When we act as the principal in a transaction, our cost of revenues consists
of the cost of acquiring products from our suppliers for sale to our buyers.
When we act as agent, transactional revenue does not have any associated direct
costs of sales. We expect that our overall gross profit as a percent of revenue
will decrease as we derive a larger percentage of our revenue from
principal-based transactions on our exchange.
OPERATING EXPENSES
SALES AND MARKETING. Sales and marketing expenses consist primarily of
advertising and promotion in support of the development of our marketing
strategy and payroll and related expenses for personnel engaged in member
relations and sales activities. Sales and marketing expenses have increased
since inception as we have expanded these efforts. We expect that sales and
marketing expenses will increase significantly in future periods as we incur
additional advertising and promotion expenses, and hire additional sales and
marketing personnel to drive user adoption among buyers and sellers in the pulp
and paper industry, develop our branding strategy, and expand to international
markets.
TECHNOLOGY. Technology expenses consist primarily of payroll, benefits,
consulting fees, amortization of software, and various communication expenses
associated with developing, maintaining, and enhancing our marketplace.
Increased technology spending has resulted from additional staffing and the
associated costs incurred to enhance the features, content, and functionality of
our marketplace. Research and development costs are expensed as incurred.
Software development costs which provide additional functionality to the
marketplace are required to be capitalized. We believe that our success is
dependent in large part on continued enhancement of our marketplace and
therefore expect development costs to increase in future periods.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of payroll, benefits, and professional service fees. The general and
administrative expenses have increased primarily due to the additions to our
executive management team as well as expenses related to increased professional
service fees. We expect general and administrative expenses to increase in
future periods to support our expanded operations and the expenses of being a
public company.
WRITE-OFF OF CAPITALIZED SOFTWARE. We wrote off capitalized software in the
fourth quarter of 1999 in connection with the release of Version 3.0 website
software which replaced Version 2.0.
INTEREST AND OTHER EXPENSE, NET
Interest and other expense, net has been derived primarily from interest on
notes payable to shareholders, offset by interest income on cash investments.
INCOME TAXES
In February 2000, we changed our form of organization from a limited
liability company to a corporation and, therefore, are subject to federal and
state income taxes effective February 28, 2000. Prior to this date, we were
treated as a partnership for federal and state income tax purposes
23
<PAGE>
and all items of income, expense and tax credits were passed through to our
limited liability company members.
The Company expects to recognize a deferred tax asset for the net tax
effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax
purposes. Due to the uncertainties regarding the Company's future results of
operations, a full valuation allowance will be recorded against any deferred tax
asset for the foreseeable future.
PERIODS ENDING DECEMBER 31, 1999 AND 1998
NET REVENUES
From inception through December 1999, PaperExchange was a development stage
enterprise and did not have significant revenues. Net revenues increased from
$1,500 in 1998 to $114,000 in 1999. This increase in net revenue is primarily
attributable to a change in our primary transaction model to principal-based
transactions in December 1999 from what had previously been a model consisting
primarily of agency-based transactions.
COST OF REVENUES
Cost of revenues increased from zero in 1998 to $92,000 for the year ended
December 31, 1999. This was due to the introduction of principal-based
transaction revenue. We expect that cost of revenues as a percentage of net
revenues will increase in future periods due to increases in principal-based
transaction volume.
OPERATING EXPENSES
SALES AND MARKETING. Sales and marketing expenses increased from $541,000
in 1998 to $3.4 million in 1999. The increase resulted primarily from our
continued investment in advertising and promotion activities, and increased
staffing levels to assist our business development.
TECHNOLOGY. Technology expenses increased from $141,000 in 1998 to
$3.1 million in 1999. The increase is due to increased staffing and associated
costs related to the design, development, and maintenance of our marketplace.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
from $207,000 in 1998 to $2.1 million in 1999. The increase is due to the
amortization of deferred compensation of $516,000 in connection with certain
stock options granted in 1999, additional management team and customer service
personnel, and higher professional service fees.
WRITE-OFF OF CAPITALIZED SOFTWARE. We wrote off $209,000 of capitalized
software in the fourth quarter of 1999 in connection with the release of
Version 3.0 website software which replaced Version 2.0
INTEREST AND OTHER EXPENSE, NET
Interest expense consisted of $334,000 on notes payable to shareholders,
offset by interest income of $56,000 on cash investments and other income of
$10,000. Interest and other expense, net were $268,000 in 1999 as compared to
interest income of $27,000 in 1998.
LIQUIDITY AND CAPITAL RESOURCES
We have funded our operations primarily through the private sale of our
equity securities and the issuance of notes and related warrants. Since
inception through December 31, 1999, we have
24
<PAGE>
raised net proceeds of $14.4 million through the private sales of our equity
securities and $10.0 million from the issuance of notes and related warrants. At
December 31, 1999, our principal source of liquidity was $16.3 million in cash
and cash equivalents.
Net cash used in operating activities was $780,000 in 1998 and $5.2 million
in 1999. Net cash used in operating activities primarily resulted from
personnel, marketing activities, and overhead costs.
Net cash used in investing activities was $230,000 in 1998 and $1.9 million
in 1999. We have made substantial investments in internally developed and
purchased software as well as additional property and equipment.
Net cash provided by financing activities was $1.5 million in 1998 and
$22.9 million in 1999. Net cash provided by financing activities in 1998 of
$1.5 million resulted from the sale of equity securities. Net cash provided by
financing activities in 1999 was provided primarily by net proceeds of
$12.9 million from the sale of our equity securities and $10.0 million from the
issuance of notes and related warrants.
We currently anticipate that the net proceeds from this offering, together
with our current cash and cash equivalents, will be sufficient to meet our
anticipated cash needs for working capital, other operating expenses, and
capital expenditures for at least the next 18 months. However, we may need to
raise additional funds in the future through public or private financings or
other arrangements to fund our operations, and potential acquisitions, if any,
over a long-term basis until we achieve profitability, if ever. Any additional
financing activities, if needed, might not be available on reasonable terms or
at all.
25
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
Due to our limited operating history, we believe that period-to-period
comparisons of results of operations are not meaningful and should not be relied
upon as an indication of future performance. The following table, however, sets
forth our quarterly statement of operations for 1999. You should read the
following table together with our financial statements and related notes in this
prospectus.
QUARTERLY RESULTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1999 1999 1999 1999
---------- --------- -------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues......................... $ 1 $ 6 $ 6 $ 101
Cost of revenues..................... -- -- -- 92
----- ----- ------- -------
Gross profit......................... 1 6 6 9
Operating costs:
Sales and marketing................ 406 402 1,008 1,560
Technology......................... 266 171 781 1,886
General and administrative......... 194 350 417 1,155
Write off of capitalized
software......................... -- -- -- 209
----- ----- ------- -------
Total operating costs................ 866 923 2,206 4,810
----- ----- ------- -------
Operating loss....................... (865) (917) (2,200) (4,801)
Interest and other (income) expense,
net................................ (4) (1) -- 273
----- ----- ------- -------
Net loss............................. $(861) $(916) $(2,200) $(5,074)
===== ===== ======= =======
</TABLE>
YEAR 2000 COMPLIANCE
We have been able to build our internal systems with Year 2000 compliance in
mind and to date we have not suffered any disruptions in our systems following
December 31, 1999. In addition, to date, we have not been made aware that any of
our technology or communications vendors have suffered disruptions in their
systems. Failure of our internal computer systems, third-party equipment or
software, or systems maintained by our suppliers to operate properly with regard
to the Year 2000 could require us to incur significant unanticipated expenses to
remedy any problems.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
All of our revenue to date has been denominated in United States dollars and
is primarily from buyers in the United States. Because we intend to establish
foreign subsidiaries in the future, a portion of the revenue we derive from
international operations may be denominated in foreign currencies. As a result,
our operating results could become subject to significant fluctuations based
upon changes in the exchange rates of those currencies in relation to the United
States dollar. Furthermore, to the extent that we engage in international sales
denominated in United States dollars, an increase in the value of the United
States dollar relative to foreign currencies could make our services less
competitive in international markets. Although currency fluctuations are
currently not a material risk to our operating results, we intend to continue to
monitor our exposure to
26
<PAGE>
currency fluctuations and, when appropriate, use financial hedging to minimize
the effect of these fluctuations in the future.
Our interest income is sensitive to changes in the general level of United
States interest rates, particularly since the majority of our investments are in
short-term investments. Our notes payable are also interest rate sensitive,
since the interest rate charged is based on changes in the prime rate of
lending. We believe, however, that we are currently not subject to material
interest rate risk.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 is effective for fiscal years
beginning after June 15, 2000. SFAS No. 133 requires that all derivative
instruments be recorded on the balance sheet at their fair value. Changes in the
fair value of derivatives are recorded each period in current earnings or other
comprehensive income, depending on whether a derivative is designed as part of a
hedge transaction and, if it is, the type of hedge transaction. The Company does
not expect that the adoption of SFAS No. 133 will have a material impact on its
financial statements.
27
<PAGE>
BUSINESS
COMPANY OVERVIEW
PaperExchange is a leading business-to-business vertically-focused
marketplace that enables buyers and sellers in the pulp and paper industry to
transact business on the Internet. Our marketplace includes a real time exchange
that enables our members to list offers to sell or requests to purchase products
and services in a secure and neutral environment. Using proprietary transaction
software that we developed specifically for the pulp and paper industry, our
buyer and seller members can review products offered online, negotiate pricing,
and complete transactions on our exchange. In addition to providing
industry-specific content, we also offer logistics and credit clearing as well
as quality inspection services through a third party provider.
Our marketplace has attracted and registered more than 3,100 corporate
members from over 80 countries. To date, our members have completed over 100
transactions representing a total of approximately 6,000 tons of pulp and paper
products. We have recently signed strategic agreements with producers, such as
International Paper and Asia Pulp & Paper, to list products for sale through our
marketplace. In addition, we have entered into strategic agreements with buyers,
such as Staples, for commitments to purchase products. We are led by a
management team with extensive experience in the pulp and paper industry and in
technology.
INDUSTRY BACKGROUND
GROWTH OF BUSINESS-TO-BUSINESS COMMERCE ON THE INTERNET
The Internet has emerged as the fastest growing communications medium in
history and is dramatically changing how businesses and individuals communicate
and share information. Initially, the Internet created new opportunities for
conducting commerce, primarily through business-to-consumer and person-to-person
e-commerce. More recently, the widespread adoption of intranets, the acceptance
of the Internet as a business communications platform, and increased and secure
bandwidth have created a foundation for business-to-business e-commerce that
offers the potential for organizations to streamline complex processes and
supply chains, lower costs, and improve productivity. Internet-based
business-to-business e-commerce is poised for rapid growth and, according to
Forrester Research, is expected to grow from $109 billion in 1999 to $2.7
trillion in 2004, accounting for more than 90% of the dollar value of e-commerce
in the United States by 2004. In addition, Forrester estimates that transactions
conducted through electronic marketplaces will account for more than half of the
total estimated business-to-business e-commerce market by 2004.
As business-to-business e-commerce continues to grow, industry-specific or
"vertical" marketplaces are achieving increasing acceptance. These vertical
marketplaces bring together buyers, sellers, and information in open, online
marketplaces that automate complex business processes and supply chains. We
believe business-to-business e-commerce marketplaces are most likely to be
successful in industries characterized by:
- large numbers of buyers and sellers,
- a high degree of fragmentation among buyers, sellers or both,
- inefficient supply chains,
- significant dependence on information exchange,
- large transaction volume, and
- large product selection.
28
<PAGE>
THE PULP AND PAPER INDUSTRY
The pulp and paper industry represents over $500 billion of sales globally
and over $182 billion in North America. The pulp and paper industry supply chain
is comprised of pulp producers, paper producers, converters, brokers,
distributors, and other intermediaries and end-users, as illustrated and
described below:
THE GLOBAL PULP AND PAPER SUPPLY CHAIN
(Chart indicating the global pulp and paper supply chain.) On the left side
is an oval containing the words "Pulp Mills". To the right of the oval is an
arrow pointing right towards a second oval. The second oval contains the words
"Paper Mills". To the right of the second oval is an arrow pointing right
towards a third oval. The third oval contains the phrase "Converters and
Finishers". To the right of the third oval is an arrow pointing right towards a
fourth oval. The fourth oval contains the words "End Users". A dotted line is
drawn downwards from the bottom of the fourth oval and an arrow is drawn at a
ninety degree angle from the line pointing left. To the left of the arrow is a
fifth oval containing the phrase "Recycled Materials. Underneath the arrow
pointing from the first oval to the second oval are two bullet points. The first
bullet point is "Integrated pulp". The second bullet point is "Market pulp".
Underneath the phrase "Market pulp" is a dashed point which says "Estimated
$26 billion market".
With a dotted line reconnecting to the oval that says "Pulp Mills'.
Underneath the arrow pointing from the second oval to the third oval is one
bullet point which says "Estimated $195 billion market." Underneath the arrow
pointing from the third oval to the fourth oval is a bullet point which says
"Estimated $280 billion market".
- Pulp mills manufacture pulp from trees and recycled fibre. There are
approximately 350 pulp mills in the United States, many of which are owned
by or directly integrated with paper mills. Pulp production in these
integrated mills is known as integrated pulp and is generally not sold in
the open market.
- Market pulp is produced by non-integrated pulp mills, as well as
integrated mills which have excess pulp, and is sold to both paper mills
and end users. Market pulp is typically shipped in bulk quantities by
container. We estimate the market size of market pulp to be $26 billion.
- Paper mills use pulp to manufacture various grades of paper products.
These products are typically produced and shipped in large rolls that can
weigh several tons each. For example, a paper mill may manufacture a roll
of white paper suitable for being converted into multiple types of writing
and printing paper.
- Converters specialize in converting paper produced by mills into finished
products such as writing paper, tissue and corrugated boxes. Converters
typically sell to intermediaries, retailers and end users. For example, a
converter may purchase a roll of paper and manufacture note pads.
- End users purchase the paper products for their end use, such as an office
supply store buying photocopy paper in bulk or a food manufacturer buying
corrugated boxes for shipping its food products.
- Brokers, agents and other intermediaries purchase products at any point in
the supply chain and resell down the supply chain. For example, a broker
may purchase containerboard suitable for being converted into corrugated
boxes and resell it to a converter. Although the concentration of sales
through various distribution channels varies by product segment,
intermediaries play a significant role in the industry, particularly in
connection with sales of products by paper mills to converters.
29
<PAGE>
- Throughout this supply chain, sellers and buyers must obtain or perform
certain fulfillment services to complete transactions, such as logistics
and credit approval. Due to the bulk and weight of both raw materials and
finished products, freight costs can be a significant expense for buyers
and sellers.
Purchases are made either in the spot market or through longer term
negotiated contracts. Intermediaries, brokers and other participants in the
industry typically operate on a one-to-one basis, taking advantage of only
limited information. These sales methods restrict the ability of buyers and
sellers to transact business efficiently on a one-to-many or many-to-many basis.
As a result, buyers and sellers often have imperfect information on market
pricing, supply and demand, which leads to less efficient production and
purchasing decisions.
Industry participants often will occupy several roles in the supply chain.
For example, a large box manufacturer may also purchase pulp for its paper mill
on an ongoing basis and may purchase boxboard for its converter mill to satisfy
excess demand that cannot be met by its internal production.
There are six principal product segments in the pulp and paper industry, as
described below:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
PULP AND PAPER PRODUCT SEGMENTS
- -------------------------------------------------------------------------------------------------
PRODUCT GRADE DESCRIPTION
<S> <C>
- -------------------------------------------------------------------------------------------------
Pulp - Manufactured by combining wood fibre with water and
chemicals
- Used to produce all of the grades of paper described
below and consumer goods such as diapers
- -------------------------------------------------------------------------------------------------
Recovered Fibre - Recycled newspaper, office waste and corrugated boxes
- Used as a supplement or as an alternative to virgin
pulp
- -------------------------------------------------------------------------------------------------
Printing and Writing - Paper in various grades for home and office use as
well as printed communications including brochures,
photocopies, magazines and catalogs
- -------------------------------------------------------------------------------------------------
Newsprint - Paper used for producing newspapers and other short
shelf life publications
- -------------------------------------------------------------------------------------------------
Towel and Tissue - Products for home and commercial sanitary use
- -------------------------------------------------------------------------------------------------
Containerboard/Boxboard - Corrugated and folding carton packaging materials in
numerous grades used for all types of packaging
products
- -------------------------------------------------------------------------------------------------
</TABLE>
LIMITATIONS OF TRADITIONAL MARKETING AND PROCUREMENT METHODS IN THE PULP AND
PAPER INDUSTRY
Traditional marketing and procurement methods in the pulp and paper industry
are inefficient, costly, and time consuming for both sellers and buyers. The
typical connection between a buyer and a seller occurs through a match-making
process dependent on personal relationships and one-to-one dialogues through
phone calls, faxes and phone messages. The effectiveness of these procurement
methods depends on the availability and reach of the selling and buying
personnel and often includes a third party intermediary (broker, merchant or
distributor). This third party intermediary charges a commission and often
increases the price with a mark-up based on market conditions and the ability to
leverage the limited information available in the industry. The result can
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be significant costs for limited value added. The current pulp and paper market
environment is characterized by the following limitations:
FRAGMENTATION OF SUPPLIERS AND BUYERS. The pulp and paper industry is
extremely fragmented, with approximately 1,850 producer mills and approximately
275,000 converting and printing plants worldwide. The large number of producers
and the unavailability of valuable pricing information make it cumbersome for
buyers to determine which sellers are offering the products and prices that most
closely match the needs of buyers. In addition the large number of buyers of
pulp and paper products make it difficult for sellers to locate potential
customers and provide them with relevant product and pricing information.
LIMITED MARKET INFORMATION. Industry fragmentation, the role of
intermediaries in the supply chain and the lack of an active futures market has
limited the information available to industry participants. The absence of
widely available pricing and other market information has resulted in pulp and
paper products often being offered and sold with significant pricing disparities
within similar grades, despite limited product differentiation and low brand
loyalty. In addition, producers have operated with a limited ability to discern
future market demand which has resulted in inefficient production processes.
SIGNIFICANT CAPITAL COMMITMENTS WHICH DRIVE OVERPRODUCTION. The pulp and
paper industry is characterized by significant capital requirements with new
paper mills, new paper machines and equipment upgrades often costing hundreds of
millions of dollars. However, capital available for the industry has been
limited, due to a relatively poor historical return on invested capital. In
these circumstances, manufacturers face constant pressure to maximize asset
utilization and return on capital employed. Also, shutting down and restarting a
paper machine when it is running can cost millions of dollars. As a result,
producers often will overproduce products when production is running well, even
when the producer does not have present demand for its products. This production
to inventory rather than production to demand is one of the principal causes of
excess inventories, market oversupply, and price volatility in the industry.
According to Fortune Magazine, the forest and paper products industry ranked
second to last in return on equity out of 38 different industries surveyed for
1998.
INEFFICIENT PRODUCTION PROCESSES. Paper machines are typically built to
produce a standard width sheet of paper. If the type of products demanded do not
match this standard width, a portion of the paper produced will be excess
structural trim. The manufacturer must either find a market for this excess
structural trim or recycle it back into pulp. In addition, some produced
material does not meet the required specifications for its intended use,
resulting in non-prime product for which there is a more limited market demand
and which consequently is often sold through more costly sales methods. For
producers, the costs of these sales methods can absorb any profit margin, and
these sales are often made to brokers and other intermediaries that add their
own mark-ups.
POOR TECHNOLOGY ADOPTION. Because of the huge capital requirements for
producers of pulp and paper and the associated significant maintenance costs,
there is little capital available for internal investments in information
technology, including e-commerce solutions. Many producers are burdened with
outdated or poorly integrated business and manufacturing systems. Given the
recent trend in industry consolidation, these problems are exacerbated by the
many different systems inherited by companies through mergers and acquisitions.
GLOBAL MARKET LIMITATIONS. The fragmented and inefficient state of the pulp
and paper industry in North America also exists at a global level. In
international markets, buyers and suppliers encounter difficulty in obtaining
reliable, timely information about product, pricing, supply, and demand across
regions and national borders.
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OPPORTUNITY FOR A BUSINESS-TO-BUSINESS E-COMMERCE SOLUTION IN THE PULP AND PAPER
INDUSTRY
The supply chain complexities and fragmentation of the pulp and paper
industry create the opportunity for a business-to-business e-commerce
marketplace that streamlines procurement methods, improves industry
participants' sales and marketing channels, improves access to information, and
reduces inefficiencies across the supply chain. Specifically, buyers would
benefit from a solution that provides direct access to broader supply sources
for all their pulp and paper needs, reduces procurement costs, and reduces
intermediary transaction costs and markups. Sellers would benefit from a
solution that provides direct access to broader markets for their products,
reduces transaction and selling costs, improves operating efficiencies, and
reduces working capital costs through better inventory and receivables
management. Both buyers and sellers would benefit from a solution that
facilitates more rational decisions from better and more timely market
information.
THE PAPEREXCHANGE SOLUTION
Our solution is a vertically-focused electronic marketplace that enables our
members to list offers to sell or requests to purchase products and services in
a secure and neutral environment and allows more efficient access to a larger
number of industry participants. We have developed proprietary technology that
enables our members to review products offered online, negotiate pricing, and
consummate transactions on our exchange. We also offer several fulfillment
services, including logistics, credit clearing for qualified buyers, and quality
inspection, as well as industry specific content.
BENEFITS TO SELLERS
BROADER MARKET ACCESS. Our marketplace allows sellers to market and
distribute products through a single forum that is capable of reaching a large
universe of buyers. Because of the highly fragmented nature of the industry and
the lack of valuable market information, sellers have typically reached only a
limited portion of the possible buyers for their products. In addition, our
technology allows sellers to customize their offers to this broader market in a
manner that helps them preserve existing business relationships and distribution
channels.
REDUCED COSTS. We enable sellers to negotiate and conduct transactions
directly with buyers, thus lowering overall transaction costs. This process may
reduce a seller's reliance on traditional, more expensive distribution channels
and sales and marketing efforts. Sellers are also able to list non-prime
products for sale through our marketplace, allowing them an efficient means to
sell these products. In addition, since we act as principal in most
transactions, sellers effectively deal with only one customer in our marketplace
and do not bear the administrative costs associated with credit checks for
multiple customers.
PRODUCTION TO ORDER RATHER THAN TO INVENTORY. Our marketplace enables
producers to actively pre-sell machine time and respond to requests for
quotations from prospective buyers. By producing to order rather than to
inventory, sellers can improve machine productivity and reduce raw material
waste and excess trim. These operating efficiencies can enable producers to
improve working capital and reduce cost of goods sold.
ACCESS TO INTERNET SOLUTIONS. Sellers are able to access our marketplace
through an Internet connection and a standard web browser. Our sophisticated
transaction software designed specifically for the pulp and paper industry
requires minimal set-up costs and reduces the need for sellers to develop their
own Internet e-commerce solution. We believe that equivalent technology tailored
for this industry is not commercially available.
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FULFILLMENT SERVICES. Our fulfillment services enable sellers to close
transactions efficiently with a large universe of buyers, especially buyers with
whom they have not previously done business. By offering a full line of
competitively priced logistics solutions, we provide efficient access to
potential new buyers, new channels of distribution and new geographic markets.
In addition, our credit clearing and payment processing services enable sellers
to market products efficiently to a larger group of buyers without increased
administrative costs or credit risk to the seller.
BENEFITS TO BUYERS
BETTER ACCESS TO SUPPLY. Our marketplace provides buyers with access to
suppliers and products across multiple product categories on a global basis.
Buyers typically purchase products through long term replenishment contracts and
spot purchases in the market. Our marketplace enables buyers to contract with a
much larger universe of sellers. In addition, buyers will make more efficient
spot purchases because of the broad range of sellers offering products through
our marketplace.
REDUCED COSTS. We enable buyers to access sellers directly, thereby
reducing transaction fees and intermediary markups. In addition, use of our
marketplace can simplify transactions and reduce administrative costs as buyers
are able to consolidate invoices and replace existing paper based functions. In
addition, because certain buyers undergo a single credit approval process,
multiple credit checks are no longer necessary.
FULFILLMENT SERVICES. Our logistics, credit approval and other fulfillment
services enable buyers to close transactions efficiently with a large universe
of sellers. Our marketplace eliminates the current administrative burden and
expense of credit approving significant numbers of additional buyers, and the
costs associated with developing and obtaining logistics services for new
geographic regions. As a result, buyers can gain access to sellers with whom
they previously may not have been able to transact business.
In addition, we currently provide all members with industry-specific
content, including news, feature articles, case studies and interviews provided
by VerticalNet and its PulpandPaperOnline web-site. We also offer real time
stock quotes and industry news provided by News Alert, an online news service.
Through the calendar of events and bulletin board sections, users may both post
events and receive up-to-date information on upcoming industry expositions and
conferences. We believe that this content attracts industry participants, drives
increased membership, and encourages repeat business.
THE PAPEREXCHANGE STRATEGY
We seek to be the leading provider of business-to-business e-commerce
solutions for the pulp and paper industry. Our strategy includes the following
key elements:
CAPITALIZE ON FIRST MOVER ADVANTAGE. We plan to capitalize upon our
position as the first company to offer an Internet-based e-commerce solution
across all product categories within the pulp and paper industry. We intend to
gain market share aggressively by continuing to expand the selection of pulp and
paper products, services, and related content offered through our marketplace.
We plan to leverage our strategic relationships with several industry-leading
participants, including International Paper, Asia Pulp & Paper, and Staples. We
are continuing to pursue other key strategic alliances around the world thereby
increasing our market share while maintaining our position as a neutral
marketplace for the industry.
As we add more suppliers and purchasers to our marketplace, we believe they
will increasingly view our marketplace as the primary point of contact among a
broad array of sellers and buyers
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within the pulp and paper industry. We believe this growth cycle creates a
network effect, where the value to each member in the network increases with the
addition of each new member, increasing the overall value of our marketplace. We
also believe that once members become integrated into our e-commerce solution,
its ongoing benefits and the costs of switching to alternative marketplaces will
encourage them to continue to use our marketplace.
ACCELERATE USER ADOPTION. We will continue to concentrate our efforts on
attracting new participants to our marketplace through a targeted sales and
marketing effort. Our sales strategy focuses on educating industry participants
on the benefits of the marketplace as well as actively recruiting new buyers and
seller to enroll as members. Our marketing and branding campaign will include
event sponsorships, advertising in trade publications and participation in trade
shows and industry conferences. In addition, we will continue to drive user
adoption and awareness of the marketplace by leveraging the relationships,
reputation and expertise of members of our management team. We believe that
these focused efforts will continue to lead to increased use of our marketplace
offerings and services.
ENHANCE PLATFORM SOLUTION. We intend to continue to enhance our e-commerce
solution. These enhancements will be designed to support large-scale growth over
time, allowing us to be responsive to market conditions and provide superior
performance for our members. Additional tools and features may also be
developed, such as My MarketProfiler, which improve the transacting experience
of marketplace participants. In addition, we intend to enhance our platform so
that it can be integrated with our members' existing information systems in a
seamless manner. We also intend to offer participants the ability to transact
using a variety of pricing models, including the exchange, catalog sales,
branded storefronts and both forward and reverse auctions.
DEVELOP STRATEGIC RELATIONSHIPS. We intend to continue to develop strategic
relationships to build our marketplace. These strategic relationships may
include alliances with new buyers and sellers to increase the number and size of
transactions on our marketplace, as well as alliances that establish links with
other business-to-business e-commerce providers in the industry.
EXPAND INTERNATIONALLY. We believe the global reach of many of our members,
the worldwide demand for pulp and paper products, and the international scope of
the Internet present opportunities to expand our marketplace globally. We
recently opened an office in London and have plans to expand into continental
Europe, Asia and Latin America. We plan to leverage our technology, logistics
services, industry expertise, and existing strategic relationships to expand the
reach of our marketplace to these new geographic markets.
THE PAPEREXCHANGE MARKETPLACE
Our marketplace currently includes our exchange that enables sellers and
buyers to negotiate pricing and transact with one another in a secure, neutral
and customizeable environment. Both buyers and sellers access the marketplace
using standard Internet connections and browsers. We also provide fulfillment
services that help our members take full advantage of the opportunities
available in our marketplace and rich industry-specific content that encourages
buyers and sellers to visit our marketplace on an ongoing basis.
TRADING FLOOR EXCHANGE
Our marketplace is open to buyers and sellers who become members. In order
to gain access to our marketplace, a prospective member fills out a registration
application that includes background information on the prospective member and
the member's organization. If the prospective member is from an organization
that has not previously registered, we perform a limited review before trading
rights are granted to confirm that the prospective member is a buyer or seller
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of paper products. If the review is satisfactory, we activate the member with
trading rights. In addition, prospective members wishing to obtain credit
approval in connection with purchases in our marketplace undergo a credit
review.
Sellers post prime and non-prime product, excess inventory and future
machine time on our marketplace. Sellers must designate the quality of their
product and list core product attributes. With respect to pricing of a product,
sellers either provide an offer price at the time of listing or allow potential
buyers to begin the bidding. Buyers can search for listings by product category
or by using specific criteria. Buyers can also list current and future demand in
the form of "requests to purchase". Members are notified via e-mail of bids on
their listings and then can reply by "accepting" the bid price or making a
counterproposal to one party or multiple parties. Neither buyers nor sellers are
provided with the identity of the other party until the transaction has been
consummated, though a credit approved buyer is designated with an icon. After a
transaction has been consummated on the site, the buyer and seller receive
confirmation by e-mail of their transaction and are given instructions on the
next action items.
In most transactions on our marketplace we act as principal. Where we act as
principal, we buy products from suppliers and resell them to buyers, taking
responsibility for invoicing, collecting payments from customers, ensuring that
the shipment reaches customers, and processing sales returns.
For transactions where we act as agent, if the parties have agreed on price
we notify them by e-mail and they are responsible for the negotiation of terms
and conditions. For all transactions, once the seller ships the products it
notifies us and we invoice the seller for a commission based on the dollar
volume of the order shipped.
"MY MARKETPROFILER"
The My MarketProfiler feature helps members to preserve existing business
relationships and distribution channels and to market new products. Our members
can customize their use of our marketplace by defining their specifications,
including geography, type of paper, producer and price on a
transaction-by-transaction basis. Through this feature, sellers may elect to
target their product offerings to a broad marketplace or to block certain buyers
from viewing their product offerings. Similarly, buyers can elect to view all
product offerings or to exclude product offerings from selected sellers. We
believe that this tool is a significant factor in influencing sellers to try our
marketplace without fear of disrupting their existing business. We have
additional tools that enable members to create customizeable environments
including My PaperExchange, which acts as the control center for individual
users, and My ProductProfiler, which is a series of customizable templates
providing members with a means of standardizing repetitive tasks to save time.
FULFILLMENT SERVICES
We offer our members several key fulfillment services that significantly
increase transaction efficiency and reduce transaction risk.
CREDIT APPROVAL AND PAYMENT PROCESSING. In transactions in which we act
as principal, buyers must become credit approved, pay in advance, or post a
letter of credit. Members seeking credit approval must complete a credit
application. Our credit clearing service evaluates the credit of a buyer
using third-party credit facilities and ratings. This credit verification
feature enables buyers to position themselves more favorably in the bidding
process by allowing sellers to know that a particular buyer with a "Credit
Approved" icon has open credit on our marketplace. For all credit approved
transactions, we assume the risk that such buyer will not make payments. We
reduce our credit exposure arising from credit
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approved transactions through credit insurance with a third party insurance
company. We currently do not charge our members a fee for this service.
We expect to continue to act as principal in substantially all of the
transactions conducted through our marketplace. By establishing a
credit-approved relationship with us, members can expand trading
relationships with our growing membership base without continually
undergoing credit checks with individual buyers.
LOGISTICS SERVICES. We provide domestic logistics services to members
through our exclusive relationship with C.H. Robinson, the largest third
party logistics provider in North America. C.H. Robinson will provide to
participants in our marketplace real time estimates, real time transactable
quotes, tracking capabilities and online access to shipping documentation.
Our fulfillment services may enable buyers and sellers to reduce their
logistics costs because of our access to competitive freight rates, and may
permit them to sell efficiently through new channels and in new geographic
markets. We permit our members to access our logistics services even if not
related to a transaction through our exchange. For example, some members
could use our services to move products internally from one plant to
another. We may in the future charge a fee for utilizing our logistics
services.
QUALITY ASSURANCE PROGRAMS. We have developed a relationship with SGS
Societe Generale de Surveillance SA, a world leader in inspection, testing
and verification. SGS currently acts as the independent third party in
disputes between our members regarding product quality, basing its decisions
on inspection and lab testing reports. We are expanding our relationship
with SGS to include a program whereby SGS will provide our members with
quality and inspection services online. We believe that these services will
facilitate increased transaction volume because buyers can be assured that
the products being purchased come from a company with the ability to meet
specifications.
FUTURE SERVICE OFFERINGS
We plan to expand our value-added services, which should provide additional
revenue and profit opportunities. We intend to provide additional transaction
capabilities that will facilitate sales through branded and unbranded online
catalogs and auctions. In addition, we intend to enable producers to operate
branded storefronts offering their branded products through our marketplace.
These branded strorefronts will be accessible directly or from the host
company's web site. We will incorporate each of these pricing models within each
of the product segments on our marketplace.
We also intend to leverage the data we collect to offer new and value added
information-based products. Access to this information will allow our customers,
for example, to evaluate historical and current pricing situations in a given
market for a given product. We intend to make this information available to our
members on a subscription basis with additional analytical reporting on a
premium subscription basis.
CONTENT AND COMMUNITY
Our marketplace features a broad range of industry specific information,
including feature articles, case studies and interviews provided through our
relationship with VerticalNet and its PulpandPaperOnline.com web-site. We also
offer real time stock quotes and industry news provided by News Alert. Through
the calendar of events and bulletin board sections, members may both post events
and receive up-to-date information on upcoming industry expositions and
conferences. We also offer a career center that allows members to post and
explore job opportunities in the pulp and paper industry.
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STRATEGIC AGREEMENTS
INTERNATIONAL PAPER COMPANY. In February 2000, we entered into a strategic
agreement with International Paper Company, the world's largest paper and forest
products company. Under the terms of this agreement, International Paper will
use good faith reasonable efforts to list prime paper products at specified
monthly target volume levels and to increase these levels when commercially
practicable. The term of this agreement expires on January 31, 2002 unless
earlier terminated, including the right of International Paper to terminate upon
30 days written notice if it makes a good faith determination that the services
provided by our website are not meeting International Paper's business needs. In
addition, we have also agreed with International Paper to work together to link,
at a specific facility or production unit, International Paper's internal
information technology systems to our systems in order to facilitate
Internet-based transactions through our marketplace. International Paper has
agreed to promote our working relationship internally; however, our agreement is
mutually non-exclusive. International Paper has invested in our common stock,
which we believe gives International Paper an additional incentive to use our
marketplace. We believe that International Paper's investment does not affect
our mission to serve as a neutral marketplace for the entire industry.
ASIA PULP & PAPER LTD. In February 2000, we entered into a supply agreement
with Asia Pulp & Paper, a leading supplier of pulp and paper products in Asia.
Under the terms of this agreement, Asia Pulp & Paper has agreed to use
reasonable commercial efforts to list at specified target volume levels its
products for sale through our marketplace. Asia Pulp & Paper has also agreed to
list a portion of its market pulp purchase requirements in our marketplace
during the term of our agreement. The initial term of our agreement will expire
in February 2001, subject to early termination by either party without cause
upon 30 days prior written notice. Our agreement with Asia Pulp & Paper is
mutually non-exclusive. Asia Pulp & Paper has also agreed to make an investment
in our common stock, which we believe gives Asia Pulp & Paper an additional
incentive to use our marketplace. We believe that Asia Pulp & Paper's investment
does not affect our mission to serve as a neutral marketplace for the entire
industry.
STAPLES, INC. In March 2000, we entered into a listing agreement with
Staples, Inc., a nationwide chain of retail stores that sells office supplies,
including cut sheet paper. Under the terms of this agreement, Staples has agreed
to use commercially reasonable efforts to list "offers to purchase" for a
portion of its requirements for cut sheet paper and paper stock for advertising
and catalogues, and has agreed to buy on our marketplace a certain tonnage of
paper product, to the extent available, during the initial term of the
agreement. The initial term of our agreement will expire in March 2002, with
automatic one-year renewal periods, and is subject to termination after the
initial term by either party upon 30 days prior written notice. Our agreement
with Staples is mutually non-exclusive. Staples has made an investment in our
common stock, which we believe gives Staples an additional incentive to use our
marketplace. We believe that Staples' investment does not affect our mission to
serve as a neutral marketplace for the entire industry.
C.H. ROBINSON WORLDWIDE, INC. In January 2000, we entered into an alliance
agreement on an exclusive basis with C.H. Robinson Worldwide, Inc., one of the
largest third-party logistics providers in North America. Under the terms of our
agreement, C.H. Robinson will provide to members of our marketplace real time
price estimates, real time transactable quotes, tracking capabilities and online
access to shipping documentation. Real time transactable quotes are delivered on
a point-to-point basis, from any postal code to any postal code in the United
States and Canada. During the term of this agreement and for a period of two
years following the expiration or termination of this agreement, C.H. Robinson
has agreed that it will not enter into a strategic partnership or offer its
services to any other Internet exchange, auction or reverse auction in the pulp
and paper and paper packaging industry. In return, during the term of the
agreement,
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unless either buyer or seller want to use a particular carrier, we will
generally use C.H. Robinson for all shipments originating and ending in the
United States or Canada, unless certain circumstances arise. The initial term of
this agreement will expire in June 2001 and will automatically renew for
successive 12 month terms unless either party receives 30 day prior written
notice that the other party does not wish to renew the agreement for an
additional term. We believe that our exclusive right to offer these logistic
services within the pulp and paper Internet exchange and auction industry will
create significant incentives to purchase and sell pulp and paper products
through our marketplace and is a key competitive advantage.
IMPRESSE CORPORATION. In February 2000, we entered into an alliance
agreement with Impresse Corporation, a leading provider of business-to-business
e-commerce solutions for the creation and procurement of commercially printed
materials. Under the terms of this agreement, the parties will integrate their
web sites to allow Impresse customers to buy paper in our marketplace, to submit
requests for quotes in the marketplace and to complete transactions in our
marketplace. Impresse agreed it will promote our marketplace to its customers
who buy and distribute paper products and will list our marketplace as the
primary option for paper procurement on its website. Our agreement with Impresse
provides for a revenue sharing arrangement under which we will pay Impresse a
portion of the revenues generated on our marketplace by Impresse-sourced
customers. This agreement also provides for content sharing. Subject to the
arrangements described above, our agreement is mutually non-exclusive. The
initial term of this agreement will expire in August 2001 and will automatically
renew for successive 12 month terms unless either party receives 30 day prior
written notice that the other party does not wish to renew the agreement for an
additional term.
VERTICALNET, INC. In September 1999, we entered into an agreement with
VerticalNet, Inc., an Internet leader in business-to-business vertical
communities of commerce. This alliance includes rights to VerticalNet's
proprietary pulp and paper related content, as well as a jointly developed
career center for industry participants. During the term of this agreement and
for four years following the termination of this agreement, VerticalNet has
agreed that it will not compete against us as an e-commerce marketplace for pulp
and paper. In return for its agreements, we paid VerticalNet a one-time fee and
agreed that if we achieve a specified revenue level we will pay VerticalNet a
small portion of the margin realized on transactions. The initial term of this
agreement will expire in September 2003, and will automatically renew for
successive 12 month terms unless either party receives 30 day prior written
notice that the other party does not wish to renew the agreement for an
additional term. Either party may terminate the agreement upon written notice in
the event of a material breach.
OUR MEMBERS
Our members are associated with every type of participant in the pulp and
paper industry and are located all over the world. As of February 29, 2000, we
had approximately 3,100 registered corporate members, including 7 of the 10
largest paper producing companies in the world. As of February 29, 2000, we had
approximately 250 corporate members who listed a request to purchase or sell, or
bid on a listed request to purchase or sell, product within the last year.
SALES, MARKETING AND SUPPORT
We market our products and services through various coordinated sales and
marketing initiatives. These activities include a field sales force, customer
support, Internet marketing programs and traditional marketing methods. We
target our marketing efforts primarily on buyers and sellers of bulk quantities
of pulp and paper products throughout the world.
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We currently employ 22 sales professionals. Collectively, these employees
have significant expertise with markets, customers and products in all areas of
the pulp and paper industry and have an average of 12 years of industry
experience. The sales force is organized according to defined product segments
such as printing and office supplies, containerboard, and packaging and pulp.
These segments are further divided into the geographic areas of North America,
Europe, Asia and Latin America. The goal of our sales team is to educate buyers
and sellers on the functionality and merits of our electronic marketplace, drive
industry participants to enroll as members and encourage members to initiate
offers to buy or sell that will ultimately lead to completed transactions.
Our customer service department supports existing members, potential
customers and our field sales representatives. This inbound sales support
function is available to process needs, questions and issues that arise from
members using the products and services offered through our marketplace. We
currently have eight employees in this department.
We also leverage a variety of marketing channels to build further awareness
of our PaperExchange marketplace in the pulp and paper industry. These channels
include direct marketing, trade shows, seminars, online communications, and
trade publication advertising and articles.
OUR TECHNOLOGY
Our marketplace can be accessed with a standard Internet connection and
browser. The architecture has been designed to be highly scalable to accommodate
our expected growth in transactions and other offerings.
The four principal layers of the PaperExchange architecture are:
PRESENTATION AND COMMUNICATION LAYER. This layer is responsible for
rendering content and transmitting it to users' browsers based on standard
Internet protocols. Our web architecture provides standard inter-enterprise
communication capability and security functions. Our web technology is built
with commercially available tools that allow us to provide customer specific
storefronts while maintaining a consistent set of back end processes and data.
APPLICATION LAYER. Our application layer houses the majority of our custom
developed business processes. These processes include our trading floor exchange
service and our customizable market and product profilers.
DATABASE LAYER. Our database layer, built on a Microsoft SQL Server V7.0,
contains a number of critical components, including:
- Product data architecture--the data representation of all grades of pulp
and paper is defined and stored in the PaperExchange database. It is this
ability to accurately define and then transact in all the different grades
of pulp and paper products that provides industry participants a
customized trading solution.
- Transaction repository--We capture all actual transaction data in our
database. Our ability to provide real price data for actual transactions
across all grades of pulp and paper should provide the industry the
ability to understand actual price movements over time.
INTEGRATION LAYER. Our integration layer, which is currently under
development, will be composed of industry standard XML schema to facilitate
simple and cost effective communication with our customers. In addition, our
integration framework will be composed of the key Application Programming
Interfaces (APIs) to and from the PaperExchange applications to allow our
customers to write interfaces into their legacy systems.
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We currently host our web site from Exodus in Waltham, Massachusetts, which
provides 24-hour systems support and connectivity to major Internet backbones
and provides bandwidth via redundant high-speed connections. Our backup location
is US Data Centers which is in Marlboro, Massachusetts.
Our web site has been designed to provide multiple levels of security. We
safeguard the confidentiality of our customers' information through the use of
firewalls, digital certificates, and extensive authentication procedures. By
incorporating transaction security using Secure Sockets Layer (SSL) technology,
we maintain an environment where privacy and confidentiality are of paramount
importance. Also, in order to execute any transaction, password verification is
necessary. In addition to maintaining the confidentiality of information between
organizations, the primary user/administrator in an organization may set
security/access levels for employees and others by clicking on our Security in
My Organization feature.
PROPRIETARY RIGHTS AND LICENSING
Our success and ability to compete are dependent on our ability to develop
and maintain the proprietary aspects of our technology. We rely on a combination
of copyright, trademark and trade secret laws and contractual restrictions to
establish and protect the proprietary aspects of our technology. We seek to
protect our source code for our software, documentation and other written
materials under trade secret and copyright laws. Finally, we seek to avoid
disclosure of our intellectual property by requiring employees and consultants
with access to our proprietary information to execute confidentiality agreements
with us and by restricting access to our source code.
Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy aspects of our products or to obtain and use information
that we regard as proprietary. Litigation may be necessary in the future to
enforce our intellectual property rights, to protect our trade secrets, and to
determine the validity and scope of the proprietary rights of others. Any
resulting litigation could result in substantial costs and diversion of
resources and could have a material adverse effect on our operating results.
Our success and ability to compete are also dependent on our ability to
operate without infringing upon the proprietary rights of others. In the event
of a successful claim of infringement against us and our failure or inability to
license the infringed technology, our business and operating results would be
significantly harmed.
We currently have applied for the registration of the trademark
"PAPEREXCHANGE" in the United States.
COMPETITION IN OUR INDUSTRY
The market for business-to-business e-commerce and Internet ordering and
purchasing is new and rapidly evolving, and competition is intense and expected
to increase significantly in the future. The principal competitive factors that
affect our business are the strength and breadth of existing partnerships and
alliances, the ability to offer a comprehensive e-commerce solution, and the
development and maintenance of brand loyalty within the pulp and paper industry.
In addition, we expect additional competition from other established and
emerging companies as the market continues to grow and expand. Although we
believe that our solution competes favorably with the competitive factors
affecting our market, business-to-business e-commerce in the pulp and paper
industry is new. We may not be able to maintain our competitive position against
current and
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<PAGE>
potential competitors, especially those with greater financial resources. In
addition, we face competition from:
- large paper producers that may develop their own sites to trade pulp and
paper products,
- traditional off-line suppliers and distributors of pulp and paper
products,
- other Internet start-up exchange and e-commerce companies,
- software and consulting companies, and
- companies offering pulp and paper futures products.
For example, emerging enterprise software companies, such as Ariba, Inc. and
Commerce One, Inc. offer purchasing solutions that could be customized to link
to suppliers of pulp and paper products. Additionally, traditional enterprise
software companies, such as Oracle, SAP and IBM, could in the future develop and
offer a competitive purchasing solution that our customers could customize to
link to their suppliers. Accordingly, it is possible that new companies may
emerge and develop a solution for the pulp and paper industry that competes with
ours.
GOVERNMENT REGULATIONS
We are unaware of any current investigations, inquiries, citations, fines,
or allegations of violations or noncompliance pending by government agencies or
by third parties against us. It is possible that there may be investigations or
allegations we are not aware of or future investigations or allegations. We are
currently reviewing applicable requirements with regard to past, present and
continuing compliance. The risk that any noncompliance may be discovered in the
future is currently unknown. Although any potential impact on us for
noncompliance cannot currently be established, it could result in significant
civil or criminal penalties, including monetary fines and injunctions, for
noncompliance and negative publicity, and have a material adverse impact on our
business, revenues, results of operations and financial condition.
Due to the increasing popularity and use of the Internet, it is possible
that a number of laws and regulations may be adopted or interpreted in the
United States and abroad with particular applicability to the Internet. It is
also possible in addition to the above-listed examples of existing laws and
regulations, as well as new tax laws and regulations, that new laws and
regulations may be adopted or interpreted by the United States and foreign
governments, to address the sale and distribution of pulp and paper products
utilizing the Internet. In addition, it is possible that governments will enact
legislation that may be applicable to us in areas such as content, product
distribution, network security, encryption and the use of key escrow, data and
privacy protection, electronic authentication or "digital" signatures, illegal
and harmful content, access charges and re-transmission activities. Moreover,
the applicability to the Internet of existing laws governing issues such as
property ownership, content, taxation, defamation, personal privacy, product
liability and environmental protection, as well as the necessity for
governmental permits, labeling, certifications and the need to supply
information to relevant parties, is uncertain. Most of these laws were adopted
before the widespread use and commercialization of the Internet and, as a
result, do not contemplate or address the unique issues of the Internet and
related technologies. Any export or import restrictions, new legislation or
regulation or governmental enforcement of existing regulations may limit the
growth of the Internet, increase our cost of doing business or increase our
legal exposure. Any of these factors could have a negative effect on our
business, revenues, results of operations and financial condition.
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<PAGE>
EMPLOYEES
As of February 29, 2000, we had 69 full-time employees, including 22 in
technology, 29 in sales and marketing, 5 in business development and 13 in
general and administrative functions. We also employ independent contractors to
support our engineering, marketing, sales and support, and administrative
organizations. None of our employees is represented by a collective bargaining
agreement, and we believe that we have good relations with our employees.
FACILITIES
Our executive, administrative and operating offices are located in
approximately 7,500 square feet of subleased office space located in Boston,
Massachusetts under leases expiring in February 2002 and October 2003. We have
signed an agreement to relocate our executive, administrative and operating
offices to a new facility in approximately 25,000 square feet of office space
located in Boston, Massachusetts on April 3, 2000, under a lease expiring in
June 2005. We also maintain sales offices in London and North Carolina. We may
add additional offices in the United States and other countries.
LEGAL PROCEEDINGS
We are not currently involved in any material legal proceedings.
CORPORATE HISTORY
We were originally organized in 1998 as a Delaware limited liability company
under the name "PaperExchange.com, LLC". In February 2000 we converted our form
of organization to a Delaware corporation under the name
"PaperExchange.com, Inc." In connection with this conversion, each then
outstanding membership and economic interest was exchanged for one share of our
common stock, and each outstanding option, warrant or other right to acquire a
membership or economic interest was substituted in full with an option, warrant
or other right to acquire one share of our common stock.
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<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is information regarding the directors and executive
officers of PaperExchange as of March 1, 2000
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ---- -------- -----------
<S> <C> <C>
Kent Dolby............................. 48 President, Chief Executive Officer and Director
Robert Brenner......................... 42 Executive Vice President of Product Development
Carl Katzeff........................... 47 Chief Technology Officer
Rod Parsley............................ 32 Vice President of Business Development
Michael Gozon.......................... 36 Vice President of Sales, North America
Duane DeSisto.......................... 45 Chief Financial Officer and Secretary
Robert K. Kraft(1)..................... 58 Director and Chairman of the Board
Walter Buckley(1)...................... 39 Director
William Haskell(2)..................... 43 Director
Jonathan A. Kraft(2)................... 36 Director
Nathan Leight.......................... 40 Director
Roger Warren Stone(2).................. 65 Director
David Wetherell(1)..................... 45 Director
</TABLE>
- ------------------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
KENT DOLBY has served as President, Chief Executive Officer and a director
since December 1999. Prior to joining our company, Mr. Dolby had been with
Andersen Consulting for 26 years, where he served as the global managing partner
of Andersen's Global Natural Resources practice, which included forest products,
metals and mining clients. During Mr. Dolby's 16 years as a partner at Andersen
he led the development of business-to-business e-commerce capabilities within
Andersen's $700 million Energy and Natural Resources practices, and directed
multiple strategic engagements and implementations for industrial clients in the
fields of distribution, manufacturing and technology. Mr. Dolby also had
responsibility for the Asia Pacific practice for natural resources and utilities
and previously headed the Americas Chemical practice. In addition, Mr. Dolby was
a member of the Resources Executive Committee. Mr. Dolby received a BS degree in
Industrial Engineering & Operations Research (IE&OR) and an MBA from Cornell
University.
ROBERT BRENNER has served as Executive Vice President of Product Development
since January 2000. Mr. Brenner joined PaperExchange from Andersen Consulting
where he was employed for 13 years, including two years as an associate partner.
During his time with Andersen, Mr. Brenner concentrated on the planning, design,
and implementation of enterprise level order management, production, and
financial systems. He also implemented several large-scale technology solutions
in the forest products industry. Mr. Brenner received a BS degree in Business/
Economics and Accounting from Linfield College and an MBA from Oregon State
University.
CARL KATZEFF has served as Chief Technology Officer since January 1999.
Mr. Katzeff has been involved in the computer and information industry for
twenty-five years. From 1993 to 1999, Mr. Katzeff served as the Chief
Information Technology Officer for The Kraft Group and its portfolio of
companies. Mr. Katzeff is a graduate of Bentley College where he earned a BS in
Accounting and a MS in Computer Information Systems.
ROD PARSLEY has served as Vice President of Business Development since
January 1999. From 1998 to January 1999, Mr. Parsley was Vice President of
Financial Risk Management at International
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Forest Products where he was responsible for developing swaps, options, and
other financial hedging products for the pulp and paper industry. From 1997 to
1998, Mr. Parsley was a consultant with McKinsey & Company, where he specialized
in advising media and technology organizations. Mr. Parsley received his MBA
from Harvard University, and received a BA in Economics from Pomona College.
MICHAEL GOZON has served as Vice President of Sales, North America since
February 2000. Mr. Gozon brings fifteen years of paper industry experience to
our company. From January 1999 to September 1999, Mr. Gozon was President of
MPX, an e-commerce, business-to-business, third party exchange for the trading
of cut-size paper that PaperExchange acquired in September 1999. Prior to
co-founding MPX, Mr. Gozon was a National Sales Manager at Boise Cascade from
August 1996 to December 1998, where he managed the western region sales force
for cut-size sales to merchant distribution partners. Prior to that Mr. Gozon
spent twelve years at Unisource in Sales & Marketing.
DUANE DESISTO has served as Chief Financial Officer since October 1999.
Mr. DeSisto brings over twenty years of accounting and finance experience to our
company. From 1995 to 1999, Mr. DeSisto was the Chief Financial Officer of
AAI-Foster Grant where he had overall responsibility for the accounting,
information technology, and human resource departments. From 1986 to 1995,
Mr. DeSisto was CFO at publicly-held Zoll Medical Corporation. Mr. DeSisto
received a BS from Providence College and an MBA from Bryant College.
ROBERT K. KRAFT has served as a director since April 1998. He is Founder,
Chairman, and Chief Executive Officer of The Kraft Group, which is a holding
company with interests concentrated in three specific areas: paper and
packaging; sports and entertainment; and private equity venture investing.
Mr. Kraft graduated from Columbia University and the Harvard School of Business
where he earned a master's degree in business administration. Robert Kraft is
the father of Jonathan Kraft, who is also a director of our company.
WALTER W. BUCKLEY, III has served as a director since June 1999.
Mr. Buckley is a co-founder of Internet Capital Group and has served as the
President and Chief Executive Officer and as one of the directors since
March 1996. Prior to co-founding Internet Capital Group, Mr. Buckley worked for
Safeguard Scientifics, Inc. as Vice President of Acquisitions from 1991 to
February 1996. Mr. Buckley directed many of Safeguard Scientifics' investments
and was responsible for developing and executing Safeguard Scientifics'
multimedia and Internet investment strategies. Mr. Buckley also serves as
director of VerticalNet, Inc., Sky Alland Marketing, Who?Vision Systems, Inc.,
Syncra Software, Inc., PrivaSeek, Inc., Breakaway Solutions, Inc., and
e-Chemicals, Inc.
WILLIAM HASKELL has served as a director since June 1999. Mr. Haskell has
served as Internet Capital Group's Managing Director of Operations since
June 1999. In this role, Mr. Haskell is responsible for helping Internet Capital
companies with corporate strategy, hiring management teams, and company
operations. Prior to joining Internet Capital Group, Mr. Haskell served from
January 1994 to June 1999 as President and Chief Operating Officer of XL
Vision, Inc., a business and technology incubator that builds companies and
spins them out into stand-alone public companies. Mr. Haskell also serves as a
director of several Internet and technology companies including
AgProducerNetwork, asseTrade.com, Axcess, Inc., ComputerJobs.com, e-Chemicals,
eMarketWorld, Integrated Visions, Inc., and XL Vision, Inc. He also serves as an
advisor to the Cross Atlantic Technology Fund which focuses on IT investments in
Great Britain and the U.S.
JONATHAN A. KRAFT has served as a director since April 1998. Mr. Kraft is
President and Chief Operating Officer of The Kraft Group. Prior to that
Mr. Kraft was a consultant with Bain Company where he worked on projects for
clients in the consumer products and automotive industries.
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Mr. Kraft is a graduate of Williams College and received his MBA from Harvard
Business School. Jonathan Kraft is the son of Robert Kraft, who is also a
director of our company.
NATHAN LEIGHT has served as a director since April 1998. Mr. Leight is a
co-founder and managing member, since January 1999, of Terrapin Partners L.L.C.,
an incubator for entrepreneurial ventures, such as e-STEEL. From 1995 through
1998 Mr. Leight was the Chief Investment Officer of Gabriel Capital LP, a hedge
fund with assets exceeding $1 billion in special situation investing,
under-valued securities, emerging markets, private equity and merger arbitrage.
Prior to Gabriel, Mr. Leight was a managing director at Dillon Read & Co where
he established the proprietary trading department. Mr. Leight is on the board of
directors of PaperExchange and Fastparts.com, an Internet-based market for the
trading of electronic components. Mr. Leight graduated cum laude from Harvard
College in 1981.
ROGER WARREN STONE has served as a director since August 1999. He was
Chairman, President and CEO of Stone Container Corporation from 1979 until its
merger with Jefferson Smurfit Corporation on November 18, 1998. He became
President and Chief Executive Officer of the merged corporation, Smurfit-Stone
Container Corporation, until his resignation, effective March 31, 1999.
Smurfit-Stone is a Chicago-based Fortune 500 major international pulp and paper
packaging company. Mr. Stone is a graduate of the University of
Pennsylvania--Wharton School of Finance. Besides PaperExchange, Mr. Stone is a
Director of; Autoliv, Inc.; McDonald's Corporation; Option Care, Inc.; Continere
Corporation; and Prairie Packaging, Inc.
DAVID WETHERELL has served as a director since February 2000. Mr. Wetherell
has served as Chairman, CEO & President of CMGI since he effected a leveraged
buyout of the company in 1986. Prior to CMGI Mr. Wetherell co-founded the
software development firm Softrend, Inc., and he has held senior management
positions in application software development and marketing management in the
healthcare and transportation industries. Mr. Wetherell holds a BA in
Mathematics and Education from Ohio Wesleyan University.
BOARD COMPOSITION
Our board of directors currently consists of eight members. Each director is
elected for a period of one year at our annual meeting of stockholders and
serves until the next annual meeting or until his successor is duly elected and
qualified. Effective upon this offering, the Board will be divided into three
classes, with each class serving a staggered three-year term. See "Description
of Capital Stock--Delaware Law and Certain Certificate of Incorporation and
By-Laws Provisions".
BOARD COMMITTEES
Our board of directors has established an Audit Committee and a Compensation
Committee. The Audit Committee of the board of directors consists of
Messrs. Roger Warren Stone, Jonathan Kraft and William Haskell. The Audit
Committee reviews our financial statements and accounting practices and makes
recommendations to the board of directors regarding the selection of independent
accountants. It also reviews the results and scope of audit and other services
provided by our independent accountants, and reviews and evaluates our control
functions.
The Compensation Committee of the board of directors consists of
Messrs. Robert Kraft, Walter Buckley and David Wetherell. The Compensation
Committee reviews and recommends to the board of directors the compensation,
salaries and benefits of all of our executive officers, administers our employee
benefit plans, and establishes and reviews general policies relating to
compensation and benefits to our employees.
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<PAGE>
DIRECTOR COMPENSATION
Directors of PaperExchange have not received compensation for their services
as directors, although directors are reimbursed for reasonable expenses incurred
in attending board or committee meetings. Our officers are appointed by the
board of directors and serve at its discretion. Directors who are also employees
are eligible to participate in our 2000 Equity Incentive Plan and, as of the
offering, they will also be eligible to participate in our 2000 Employee Stock
Purchase Plan.
Under our proposed 2000 Director Stock Option Plan, at the discretion of the
board of directors, non-employee directors are eligible to receive options to
purchase shares of common stock at the fair market value on the date of grant.
PaperExchange maintains directors' and officers' liability insurance and our
by-laws provide for indemnification of directors and officers to the fullest
extend permitted by Delaware law. In addition, our certificate of incorporation
limits the liability of directors to us and our stockholders for breaches of the
directors' fiduciary duties to the fullest extent permitted by Delaware law. See
"Description of Capital Stock--Delaware Law and Certain Certificate of
Incorporation and By-Laws Provisions".
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of our Compensation Committee has been an officer or
employee of PaperExchange. None of our executive officers serves as a member of
the board of directors or compensation committee of any entity that has one or
more executive officers serving on our board of directors or compensation
committee.
EMPLOYMENT AGREEMENTS
We have an employment agreement with Mr. Dolby, dated as of December 20,
1999, providing for Mr. Dolby to be employed as our President and Chief
Executive Officer. Under the terms of the employment agreement, Mr. Dolby is
paid an annual base salary of $300,000, subject to increases as determined by
the board of directors, and is eligible for a bonus of not less than $200,000 at
the end of 2000 to be determined after discussions between Mr. Dolby and the
board of directors. Bonuses in subsequent years shall be at the discretion of
the board of directors and shall be based on a target bonus of $200,000.
Mr. Dolby was granted options to purchase an aggregate of 1,767,020 shares of
common stock, outside of the 1998 Equity Option Plan, which vest on a monthly
basis over a four-year period. Mr. Dolby is also entitled to life insurance,
with a minimum coverage of $1,200,000, health insurance and other employee
fringe benefits to the extent that we make benefits of this type available to
our other executive officers or employees. If we terminate Mr. Dolby's
employment without cause or if he resigns for good reason within the first year
of his employment, we must pay him a severance of $500,000. This severance
amount decreases to $150,000 if either event occurs in the second year of
Mr. Dolby's employment. If upon a change of control Mr. Dolby is terminated
without cause or if he resigns for good reason within 12 months after such
change of control, then all of Mr. Dolby's stock options will become immediately
exercisable and fully vested. In addition, we made a loan to Mr. Dolby in the
amount of $1,052,632 which he used to purchase 441,754 membership interests,
which are now 441,754 shares of our common stock. The loan matures on
December 20, 2003 and accrues interest at a rate of 6.2% annually, payable on
maturity. The employment agreement also contains a non-compete agreement that is
intended to survive termination of employment for 2 years.
We have an employment agreement, dated as of April 9, 1998, as amended, with
Hilton Plein, our former Chief Technology Officer. Under the terms of the
employment agreement, Mr. Plein is paid an annual base salary of $120,000 and is
eligible for a bonus to be determined by the board in its sole discretion. The
initial term of this agreement expires in April 2003 and is automatically
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<PAGE>
renewable for consecutive one year terms unless the company provides 90 day
prior written notice of non-renewal. If we terminate Mr. Plein's employment
without cause, he will continue to be paid his base salary for two years. The
employment agreement also contains a two year non-compete agreement.
EXECUTIVE COMPENSATION
The following table sets forth information with respect to the compensation
of our Chief Executive Officer and our two most highly compensated executive
officers whose total salary and bonus exceeded $100,000 for the year ended
December 31, 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARD
(OPTION AWARDS)
ANNUAL --------------------
COMPENSATION NUMBER OF SECURITIES
------------ UNDERLYING OPTION
NAME AND PRINCIPAL POSITION SALARY GRANTED(1)
- --------------------------- ------------ --------------------
<S> <C> <C>
Kent Dolby(2)............................................ $ 8,654 1,767,020
President and Chief Executive Officer
Carl Katzeff............................................. 116,667 300,000
Chief Technology Officer
Rod Parsely.............................................. 110,000 600,000
Vice President of Business Development
Duane DeSisto (3)........................................ 31,250 100,000
Chief Financial Officer and Secretary
Jason Weiss.............................................. 137,500 --
Executive Vice President and Senior Strategist
Hilton Plein............................................. 126,562 --
</TABLE>
- ------------------------
(1) Granted originally as options to purchase economic interests in our company
pursuant to the 1998 Equity Option Plan when we were a limited liability
company. In connection with the conversion to a corporation the company
issued options to purchase common stock under the Company's 2000 Equity
Incentive Plan in full substitution for all outstanding options to purchase
economic interests under our 1998 Equity Option Plan.
(2) Kent Dolby became President and Chief Executive Officer in December 1999;
his options which were for membership interests were granted outside of the
1998 Equity Option Plan.
(3) Duane DeSisto became the Chief Financial Officer in October 1999.
STOCK OPTION GRANTS
The following table sets forth options granted in 1999 to each of the
officers named in the summary compensation table above. Options granted in 1999
were granted as options to purchase membership or economic interests in
PaperExchange.com, LLC. In connection with our conversion from a limited
liability company to a corporation, each option to purchase a membership or
economic interest was substituted in full with an option to purchase one share
of our common stock. In 1999, we generally granted stock options at 100% of the
fair market value of the common equity as determined by our board of directors
as of the date of grant. In determining the fair market value on each grant
date, the board of directors considered a range of factors, including
PaperExchange's levels of revenues and operating results, the state of
PaperExchange's technology
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<PAGE>
development, increases in operating expenses, the absence of a public trading
market for our securities, and the valuation of comparable companies.
OPTION GRANTS IN THE FISCAL YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED ANNUAL
---------------------------------------------------------------- RATES OF STOCK PRICE
NUMBER OF APPRECIATION FOR OPTION
SECURITIES PERCENT OF TOTAL EXERCISE TERM(2)
UNDERLYING OPTIONS GRANTED TO PRICE PER EXPIRATION -----------------------
NAME OPTIONS GRANTED(1) EMPLOYEES IN 1999 SHARE DATE 5% 10%
- ---- ------------------ ------------------ --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Kent Dolby(3)........ 1,767,020 38.72% $2.38 Dec - 04 $5,374,177 $6,781,549
Carl Katzeff......... 300,000 6.57 0.20 May - 04 76,577 96,631
Rod Parsley.......... 900,000 19.72 0.20 May - 04 153,154 193,261
Duane DeSisto........ 100,000 2.19 1.33 Oct - 04 170,256 214,842
Jason Weiss.......... -- -- -- -- -- --
Hilton Plein......... -- -- -- -- -- --
</TABLE>
- ------------------------
(1) Shares underlying options granted through October 1999 generally vest over a
3 year period, with one-third ( 1/3) of the shares vesting on each
anniversary of the grant date, until fully vested. Shares underlying options
granted after October 1999 generally vest over a 4 year period, with
one-fourth ( 1/4) of the shares vesting on the first anniversary of the
grant date, and one-thirty-sixth ( 1/36) of the balance of the original
grant per month thereafter, until fully vested. For further information
regarding terms of the stock options, see "Management--2000 Equity Incentive
Plan".
(2) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by the rules of the Securities and Exchange Commission and do
not represent an estimate or projection of our future stock prices. The
actual value realized may be greater or less than the potential realizable
values set forth in the table.
(3) Shares underlying options granted to Mr. Dolby vest at a rate of 1.041667%
per month for the first year after grant and at a rate of 2.604166% per
month during the second and third years after grant. No further options vest
during the fourth year after grant but on the fourth anniversary of the
grant the remaining 25% vest. Mr. Dolby's stock options were granted outside
of the 1998 Equity Option Plan.
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<PAGE>
OPTION EXERCISES AND HOLDINGS
The following table contains information concerning option holdings for the
year ended December 31, 1999 with respect to each of the officers named in the
summary compensation table.
<TABLE>
<CAPTION>
1999 YEAR-END OPTION VALUES
---------------------------------------------------------
NUMBER OF SHARES VALUE OF UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS AT YEAR OPTIONS AT YEAR
END END(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Kent Dolby................................. -- 1,767,020 $ $
Carl Katzeff............................... 75,000 225,000
Rod Parsley................................ -- 600,000 -- --
Duane DeSisto.............................. -- 100,000 -- --
Jason Weiss................................ -- -- -- --
Hilton Plein............................... -- -- -- --
</TABLE>
- ------------------------
(1) Value is determined by subtracting the exercise price from the proposed
initial public offering price of common stock, multiplied by the number of
shares underlying the options.
EMPLOYEE STOCK PLANS
2000 EQUITY INCENTIVE PLAN
In February, 2000, our board of directors and stockholders approved the 2000
Equity Incentive Plan, which is to be amended prior to the closing of this
offering as described below. This plan provides for the issuance of our shares
pursuant to incentive stock options and nonqualified stock options, or as
restricted stock awards or stock grants, to employees (including officers and
employee directors) and consultants. A maximum of 8,000,000 shares of common
stock will be reserved for issuance pursuant to this plan, of which a maximum of
5,000,000 shares may be issued pursuant to incentive stock option grants. The
8,000,000 maximum will increase on January 1 of each year commencing on
January 1, 2001 by an amount equal to the least of:
- 3,000,000 shares,
- 5% of our outstanding common stock on the preceding December 31, or
- a lesser number determined by our Board of Directors.
In connection with the conversion to a corporation the 2000 Equity Incentive
Plan replaced the 1998 Equity Option Plan, which had previously been adopted by
us when we were a limited liability company. Stock options to acquire
approximately 2,841,000 shares were issued under the 2000 Equity Incentive Plan
in full substitution for options previously issued under the 1998 Equity Option
Plan.
The board of directors administers the incentive plan and has the authority
to determine which eligible individuals are to receive awards under the plan of
options, restricted stock awards or stock grants and the terms of such options,
awards or grants. In the case of options, those terms would include the status
of any option granted to an employee as either an incentive or nonqualified
stock option under the federal income tax laws, and the number of shares,
exercise prices and times at which the options become and remain exercisable. In
the case of restricted stock awards those terms would include the price, if any,
at which the eligible individuals may acquire the stock awarded and the
circumstances in which the shares vest.
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<PAGE>
Generally, the board has complete discretion over the terms of the various
awards which may be made under this plan. However, the exercise price of
incentive stock options granted under the 2000 Equity Incentive Plan may not be
less than 100% of the fair market value of a share of common stock on the date
of grant (110% in the case of incentive stock options issued to an employee who
at the time of grant owns more than 10% of the combined voting power of all
classes of our stock) and the term of any incentive stock option, may not exceed
ten (10) years (five (5) years, in the case of a ten percent owner).
If we are dissolved or liquidated or have a "change of control" transaction,
outstanding options and awards may be assumed or substituted by the successor
corporation, if any, in which case the holders of these options or awards will
receive one year's additional vesting, except with respect to options granted in
substitution for outstanding options under the 1998 Equity Option Plan as
described below. If a successor corporation does not assume or substitute the
awards, the vesting of such options and awards will be accelerated in full.
Options granted in substitution for outstanding options under the 1998 Equity
Option Plan generally provide for one year's additional vesting if the
optionee's employment is terminated within one year of a change of control.
In addition, the board of directors may, in its sole discretion, accelerate
the date or dates on which all or any particular option or options or restricted
stock awards granted under this plan may be exercised or extend the date during
which all, or any particular, option or options granted under the incentive plan
may be exercised. The board may also modify other terms of outstanding awards,
subject to the holder's consent if the change would be adverse.
From and after the closing of this initial public offering, the compensation
committee will exercise the board's authorities described above under this plan.
The board of directors may amend or modify this plan at any time, subject to
the rights of holders of outstanding options and restricted stock awards. This
plan will terminate on the tenth anniversary of the adoption of the plan by the
board of directors.
1998 EQUITY OPTION PLAN
The management board of PaperExchange.com, LLC approved the 1998 Equity
Option Plan, as amended, in April 1999. The 1998 Equity Option Plan provided for
the grant of options to acquire economic interests in the limited liability
company. When we converted from a limited liability company to a corporation in
February 2000, the Company issued options to purchase common stock under the
Company's 2000 Equity Incentive Plan in full substitution for all outstanding
options to purchase economic interests under the Company's 1998 Equity Option
Plan. The 1998 Equity Option Plan and the options granted thereunder no longer
have any force or effect and there are currently no outstanding options under
this plan.
2000 DIRECTOR OPTION PLAN
Prior to the closing of this initial public offering, our board of directors
and stockholders will approve the 2000 Director Option Plan. This plan provides
for the grant of nonqualified stock options to directors of PaperExchange who
are not employees of PaperExchange. Under this plan, each director of
PaperExchange who is not an employee, and excluding our current directors and
any future directors affiliated with The Kraft Group or PE.com Holdings, will
receive upon the commencement of this offering, or upon later initial election
to PaperExchange's board of directors, an option to purchase a pre-determined
number of shares of common stock at an exercise price equal to 100% of the fair
market value of our common stock on the date of grant. Each such option will
have a term of five years and will become exercisable quarterly in equal
installments. If we are dissolved or liquidated or have a "change of control"
transaction, outstanding options may be assumed or substituted by the successor
corporation, if any, in which case the holders of these
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options will receive one year's additional vesting. If a successor corporation
does not assume or substitute the awards, the vesting of the options will be
accelerated in full. A maximum of 500,000 shares will be authorized for issuance
pursuant to the director option plan.
2000 EMPLOYEE STOCK PURCHASE PLAN
Prior to the closing of this initial public offering, our board of directors
and stockholders will approve the 2000 Employee Stock Purchase Plan. This plan
allows eligible employees to acquire shares of our common stock through payroll
deductions. Our employee stock purchase plan is intended to qualify as an
employee stock purchase plan under Section 423 of the Internal Revenue Code. The
initial offering period will start on July 1, 2000, unless otherwise determined
by the board of directors. Subsequent offerings under the employee stock
purchase plan are planned to start on January 1 and July 1 of each year and end
on June 30 and December 31 of each year. During each offering period, an
eligible employee may select a rate of payroll deduction of from 1% to 10% of
each offering period, which payroll deductions may then be used at the end of
the offering period to purchase up to $12,500 worth of our stock (valued at the
beginning of the offering period). The purchase price for our common stock
purchased under our employee stock purchase plan is 85% of the fair market value
of the shares on the first day, or on the last day if lower, of the offering
period. An aggregate of 1,000,000 shares of common stock will be reserved for
issuance under the employee stock purchase plan. The amount of reserved shares
will increase on January 1 of every year, commencing in January 2001, by an
amount equal to the least of:
- 1,000,000 shares;
- 1.5% of our total outstanding common stock on the preceding December 31;
or
- a lesser amount as determined by our board of directors.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that directors
of a corporation will not be personally liable for monetary damages for breach
of their fiduciary duties as directors, except liability for:
- any breach of their duty of loyalty to the corporation or its
stockholders;
- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- unlawful payments of dividends or unlawful stock repurchases or
redemptions; or
- any transaction from which the director derived an improper personal
benefit.
This limitation of liability does not apply to liabilities arising under the
federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or rescission.
Our certificate of incorporation and bylaws provide that we shall indemnify
our directors and executive officers and shall indemnify other officers and
employees and our agents to the fullest extent permitted by law.
Our by-laws provide for indemnification of our directors and executive
officers for judgments, fines, settlement amounts and expenses, including
attorneys' fees, incurred by any of these persons in any action or proceeding,
including any action by or in the right of us, arising out of that person's
services as a director or executive officer of ours, any subsidiary of ours, or
any other company or enterprise to which the person provides services at our
request. We believe that these provisions are necessary to attract and retain
qualified persons as directors and executive officers. We are not aware of any
pending or threatened litigation or proceeding that might result in a claim for
indemnification.
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RELATED PARTY AND OTHER TRANSACTIONS
From April 1998 (inception) until February 28, 2000, all issuances of equity
by us were in the form of limited liability company membership or economic
interests or options, warrants or other rights to acquire such membership or
economic interests. While we were a limited liability company, we consummated a
3-for-1 split of our limited liability company interests in November 1999. On
February 28, 2000 we converted from a limited liability company to a corporation
whereupon each membership or economic interest automatically became, and each
option, warrant or other right to acquire one membership or economic interest
was substituted in full for an option, warrant or other right to acquire, one
share of our common stock. On and after February 28, 2000 all of our equity
issuances were in the form of shares of common stock or options, warrants or
other rights to acquire shares of our common stock.
SALES OF STOCK TO INSIDERS
In 1998, Kraft Group LLC acquired 50% of the membership interests of the
company. Kraft Group made $2,000,000 in aggregate capital contributions for
these membership interests. Robert Kraft and Jonathan Kraft, two of our
directors, have an interest in Kraft Group.
In April 1999, we issued 6,000,000 membership interests at price of $0.17 a
share to Kraft Group, a holder of more than 5% of our voting securities.
In August 1999, we issued and sold an aggregate of 966,714 membership
interests at a price of approximately $1.39 per share, which included the
following issuances:
- 576,000 membership interests to Kraft Group;
- 65,253 membership interests to Terrapin Holdings, a holder of more than 5%
of our voting securities;
- 48,336 membership interests to Roger Stone, one of our directors, and
certain members of his immediate family; and
- 247,320 membership interests to PE.com Holdings, LLC, which is a holder of
more than 5% of our voting securities and which is 50% owned by Internet
Capital Group, Inc., of which Walter Buckley, one of our directors, is
also a director; Walter Buckley and William Haskell, two of our directors,
are members of the management board of PE.com Holdings.
In December 1999, we issued and sold 441,754 membership interests to Kent
Dolby at $2.38 per share which he paid for using a loan extended to him by us in
the amount of $1,052,632. The loan to Mr. Dolby is for a term of four years at
an annual interest rate of 6.2%. At that time we also granted Mr. Dolby an
option to purchase 1,767,020 shares of common stock at an exercise price of
$2.38 per share. In connection with the foregoing, we recorded deferred
compensation of approximately $2,500,000 for the aggregate differences between
the sale or exercise price and the deemed fair value of the common stock as of
such date.
Also in December 1999, we issued and sold 1,729,767 membership interests at
a purchase price of $6.36 per share, which included the sale of 629,006
membership interests to a trust of which family members of David Wetherell, one
of our directors, are the beneficiaries, for an aggregate purchase price of
approximately $4,000,000.
In February 2000, we granted options to purchase 450,000 shares of our
common stock to Kraft Group for an aggregate exercise price of $4,383,000.
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OTHER TRANSACTIONS
In October 1999, we issued $10,000,000 of five year promissory notes at an
interest rate of 4% over the base rate of BankBoston, N.A. and warrants to
purchase an aggregate of 5,000,001 membership interests at an exercise price of
$2.00 per share, which included the issuance of:
- a note for $5,958,333 and a warrant to purchase up to 2,979,168 membership
interests to Kraft Group;
- a note for $675,000 and a warrant to purchase up to 337,500 membership
interests to Terrapin Holdings;
- a note for $300,000 and a warrant to purchase up to 150,000 membership
interests to Roger Stone;
- three notes in the aggregate of $200,000 and warrants to purchase up to
100,000 membership interests to Roger Stone and certain members of
Mr. Stone's immediate family; and
- a note for $2,558,334 and a warrant to purchase up to 1,279,167 membership
interests to PE.com Holdings LLC.
In 1999, we purchased approximately $90,000 of paper products from
International Forest Products, or IFP, and reimbursed IFP for approximately
$90,000 of expenses paid on our behalf during our start-up phase. International
Forest Products is owned by Robert Kraft, one of our directors who is also the
founder and chief executive officer of Kraft Group, one of our significant
shareholders.
In 1999, we executed a strategic alliance agreement with, and made a
$500,000 payment in connection therewith to, VerticalNet, Inc., which is
approximately 34% owned by Internet Capital Group, Inc., of which Walter
Buckley, one of our directors, is also a director. Internet Capital Group also
owns 50% of PE.com Holdings, one of our significant shareholders.
In January 2000, we made a commitment to loan $300,000 to Robert Brenner,
our Executive Vice President of Product Development, to facilitate his
relocation to Boston.
Since inception, we have from time to time issued and sold membership
interests or shares of our common stock, and granted options to purchase
membership interests or common stock, to our employees, directors and
consultants.
PRINCIPAL STOCKHOLDERS
The following table sets forth information known to PaperExchange with
respect to the beneficial ownership of our common stock as of March 9, 2000,
unless otherwise indicated, by the following individuals or groups:
- each stockholder known by us to be the beneficial owner of more than 5% of
our common stock;
- each director of PaperExchange;
- the executive officers listed in the summary compensation table; and
- all executive officers and directors as a group.
The percentage ownership in the following table is based on
42,310,829 shares of common stock outstanding as of March 9, 2000, together with
applicable options and warrants for that stockholder.
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We have determined beneficial ownership in the table in accordance with the
rules of the Securities and Exchange Commission. The table includes all shares
of common stock issuable within 60 days of March 9, 2000 upon the exercise of
options and other rights beneficially owned by the indicated stockholders on
that date. These shares, however, are not deemed outstanding for the purposes of
computing the percentage of ownership of each other person. To our knowledge
except as set forth in the footnotes below, each stockholder identified in the
table possesses sole voting and investment power with respect to the shares
shown as beneficially owned by that stockholder. The table assumes that the
underwriters' over-allotment to purchase shares of common stock is
not exercised. Percentage ownership figures after the offering do not include
shares that may be purchased by each person in the offering.
The address of each officer and director listed in the table is c/o
PaperExchange.com, Inc., 545 Boylston Street, 8(th) Floor, Boston,
Massachusetts. The address of Kraft Group LLC is One Boston Place, Boston,
Massachusetts 02108. The address of PE.com Holdings LLC is c/o Internet Capital
Group, Inc., 435 Devon Park Drive, Wayne, Pennsylvania 19087.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
--------------------------------
PERCENT
-------------------
NUMBER OF BEFORE AFTER
NAME OF BENEFICIAL OWNER SHARES OFFERING OFFERING
- ------------------------ ---------- -------- --------
<S> <C> <C> <C>
Kraft Group LLC (1)......................................... 25,455,168 55.7%
PE.com Holdings LLC (2)..................................... 10,736,487 24.6
Terrapin Holdings LLC (3)................................... 2,832,753 6.6
Robert K. Kraft (4)......................................... 25,455,168 55.7
Jonathan A. Kraft (5)....................................... 25,455,168 55.7
David Wetherell............................................. -- --
Roger Stone (6)............................................. 1,259,001 3.0
Nathan Leight (7)........................................... 2,832,753 6.6
Walter Buckley (8).......................................... 10,736,487 24.6
Gregory W. Haskell (9)...................................... 10,736,487 24.6
Kent A. Dolby (10).......................................... 515,380 1.2
Robert Brenner (11)......................................... 12,500 *
Carl Katzeff (12)........................................... 175,000 *
Rod Parsley (13)............................................ 482,061 1.1%
Michael Gozon............................................... -- --
Duane DeSisto............................................... -- --
All directors and executive officers as a group (13 persons)
(14)...................................................... 41,468,350 86.2%
</TABLE>
- ------------------------
* Less than 1% of our outstanding common stock.
(1) Includes warrants to purchase 2,979,168 shares of common stock and options
to purchase 450,000 shares of common stock issued or allocated to Kraft
Group LLC which are currently exercisable. Robert Kraft, one of our
directors, has an ultimate controlling interest in Kraft Group.
(2) Includes warrants to purchase 1,279,167 shares of common stock issued to
PE.com Holdings LLC which are currently exercisable. Messrs. Buckley and
Haskell, two of our directors, are also members of the management board of
PE.com Holdings, LLC.
(3) Includes warrants to purchase 337,500 shares of common stock issued to
Terrapin Holdings LLC which are currently exercisable. Mr. Leight, one of
our directors, is a member of Terrapin Holdings, LLC.
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(4) Represents the 25,455,168 options to purchase shares held by Kraft Group
LLC. Robert Kraft has an ultimate controlling interest in Kraft Group LLC.
(5) Represents the 25,455,168 options to purchase shares held by Kraft Group LLC
of which Jonathan Kraft is the President and Chief Operating Officer.
Although Jonathan Kraft may be deemed to be a beneficial holder of such
shares, he disclaims all such beneficial ownership except to the extent of
his financial interest therein.
(6) Includes warrants to purchase 150,000 shares of common stock issued to Roger
Stone which are currently exercisable.
(7) Represents the 2,832,753 shares and options to purchase shares held by
Terrapin Holdings LLC, of which Nathan Leight is a senior partner. Although
Mr. Leight may be deemed to be a beneficial holder of such shares, he
disclaims all such beneficial ownership except to the extent of his
financial interest therein.
(8) Represents the 10,736,487 shares and options to purchase shares held by
PE.com Holdings LLC, of which Walter Buckley, one of our directors, is also
a member of the management board. Although Mr. Buckley may be deemed to be a
beneficial holder of such shares, he disclaims all such beneficial ownership
except to the extent of his financial interest therein.
(9) Represents the 10,736,487 shares and options to purchase shares held by
PE.com Holdings LLC, of which Gregory Haskell, one of our directors, is also
a member of the management board. Although Mr. Haskell may be deemed to be a
beneficial holder of such shares, he disclaims all such beneficial ownership
except to the extent of his financial interest therein.
(10) Includes 73,626 shares issuable upon the exercise of options previously
granted to Kent Dolby and which are exerciseable within 60 days of March 9,
2000.
(11) Represents the 12,500 shares issuable upon the exercise of options
previously granted to Robert Brenner and which are exercisable within
60 days of March 9, 2000.
(12) Represents the 175,000 shares issuable upon the exercise of options
previously granted to Carl Katzeff and which are exercisable within 60 days
of March 9, 2000.
(13) Includes 339,313 shares issuable upon the exercise of options previously
granted to Rod Parsley and which are exerciseable within 60 days of
March 9, 2000.
(14) Includes an aggregate of 5,796,274 shares issuable to all directors and
executive officers upon the exercise of warrants which are warrants
currently exerciseable and options which are exerciseable within 60 days of
March 9, 2000.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
Upon the closing of this offering, the authorized capital stock of
PaperExchange will consist of 250,000,000 shares of common stock, $0.001 par
value, and 1,000,000 shares of undesignated preferred stock, $0.001 par value.
There will be no preferred stock outstanding immediately after the closing of
this offering.
COMMON STOCK
As of December 31, 1999, there were 39,280,983 limited liability company
membership interests outstanding, which were exchanged for 39,280,983 shares of
our common stock when we converted from a limited liability company to a
corporation in February, 2000. These shares are currently held of record by
approximately 17 stockholders. This number assumes no exercise of any of the
outstanding common stock warrants. Based upon the number of shares of common
stock outstanding as of February 29, 2000 and giving effect to the shares of
common stock offered by this prospectus, and assuming the underwriters do not
exercise their over-allotment option, there will be shares of common stock
outstanding upon the closing of this offering.
Holders of common stock are entitled to receive dividends in proportion to
the number of shares they hold, if they are declared by PaperExchange's board of
directors out of funds that are legally available for that purpose. Each holder
of common stock is entitled to one vote for each share of common stock held on
all matters submitted to a vote of the stockholders, and are not able to
multiply the number of shares they own by the number of directors up for
election for purposes of electing directors. Accordingly, holders of a majority
of the shares of common stock entitled to vote in any election of directors may
elect all of the directors standing for election. Holders of the common stock
have no preferential right to buy shares being offered in any future debt or
equity offerings by us, right to have their shares redeemed, or right to convert
their shares into any other type of security. Upon the liquidation, dissolution
or winding-up of PaperExchange, the holders of shares of common stock are
entitled to receive the net assets of PaperExchange after payment of all debts
and other liabilities. The outstanding shares of common stock are, and the
shares of common stock to be issued upon completion of this offering will be,
when issued and paid for, fully paid and non-assessable.
COMMON STOCK WARRANTS
As of March 1, 1999, we had warrants outstanding to purchase a total of
5,000,001 limited liability company membership interests, which were replaced
with warrants to purchase an equal number of shares of common stock when we
converted from a limited liability company to a corporation in February, 2000,
all of which are currently exercisable. These warrants were issued to 9 persons
who were also stockholders on October 15, 1999, the date that these warrants
were issued. The exercise price for all of these warrants is $2.00 per share and
they expire on October 15, 2006. We also had warrants outstanding to purchase a
total of 519,149 shares of our common stock which may be exercised on or after
March 2015, provided that the ability to exercise may be accelerated based upon
the number of tons of paper product that are purchased by the holder of such
warrant through our marketplace. These warrants were issued to one strategic
investor, have an exercise price equal to $11.56 and expire in April 2015.
The rights, preferences and privileges of holders of common stock are
subject to, and may be adversely affected by, the rights of the holders of
preferred stock that we may designate and issue in the future because the
holders of such preferred stock may have priority over the common stock with
respect to certain matters. These matters include the right to receive dividends
and the right to
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receive net assets upon a liquidation, dissolution or winding up of
PaperExchange. There will be no shares of preferred stock outstanding
immediately after the closing of this offering.
PREFERRED STOCK
Our board of directors is authorized, subject to limitations imposed by
Delaware law, without further stockholder approval, from time to time to issue
up to an aggregate of 1,000,000 shares of preferred stock in one or more series
and to fix or alter the designations, preferences and rights, and any
qualifications, limitations or restrictions of such preferred stock, of the
shares of each such series. Thus, the board of directors may fix the number of
shares constituting any such series of preferred stock, as well as the dividend
rights, dividend rates, conversion rights, voting rights, terms of redemption,
including sinking fund provisions, redemption price or prices and liquidation
preferences of those shares of preferred stock. The issuance of preferred stock
may have the effect of delaying, deferring or preventing a change of control of
PaperExchange. PaperExchange has no present plans to issue any shares of
preferred stock.
REGISTRATION RIGHTS
As of the date hereof, none of the holders of our outstanding capital stock
or common stock warrants have registration rights under the Securities Act with
respect to those shares or the shares issuable upon the exercise of those
warrants.
DELAWARE LAW AND CERTAIN CERTIFICATE OF INCORPORATION AND BY-LAWS PROVISIONS
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law. Subject to certain exceptions, Section 203 prohibits a publicly
held Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a certain period of time. That period is three
years from the date of the transaction in which the person became an interested
stockholder, unless the interested stockholder attained such status with the
approval of the board of directors or unless the business combination is
approved in a prescribed manner. A "business combination" includes certain
mergers, asset and stock sales, and other transactions resulting in a financial
benefit to the interested stockholder. Subject to certain exceptions, an
"interested stockholder" is a person who, together with his or her affiliates
and associates, owns, or owned within three years prior, 15% or more of the
corporation's voting stock.
Our certificate of incorporation and by-laws provide for the division of the
board of directors into three classes, as nearly equal in size as possible, with
each class beginning its three-year term in different years. See
"Management--Board Composition". A director may be removed only for cause by the
vote of a majority of the shares entitled to vote for the election of directors.
Our by-laws provide that for nominations for the board of directors or for
other business to be properly brought by a stockholder before a meeting of
stockholders, the stockholder must first have given timely notice of the matter
in writing to our secretary. To be timely, a notice of nominations or other
business to be brought before an annual meeting must be delivered between
120 days and 150 days prior to the date one year after the date of the preceding
year's proxy statement. If the date of the current year's annual meeting is more
than 30 days before or 60 days after such anniversary, or if no proxy statement
was delivered to stockholders for the preceding year's annual meeting, a
stockholder's notice will be timely if it is delivered not earlier than 90 days
prior to the current year's annual meeting and not later than 60 days prior to
the annual meeting or 10 days following the date on which public announcement of
the date of the annual meeting is first made by us, whichever is later. For
special meetings, notice must generally be delivered not more than 90 days prior
to such meeting and not later than 60 days prior to such meeting or 10 days
following the day on which public announcement of the date of the special
meeting is first made by
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us, whichever is later. The notice must contain, among other things, certain
information about the stockholder delivering the notice and, as applicable,
background information about each nominee or a description of the proposed
business to be brought before the meeting.
All of the provisions described above could make it more difficult for a
third party to acquire, or discourage a third party from acquiring, control of
our company.
Our certificate of incorporation also provides that any action required or
permitted to be taken by our stockholders may be taken only at duly called
annual or special meetings of the stockholders, and that special meetings may be
called only by the chairman of the board of directors, a majority of the
directors or our president. These provisions could have the effect of delaying
until the next annual stockholders meeting stockholder actions that are favored
by the holders of a majority of the common stock. These provisions may also
discourage a third party from making a tender offer to our stockholders for the
common stock. This is because the person or entity making the offer, even if it
acquired a majority of our outstanding voting securities, would be unable to
call a special meeting of the stockholders or to take action by written consent.
As a result, any desired actions they would like to take, such as electing new
directors or approving a merger, would have to wait until the next duly called
stockholders meeting.
The Delaware General Corporation Law provides 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 by-laws, unless the corporation's
certificate of incorporation or by-laws, as the case may be, requires a greater
percentage. Our certificate of incorporation requires the affirmative vote of
the holders of at least 67% of our outstanding voting stock to amend or repeal
any of the provisions of our certificate of incorporation described above, or to
reduce the number of authorized shares of common stock and preferred stock. The
67% stockholder vote is also required to amend or repeal any of the provisions
of our by-laws that are described above. Our by-laws may also be amended or
repealed by a majority vote of the board of directors. The 67% stockholder vote
would be in addition to any separate class vote that might in the future be
required pursuant to the terms of any preferred stock that might be outstanding
at the time any amendments are submitted to stockholders.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the common stock is American Stock
Transfer.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock.
Future sales of substantial amounts of our common stock in the public market
could adversely affect prevailing market prices. Sales of substantial amounts of
our common stock in the public market after any restrictions on sale lapse could
adversely affect the prevailing market price of the common stock, and impair our
ability to raise equity capital in the future.
Upon completion of the offering, we will have outstanding
shares of common stock, outstanding options to purchase shares of common
stock and outstanding warrants to purchase shares of common stock,
assuming no additional option or warrant grants or exercises after
. Of the shares sold in the offering, shares will be
subject to the lock-up agreements described below assuming that we sell all
shares reserved under our directed share program to the entities persons for
whom these shares have been reserved. We expect that the remaining shares,
plus any shares issued upon exercise of the underwriters' over-allotment option,
will be freely tradable without restriction under the Securities Act, unless
purchased by our "affiliates" as that term is defined in Rule 144 under the
Securities Act. In general, affiliates include officers, directors and 10% or
greater stockholders.
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The remaining shares outstanding and shares subject to
outstanding options and warrants are "restricted securities" within the meaning
of Rule 144. Restricted securities may be sold in the public market only if the
sale is registered or if it qualifies for an exemption from registration, or if
the securities can be sold under Rules 144, 144(k) or 701 promulgated under the
Securities Act, which are summarized below. Sales of restricted securities in
the public market, or the availability of such shares for sale, could adversely
affect the market price of the common stock.
LOCK-UP AGREEMENTS
Our directors, officers, employees and various other stockholders, who
together hold substantially all of our securities, have entered into lock-up
agreements in connection with this offering. These lock-up agreements generally
provide that these holders will not offer, sell, contract to sell, grant any
option to purchase or otherwise dispose of our common stock or any securities
exercisable for or convertible into our common stock owned by them for a period
of 180 days after the date of this prospectus without the prior written consent
of Goldman Sachs, as representative for the underwriters. The lock-up agreements
executed by our employees and directors also cover any shares they may acquire
through our directed share program. Notwithstanding possible earlier eligibility
for sale under the provisions of Rules 144, 144(k) and 701, shares subject to
lock-up agreements may not be sold until these arrangements expire or are waived
by Goldman Sachs, as representative for the underwriters. Assuming that Goldman
Sachs does not release any security holders from the lock-up agreements, the
following shares will be eligible for sale in the public market at the following
times:
- Beginning on the effective date of the registration statement of which
this prospectus forms a part, of the shares sold in this
offering, and additional shares not subject to lock-up agreements
and eligible for sale under Rule 144(k), will be immediately available for
sale in the public market.
- Beginning 90 days after the effective date, an additional shares not
subject to lock-up agreements will be eligible for sale pursuant to
Rule 144 and Rule 701.
- Beginning 180 days after the effective date, an additional shares
will be eligible for sale pursuant to Rule 144, Rule 144 (k) and
Rule 701.
RULE 144
In general, under Rule 144 as currently in effect, after the expiration of
the lock-up agreements, a person who has beneficially owned restricted
securities for at least one year would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of:
- one percent of the number of shares of common stock then outstanding,
which will equal approximately shares immediately after this
offering; and
- the average weekly trading volume of our common stock during the four
calendar weeks preceding the sale.
Sales under Rule 144 are also subject to requirements with respect to manner
of sale, notice and the availability of current public information about us.
RULE 144(K)
Under Rule 144(k), a person who is not deemed to have been our affiliate at
any time during the three months preceding a sale, and who has beneficially
owned the shares proposed to be sold
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for at least two years, may sell these shares without complying with the manner
of sale, public information, volume limitation or notice requirements of
Rule 144.
RULE 701
Rule 701, as currently in effect, permits our employees, officers, directors
or consultants who purchased shares pursuant to a written compensatory plan or
contract to resell such shares in reliance upon Rule 144, but without compliance
with certain restrictions. Rule 701 provides that affiliates may sell their
Rule 701 shares under Rule 144 ninety days after the closing of this offering
without complying with the holding period requirement and that non-affiliates
may sell such shares in reliance on Rule 144 ninety days after the closing of
this offering without complying with the holding period, public information,
volume limitation or notice requirements of Rule 144.
EMPLOYEE PLANS
In addition, we intend to file a registration statement under the Securities
Act after the effective date of this offering to register shares to be issued
pursuant to our employee benefit plans. As a result, any shares of common stock
acquired upon exercise of options or rights granted under the 2000 Equity
Incentive Plan, the 2000 Directors Option Plan and the Employee Stock Purchase
Plan will also be freely tradable in the public market. However, shares held by
affiliates will still be subject to the volume limitation, manner of sale,
notice and public information requirements of Rule 144, unless otherwise
resalable under Rule 701. As of March 9, 2000, we had granted options to
purchase 3,256,000 shares of common stock that had not been exercised, of which
options to purchase 323,793 shares were exercisable. In addition, we will
reserve 500,000 shares for possible issuance under our Directors Option Plan and
1,000,000 shares for possible future issuance under our Employee Stock Purchase
Plan.
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LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for
PaperExchange by Bingham Dana LLP, Boston, Massachusetts. Legal matters in
connection with this offering will be passed upon for the underwriters by
Ropes & Gray, Boston, Massachusetts.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial
statements and schedule at December 31, 1998 and 1999, and for the period from
April 10, 1998 (date of inception) to December 31, 1998, the year ended
December 31, 1999, and the period from April 10, 1998 (date of inception) to
December 31, 1999, as set forth in their report. We have included our financial
statements and schedule in the prospectus and elsewhere in the registration
statement in reliance on Ernst & Young LLP's report, given on their authority as
experts in accounting and auditing.
ADDITIONAL INFORMATION
We have filed a registration statement on Form S-1 with the Securities and
Exchange Commission for the common stock we are offering by this prospectus.
This prospectus does not contain all of the information contained in the
registration statement and the exhibits. You should refer to the registration
statement and its exhibits for additional information. Statements contained in
this prospectus regarding the contents of any contract or any other document to
which reference is made are not necessarily complete and you should refer to the
exhibits attached to the registration statement for copies of the actual
contract, agreement or other documents. When we complete this offering, we will
also be required to file annual, quarterly and special reports, proxy statements
and other information with the Securities and Exchange Commission.
You can read our Securities and Exchange Commission filings, including the
registration statement, over the Internet at the Securities and Exchange
Commission's web site at http://www.sec.gov. You may also read and copy any
document we file with the Securities and Exchange Commission at its public
reference facilities at 450 Fifth Street, N.W., Washington, D.C. 20549; Seven
World Trade Center, Suite 1300, New York, New York 10048; and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. You may also
obtain copies of these documents at prescribed rates by writing to the Public
Reference Section of the Securities and Exchange Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549. Please call the Securities and Exchange Commission
at 1-800-SEC-0330 for further information on the operation of the public
reference facilities.
61
<PAGE>
UNDERWRITING
PaperExchange 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., Chase
Securities Inc., FleetBoston Robertson Stephens Inc. and Banc of America
Securities LLC are the representatives of the underwriters.
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
------------ ----------------
<S> <C>
Goldman, Sachs & Co........................................
Chase Securities Inc.......................................
FleetBoston Robertson Stephens Inc.........................
Banc of America Securities LLC.............................
-------
Total....................................................
=======
</TABLE>
Goldman, Sachs & Co., Chase Securities Inc., FleetBoston Robertson Stephens
Inc., and Banc of America Securities LLC will jointly manage the order books for
the offering.
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 PaperExchange to cover these 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 tables show the per share and total underwriting discounts and
commissions to be paid to the underwriters by PaperExchange. Such amounts are
shown assuming both no exercise and full exercise of the underwriters' option to
purchase additional shares.
<TABLE>
<CAPTION>
No Full
Paid by PaperExchange Exercise 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
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.
PaperExchange and its directors, officers, employees and other holders of
substantially all its securities have agreed, with the underwriters, subject to
limited exceptions, 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 through the date 180 days after the
date of this prospectus, except with the prior written consent of the
representatives. 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 common
stock. The initial public offering price for the common stock has been
negotiated among PaperExchange and the representatives of the underwriters.
Among the factors considered in determining the initial public offering price of
the shares, in addition to prevailing market conditions, were PaperExchange's
historical performance, estimates of PaperExchange's business potential and
earnings prospects,
62
<PAGE>
an assessment of PaperExchange's management and the consideration of the above
factors in relation to the market valuation of companies in related businesses.
PaperExchange's common stock has been approved for quotation on the Nasdaq
National Market under the symbol "PPEX".
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-sale 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.
The underwriters do not expect sales to discretionary accounts to exceed
five percent of the total number of shares offered.
At the request of PaperExchange, the underwriters are reserving up to
shares of common stock for sale at the initial public offering price to
directors, officers, employees and friends 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 the other shares offered hereby.
PaperExchange estimates that the total expenses of the offering, excluding
underwriting discounts and commissions, will be approximately $ million.
PaperExchange has agreed to indemnify the underwriters against various
liabilities, including liabilities under the Securities Act of 1933.
63
<PAGE>
PAPEREXCHANGE.COM, LLC
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE(S)
--------
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-2
Financial Statements:
Balance Sheets............................................ F-3
Statements of Operations.................................. F-4
Statements of Changes in Members' Equity.................. F-5
Statements of Cash Flows.................................. F-6
Notes to Financial Statements............................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Members of
PaperExchange.com, LLC
We have audited the accompanying balance sheets of PaperExchange.com, LLC (A
Development Stage Company) as of December 31, 1998 and 1999, and the related
statements of operations, changes in members' equity, and cash flows for the
period from April 10, 1998 (date of inception) to December 31, 1998, for the
year ended December 31, 1999 and the period from April 10, 1998 (date of
inception) to 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 PaperExchange.com, LLC at
December 31, 1998 and 1999, and the results of its operations and its cash flows
for the period from April 10, 1998 (date of inception) to December 31, 1998, the
year ended December 31, 1999 and the period from April 10, 1998 (date of
inception) to December 31, 1999, in conformity with accounting principles
generally accepted in the United States.
Ernst & Young LLP
Boston, Massachusetts
February 11, 2000, except for
Notes 5 and 8, as to which the date
is March 9, 2000
F-2
<PAGE>
PAPEREXCHANGE.COM, LLC
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31, PRO FORMA
----------------------- DECEMBER 31
1998 1999 1999
--------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $ 492,842 $16,278,777 $16,278,777
Accounts receivable, net of allowances of $35,385 in
1999.............................................. -- 86,167 86,167
Prepaid expenses.................................... 3,640 80,370 80,370
--------- ----------- -----------
Total current assets................................ 496,482 16,445,314 16,445,314
--------- ----------- -----------
Property and equipment:
Software............................................ 268,990 1,250,489 1,250,489
Computer and office equipment....................... 67,816 572,000 572,000
Furniture and fixtures.............................. 14,869 76,395 76,395
Leasehold improvements.............................. -- 41,087 41,087
--------- ----------- -----------
351,675 1,939,971 1,939,971
Less: accumulated depreciation...................... 31,942 228,454 228,454
--------- ----------- -----------
Property and equipment, net........................... 319,733 1,711,517 1,711,517
Intangible assets, net of accumulated amortization of
$29,728 in 1999..................................... -- 320,272 320,272
Other assets, net of accumulated
amortization of $181 in 1998........................ 1,323 8,800 8,800
--------- ----------- -----------
Total assets.......................................... $ 817,538 $18,485,903 $18,485,903
========= =========== ===========
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Accounts payable.................................... $ 52,374 $ 1,921,181 $ 1,921,181
Accrued expenses.................................... -- 473,496 473,496
Payable to officer.................................. -- 657,133 657,133
Interest payable.................................... -- 252,588 252,588
--------- ----------- -----------
Total current liabilities............................. 52,374 3,304,398 3,304,398
--------- ----------- -----------
Notes payable to Members, net of $1,532,500
discount............................................ -- 8,467,650 8,467,650
Members' equity:
Common Stock, $.001 par value; 60,000,000 shares
authorized; 39,280,983 shares issued and
outstanding Pro Forma............................. -- -- 39,281
Membership Interests, 30,000,000 issued and
outstanding in 1998, 39,280,983 issued and
outstanding in 1999 (including 142,748 Economic
Interests outstanding in 1999).................... 1,625,000 15,580,290 --
Additional paid-in-capital............................ -- 4,245,693 9,875,556
Deferred compensation................................. -- (2,116,900) (2,116,900)
Notes receivable--officers............................ -- (1,084,082) (1,084,082)
Deficit accumulated during the development stage...... (859,836) (9,911,146) --
--------- ----------- -----------
Total Members' equity................................. 765,164 6,713,855 6,713,855
--------- ----------- -----------
Total liabilities and Members' equity................. $ 817,538 $18,485,903 $18,485,903
========= =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES.
F-3
<PAGE>
PAPEREXCHANGE.COM, LLC
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM APRIL 10 PERIOD FROM APRIL 10
1998 (INCEPTION) TO YEAR ENDED 1998 (INCEPTION) TO
DECEMBER 31 DECEMBER 31 DECEMBER 31
1998 1999 1999
-------------------- ------------- --------------------
<S> <C> <C> <C>
Net revenues..................... $ 1,500 $ 114,191 $ 115,691
Cost of revenues................. -- 91,766 91,766
---------- ----------- -----------
Gross profit..................... 1,500 22,425 23,925
Expenses:
Sales and marketing............ 541,072 3,376,116 3,917,188
Technology..................... 141,207 3,103,858 3,245,065
General and administrative..... 206,960 2,115,817 2,322,777
Write-off of capitalized
software..................... -- 209,294 209,294
---------- ----------- -----------
889,239 8,805,085 9,694,324
---------- ----------- -----------
Operating loss................... (887,739) (8,782,660) (9,670,399)
Other income and expense:
Interest expense............... -- (334,423) (334,423)
Interest income................ 27,903 55,739 83,642
Other miscellaneous income..... -- 10,034 10,034
---------- ----------- -----------
Net loss......................... $ (859,836) $(9,051,310) $(9,911,146)
========== =========== ===========
Basic and diluted net loss per
interest....................... $ (.03) $ (.26)
========== ===========
Weighted average interests
outstanding used to compute
basic and diluted net loss per
interest....................... 30,000,000 34,881,564
</TABLE>
SEE ACCOMPANYING NOTES.
F-4
<PAGE>
PAPEREXCHANGE.COM, LLC
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CHANGES IN MEMBERS' EQUITY
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
LLC INTERESTS ADDITIONAL NOTES DURING TOTAL
------------------------ PAID-IN DEFERRED RECEIVABLE-- DEVELOPMENT MEMBERS'
SHARES AMOUNT CAPITAL COMPENSATION OFFICERS STAGE EQUITY
---------- ----------- ---------- -------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of Membership
Interests at inception,
April 10, 1998........... 30,000,000 $ 1,625,000 $ 1,625,000
Net loss................... -- -- $ (859,836) (859,836)
---------- ----------- ---------- ----------- ----------- ----------- -----------
Balance at December 31,
1998..................... 30,000,000 1,625,000 -- -- -- (859,836) 765,164
Capital contribution....... 500,000 500,000
Issuance of Membership
Interests on April 5,
1999..................... 6,000,000 1,000,000 1,000,000
Deferred compensation
related to options....... $ 135,960 $ (135,960) --
Issuance of Membership
Interests on August 13,
1999..................... 966,714 1,342,658 1,342,658
Exercise of options on
August 14, 1999.......... 142,748 28,550 28,550
Issuance of warrants
related to Members'
promissory notes dated
October 15, 1999......... 1,613,000 1,613,000
Issuance of Membership
Interests on December 20,
1999..................... 441,754 1,052,632 $(1,052,632) --
Deferred compensation
related to options....... 1,996,733 (1,996,733) --
Deferred compensation
related to stock......... 500,000 (500,000) --
Exercise of options on
December 30, 1999........ 157,252 31,450 (31,450) --
Issuance of Membership
Interests on December 30,
1999..................... 1,572,515 10,000,000 10,000,000
Amortization of deferred
compensation related to
options.................. 515,793 515,793
Net loss................... (9,051,310) (9,051,310)
---------- ----------- ---------- ----------- ----------- ----------- -----------
BALANCE AT DECEMBER 31,
1999..................... 39,280,983 $15,580,290 $4,245,693 $(2,116,900) $(1,084,082) $(9,911,146) $ 6,713,855
========== =========== ========== =========== =========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES.
F-5
<PAGE>
PAPEREXCHANGE.COM, LLC
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 10 PERIOD FROM
1998 APRIL 10 1998
(INCEPTION) TO YEAR ENDED (INCEPTION) TO
DECEMBER 31 DECEMBER 31 DECEMBER 31
1998 1999 1999
-------------- ----------- --------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss................................................ $(859,836) $(9,051,310) $(9,911,146)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation.......................................... 31,942 216,686 248,628
Amortization.......................................... 181 31,051 31,232
Non-cash compensation charges......................... -- 515,793 515,793
Amortization of debt discount......................... -- 80,650 80,650
Write-off of capitalized software..................... -- 209,294 209,294
Changes in operating assets and liabilities:
Accounts receivable................................. -- (86,167) (86,167)
Prepaid expenses and other current assets........... (3,640) (76,730) (80,370)
Accounts payable.................................... 52,374 1,868,807 1,921,181
Accrued expenses.................................... -- 473,496 473,496
Interest payable.................................... -- 252,588 252,588
Payable to officer.................................. -- 657,133 657,133
Other assets........................................ (1,504) (258,800) (260,304)
--------- ----------- -----------
Net cash used in operating activities................... (780,483) (5,167,509) (5,947,992)
--------- ----------- -----------
INVESTING ACTIVITIES:
Acquisition of MPX assets............................... -- (100,000) (100,000)
Purchase of property and equipment...................... (82,685) (606,796) (689,481)
Purchase of internal use software....................... (146,990) (1,260,968) (1,407,958)
Proceeds from disposal of software...................... -- 50,000 50,000
--------- ----------- -----------
Net cash used in investing activities................... (229,675) (1,917,764) (2,147,439)
--------- ----------- -----------
FINANCING ACTIVITIES:
Proceeds from Members' capital contributions............ 1,503,000 12,871,208 14,374,208
Proceeds from notes payable to members.................. -- 10,000,000 10,000,000
--------- ----------- -----------
Net cash provided by financing activities............... 1,503,000 22,871,208 24,374,208
--------- ----------- -----------
Increase in cash and cash equivalents................... 492,842 15,785,935 16,278,777
Cash and cash equivalents, beginning of year............ -- 492,842 --
--------- ----------- -----------
Cash and cash equivalents, end of year.................. $ 492,842 $16,278,777 $16,278,777
========= =========== ===========
Interest paid........................................... $ -- $ 81,835 $ 81,835
NON-CASH TRANSACTION:
Software contributed in exchange for equity interest.... $ 122,000 $ -- $ 122,000
========= =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES.
F-6
<PAGE>
PAPEREXCHANGE.COM, LLC
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
PERIODS ENDED DECEMBER 31, 1998 AND 1999
1. NATURE OF BUSINESS
PaperExchange.com, LLC (the Company) is a provider of e-commerce solutions
to producers and customers of pulp and paper products. The Company enables these
parties to efficiently buy and sell products through a secure Internet-based
neutral marketplace tailored to this industry. The Company operates solely in
one operating segment, the development and marketing of an online marketplace
for the purchase and distribution of pulp and paper products.
The Company was organized as a Delaware limited liability company on
April 10, 1998. The Company headquarters are located in Boston, Massachusetts.
The Company, since its inception, has devoted its efforts to product
development, marketing and securing financing. No significant revenues have been
derived from operations. Accordingly, the financial statements are presented in
accordance with Financial Accounting Standards Board Statement No. 7,
"Accounting and Reporting by Development-Stage Enterprises".
The accompanying financial statements have been presented on the assumption
that the Company is a going concern, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of business.
During 1998 and 1999, the Company incurred significant operating losses and
utilized significant amounts of cash to fund the design and development of the
Company's online marketplace and the establishment of relationships with
suppliers and customers. The Company is reaching a critical stage in its growth
as it transforms from a development stage enterprise to a commercial company
with complete sales and marketing capabilities. During this time, the Company
increased its overall operating expenses and overhead to be positioned to
further increase its sales and marketing capabilities. In order to be adequately
positioned to meet these demands, the Company obtained debt and equity
financing.
The Company expects to continue to utilize significant amounts of cash to
fund operations as it implements its business plan. The Company continues to
seek equity financing as its primary means of funding operations during this
transition. The Company's largest stockholders have represented that they will
provide the Company with such additional financing, as may be necessary, in
order to enable the Company to continue to sustain operations.
As a result of the above actions, management believes that its existing cash
resources (including the financing commitments) and cash from operations should
meet working capital requirements over the next twelve months.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRO FORMA BALANCE SHEET (UNAUDITED)
The unaudited pro forma balance sheet is presented to give pro forma effect
to the conversion of the Company from a limited liability company to a
corporation on February 28, 2000. The Company's accumulated deficit of
$9,911,146 at February 28, 2000, the date of such conversion, was reclassified
as additional paid-in-capital.
F-7
<PAGE>
PAPEREXCHANGE.COM, LLC
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
PERIODS ENDED DECEMBER 31, 1998 AND 1999
REVENUE RECOGNITION
Net revenues consist primarily of product sales to customers and charges to
customers for outbound freight and other logistical services. Under most
supplier agreements, the Company acts as a principal when purchasing products
from suppliers and reselling them to customers. Products are shipped directly to
customers by suppliers based on customer delivery date specifications. Under
principal-based agreements, the Company is responsible for selling products,
collecting payment from customers, ensuring that the shipment reaches customers
and processing sales returns. In addition, the Company takes title to the
product upon shipment and bears the risk of loss for collection, delivery and
product returns from customers. The Company recognizes revenues from product
sales when products are shipped to customers. The Company provides an allowance
for sales returns at the time of sale. During 1999, the Company recorded an
allowance for sales returns of approximately $31,000.
To date, an insignificant amount of revenues are from agreements with
suppliers for which the Company is acting as an agent. Under agency-based
supplier agreements, the Company recognizes a percentage share of revenues
generated by suppliers when products are shipped to customers.
CASH AND CASH EQUIVALENTS
The Company considers short-term investments with original maturity dates of
90 days or less at the date of purchase to be cash equivalents. The Company's
cash and cash equivalents as of December 31, 1999 consisted primarily of
commercial paper and money market funds held by large financial institutions in
the United States and their carrying value approximated fair value. The Company
has pledged approximately $70,000 of cash equivalents to secure two letters of
credit for operating leases.
FINANCIAL INSTRUMENTS
Cash and cash equivalents, accounts receivable, accounts payable and accrued
expenses are carried at cost which approximates fair value due to the short-term
maturity of these instruments. Carrying amounts of long-term debt approximate
fair value as the debt bears interest at rates approximating current market
rates.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. The Company provides for
depreciation using accelerated and straight-line methods over the estimated
useful lives of the related assets which range from 2 to 7 years.
CAPITALIZED SOFTWARE DEVELOPMENT FOR INTERNAL USE
The Company accounts for software developed for internal use under Statement
of Position 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use," ("SOP 98-1"). SOP 98-1 provides guidance for
determining whether computer software is internal-use software and on
capitalization of the costs incurred for computer software developed or obtained
for internal use. Expenses incurred by the Company to enhance, manage, monitor
and
F-8
<PAGE>
PAPEREXCHANGE.COM, LLC
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
PERIODS ENDED DECEMBER 31, 1998 AND 1999
operate the Company's web site are expensed as incurred, except for costs which
provide additional functionality, which are capitalized in accordance with SOP
98-1.
In 1998, the Company capitalized $268,990 of software that was internally
developed or purchased. In November 1999, the software version was replaced with
a substantially modified version. Accordingly, capitalized internal-use software
costs of $209,294 that had no future benefit to the Company were deemed impaired
and charged to expense.
As of December 31, 1999, the Company had capitalized $1,260,968 of
internally developed and purchased software costs related to the new software
version. This cost is being depreciated on a straight-line basis over the useful
life of the software (estimated at two years).
In 1998 and 1999, depreciation expense relating to capitalized software
costs was $20,174 and $96,002, respectively.
INTANGIBLE ASSETS
The Company incurred costs of $500,000 in connection with a co-branding
marketing agreement with another internet entity. Costs of $250,000 related to
the execution of the agreement, the terms of which include a non-compete
agreement and exclusivity rights, are being amortized on a straight line basis
over the four-year life of the agreement. The balance of costs have been
expensed.
In connection with an acquisition of certain assets of MPX, the Company
obtained two non-compete agreements that aggregate $100,000. The non-compete
agreements are being amortized on a straight line basis over the life of the
agreements, which range from 18 to 26 months.
STOCK-BASED COMPENSATION
The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees", and related interpretations
in accounting for its employee stock options. Under APB Opinion No. 25, when the
exercise price of the Company's employee stock options equals the market price
of the underlying stock on the date of grant, no compensation expense is
recognized. See pro forma disclosures of applying Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation,
("FAS 123") included in Note 5. The Company accounts for stock-based
compensation issued to non-employees in accordance with the provisions of SFAS
No. 123 and Emerging Issues Task Force No. 96-18, "Accounting for Equity
Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services."
ADVERTISING COSTS
Advertising costs are expensed in the period in which they are incurred. The
Company incurred $69,000 and $545,000 in advertising costs in 1998 and 1999,
respectively.
F-9
<PAGE>
PAPEREXCHANGE.COM, LLC
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
PERIODS ENDED DECEMBER 31, 1998 AND 1999
INCOME TAXES
During 1998 and 1999 the Company was treated as a partnership for federal
and state income tax purposes. Therefore, all items of income, expense and tax
credits are passed through to the Company's Members. As more fully discussed in
Note 5, effective with the conversion from a limited liability company to a
corporation, the Company is subject to federal and state income taxes. The
Company expects to recognize a deferred tax asset for the net tax effects of
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes. Due
to the uncertainties regarding the Company's future results of operations, a
full valuation allowance will be recorded against any deferred tax asset for the
forseeable future. Pro forma information with respect to income taxes, net loss
and net loss per interest, assuming the Company had been taxed as a corporation,
would not be meaningful due to the significance of the Company's operating loss
and the fact that no income tax benefit will be recognized.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
CONCENTRATIONS OF CREDIT RISK AND OTHER RISKS
Financial instruments that potentially subject the Company to credit risk
consist primarily of uninsured cash and cash equivalents. Cash and cash
equivalents are deposited with a federally insured commercial bank in the United
States or in higher grades of commercial paper with durations of under 90 days
at the time of purchase.
The Company sells primarily to converters, printers, wholesalers and
retailers of paper and related products. The Company performs ongoing credit
evaluations of its customers and may or may not require collateral. The Company
analyzes the need for reserves for potential credit losses and records reserves
when necessary. The Company has obtained credit insurance to mitigate any
potential losses, and to date, has not had significant bad debt losses. The
Company has a bad debt allowance of approximately $4,000 at December 31, 1999.
In December 1999, one customer accounted for 100% of the accounts receivable
balance and 76% of the Company's net revenue.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 is effective for fiscal years
beginning after June 15, 2000. SFAS No. 133 requires that all derivative
instruments be recorded on the balance sheet at their fair value. Changes in the
fair value of derivatives are recorded each period in current earnings or other
comprehensive income, depending on whether a derivative is designed as part of a
hedge transaction and, if it is, the type of hedge transaction. The Company does
not expect that the adoption of SFAS No. 133 will have a material impact on its
financial statements.
F-10
<PAGE>
PAPEREXCHANGE.COM, LLC
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
PERIODS ENDED DECEMBER 31, 1998 AND 1999
3. NET LOSS PER INTEREST
Net loss per interest (interests include both Membership Interests and
Economic Interests) has been computed in accordance with the Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("FAS 128"), which
requires disclosure of basic and diluted earnings per interest. Basic earnings
per interest excludes any dilutive effects of options, interests subject to
repurchase, warrants, and convertible securities.
Diluted earnings per interest includes the impact of potentially dilutive
securities. The Company's potentially dilutive securities were antidilutive and
therefore were not included in the computation of weighted-average interests
used in computing diluted loss per interest. Following the guidance given by the
Securities and Exchange Commission Staff Accounting Bulletin No. 98, common
stock and convertible preferred stock that has been issued or granted for
nominal consideration prior to the anticipated effective date of the initial
public offering date must be included in the calculation of basic and diluted
net loss as if these interests had been outstanding for all periods presented.
To date, the Company has not issued or granted interests for nominal
consideration.
The following table presents the calculation of basic and diluted and
diluted net loss per interest:
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 10, 1998
(INCEPTION) TO YEAR ENDED
DECEMBER 31 DECEMBER 31
1998 1999
-------------- -----------
<S> <C> <C>
Numerator:
Net loss.................................................. $ (859,836) $(9,051,310)
Denominator:
Weighted average interests outstanding (for basic and
diluted)................................................ 30,000,000 34,881,564
Basic and diluted net loss per interest................... $ (.03) $ (.26)
</TABLE>
The Company has excluded all outstanding stock options and warrants from the
calculation of diluted net loss per interest because all such securities are
antidilutive for all periods presented. The total number of interests excluded
from the calculation of diluted net loss per interest was 9,231,771 for the year
ended December 31, 1999. Such securities, had they been dilutive, would have
been included in the computation of diluted net loss per interest using the
treasury stock method.
4. NOTES PAYABLE TO STOCKHOLDERS
On October 15, 1999, the Company issued promissory notes to the stockholders
of the Company and obtained additional financing aggregating $10,000,000. Each
note was in proportion to the individual stockholder's equity interest. In
connection, and simultaneously with the issuance of the promissory notes, the
Company issued 5,000,001 fully vested warrants, each of which is to purchase one
share of common stock in the Company at an exercise price of $2 per share. (See
Note 5)
F-11
<PAGE>
PAPEREXCHANGE.COM, LLC
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
PERIODS ENDED DECEMBER 31, 1998 AND 1999
4. NOTES PAYABLE TO STOCKHOLDERS (CONTINUED)
The Company obtained an independent valuation of the fair value of the
warrants at the date of issuance. The fair value of the warrants was determined
using an option pricing model with the following assumptions: expected life of
seven years; risk-free interest rate of 5.9%; no dividends during the expected
term and a volatility of 134%.
Based upon an independent valuation, $1,613,000 of the proceeds has been
assigned to the value of the warrants and $8,387,000 has been assigned to the
notes. The value of the warrants has been credited to additional paid-in
capital. The difference between the face value of the notes and the carrying
value is reflected as a discount and is being amortized over the term of the
notes. The notes bear interest on the face amount of the notes at the Company's
bank prime rate plus 4.0%. As of December 31, 1999, the interest rate on these
loans was 12.5%. The weighted average effective interest rate during 1999,
including the effect of amortizing the warrant, was 16%. Interest is payable
quarterly, and the notes mature upon the earlier of October 15, 2004 or the date
of an acceleration pursuant to the promissory note agreement. The agreement
defines an acceleration event to include, among other events, failure to make
timely interest payments, sale of substantially all of the Company's assets,
bankruptcy, or issuance of debt and/or equity from which the gross proceeds
exceed $30,000,000. Any acceleration other than bankruptcy is subject to the
election of the holders of a majority of the notes.
5. STOCKHOLDERS' EQUITY
DESCRIPTION OF SECURITIES
At December 31, 1999, the Company's Members' Equity consisted of Membership
Interests and Economic Interests. Each Membership Interest consists of an
Economic Interest and other rights (primarily the right to vote on, or
participate in, the management of the Company). All holders of Economic
Interests have the right to receive distributions of the Company's assets and
allocations of profits and losses.
CONVERSION TO A C CORPORATION
On February 28, 2000, the Company converted from a limited liability Company
to a corporation. Under the Agreement and Plan of Conversion, all outstanding
Membership Interests and Economic Interests were converted into shares of common
stock. Each share of common stock is entitled to one vote. The holders of common
stock are also entitled to receive dividends from legally available funds when,
and if, declared by the Board of Directors.
Further, the Company issued options to purchase common stock under the
Company's 2000 Equity Incentive Plan in full substitution for all outstanding
options to purchase Economic Interests under the Company's 1998 Equity Option
Plan. The Company also issued warrants and options in full substitution for all
outstanding warrants and options to purchase Membership Interests.
Concurrent with the conversion to a corporation, all of the stockholders
executed a Stockholders' Agreement. Under the terms of the Stockholders'
Agreement, the stockholders have agreed to set the number and composition of the
Board of Directors of the Company. In addition, each stockholder has granted to
the Board of Directors an irrevocable proxy to vote all common
F-12
<PAGE>
PAPEREXCHANGE.COM, LLC
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
PERIODS ENDED DECEMBER 31, 1998 AND 1999
5. STOCKHOLDERS' EQUITY (CONTINUED)
stock held by such stockholder. With the exception of the majority owner, all
stockholders must give the other holders the right of first refusal when selling
stock. Proposed sales of greater than a 5% ownership by a holder triggers an
automatic right for the other holders to participate as a seller in a proposed
sale in proportion to their ownership interests. If the majority owner enters
into a transaction to sell all of its stock, it can compel all stockholders to
sell outstanding shares. This Stockholders' Agreement expires upon the
dissolution of the Company or an initial public offering of the Company's common
stock.
MEMBERSHIP INTEREST SPLIT
On September 14, 1999, the Company's Board of Directors authorized a
three-for-one Membership Interest split effective November 1, 1999. All
Membership Interests and per Membership Interest amounts in the financial
statements for all periods presented have been retroactively adjusted to reflect
the Membership unit splits.
1998 EQUITY OPTION PLAN
In April 1999, the Company adopted the Amended 1998 Equity Option Plan (the
"Plan"). The Plan authorizes the grant of options to employees to purchase
Economic Interests. Options may only be granted to persons who are employees of
the Company. A total of 4,550,000 units of Economic Interests have been reserved
for issuance under the Plan.
The exercise price of options granted under the Plan may not be less than
85% of the fair value of the Economic Interests as of the grant date, as
determined by the Board of Directors. The term of options granted under the Plan
may not exceed five years.
2000 EQUITY INCENTIVE PLAN
In February 2000, the Company's Board of Directors adopted the 2000 Equity
Incentive Plan (the "2000 Plan") for issuance of common stock to eligible
participants. The Plan provides for the granting of incentive stock options and
non-qualified stock options. In the case of incentive stock options, options may
be granted under the 2000 Plan at prices not less 100% of the fair value at the
date of grant. Generally, the options expire after ten years from the initial
date of grant. Options generally vest over a period of four years from the date
of grant.
STOCK COMPENSATION
Pro-forma information regarding net loss is required by FAS 123, and has
been determined as if the Company had accounted for its employee options under
the fair value method provided for under FAS 123. The fair value of options was
estimated at the date of grant using a minimum value option pricing model for
1999 with the following weighted-average assumptions: risk-free interest rate
ranging from 5.30% to 6.5%, a dividend yield of 0% and an expected life of the
option of three years.
The option valuation models were developed for use in estimating the fair
value of traded options, which have no vesting restrictions and are fully
transferable. In addition, option valuation
F-13
<PAGE>
PAPEREXCHANGE.COM, LLC
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
PERIODS ENDED DECEMBER 31, 1998 AND 1999
5. STOCKHOLDERS' EQUITY (CONTINUED)
models require the input of highly subjective assumptions. Because the Company's
employee stock options have characteristics significantly different from those
of traded options and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the existing
models do not necessarily provide a reliable single measure of the fair value of
the employee equity options.
For purposes of the pro-forma disclosures, the estimated fair value of the
options is amortized to expense over the options vesting period. The Company's
pro forma information follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-------------------------
AS REPORTED PRO FORMA
----------- -----------
<S> <C> <C>
Net loss.................................................... $(9,051,310) $(9,120,014)
Basic and diluted loss per interests........................ $ (.26) $ (.26)
</TABLE>
The effects on pro forma net loss of expensing the estimated fair value of
stock options, are not necessarily representative of the effects on reported net
loss for future years, due to such things as the vesting period of the stock
options, and the potential for issuance of additional stock options in future
years.
Option activity (1998 Equity Option Plan) during the year was as follows:
<TABLE>
<CAPTION>
1999
-----------------------------
WEIGHTED
AVERAGE EXERCISE
SHARES PRICE
---------- ----------------
<S> <C> <C>
Outstanding at beginning of year............................ -- $ --
Granted..................................................... 2,796,250 .42
Exercised................................................... (300,000) .20
Canceled.................................................... (31,500) .20
---------- ----
Outstanding at end of year.................................. 2,464,750 $.45
========== ====
Options exercisable at end of year.......................... 234,500
==========
Weighted-average fair value of options granted during
year...................................................... $ .13
==========
</TABLE>
F-14
<PAGE>
PAPEREXCHANGE.COM, LLC
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
PERIODS ENDED DECEMBER 31, 1998 AND 1999
5. STOCKHOLDERS' EQUITY (CONTINUED)
The following table summarizes information about these stock options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------ ----------------------
NUMBER WEIGHTED NUMBER
OUTSTANDING AVERAGE WEIGHTED EXERCISABLE WEIGHTED
AT REMAINING AVERAGE AT AVERAGE
RANGE OF DECEMBER 31 CONTRACTUAL EXERCISE DECEMBER 31 EXERCISE
EXERCISE PRICES 1999 LIFE (YRS.) PRICE 1999 PRICE
- --------------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
0.20$............. 1,926,750 3.8 $ .20 204,500 $ .20
1.33$............. 538,000 4.8 1.33 30,000 1.33
--------- --- ----- -------
.20 $to $1.33..... 2,464,750 4.0 $ .45 234,500 $ .34
========= === ===== =======
</TABLE>
In addition, in connection with a certain officer's employment arrangements,
the Company issued 1,767,020 options to purchase common stock at an exercise
price of $2.38 per share. The options vest over four years and are exercisable
for five years from the date of grant. None of the options were exercisable at
December 31, 1999. The weighted average fair value of this option was $1.67
using a minimum value option pricing model with assumptions similar to options
granted under the 1998 Equity Option Plan.
Also in connection with these arrangements, 441,754 shares of common stock
were issued for a note receivable of $1,052,632 due and payable on December 20,
2003. The note receivable bears interest at a rate of 6.2% and is secured by the
underlying common stock. Interest compounds annually and is due and payable on
December 20, 2003.
In December 1999, the Company authorized the acceptance of a full recourse
promissory note in the amount of $31,450, from an employee in exchange for
exercise of the vested options under the 1998 Equity Option Plan. Both of these
notes are recorded as a reduction of Members' Equity.
DEFERRED COMPENSATION
In connection with the grant of options to employees under the 1998 Equity
Option Plan through December 31, 1999, the Company recorded deferred
compensation of $135,960 for the aggregate differences between the exercise
prices of options at their dates of grant and the deemed fair value for
accounting purposes of the common stock subject to these options.
In connection with the sale of common stock and grant of options to purchase
common stock to an officer through December 31, 1999, the Company recorded
deferred compensation of $2,496,733 for the aggregate differences between the
common stock sale price and the deemed fair value of the common stock on the
date of the transaction (for sale of common stock) and exercise price of the
options at their date of grant and the deemed fair value of the common stock
subject to these options (for grant of options).
The Company obtained an independent valuation of the fair value of the
Company's common stock in order to determine the fair value of the common stock
at the date of grant for purposes of determining deferred compensation.
F-15
<PAGE>
PAPEREXCHANGE.COM, LLC
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
PERIODS ENDED DECEMBER 31, 1998 AND 1999
5. STOCKHOLDERS' EQUITY (CONTINUED)
The amount of deferred compensation is included as a reduction of
stockholders' equity and is being amortized on a straight-line vesting method
over the option vesting periods, which are generally between three to four
years. Total amortization of $515,793 was included in general and administrative
expenses as the compensation to such employees is reported in this category.
Amortization of deferred compensation is expected to be approximately $295,000
in 2000, $669,000 in 2001, $654,000 in 2002, and $499,000 in 2003.
WARRANTS
In connection with the notes payable to the stockholders (Note 5), the
Company issued 5,000,001 fully vested warrants that entitle the holder thereof
to purchase one share of common stock of the Company at $2.00 per share of
common stock. The warrants expire on October 15, 2006. As of December 31, 1999,
all of the warrants were outstanding (see Note 5).
SHARES OF COMMON STOCK RESERVED FOR ISSUANCE
Approximately 11,767,021 shares of common stock have been reserved at
December 31, 1999 for future issuance upon the exercise of options or warrants.
In February 2000 the Company granted options to purchase 450,000 shares of
common stock to the majority stockholder.
6. LEASE COMMITMENTS
The Company has entered into operating leases for office space in Boston,
Massachusetts. Future minimum rental payments (excluding any estimate of
operating costs) under non-cancelable operating lease are as follows:
<TABLE>
<S> <C>
2000........................................................ $299,484
2001........................................................ 243,626
2002........................................................ 128,338
2003........................................................ 87,733
--------
$759,181
========
</TABLE>
Rent expense totaled $19,329 for 1998 and $202,415 for 1999.
7. TRANSACTIONS WITH AFFILIATES
The Company has a joint marketing agreement with an affiliate of a
shareholder. The Company incurred costs of $500,000 in connection with this
agreement in 1999. See Note 2.
In addition to the transactions discussed in Note 8, the Company purchased
approximately $90,000 of product from an affiliate during 1999.
During 1999 the Company reimbursed an affiliate approximately $90,000 for
expenses paid on behalf of the Company.
F-16
<PAGE>
PAPEREXCHANGE.COM, LLC
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
PERIODS ENDED DECEMBER 31, 1998 AND 1999
8. STRATEGIC ALLIANCES
In February 2000, the Company sold approximately 1,500,000 common shares for
$10,000,000. Also in February 2000, the Company sold approximately 500,000
common shares for $3,400,000. The closing is scheduled to occur at the earlier
of: the investor providing notice to the Company; and the Company providing
notice to the investor upon the completion of a preliminary prospectus. In no
event will the closing be delayed beyond December 31, 2000.
The Company also entered into strategic agreements with these investors
whereby these investors will use reasonable good faith efforts to list first run
paper products at specified target volume levels. The term of the agreements
expire on January 31, 2002 and February 2001 unless earlier terminated by each
investor. The agreements are non-exclusive.
To the extent the relationship with the second investor is beyond that of an
investor--investee relationship, the agreement will be accounted for at fair
value in accordance with SFAS 123 and will be accounted for at fair value in
accordance with the Company's accounting policy for equity instruments issued
for goods and services. As the investor is not legally required to make any
performance commitments, the agreement is non-exclusive and allows the investor
to participate in programs similar to PaperExchange, the Company expects to
recognize a charge to selling and marketing expenses in the first quarter.
In March 2000, the Company sold approximately 500,000 common shares for
approximately $5,100,000. In connection with this transaction the Company issued
fully vested warrants to purchase approximately 500,000 additional common
shares. These warrants were immediately vested on the date of grant, in that
they are not subject to any forfeiture for any reason. These warrants will
become exercisable at the earlier of fifteen years (April 7, 2015) or over two
years upon the achievement of certain performance thresholds as defined.
Also in March 2000, the Company sold approximately 500,000 shares of common
stock for approximately $5,200,000 to an investor.
F-17
<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...................... 4
Special Note Regarding Forward-
Looking Statements.............. 18
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.......................... 28
Management........................ 43
Related Party and Other
Transactions.................... 52
Principal Stockholders............ 53
Description of Capital Stock...... 56
Shares Eligible for Future Sale... 58
Legal Matters..................... 61
Experts........................... 61
Additional Information............ 61
Underwriting...................... 62
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
PAPEREXCHANGE.COM, INC.
Common Stock
------------------
[LOGO]
------------------
GOLDMAN, SACHS & CO.
CHASE H&Q
ROBERTSON STEPHENS
BANC OF AMERICA SECURITIES LLC
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
underwriting discounts and commissions, payable by the registrant in connection
with the sale of the securities being registered. All amounts are estimates
except the SEC registration fee, the NASD fee and the Nasdaq National Market
listing fee.
<TABLE>
<CAPTION>
AMOUNT
TO BE PAID
------------
<S> <C>
SEC registration fee........................................ $ 30,360
NASD fee.................................................... *
Nasdaq National Market listing fee.......................... $ 5,000
Printing expenses........................................... *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Transfer agent and registrar fees........................... *
Miscellaneous............................................... *
--------
Total................................................. *
========
</TABLE>
- ------------------------
* To be provided by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's board of directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933, as amended (the "Securities
Act").
As permitted by the Delaware General Corporation Law, our Certificate of
Incorporation includes a provision that eliminates the personal liability of our
directors 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 us
or our 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 Delaware General Corporation Law (regarding unlawful
dividends and stock purchases) or (iv) for any transaction from which the
director derived an improper personal benefit.
As permitted by the Delaware General Corporation Law, our Bylaws provide
that (i) we are required to indemnify our directors and officers to the fullest
extend permitted by the Delaware General Corporation Law, subject to certain
very limited exceptions, (ii) we may indemnify our other employees and agents as
set forth in the Delaware General Corporation Law, (iii) we are required to
advance expenses, as incurred, to our directors and executive officers in
connection with a legal proceeding to the fullest extend permitted by the
Delaware General Corporation Law, subject to certain very limited exceptions and
(iv) the rights conferred in the Bylaws are not exclusive.
Reference is also made to Section of the Underwriting Agreement, which
provides for the indemnification of officers, directors and controlling persons
of us against certain liabilities. The indemnification provision in the
Registrant's Certificate of Incorporation and Bylaws entered into
II-1
<PAGE>
between us and each of our directors and executive officers may be sufficiently
broad to permit indemnification of our directors and executive officers for
liabilities arising under the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During the period from April 1998 (inception) through March 1, 2000, we sold
and issued the following securities:
1. In April 1998, one investor purchased 50% of the membership interests of
PaperExchange.com, LLC. That investor contributed $2,000,000 in aggregate
capital contributions for those membership interests. Also in April of
1998, four other investors contributed an aggregate of $125,000 in cash
and other assets in exchange for the remaining 50% of the membership
interests.
2. In April 1999, PaperExchange issued 6,000,000 membership interests to
one investor for aggregate consideration of $1,000,000.
3. In August 1999, PaperExchange issued 966,714 membership interests to
nine investors for aggregate consideration of approximately $1,300,000.
4. In October 1999, PaperExchange issued warrants to nine investors to
purchase an aggregate of 5,000,001 membership interests at an exercise
price of $2.00 per share.
5. In December 1999, PaperExchange issued 441,754 membership interests in
exchange for a promissory note issued by the investor to us in the amount
of $1,052,632.
6. In December 1999, PaperExchange granted options to purchase 1,767,020
shares of common stock to its chief executive officer for an aggregate
exercise price of $4,210,526.
7. In December 1999, PaperExchange issued and sold 1,572,515 membership
interests to five investors for aggregate consideration of $10,000,000.
8. In February 2000, PaperExchange issued 1,479,894 shares of common stock
to one investor for an aggregate consideration of $10,000,000.
9. Also in February 2000, PaperExchange agreed to issue 503,164 shares of
common stock to one investor for approximately $3,400,000.
10. In February 2000, PaperExchange granted options to purchase
450,000 shares of common stock for an aggregate exercise price of
$4,383,000.
11. In March 2000, PaperExchange issued 519,149 shares of common stock at a
purchase price equal to $9.74 per share and a warrant to purchase up to
519,149 shares of common stock at an exercise price of $11.56 per share
to one investor.
12. In March 2000, PaperExchange issued 527,639 shares of common stock to
one investor at a purchase price equal to $9.74 per share.
13. Since inception, PaperExchange has granted options to purchase an
aggregate of 3,706,000 shares of common stock to a number of its
employees, officers, and consultants.
The issuances of above securities were intended to be exempt from
registration under the Securities Act in reliance on Section 4(2) of the
Securities Act, or Regulation D promulgated thereunder, or, with respect to
issuances to employees and consultants under the compensatory stock option
plans, Rule 701 promulgated under Section 3(b) of the Securities Act, as
transactions by an issuer not involving a public offering or transactions
pursuant to compensatory benefits plans and contracts relating to compensation
as provided under such Rule 701. The recipients of
II-2
<PAGE>
securities in each such transaction represented their intentions to acquire the
securities for investment only and not with a view to or for sale in connection
with any distributions thereof and appropriate legends were affixed to the
instruments representing such securities issued in such transactions.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following exhibits are filed as part of this registration statement:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------------------- -----------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 (a) Registrant's Certificate of Incorporation (to be replaced by
Exhibit 3.1(b) upon the closing of this offering).
3.1 (b)* Form of registrant's Amended and Restated Certificate of
Incorporation (to be effective upon the closing of this
offering).
3.2 (a) Registrant's Bylaws (to be replaced by Exhibit 3.2(b) upon
the closing of this offering).
3.2 (b)* Form of registrant's Amended and Restated Bylaws (to be
effective upon the closing of this offering).
4.1* Form of specimen stock certificate
4.2 Form of Warrant to Purchase Common Stock
5.1* Opinion of Bingham Dana LLP as to the legality of the
securities being registered.
10.1*+ Listing and Strategic Alliance Agreement by and between the
Registrant and International Paper Company, each dated as of
February 16, 2000.
10.2*+ Alliance Agreement, by and between the Registrant and
Impresse Corporation dated as of February 8, 2000.
10.3*+ Alliance Agreement, by and between the Registrant and CH
Robinson Worldwide, Inc., dated as of September 30, 1999
10.4*+ Co-branding Agreement, by and between the Company and
VerticalNet, Inc. dated as of September 30, 1999
10.5*+ Supply Agreement, by and between the Registrant and Asia
Pulp & Paper Ltd. dated as of February 29, 2000
10.6*+ Participation Warrant to purchase common stock between the
Registrant, as issuer, and Staples, Inc.
10.7 Purchase Agreement, by and between the Registrant, Rod
Parsley, Madison Dearborn Capital Partners III, L.P. and
Special Advisors Fund I, LLC, dated as of December 30, 1999
10.8 Purchase Agreement, by and between the Registrant and DSCKW
Irrevocable Trust dated as of December 30, 1999
10.9 Interest Purchase Agreement by and between the Registrant
and Kent Dolby dated as of December 20, 1999
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------------------- -----------
<C> <S>
10.10 Equity Option Agreement, by and between the Registrant and
Kent A. Dolby, dated as of December 20, 1999
10.11 Promissory Note issued by Kent Dolby to the Registrant dated
as of December 20, 1999
10.12 Employment Agreement dated as of December 20, 1999 by and
between the Company and Kent Dolby
10.13 Employment Agreement dated as of April 9, 1998, by and
between the Registrant and Hilton Plein
10.14(a) 1998 Equity Option Plan, as amended
10.14(b) Form of Stock Option Agreement for 1998 Equity Option Plan,
as amended
10.15(a) 2000 Equity Incentive Plan
10.15(b) Form of Stock Option Agreement for 2000 Equity Incentive
Plan
10.16* 2000 Directors Option Plan
10.17* 2000 Employee Stock Purchase Plan
10.18 Sublease by and between the Image Bank and the Registrant
dated as of July 13, 1999, for the premises at 545 Boylston
Street, Boston, Massachusetts
10.19 Tenancy Agreement, by and between Mr. and Mrs. J. Minshaw
and the Registrant, dated as of February 1, 2000 for the
premises at 1, 54 Montague Square, London
10.20 Park Square Building Commercial Lease, dated as of March 3,
2000, by and between OMV Associates Limited Partnership
10.21* Stockholders' Agreement dated as of February 28, 2000, among
PaperExchange.com Inc. and its stockholders named therein
10.22* Form of Promissory Note dated as of October 15, 1999
10.23* Amendment to Employment Agreement by and between the
Registrant and Hilton Plein dated as of April 9, 1998
21 Subsidiaries of the Registrant
23.1 Consent of Ernst & Young LLP
23.2* Consent of Bingham Dana LLP
24.1 Power of Attorney (See page II-7)
27.1 Financial Data Schedule for the year ended December 31, 1999
</TABLE>
- ------------------------
* To be filed by amendment.
+ Seeking confidential treatment.
(b) FINANCIAL STATEMENT SCHEDULES. The following financial statement
schedule is included as part of this registration statement:
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS.
Other financial statement schedules have been omitted because they are
inapplicable or are not required under applicable provisions of regulation S-X,
or because the information that would
II-4
<PAGE>
otherwise be included in such schedules is contained in the registrant's
financial statements or 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.
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 its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes that:
(1) For the 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 Rules 424(b)(1)
or (4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF BOSTON,
COMMONWEALTH OF MASSACHUSETTS, ON MARCH 10, 2000.
<TABLE>
<S> <C> <C>
PAPEREXCHANGE.COM, INC.
By: /s/ KENT DOLBY
-----------------------------------------
Kent Dolby
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
II-6
<PAGE>
POWER OF ATTORNEY
EACH PERSON WHOSE SIGNATURE APPEARS BELOW CONSTITUTES AND APPOINTS EACH OF
KENT DOLBY AND DUANE DESISTO, SUCH PERSON'S TRUE AND LAWFUL ATTORNEY-IN-FACT AND
AGENT WITH FULL POWER OF SUBSTITUTION AND RESUBSTITUTION, FOR SUCH PERSON AND IN
SUCH PERSON'S NAME, PLACE AND STEAD, IN ANY AND ALL CAPACITIES, TO SIGN ANY AND
ALL AMENDMENTS, INCLUDING POST-EFFECTIVE AMENDMENTS, TO THIS REGISTRATION
STATEMENT OR TO ANY OTHER REGISTRATION STATEMENT FOR THE SAME OFFERING THAT IS
TO BE EFFECTIVE UPON FILING PURSUANT TO RULE 462(B) UNDER THE SECURITIES ACT,
AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO, AND ALL DOCUMENTS IN CONNECTION
THEREWITH, WITH THE SECURITIES AND EXCHANGE COMMISSION, GRANTING UNTO EACH SAID
ATTORNEY-IN-FACT AND AGENT FULL POWER AND AUTHORITY TO DO AND PERFORM EACH AND
EVERY ACT AND THING REQUISITE AND NECESSARY TO BE DONE IN AND ABOUT THE
PREMISES, AS FULLY TO ALL INTENTS AND PURPOSES AS SUCH PERSON MIGHT OR COULD DO
IN PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT ANY SAID ATTORNEY-IN-FACT
AND AGENT, OR ANY SUBSTITUTE OR SUBSTITUTES OF ANY OF THEM, MAY LAWFULLY DO OR
CAUSE TO BE DONE BY VIRTUE HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
President, Chief Executive
/s/ KENT DOLBY Officer and Director
------------------------------------------- (Principal Executive March 10, 2000
Kent Dolby Officer)
/s/ DUANE DESISTO Chief Financial Officer,
------------------------------------------- (Principal Financial and March 10, 2000
Duane DeSisto Accounting Officer)
/s/ ROBERT K. KRAFT Chairman of the Board and
------------------------------------------- Director March 10, 2000
Robert K. Kraft
/s/ WALTER BUCKLEY Director
------------------------------------------- March 10, 2000
Walter Buckley
/s/ WILLIAM HASKELL Director
------------------------------------------- March 10, 2000
William Haskell
/s/ JONATHAN A. KRAFT Director
------------------------------------------- March 10, 2000
Jonathan A. Kraft
/s/ NATHAN LEIGHT Director
------------------------------------------- March 10, 2000
Nathan Leight
/s/ ROGER WARREN STONE Director
------------------------------------------- March 10, 2000
Roger Warren Stone
/s/ DAVID WETHERELL Director
------------------------------------------- March 10, 2000
David Wetherell
</TABLE>
II-7
<PAGE>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
PAPEREXCHANGE.COM, LLC
DECEMBER 31, 1999
<TABLE>
<CAPTION>
ADDITIONS
--------------------------------
BALANCE AT CHARGED TO OTHER BALANCE AT
BEGINNING OF CHARGED COSTS ACCOUNTS-- DEDUCTIONS-- END OF
DESCRIPTION PERIOD AND EXPENSES DESCRIBE DESCRIBE PERIOD
- ----------- ------------ ------------- ---------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1999:
Deducted from assets
accounts..................... $0 $31,218 -- $0 $31,218
Allowance for doubtful
accounts..................... 4,167 4,167
-- ------- -------- -- -------
Total........................ $0 $35,385 $0 $35,385
== ======= ======== == =======
</TABLE>
S-1
<PAGE>
EXHIBIT 3.1(a)
CERTIFICATE OF INCORPORATION
OF
PAPEREXCHANGE.COM, INC.
First: The name of the corporation (the "Corporation") is
PAPEREXCHANGE.COM, INC.
Second: The address, including street, number, city, and county, of the
registered office of the Corporation in the State of Delaware is 1013 Centre
Road, City of Wilmington, County of New Castle; and the name of the registered
agent of the Corporation in the State of Delaware is The Prentice-Hall
Corporation System, Inc.
Third: The nature of the business and the purposes of the Corporation are
to engage in any lawful act or activity or carry on any business for which
corporations may be organized under the Delaware General Corporation Law or any
successor statute.
FOURTH: The total number of shares of capital stock which the Corporation
shall have authority to issue is Sixty Million (60,000,000) shares of Common
Stock, Zero Dollars and One Tenth of One Cent ($0.001) Par Value per share (the
"Common Stock").
FIFTH: The Corporation is to have perpetual existence.
SIXTH: The business and affairs of the Corporation shall be managed by or
under the direction of the board of directors of the Corporation. The number of
directors shall be fixed by, or in the manner provided in, the by-laws of the
Corporation. Elections of directors need not be by written ballot.
SEVENTH: No director of this Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director except to the extent that exemption from liability or
limitation thereof is not permitted under the Delaware General Corporation Law
as in effect at the time such liability or limitation thereof is determined. No
amendment, modification or repeal of this Article shall apply to or have any
effect on the liability or alleged liability of any director of the Corporation
for or with respect to any acts or omissions of such director occurring prior to
such amendment, modification or repeal. If the Delaware General Corporation Law
is amended after approval by the stockholders of this Article to authorize
corporate action further eliminating or limiting the personal liability of
directors, then the liability of a director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the Delaware General
Corporation Law.
EIGHTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the
<PAGE>
-2-
application in a summary way of this Corporation or of any creditor or
stockholder thereof or on the application of any receiver or receivers appointed
for this Corporation under the provisions of Section 291 of Title 8 of the
Delaware Code or on the application of trustees in dissolution or of any
receiver or receivers appointed for this Corporation under the provisions of
Section 279 of Title 8 of the Delaware Code, order a meeting of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three-fourths (3/4) in value of
the creditors or class of creditors, and/or of the stockholders or class of
stockholders of this Corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of this Corporation as consequence of such
compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of this Corporation, as the case
may be, and also on this Corporation.
NINTH: Any action by the stockholders of the Corporation in violation of
Section 3.1 of the Stockholders' Agreement dated as of February 28, 2000 among
the Corporation and its stockholders, as amended, modified or restated from time
to time in accordance with its terms, will be void ab initio.
TENTH: From time to time any of the provisions of this Certificate of
Incorporation may be amended, altered or repealed, and other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted in the manner and at the time prescribed by said laws, and all
rights at any time conferred upon the stockholders of the Corporation by this
Certificate of Incorporation are granted subject to the provisions of this
Article.
ELEVENTH: In furtherance and not in limitation of the powers conferred by
statute, the board of directors is expressly authorized to make, alter or repeal
the by-laws of the Corporation.
TWELFTH: The name and mailing address of the sole incorporator is as
follows:
Name Mailing Address
---- ---------------
Jonathan K. Bernstein c/o Bingham Dana LLP
150 Federal Street
Boston, MA 02110
THIRTEENTH: This Certificate of Incorporation is filed simultaneously with
that certain Certificate of Conversion converting PaperExchange.com, LLC, a
Delaware limited liability company, to the Corporation, and shall be effective
upon the filing hereof.
The undersigned, being the sole incorporator hereinbefore named for the
purpose of forming a corporation pursuant to the Delaware General Corporation
Law, does make this certificate, hereby declaring and certifying that this is my
act and deed and the facts stated herein are true and, accordingly, I have
hereunto set my hand this 28th day of February, 2000.
<PAGE>
-3-
Signed this 28th day of February, 2000.
/s/ Jonathan K. Bernstein
-----------------------------
Jonathan K. Bernstein
<PAGE>
Exhibit 3.2(a)
PAPEREXCHANGE.COM, INC.
B Y - L A W S
<PAGE>
PAPEREXCHANGE.COM, INC.
B Y - L A W S
TABLE OF CONTENTS
Article I. - General.................................................1
1.1. Offices.................................................1
1.2. Seal....................................................1
1.3. Fiscal Year.............................................1
Article II. - Stockholders...........................................1
2.1. Place of Meetings.......................................1
2.2. Annual Meeting..........................................1
2.3. Quorum..................................................1
2.4. Right to Vote; Proxies..................................2
2.5. Voting..................................................2
2.6. Notice of Annual Meetings...............................3
2.7. Stockholders' List......................................3
2.8. Special Meetings........................................3
2.9. Notice of Special Meetings..............................3
2.10. Inspectors.............................................3
2.11. Stockholders' Consent in Lieu of Meeting...............4
Article III. - Directors.............................................5
3.1. Number of Directors.....................................5
3.2. Change in Number of Directors; Vacancies................5
3.3. Resignation.............................................5
3.4. Removal.................................................6
3.5. Place of Meetings and Books.............................6
3.6. General Powers..........................................6
3.7. Executive Committee.....................................6
3.8. Audit Committee.........................................6
3.9. Other Committees........................................7
3.10. Powers Denied to Committees............................7
3.11. Substitute Committee Member............................7
3.12. Compensation of Directors..............................8
3.13. Annual Meeting.........................................8
3.14. Regular Meetings.......................................8
3.15. Special Meetings.......................................8
3.16. Quorum.................................................8
3.17. Telephonic Participation in Meetings...................9
3.18. Action by Consent......................................9
Article IV. - Officers...............................................9
4.1. Selection; Statutory Officers...........................9
<PAGE>
-ii-
4.2. Time of Election........................................9
4.3. Additional Officers.....................................9
4.4. Terms of Office.........................................9
4.5. Compensation of Officers................................9
4.6. Chairman of the Board...................................10
4.7. President...............................................10
4.8. Vice-Presidents.........................................10
4.9. Treasurer...............................................10
4.10. Secretary..............................................11
4.11. Assistant Secretary....................................11
4.12. Assistant Treasurer....................................11
4.13. Subordinate Officers...................................11
Article V. - Stock...................................................12
5.1. Stock...................................................12
5.2. Fractional Share Interests..............................12
5.3. Transfers of Stock......................................13
5.4. Record Date.............................................13
5.5. Transfer Agent and Registrar............................13
5.6. Dividends...............................................14
5.7. Lost, Stolen or Destroyed Certificates..................14
5.8. Inspection of Books.....................................14
Article VI. - Miscellaneous Management Provisions....................14
6.1. Checks, Drafts and Notes................................14
6.2. Notices.................................................14
6.3. Conflict of Interest....................................15
6.4. Voting of Securities owned by this Corporation..........15
Article VII. - Indemnification.......................................16
7.1. Right to Indemnification................................16
7.2. Right of Indemnitee to Bring Suit.......................17
7.3. Non-Exclusivity of Rights...............................18
7.4. Insurance...............................................18
7.5. Indemnification of Employees and Agents of the
Corporation...........................................18
Article VIII. - Amendments...........................................18
8.1. Amendments..............................................18
<PAGE>
PAPEREXCHANGE.COM, INC.
B Y - L A W S
Article I. - General.
1.1. Offices. The registered office shall be in the City of Wilmington,
County of New Castle, State of Delaware. 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.
1.2. Seal. The seal of the Corporation, if any, shall be in the form of a
circle and shall have inscribed thereon the name of the Corporation, the year of
its organization and the words "Corporate Seal, Delaware".
1.3. Fiscal Year. The fiscal year of the Corporation shall be the period
from January 1 through December 31.
Article II. - Stockholders.
2.1. Place of Meetings. All meetings of the stockholders shall be held at
the office of the Corporation in Boston, Massachusetts, except such meetings as
the Board of Directors expressly determine shall be held elsewhere, in which
case meetings may be held upon notice as hereinafter provided at such other
place or places within or without the Commonwealth of Massachusetts as the Board
of Directors shall have determined and as shall be stated in such notice.
2.2. Annual Meeting. The annual meeting of the stockholders shall be held
in the month of May each year on such date and at such time as the Board of
Directors may determine. At each annual meeting the stockholders entitled to
vote shall elect a Board of Directors by plurality vote by ballot, and they may
transact such other corporate business as may properly be brought before the
meeting. At the annual meeting any business may be transacted, irrespective of
whether the notice calling such meeting shall have contained a reference
thereto, except where notice is required by law, the Certificate of
Incorporation, or these by-laws.
2.3. Quorum. At all meetings of the stockholders 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 requisite for the
transaction of business except as otherwise provided by law, by the Certificate
of Incorporation or by these by-laws. If, however, such majority shall not be
present or represented at any meeting of the stockholders, the stockholders
entitled to vote thereat, present in person or
<PAGE>
-2-
by proxy, by a majority vote, shall have power to adjourn the meeting from time
to time without notice other than announcement at the meeting until the
requisite amount of voting stock shall be present. If the adjournment is for
more than thirty (30) 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. At such
adjourned meeting, at which the requisite amount of voting stock shall be
represented, any business may be transacted which might have been transacted if
the meeting had been held as originally called.
2.4. Right to Vote; Proxies. Each holder of a share or shares of capital
stock of the Corporation having the right to vote at any meeting shall be
entitled to one vote for each such share of stock held by him. Any stockholder
entitled to vote at any meeting of stockholders may vote either in person or by
proxy, but no proxy which is dated more than three years prior to the meeting at
which it is offered shall confer the right to vote thereat unless the proxy
provides that it shall be effective for a longer period. A proxy may be granted
by a writing executed by the stockholder or his authorized officer, director,
employee or agent or by transmission or authorization of transmission of a
telegram, cablegram, or other means of electronic transmission to the person who
will be the holder of the proxy or to a proxy solicitation firm, proxy support
service organization or like agent duly authorized by the person who will be the
holder of the proxy to receive such transmission, subject to the conditions set
forth in Section 212 of the Delaware General Corporation Law, as it may be
amended from time to time (the "Delaware GCL").
2.5. Voting. At all meetings of stockholders, except as otherwise
expressly provided for by statute, the Certificate of Incorporation or these
by-laws, (i) in all matters other than the election of directors, the
affirmative vote of a majority of shares present in person or represented by
proxy at the meeting and entitled to vote on such matter shall be the act of the
stockholders and (ii) directors shall be elected by a plurality of the votes of
the shares present in person or represented by proxy at the meeting and entitled
to vote on the election of directors. Except as otherwise expressly provided by
law, the Certificate of Incorporation or these by-laws, at all meetings of
stockholders the voting shall be by voice vote, but any stockholder qualified to
vote on the matter in question may demand a stock vote, by shares of stock, upon
such question, whereupon such stock vote shall be taken by ballot, each of which
shall state the name of the stockholder voting and the number of shares voted by
him, and, if such ballot be cast by a proxy, it shall also state the name of the
proxy.
<PAGE>
-3-
2.6. Notice of Annual Meetings. Written notice of the annual meeting of
the stockholders shall be mailed to each stockholder entitled to vote thereat at
such address as appears on the stock books of the Corporation at least ten (10)
days (and not more than sixty (60) days) prior to the meeting. It shall be the
duty of every stockholder to furnish to the Secretary of the Corporation or to
the transfer agent, if any, of the class of stock owned by him, his post-office
address and to notify said Secretary or transfer agent of any change therein.
2.7. Stockholders' List. A complete list of the stockholders entitled to
vote at any meeting of stockholders, arranged in alphabetical order and showing
the address of each stockholder, and the number of shares registered in the name
of each stockholder, shall be prepared by the Secretary and filed 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, at least ten days before such meeting, and
shall at all times during the usual hours for business, and during the whole
time of said election, be open to the examination of any stockholder for a
purpose germane to the meeting.
2.8. Special Meetings. Special meetings of the stockholders for any
purpose or purposes, unless otherwise provided by statute, may be called by the
Board of Directors or by the holders of more than 25% of the outstanding voting
stock of the Corporation.
2.9. Notice of Special Meetings. Written notice of a special meeting of
stockholders, stating the time and place and object thereof shall be mailed,
postage prepaid, not less than ten (10) nor more than sixty (60) days before
such meeting, to each stockholder entitled to vote thereat, at such address as
appears on the books of the Corporation. No business may be transacted at such
meeting except that referred to in said notice, or in a supplemental notice
given also in compliance with the provisions hereof, or such other business as
may be germane or supplementary to that stated in said notice or notices.
2.10. Inspectors.
1. One or more inspectors may be appointed by the Board of Directors
before or at any meeting of stockholders, or, if no such appointment shall
have been made, the presiding officer may make such appointment at the
meeting. At the meeting for which the inspector or inspectors are
appointed, he or they shall open and close the polls, receive and take
charge of the proxies and ballots, and decide all questions touching on
the qualifications of voters, the validity of proxies and the acceptance
and rejection of votes. If any inspector
<PAGE>
-4-
previously appointed shall fail to attend or refuse or be unable to serve,
the presiding officer shall appoint an inspector in his place.
2. At any time at which the Corporation has a class of voting stock
that is (i) listed on a national securities exchange, (ii) authorized for
quotation on an inter-dealer quotation system of a registered national
securities association, or (iii) held of record by more than 2,000
stockholders, the provisions of Section 231 of the Delaware GCL with
respect to inspectors of election and voting procedures shall apply, in
lieu of the provisions of paragraph (l) of this ss.2.10.
2.11. Stockholders' Consent in Lieu of Meeting. Unless otherwise provided
in the Certificate of Incorporation, any action required by law 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
or consents 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 and shall be
delivered to the Corporation by delivery to its registered office in the State
of Delaware, its principal place of business, or an officer or agent of the
Corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to the Corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
Every written consent shall bear the date of signature of each stockholder who
signs the consent and no written consent shall be effective to take the
corporate action referred to therein unless, within sixty days of the earliest
dated consent delivered in the manner required by this ss.2.11 to the
Corporation, written consents signed by a sufficient number of stockholders to
take action are delivered to the Corporation by delivery to its registered
office in the State of Delaware, its principal place of business, or an officer
or agent of the Corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Delivery made to the Corporation's
registered office shall be by hand or by certified or registered mail, return
receipt requested. 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 and who, if the action had been
taken at a meeting, would have been entitled to notice of the meeting if the
record date for such meeting had been the date that written consents signed by a
sufficient number of stockholders to take the action were delivered to the
Corporation as provided in this ss.2.11; provided that notice of an approval of
an amendment to the Certificate of Incorporation of the Corporation or the
<PAGE>
-5-
Stockholders' Agreement between the Corporation and its stockholders, a
dissolution of the Corporation or a merger of the Corporation shall be given at
least ten days before the consummation of the action authorized by such
approval.
Article III. - Directors.
3.1. Number of Directors. Except as otherwise provided by law, the
Certificate of Incorporation or these by-laws, the property and business of the
Corporation shall be managed by or under the direction of a board of not less
than one nor more than eight directors. Within the limits specified, the number
of directors shall be determined by resolution of the Board of Directors or by
the stockholders at the annual meeting. Directors need not be stockholders,
residents of Delaware or citizens of the United States. The directors shall be
elected by ballot at the annual meeting of the stockholders and each director
shall be elected to serve until his successor shall be elected and shall qualify
or until his earlier resignation or removal; provided that in the event of
failure to hold such meeting or to hold such election at such meeting, such
election may be held at any special meeting of the stockholders called for that
purpose. If the office of any director becomes vacant by reason of death,
resignation, disqualification, removal, failure to elect, or otherwise, the
remaining directors, although more or less than a quorum, by a majority vote of
such remaining directors may elect a successor or successors who shall hold
office for the unexpired term.
3.2. Change in Number of Directors; Vacancies. The maximum number of
directors may be increased by an amendment to these by-laws adopted by a
majority vote of the Board of Directors or by a majority vote of the capital
stock having voting power, and if the number of directors is so increased by
action of the Board of Directors or of the stockholders or otherwise, then the
additional directors may be elected in the manner provided above for the filling
of vacancies in the Board of Directors or at the annual meeting of stockholders
or at a special meeting called for that purpose.
3.3. Resignation. Any director of this Corporation may resign at any time
by giving written notice to the Chairman of the Board, if any, the President or
the Secretary of the Corporation. Such resignation shall take effect at the time
specified therein, at the time of receipt if no time is specified therein and at
the time of acceptance if the effectiveness of such resignation is conditioned
upon its acceptance. Unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
<PAGE>
-6-
3.4. Removal. Any director or the entire Board of Directors may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors.
3.5. Place of Meetings and Books. The Board of Directors may hold their
meetings and keep the books of the Corporation outside the State of Delaware, at
such places as they may from time to time determine.
3.6. General Powers. In addition to the powers and authority expressly
conferred upon them by these by-laws, the board 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. The approval of the Board of Directors
shall be required for any expenditure or long-term liability of the Corporation
in excess of $200,000. The Board of Directors shall not delegate to any officer
or committee the authority to approve any such expenditure or long-term
liability. The Board of Directors may, but is not required to, approve
expenditures of $200,000 or under.
3.7. Executive Committee. There may be an executive committee of one or
more directors designated by resolution passed by a majority of the whole board.
The act of a majority of the members of such committee shall be the act of the
committee. Said committee may meet at stated times or on notice to all by any of
their own number, and shall have and may exercise those powers of the Board of
Directors in the management of the business affairs of the Company as are
provided by law and may authorize the seal of the Corporation to be affixed to
all papers which may require it. Vacancies in the membership of the committee
shall be filled by the Board of Directors at a regular meeting or at a special
meeting called for that purpose.
3.8. Audit Committee. There may be an audit committee of one or more
directors designated by resolution passed by a majority of the whole board. The
act of a majority of the members of such committee shall be the act of the
committee. Said committee may meet at stated times or on notice to all by any of
their own number. If designated and unless otherwise provided by the Board of
Directors, said committee shall have the authority on behalf of the Board of
Directors (i) to review with the independent accountants of the Corporation the
scope and timing of their auditing services, their reports on the financial
statements of the Corporation, and the Corporation's policies and procedures
with respect to internal accounting and financial controls, (ii) to make annual
recommendations to the Board of Directors for the appointment of independent
accountants for the ensuing year, and (iii) to take such other actions as the
Board of Directors may specifically authorize or as are necessary or desirable
in
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connection with the performance of the foregoing duties. Vacancies in the
membership of the committee shall be filled by the Board of Directors at a
regular meeting or at a special meeting called for that purpose.
3.9. Other Committees. The Board of Directors may also designate one or
more committees in addition to the executive committee and the audit committee,
by resolution or resolutions passed by a majority of the whole board; such
committee or committees shall consist of one or more directors of the
Corporation, and to the extent provided in the resolution or resolutions
designating them, shall have and may exercise specific powers of the Board of
Directors in the management of the business and affairs of the Corporation to
the extent permitted by statute and shall have power to authorize the seal of
the Corporation to be affixed to all papers which may require it. 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.
3.10. Powers Denied to Committees. Committees of the Board of Directors
shall not, in any event, have any power or authority to amend the Certificate of
Incorporation (except that a committee may, to the extent authorized in the
resolution or resolutions providing for the issuance of shares adopted by the
Board of Directors as provided in Section 151(a) of the Delaware GCL, fix the
designations and any of the preferences or rights of such shares relating to
dividends, redemption, dissolution, any distribution of assets of the
Corporation or the conversion into, or the exchange of such shares for, shares
of any other class or classes or any other series of the same or any other class
or classes of stock of the Corporation or fix the number of shares of any series
of stock or authorize the increase or decrease of the shares of any series),
adopt an agreement of merger or consolidation, recommend to the stockholders the
sale, lease or exchange of all or substantially all of the Corporation's
property and assets, recommend to the stockholders a dissolution of the
Corporation or a revocation of a dissolution or to amend the by-laws of the
Corporation. Further, no committee of the Board of Directors shall have the
power or authority to declare a dividend, to authorize the issuance of stock or
to adopt a certificate of ownership and merger pursuant to Section 253 of the
Delaware GCL, unless the resolution or resolutions designating such committee
expressly so provides.
3.11. Substitute Committee Member. In the absence or on the
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 or
they constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of such absent or disqualified
member. Any committee shall keep regular minutes of its
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proceedings and report the same to the board as may be required by the board.
3.12. Compensation of Directors. The Board of Directors shall have the
power to fix the compensation of directors and members of committees of the
Board. 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. No such
payment 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.
3.13. Annual Meeting. The newly elected board may meet at such place and
time as shall be fixed and announced by the presiding officer at the annual
meeting of stockholders, for the purpose of organization or otherwise, and no
further 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,
or they may meet at such place and time as shall be stated in a notice given to
such directors two (2) days prior to such meeting, or as shall be fixed by the
consent in writing of all the directors.
3.14. Regular Meetings. Regular meetings of the board may be held without
notice at such time and place as shall from time to time be determined by the
board.
3.15. Special Meetings. Special meetings of the board may be called by the
Chairman of the Board, if any, the President, or the two members of the Board of
Directors appointed by PE.com Holdings, LLC ("PEH") so long as PEH is a
stockholder of the Corporation or by Internet Capital Group, Inc. ("ICG") if ICG
becomes a stockholder by PEH transferring its stock to ICG, but only so long as
ICG is a stockholder of the Corporation. Such meetings may be called on two (2)
days notice to each director, or such shorter period of time before the meeting
as will nonetheless be sufficient for the convenient assembly of the directors
so notified.
3.16. Quorum. At all meetings of the Board of Directors, a majority of the
total number of directors shall be necessary and sufficient to constitute a
quorum for the transaction of business, and the act of a majority of the
directors present at any meeting at which there is a quorum shall be the act of
the Board of Directors, except as may be otherwise specifically permitted or
provided by statute, or by the Certificate of Incorporation, or by these
by-laws. If at any meeting of the board there shall be less than a quorum
present, a majority of those present may adjourn the meeting from time to
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time until a quorum is obtained, and no further notice thereof need be given
other than by announcement at said meeting which shall be so adjourned.
3.17. Telephonic Participation in Meetings. Members of the Board of
Directors or any committee designated by such board may participate in a meeting
of the board or committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this
section shall constitute presence in person at such meeting.
3.18. Action by Consent. 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 written consent thereto is signed by all members of the
board or of such committee as the case may be and such written consent is filed
with the minutes of proceedings of the board or committee.
Article IV. - Officers.
4.1. Selection; Statutory Officers. The officers of the Corporation shall
be chosen by the Board of Directors. There shall be a President, a Secretary and
a Treasurer, and there may be a Chairman of the Board of Directors, one or more
Vice Presidents, one or more Assistant Secretaries, and one or more Assistant
Treasurers, as the Board of Directors may elect. Any number of offices may be
held by the same person.
4.2. Time of Election. The officers above named shall be chosen by the
Board of Directors at its first meeting after each annual meeting of
stockholders. None of said officers need be a director.
4.3. Additional Officers. The board 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.
4.4. Terms of Office. Each officer of the Corporation shall hold office
until his successor is chosen and qualified, or until his earlier resignation or
removal. Any officer elected or appointed by the Board of Directors may be
removed at any time by the Board of Directors.
4.5. Compensation of Officers. The Board of Directors shall have power to
fix the compensation of all officers of the Corporation. It may authorize any
officer, upon whom the power of appointing subordinate
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officers may have been conferred, to fix the compensation of such subordinate
officers.
4.6. Chairman of the Board. The Chairman of the Board of Directors shall
preside at all meetings of the stockholders and directors, and shall have such
other duties as may be assigned to him from time to time by the Board of
Directors.
4.7. President. Unless the Board of Directors otherwise determines, the
President shall be the chief executive officer and head of the Corporation.
Unless there is a Chairman of the Board, the President shall preside at all
meetings of directors and stockholders. Under the supervision of the Board of
Directors and of the executive committee, the President shall have the general
control and management of its business and affairs, subject, however, to the
right of the Board of Directors and of the executive committee to confer any
specific power, except such as may be by statute exclusively conferred on the
President, upon any other officer or officers of the Corporation. The President
shall perform and do all acts and things incident to the position of President
and such other duties as may be assigned to him from time to time by the Board
of Directors or the executive committee.
4.8. Vice-Presidents. The Vice-Presidents shall perform such of the duties
of the President on behalf of the Corporation as may be respectively assigned to
them from time to time by the Board of Directors or by the executive committee
or by the President. The Board of Directors or the executive committee may
designate one of the Vice-Presidents as the Executive Vice-President, and in the
absence or inability of the President to act, such Executive Vice-President
shall have and possess all of the powers and discharge all of the duties of the
President, subject to the control of the board and of the executive committee.
4.9. Treasurer. The Treasurer shall have the care and custody of all the
funds and securities of the Corporation which may come into his hands as
Treasurer, and the power and authority to endorse checks, drafts and other
instruments for the payment of money for deposit or collection when necessary or
proper and to deposit the same to the credit of the Corporation in such bank or
banks or depository as the Board of Directors or the executive committee, or the
officers or agents to whom the Board of Directors or the executive committee may
delegate such authority, may designate, and he may endorse all commercial
documents requiring endorsements for or on behalf of the Corporation. He may
sign all receipts and vouchers for the payments made to the Corporation. He
shall render an account of his transactions to the Board of Directors or to the
executive committee as often as the board or the committee shall require the
same. He shall enter
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regularly in the books to be kept by him for that purpose full and adequate
account of all moneys received and paid by him on account of the Corporation. He
shall perform all acts incident to the position of Treasurer, subject to the
control of the Board of Directors and of the executive committee. He shall when
requested, pursuant to vote of the Board of Directors or the executive
committee, give a bond to the Corporation conditioned for the faithful
performance of his duties, the expense of which bond shall be borne by the
Corporation.
4.10. Secretary. The Secretary shall keep the minutes of all meetings of
the Board of Directors and of the stockholders; he shall attend to the giving
and serving of all notices of the Corporation. Except as otherwise ordered by
the Board of Directors or the executive committee, he shall attest the seal of
the Corporation upon all contracts and instruments executed under such seal and
shall affix the seal of the Corporation thereto and to all certificates of
shares of capital stock of the Corporation. He shall have charge of the stock
certificate book, transfer book and stock ledger, and such other books and
papers as the Board of Directors or the executive committee may direct. He
shall, in general, perform all the duties of Secretary, subject to the control
of the Board of Directors and of the executive committee.
4.11. Assistant Secretary. The Board of Directors or any two of the
officers of the Corporation acting jointly may appoint or remove one or more
Assistant Secretaries of the Corporation. Any Assistant Secretary upon his
appointment shall perform such duties of the Secretary, and also any and all
such other duties as the executive committee or the Board of Directors or the
President or the Executive Vice-President or the Treasurer or the Secretary may
designate.
4.12. Assistant Treasurer. The Board of Directors or any two of the
officers of the Corporation acting jointly may appoint or remove one or more
Assistant Treasurers of the Corporation. Any Assistant Treasurer upon his
appointment shall perform such of the duties of the Treasurer, and also any and
all such other duties as the executive committee or the Board of Directors or
the President or the Executive Vice-President or the Treasurer or the Secretary
may designate.
4.13. Subordinate Officers. The Board of Directors may select such
subordinate officers as it may deem desirable. Each such officer shall hold
office for such period, have such authority, and perform such duties as the
Board of Directors may prescribe. The Board of Directors may, from time to time,
authorize any officer to appoint and remove subordinate officers and to
prescribe the powers and duties thereof.
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Article V. - Stock.
5.1. Stock. Each stockholder shall be entitled to a certificate or
certificates of stock of the Corporation in such form as the Board of Directors
may from time to time prescribe. The certificates of stock of the Corporation
shall be numbered and shall be entered in the books of the Corporation as they
are issued. They shall certify the holder's name and number and class of shares
and shall be signed by both of (i) either the President or a Vice-President, and
(ii) any one of the Treasurer or an Assistant Treasurer or the Secretary or an
Assistant Secretary, and may, but need not, be sealed with the corporate seal of
the Corporation. If such certificate is countersigned (l) by a transfer agent
other than the Corporation or its employee, or, (2) by a registrar other than
the Corporation or its employee, the signature of the officers of the
Corporation and the corporate seal may be facsimiles. In case any officer or
officers who shall have signed, or whose facsimile signature or signatures shall
have been used on, any such certificate or certificates shall cease to be such
officer or officers of the Corporation, whether because of death, resignation or
otherwise, before such certificate or certificates shall have been delivered by
the Corporation, such certificate or certificates may nevertheless be adopted by
the Corporation and be issued and delivered as though the person or persons who
signed such certificate or certificates or whose facsimile signature shall have
been used thereon had not ceased to be such officer or officers of the
Corporation.
5.2. Fractional Share Interests. The Corporation may, but shall not be
required to, issue fractions of a share. If the Corporation does not issue
fractions of a share, it shall (i) arrange for the disposition of fractional
interests by those entitled thereto, (ii) pay in cash the fair value of
fractions of a share as of the time when those entitled to receive such
fractions are determined, or (iii) issue scrip or warrants in registered or
bearer form which shall entitle the holder to receive a certificate for a full
share upon the surrender of such scrip or warrants aggregating a full share. A
certificate for a fractional share shall, but scrip or warrants shall not unless
otherwise provided therein, entitle the holder to exercise voting rights, to
receive dividends thereon, and to participate in any of the assets of the
Corporation in the event of liquidation. The Board of Directors may cause scrip
or warrants to be issued subject to the conditions that they shall become void
if not exchanged for certificates representing full shares before a specified
date, or subject to the conditions that the shares for which scrip or warrants
are exchangeable may be sold by the Corporation and the proceeds thereof
distributed to the holders of scrip or warrants, or subject to any other
conditions which the Board of Directors may impose.
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5.3. Transfers of Stock. Subject to any transfer restrictions then in
force, the shares of stock of the Corporation shall be transferable only upon
its books by the holders thereof in person or by their duly authorized attorneys
or legal representatives and upon such transfer the old certificates shall be
surrendered to the Corporation by the delivery thereof to the person in charge
of the stock and transfer books and ledgers or to such other person as the
directors may designate by whom they shall be cancelled and new certificates
shall thereupon be issued. The Corporation shall be entitled to treat the holder
of record of any share or shares of stock as the holder in fact thereof and
accordingly shall not be bound to recognize any equitable or other claim to or
interest in such share on the part of any other person whether or not it shall
have express or other notice thereof save as expressly provided by the laws of
Delaware.
5.4. Record Date. For the purpose of determining 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 the
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 (60) days nor less than ten (10) days before the date of
such meeting, nor more than sixty (60) days prior to any other action. If no
such record date is fixed by the Board of Directors, the record date for
determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held; the record date for
determining stockholders entitled to express consent to corporate action in
writing without a meeting, when no prior action by the Board of Directors is
necessary, shall be the day on which the first written consent is expressed; and
the record date for determining stockholders for any other purpose shall be at
the close of business on the day on which the Board of Directors adopts the
resolution relating thereto. A determination of stockholders of record entitled
to notice of or to vote at any 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.
5.5. Transfer Agent and Registrar. The Board of Directors may appoint one
or more transfer agents or transfer clerks and one or more registrars and may
require all certificates of stock to bear the signature or signatures of any of
them.
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5.6. Dividends.
1. Power to Declare. 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 and the laws of Delaware.
2. Reserves. 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.
5.7. Lost, Stolen or Destroyed Certificates. No certificates for shares of
stock of the Corporation shall be issued in place of any certificate alleged to
have been lost, stolen or destroyed, except upon production of such evidence of
the loss, theft or destruction and upon indemnification of the Corporation and
its agents to such extent and in such manner as the Board of Directors may from
time to time prescribe.
5.8. Inspection of Books. The stockholders of the Corporation, by a
majority vote at any meeting of stockholders duly called, or in case the
stockholders shall fail to act, the Board of Directors shall have power from
time to time to determine whether and to what extent and at what times and
places and under what conditions and regulations the accounts and books of the
Corporation (other than the stock ledger) or any of them, shall be open to
inspection of stockholders; and no stockholder shall have any right to inspect
any account or book or document of the Corporation except as conferred by
statute or authorized by the Board of Directors or by a resolution of the
stockholders.
Article VI. - Miscellaneous Management Provisions.
6.1. Checks, Drafts and Notes. All checks, drafts or orders for the
payment of money, and all notes and acceptances of the Corporation shall be
signed by such officer or officers, agent or agents as the Board of Directors
may designate.
6.2. Notices.
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1. Notices to directors may, and notices to stockholders shall, be
in writing and delivered personally or mailed to the directors or
stockholders at their addresses appearing on the books of the Corporation.
Notice by mail shall be deemed to be given at the time when the same shall
be mailed. Notice to directors may also be given by telegram, telecopy or
orally, by telephone or in person.
2. Whenever any notice is required to be given under the provisions
of the statutes or of the Certificate of Incorporation of the Corporation
or of these by-laws, a written waiver of notice, signed by the person or
persons entitled to said notice, whether before or after the time stated
therein or the meeting or action to which such notice relates, shall be
deemed equivalent to notice. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting except when the person
attends a meeting for the express purpose of objecting, at the beginning
of the meeting, to the transaction of any business because the meeting is
not lawfully called or convened.
6.3. Conflict of Interest. No contract or transaction between the
Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the board of or committee thereof which
authorized the contract or transaction, or solely because his or their votes are
counted for such purpose, if: (i) the material facts as to his relationship or
interest and as to the contract or transaction are disclosed or are known to the
Board of Directors or the committee and the board or committee in good faith
authorizes the contract or transaction by the affirmative vote of a majority of
the disinterested directors, even though the disinterested directors be less
than a quorum; or (ii) the material facts as to his relationship or interest and
as to the contract or transaction are disclosed or are known to the stockholders
of the Corporation entitled to vote thereon, and the contract or transaction as
specifically approved in good faith by vote of such stockholders; or (iii) the
contract or transaction is fair as to the Corporation as of the time it is
authorized, approved or ratified, by the Board of Directors, a committee or the
stockholders. Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.
6.4. Voting of Securities owned by this Corporation. Subject always to the
specific directions of the Board of Directors, (i) any shares or other
securities issued by any other Corporation and owned or controlled by
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this Corporation may be voted in person at any meeting of security holders of
such other corporation by the President of this Corporation if he is present at
such meeting, or in his absence by the Treasurer of this Corporation if he is
present at such meeting, and (ii) whenever, in the judgment of the President, it
is desirable for this Corporation to execute a proxy or written consent in
respect to any shares or other securities issued by any other Corporation and
owned by this Corporation, such proxy or consent shall be executed in the name
of this Corporation by the President, without the necessity of any authorization
by the Board of Directors, affixation of corporate seal or countersignature or
attestation by another officer, provided that if the President is unable to
execute such proxy or consent by reason of sickness, absence from the United
States or other similar cause, the Treasurer may execute such proxy or consent.
Any person or persons designated in the manner above stated as the proxy or
proxies of this Corporation shall have full right, power and authority to vote
the shares or other securities issued by such other corporation and owned by
this Corporation the same as such shares or other securities might be voted by
this Corporation.
Article VII. - Indemnification.
7.1. Right to Indemnification. Each person who was or is made a party or
is threatened to be made a party to or is otherwise involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigative (a
"Proceeding"), by reason of being or having been a director or officer of the
Corporation or serving or having served at the request of the Corporation as a
director, trustee, officer, employee or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, including service with
respect to an employee benefit plan (an "Indemnitee"), whether the basis of such
proceeding is alleged action or failure to act in an official capacity as a
director, trustee, officer, employee or agent or in any other capacity while
serving as a director, trustee, officer, employee or agent, shall be indemnified
and held harmless by the Corporation to the fullest extent authorized by the
Delaware General Corporation Law, as the same exists or may hereafter be amended
(but, in the case of any such amendment, only to the extent that such amendment
permits the Corporation to provide broader indemnification rights than permitted
prior thereto) (as used in this Article 7, the "Delaware Law"), against all
expense, liability and loss (including attorneys' fees, judgments, fines, ERISA
excise taxes or penalties and amounts paid in settlement) reasonably incurred or
suffered by such Indemnitee in connection therewith and such indemnification
shall continue as to an Indemnitee who has ceased to be a director, trustee,
officer, employee or agent and shall inure to the benefit of the Indemnitee's
heirs, executors and administrators; provided, however, that, except as provided
in ss.7.2 hereof with respect to Proceedings to enforce rights to
indemnification, the
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Corporation shall indemnify any such Indemnitee in connection with a Proceeding
(or part thereof) initiated by such Indemnitee only if such Proceeding (or part
thereof) was authorized by the board of directors of the Corporation. The right
to indemnification conferred in this Article 7 shall be a contract right and
shall include the right to be paid by the Corporation the expenses (including
attorneys' fees) incurred in defending any such Proceeding in advance of its
final disposition (an "Advancement of Expenses"); provided, however, that, if
the Delaware Law so requires, an Advancement of Expenses incurred by an
Indemnitee shall be made only upon delivery to the Corporation of an undertaking
(an "Undertaking"), by or on behalf of such Indemnitee, to repay all amounts so
advanced if it shall ultimately be determined by final judicial decision from
which there is no further right to appeal (a "Final Adjudication") that such
Indemnitee is not entitled to be indemnified for such expenses under this
Article 7 or otherwise.
7.2. Right of Indemnitee to Bring Suit. If a claim under ss.7.1 hereof is
not paid in full by the Corporation within sixty days after a written claim has
been received by the Corporation, except in the case of a claim for an
Advancement of Expenses, in which case the applicable period shall be twenty
days, the Indemnitee may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim. If successful in whole or
in part in any such suit, or in a suit brought by the Corporation to recover an
Advancement of Expenses pursuant to the terms of an Undertaking, the Indemnitee
shall be entitled to be paid also the expense of prosecuting or defending such
suit. In (i) any suit brought by the Indemnitee to enforce a right to
indemnification hereunder (but not in a suit brought by the Indemnitee to
enforce a right to an Advancement of Expenses) it shall be a defense that, and
(ii) in any suit by the Corporation to recover an Advancement of Expenses
pursuant to the terms of an Undertaking the Corporation shall be entitled to
recover such expenses upon a Final Adjudication that, the Indemnitee has not met
the applicable standard of conduct set forth in the Delaware Law. Neither the
failure of the Corporation (including its board of directors, independent legal
counsel, or its stockholders) to have made a determination prior to the
commencement of such suit that indemnification of the Indemnitee is proper in
the circumstances because the Indemnitee has met the applicable standard of
conduct set forth in the Delaware Law, nor an actual determination by the
Corporation (including its board of directors, independent legal counsel, or its
stockholders) that the Indemnitee has not met such applicable standard of
conduct, shall create a presumption that the Indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by the
Indemnitee, be a defense to such suit. In any suit brought by the Indemnitee to
enforce a right to indemnification or to an Advancement of Expenses hereunder,
or by the Corporation to recover an Advancement of Expenses
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pursuant to the terms of an Undertaking, the burden of proving that the
Indemnitee is not entitled to be indemnified, or to such Advancement of
Expenses, under this Article 7 or otherwise shall be on the Corporation.
7.3. Non-Exclusivity of Rights. The rights to indemnification and to the
Advancement of Expenses conferred in this Article 7 shall not be exclusive of
any other right which any person may have or hereafter acquire under any
statute, the Corporation's Certificate of Incorporation, by-law, agreement, vote
of stockholders or disinterested directors or otherwise.
7.4. Insurance. The Corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Corporation
or another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or loss
under this Article 7 or under the Delaware Law.
7.5. Indemnification of Employees and Agents of the Corporation. The
Corporation may, to the extent authorized from time to time by the board of
directors, grant rights to indemnification, and to the Advancement of Expenses,
to any employee or agent of the Corporation to the fullest extent of the
provisions of this Article 7 with respect to the indemnification and Advancement
of Expenses of directors and officers of the Corporation.
Article VIII. - Amendments.
8.1. Amendments. The by-laws of the Corporation may be altered, amended or
repealed at any meeting of the Board of Directors upon notice thereof in
accordance with these by-laws, or at any meeting of the stockholders by the vote
of the holders of the majority of the stock issued and outstanding and entitled
to vote at such meeting, in accordance with the provisions of the Certificate of
Incorporation of the Corporation and of the laws of Delaware.
The undersigned Secretary of the Corporation hereby certifies that these
By-laws were duly adopted by the Board of Directors of the Corporation by
unanimous written consent on February 28, 2000.
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------------------------------------
Secretary
<PAGE>
Exhibit 4.2
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "1933 ACT"), AND NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE OF THIS WARRANT CAN BE SOLD OR TRANSFERRED UNLESS THE
REGISTRATION PROVISIONS OF THE SAID ACT HAVE BEEN COMPLIED WITH OR UNLESS, IN
THE OPINION OF COUNSEL SATISFACTORY TO THE COMPANY, BOTH AS TO THE IDENTITY OF
THE COUNSEL AND AS TO THE FORM AND SUBSTANCE OF THE OPINION, COMPLIANCE WITH
SUCH PROVISIONS IS NOT REQUIRED.
Date: February __, 2000 Warrant to Purchase
Shares of Common Stock
PAPEREXCHANGE.COM, INC.
COMMON STOCK PURCHASE WARRANT
No. __
THIS CERTIFIES that _______________ (including any permitted transferee
hereunder, the "Holder"), or registered assigns, is entitled, at any time during
the Warrant Exercise Period (as hereinafter defined), to subscribe for and
purchase from PAPEREXCHANGE.COM, INC., a Delaware corporation (including any
entity which shall succeed to or assume the obligations of PaperExchange.com,
Inc. hereunder, the "Company"), up to the Applicable Number, as adjusted from
time to time, of the Shares (as defined in Section 1 hereof) at an initial
purchase price per Share of $2.00 (such price per Share as adjusted from time to
time as provided herein is referred to herein as the "Exercise Price"). The
number of such Shares and the Exercise Price are subject to adjustment as
provided herein.
This Warrant is being issued in full substitution of that certain Warrant
dated October 15, 1999 (the "Original Warrant") issued by PaperExchange.com,
LLC, a Delaware limited liability company (the "LLC"), in connection with the
conversion of the LLC to the Company on February __, 2000, and is effective as
of October 15, 1999. The Original Warrant was issued in connection with a
certain Note, dated as of October 15, 1999, issued to the Holder by the LLC,
which Note automatically became an obligation of the Company upon conversion of
the LLC.
This Warrant is subject to the following terms and conditions:
Section 1. Definitions. As used herein the following terms, unless the
context otherwise requires, have the following respective meanings:
Applicable Number shall mean _____________ Shares (as adjusted pursuant to
the terms hereof).
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Company shall have the meaning set forth in the first paragraph of this
Warrant.
Common Stock shall mean (i) the Company's Common Stock, $0.001 par value
per share, (ii) any other capital stock of any class or classes (however
designated) of the Company, the holders of which shall have the right, without
limitation as to amount, either to all or to a share of the balance of current
dividends and liquidating dividends after the payment of dividends and
distributions on any shares entitled to preference, and (iii) any other
securities into which or for which any of the securities described in clauses
(i) or (ii) above have been converted or exchanged pursuant to a plan of
recapitalization, reorganization, merger, sale of assets or otherwise.
Equity Incentive Plan shall mean the Company's 2000 Equity Incentive Plan,
which provides for the issuance of up to 4,550,000 Shares (subject to
adjustments as provided therein).
Equivalent Number shall mean a number of Other Securities of the Company
other than Shares, which number represents the same percentage of the
outstanding units of such class (on a fully-diluted basis) as the Applicable
Number represents at such time with respect to the Shares.
Exchange Notice shall mean a notice set forth in Section 2.1 hereof.
Exercise Price shall have the meaning set forth in the first paragraph of
this Warrant.
Exercise Shares shall have the meaning set forth in Section 2.1 hereof.
Fair Market Value shall mean (i) prior to a Qualified Public Offering, the
Non-Public Company Fair Market Value, and (ii) after a Qualified Public
Offering, the average, for the period of ten (10) Business Days prior to the
date of exercise, of the closing prices (if listed on a stock exchange or quoted
on the NASDAQ National Market System or any successor thereto), or the average
of the closing bid and asked prices (if quoted on NASDAQ or otherwise publicly
traded) of the Shares.
Holder shall have the meaning set forth in the first paragraph of this
Warrant.
Majority Holders shall mean the holders of a majority of the aggregate
Shares then issuable under the Warrants.
Net Consideration Per Share shall mean the amount equal to the total
amount of consideration, if any, received by the Company for the issuance of
such Shares or Other Securities, as the case may be, plus the minimum amount of
additional consideration, if any, payable to the Company upon exercise,
conversion, and/or exchange thereof for Shares or Other Securities, divided by
the maximum number of Shares or Other Securities issued or that would be issued
if all such Other Securities were exercised or converted at such Net
Consideration Per Share, as the case may be.
Non-Public Company Fair Market Value shall mean, with respect to Shares or
Other Securities, the fair market value of such Shares or Other Securities as
determined in good faith by the Company's Board of Directors. The Non-Public
Company Fair Market Value shall in all cases be calculated by determining the
Non-Public Company Fair Market Value of the entire stock and other securities of
the Company or of the issuer of any Other Securities taken as a
<PAGE>
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whole, without premium for control or discounts for minority interests or
restrictions on transfer and taking into consideration any plans or proposals
for any mergers, sales of assets, acquisitions or substantial sales of stock or
other securities of the Company by the Company or its stockholders relating to
the Company or by any such other issuer.
Note shall mean the note due October 15, 2004 of the LLC issued to the
original Holder of this Warrant in connection with the financing evidenced by
the Notes.
Notes shall mean the $10,000,000 aggregate principal amount of promissory
notes due October 15, 2004 issued by the LLC on the Original Issue Date.
Original Issue Date shall mean October 15, 1999.
Other Securities refers to any stock (other than Common Stock) and other
securities of the Company or any other entity (corporate or otherwise) (i) which
the holder of this Warrant at any time shall be entitled to receive, or shall
have received, on the exercise of this Warrant, in lieu of or in addition to
Common Stock, or (ii) which at any time shall be issuable or shall have been
issued in exchange for or in replacement of Common Stock or Other Securities, in
each case pursuant to Section 6, 7 or 8 hereof.
Person shall mean an individual, partnership, corporation, limited
liability company, business trust, joint stock company, trust, unincorporated
association, joint venture, governmental authority or other entity of whatever
nature.
Qualified Shares shall mean those Shares which have been held by the
Holder for not less than a six (6) month period prior to the applicable exercise
of this Warrant.
Qualified Public Offering shall mean an offering to the public of
securities of the Company in a firm commitment underwriting providing for gross
proceeds to the Company of at least $10,000,000.00.
Shares shall mean shares of Common Stock.
Stockholders' Agreement shall mean the Company's Stockholders' Agreement,
dated as of February __, 2000, as in effect on the date hereof and thereafter as
amended or restated in compliance with its terms.
Total Exercise Price shall mean the price obtained by multiplying (a)
$2.00, and (b) the total number of Shares issuable, as of the Original Issue
Date, upon exercise of this Warrant.
Warrant Exercise Period shall mean the period beginning on October 15,
1999 and ending on the Warrant Expiration Date.
Warrant Expiration Date shall have the meaning set forth in Section 2.2
hereof.
Warrant Shares shall mean: (i) the Shares as they are provided for as at
the date of this Warrant and issuable upon the exercise or conversion of this
Warrant or any warrants delivered in substitution or exchange therefor; and (ii)
shall include any Other Securities which may become and be issuable upon such
exercise or conversion.
<PAGE>
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Warrants shall mean all of the warrants, including this Warrant, issued on
the date hereof in full substitution of the warrants issued by the LLC on the
Original Issue Date in connection with the Notes.
Section 2. Exercise of Warrant.
2.1. Exercise.
(a) This Warrant may be exercised prior to its expiration pursuant to
Section 2.2 hereof by the Holder at any time or from time to time, in whole or
in part, by surrender of this Warrant, with the form of subscription attached as
Exhibit A hereto duly executed by the Holder, to the Company at its principal
office, accompanied by payment using one of the following methods:
(i) Upon exercise of this Warrant, in whole or in part, the Holder
may pay cash by certified or official bank check payable to the order of
the Company or by wire transfer to its account, in the amount obtained by
multiplying the number of Shares for which this Warrant is then being
exercised by the Exercise Price then in effect.
(ii) Upon exercise of this Warrant, in whole or in part, the Holder
may pay, subject to the approval of the Company (in its sole discretion),
the aggregate Exercise Price with respect to the number of Shares for
which this Warrant is then being exercised (collectively, the "Exercise
Shares"), or any part thereof, by (A) surrendering its rights to a number
of Exercise Shares having a Fair Market Value equal to or greater than the
required aggregate Exercise Price, in which case the Holder would receive
the number of Exercise Shares to which it would otherwise be entitled upon
such exercise, less the surrendered Shares, or (B) surrendering Shares. If
the Holder desires to surrender rights to Exercise Shares or Shares
pursuant to the preceding sentence, instead of paying cash for the
Exercise Shares, the Holder shall give notice to the Company thereof (an
"Exchange Notice") and, if there has not been a Qualified Public Offering,
the Company shall promptly begin the process of determining the Non-Public
Company Fair Market Value; the exercise of this Warrant in whole or in
part on or before the Warrant Expiration Date, accompanied or preceded by
an Exchange Notice rather than cash, shall constitute exercise of this
Warrant to that extent prior to the Warrant Expiration Date, even though
the process for determining the Non-Public Company Fair Market Value has
not yet been undertaken and/or completed. Notwithstanding anything
contained in this Section 2.1(a)(ii), upon exercise of this Warrant
pursuant to this Section 2.1(a)(ii), the effective date of exercise shall
be not less than ten (10) business days after the date of the Exchange
Notice. If the Holder desires to exercise this Warrant by surrendering
Shares pursuant to Section 2.1(a)(ii)(B) hereof, the Company shall have
the right to require that such Shares being surrendered shall constitute
Qualified Shares.
(iii) Upon exercise of this Warrant, in whole or in part, the Holder
may pay the aggregate Exercise Price for the Exercise Shares, or any part
thereof, by surrendering the Holder's Note for cancellation of principal
outstanding under such Note in an amount equal to the aggregate Exercise
Price being paid, in which case the Company will issue to the Holder a new
Note in the same form but with a reduced principal amount to reflect
payment of the Exercise Price.
<PAGE>
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(b) In the event the Warrant is not exercised in full, the Company, at its
expense, will forthwith issue and deliver to or upon the order of the Holder a
new Warrant or Warrants of like tenor, in the name of the Holder or as the
Holder (upon payment by the Holder of any applicable transfer taxes) may
request, calling in the aggregate on the face or faces thereof for the number of
Shares equal (without giving effect to any adjustment therein) to the number of
such Shares called for on the face of this Warrant minus the number of such
Shares (without giving effect to any adjustment therein) for which this Warrant
shall have been exercised.
(c) The Holder shall provide written notice to all other holders of
warrants issued in connection herewith at least ten (10) days prior to the
exercise of this Warrant.
2.2. Expiration. This Warrant shall terminate upon the earlier to
occur of (i) exercise in full, or (ii) October 15, 2006 (the "Warrant
Expiration Date").
Section 3. Registration Rights. The Holder understands that (i) this
Warrant and the Shares issuable upon exercise of this Warrant have not been
registered under the 1933 Act by reason of their issuance in a transaction
exempt from the registration requirements of the 1933 Act, (ii) this Warrant and
the Shares issuable upon exercise of this Warrant must be held indefinitely
unless a subsequent disposition thereof is registered under the 1933 Act and
applicable state securities laws or is exempt from such registration (and, upon
request, evidence satisfactory to the Company is provided by the Holder of the
availability of such exemptions, including, upon request, the delivery to the
Company of opinions of counsel to the Holder, which opinions of counsel are
satisfactory to the Company), and (iii) this Warrant and the Shares issuable
upon exercise of this Warrant may bear a legend to such effect.
Section 4. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise or conversion
of this Warrant or any portion thereof. With respect to any fraction of a share
called for upon the exercise or conversion of this Warrant or any portion
thereof, an amount equal to such fraction multiplied by the then current Fair
Market Value of a Warrant Share shall be paid to the Holder in cash by the
Company.
Section 5. Charges, Taxes and Expenses. Issuance of Warrant Shares upon
the exercise or conversion of this Warrant or any portion thereof shall be made
without charge to the Holder for any issue or transfer taxes or any other
incidental expenses in respect of the issuance of such Warrant Shares, all of
which taxes and expenses shall be paid by the Company, and such Warrant Shares
shall be issued in the name of the Holder; provided, however, that any income
taxes or capital gains taxes or similar taxes shall be payable by the Holder.
Section 6. Adjustment for Reorganization, Consolidation, Merger, Etc.
6.1. Certain Adjustments. In case at any time or from time to time,
the Company shall (a) effect a capital reorganization, reclassification or
recapitalization, (b) consolidate with or merge into any other entity, or
(c) transfer all or substantially all of its properties or assets to any
other entity under any plan or arrangement contemplating the dissolution
of the Company, then in each such case, the Holder, on the exercise hereof
as provided in Section 2 hereof at any time after the consummation of such
reorganization, reclassification, recapitalization, consolidation or
merger or the effective date of such dissolution, as the case may be,
shall receive, in lieu of the Shares (or Other Securities) issuable on
such exercise prior to such consummation or effective date, the Shares and
Other Securities and property (including cash) to which the Holder would
<PAGE>
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have been entitled upon such consummation or in connection with such
dissolution, as the case may be, if the Holder had so exercised this
Warrant immediately prior thereto, all subject to further adjustment
thereafter as provided in Sections 7 and 8 hereof.
6.2. Continuation of Terms. Upon any reorganization, consolidation,
merger or transfer (and any dissolution following any transfer) referred
to in this Section 6, this Warrant shall continue in full force and effect
and the terms hereof shall be applicable to the Shares and Other
Securities and property receivable on the exercise of this Warrant after
the consummation of such reorganization, reclassification,
recapitalization, consolidation or merger or the effective date of
dissolution following any such transfer, as the case may be, and shall be
binding upon the issuer of any such Shares or Other Securities, including,
in the case of any such transfer, the Person acquiring all or
substantially all of the properties or assets of the Company, whether or
not such Person shall have expressly assumed the terms of this Warrant as
provided in Section 9 hereof.
Section 7. Adjustment of Exercise Price and Number of Shares. The Exercise
Price and number of Shares issuable upon exercise or conversion hereof shall be
subject to adjustment from time to time at any time after the Original Issue
Date as follows:
7.1. Adjustments for Distributions of Shares or Other Securities,
Splits and Combinations. In case at any time or from time to time, the
Company shall (a) issue any Shares or Other Securities as a dividend or
distribution, or (b) issue any Shares or Other Securities in subdivision
of outstanding Shares or Other Securities by reclassification or
otherwise, or (c) combine outstanding Shares or Other Securities by
reclassification or otherwise, then the then current number and type of
Warrant Shares issuable upon exercise or conversion hereof shall be
adjusted to a number and type equal to the number and type of Warrant
Shares issuable upon exercise immediately prior to such event plus the
number and type of Warrant Shares the Holder would have received had the
Holder exercised this Warrant immediately prior to such event and received
the number and type of Shares issued in connection with such event and the
Exercise Price shall be adjusted to an amount equal to the Total Exercise
Price (or, if this Warrant has previously been exercised in part, the
remaining unpaid portion of the Total Exercise Price) divided by the total
number of Warrant Shares issuable upon exercise of this Warrant after
giving effect to this adjustment.
7.2. Adjustments for Certain Other Dividends and Distributions. In
case at any time or from time to time, the Company shall declare a
dividend or make a distribution upon any Shares or Other Securities
payable otherwise than in Shares or Other Securities in a transaction
subject to Section 7.1 hereof, then thereafter the Holder, upon the
exercise of any of the rights represented by this Warrant, will be
entitled to receive the number of Warrant Shares being purchased upon such
exercise and, in addition and without further payment, the cash,
securities and other property which the Holder would have received by way
of dividends and distributions (otherwise than in Shares or Other
Securities in a transaction subject to Section 7.1 hereof) if the Holder
(a) had exercised this Warrant immediately prior to the declaration of or
record date for such dividend or the making of such distribution so as to
be entitled thereto, and (b) had retained all dividends in securities
payable in respect of such Shares or in respect of any securities paid as
dividends and distributions and originating directly or indirectly from
such Shares, provided that, if the dividend or distribution was paid or
made with respect to a class of Other Securities, then thereafter the
Holder, upon the exercise of any of the rights represented by this
Warrant, will be entitled to receive the number of Warrant Shares being
purchased upon such
<PAGE>
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exercise and, in addition and without further payment, the cash,
securities and other property which the holder of the Equivalent Number of
Other Securities of such other class received (or would have received) by
virtue of such dividend or distribution.
7.3. Adjustments for Issuances of Shares or Other Securities. In
case at any time or from time to time, the Company shall issue or sell any
Shares or Other Securities of any class, or shall be deemed to have issued
or sold Shares or Other Securities as provided in Section 7.4 hereof,
other than options to acquire Shares (and such other classes of Other
Securities of the Company as may hereafter succeed to any of the rights of
the Shares) granted pursuant to the Equity Incentive Plan and other than
as a dividend or other distribution upon any class of stock or upon a
subdivision or combination of Shares or Other Securities of any class, for
a Net Consideration Per Share less than the Exercise Price in effect
immediately prior to such issuance or sale or deemed issuance or sale,
then (and in each such case) such Exercise Price will be adjusted to equal
the Net Consideration Per Share at which additional Shares or Other
Securities are issued or sold or deemed issued or sold. If Shares or Other
Securities are issued for no consideration, then such Other Securities
shall be deemed to have been sold for $.01 per unit.
7.4. Adjustments for Issuances of Options or Rights to Purchase
Shares. In case at any time or from time to time, the Company shall issue
or sell any rights to subscribe for or to purchase, or grant any options
for the purchase of, Shares or Other Securities or securities convertible
into Shares or Other Securities (the "Convertible Securities"), other than
options to acquire Shares (and such other classes of Other Securities of
the Company as may hereafter succeed to any of the rights of the Shares)
granted pursuant to the Equity Incentive Plan, whether or not such rights
or options or the right to convert or exchange any such Convertible
Securities are immediately exercisable, and the price per unit at which
Shares or Other Securities are issuable upon the exercise of such rights
or options or upon conversion or exchange of such Convertible Securities,
determined by dividing:
(x) the total amount, if any, received or receivable by the Company
as consideration for the issuance or sale of such rights or the
granting of such options, plus the minimum aggregate amount of
additional consideration payable to the Company upon the exercise of
such rights or options, plus, in the case of such Convertible
Securities, the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the conversion or
exchange thereof; by
(y) the maximum number of Shares or Other Securities issuable upon
the exercise of such rights or options or upon the conversion or
exchange of the maximum number of such Convertible Securities
issuable on the exercise of such rights or options;
shall be less than the Exercise Price immediately prior to the issue of
such rights or the grant of such options, then the Shares or Other
Securities that are the subject of the Convertible Securities will be
deemed to have been issued for purposes of Section 7.3 hereof; provided,
however, that upon the expiration of the right to convert or exchange such
Convertible Securities, the number of Warrant Shares then issuable upon
exercise or conversion of the Warrant immediately prior to such expiration
shall forthwith be adjusted to such number of Warrant Shares as would have
resulted had the adjustments made upon the issuance of such rights or the
granting of such options been made upon the basis of the issuance of only
the number of Shares or Other Securities actually issued on the exercise
of
<PAGE>
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such rights or options or on the conversion or exchange of such
Convertible Securities (or in the case of rights or options to purchase
Convertible Securities, actually issued and at the time still issuable
upon the conversion or exchange of the Convertible Securities actually
issued), and upon the basis of only the consideration applicable thereto,
and any Other Securities issuable upon the exercise of such rights or
options which have expired or upon the conversion or exchange of any such
Convertible Securities for the right to convert or exchange which has
expired, shall not thereafter be deemed to be outstanding and the
consideration applicable thereto shall not thereafter be deemed to have
been received. If the said rights or options are issued or granted in
conjunction with the sale of other securities of the Company, the part of
the consideration allocable to the said rights and options, and the part
of the consideration allocable to the said other securities, shall be
determined in good faith by the Company.
7.5. Adjustments to Consideration. If the amount of consideration
payable to the Company upon the exercise of any right or option to which
Section 7.4 hereof is applicable or upon the conversion or exchange of any
Convertible Securities referred to in Section 7.4 hereof shall change at
any time (including under or by reason of provisions designed to protect
against dilution), then, forthwith upon each such change becoming
effective, all such rights or options or all such rights of conversion or
exchange not theretofore exercised shall be deemed to have expired or
terminated, as the case may be, and the number of Warrant Shares issuable
(and other rights accruing) upon exercise or conversion of the Warrant
shall forthwith be adjusted in accordance with the proviso contained in
Section 7.4 hereof, as the case may be, and further adjusted as though
such rights or options or Convertible Securities deemed expired or
terminated were newly issued and convertible or exercisable upon the
payment of such changed consideration. The adjustments required by this
Section 7.5 shall not duplicate any adjustments made pursuant to Section
7.4.
7.6. Valuation of Consideration. In case any Shares, Other
Securities or Convertible Securities or any rights or options to purchase
any such Shares, Other Securities or Convertible Securities shall be
issued or sold for cash, the consideration received by the Company
therefor shall be deemed to be the amount received by the Company
therefor.
7.7. Non-cash Consideration. In case any Shares, Other Securities or
Convertible Securities or any rights or options to purchase any such
Shares, Other Securities or Convertible Securities shall be issued or sold
for a consideration other than cash, then, in any such event, the amount
of the consideration (other than cash) received by the Company shall be
deemed to be the fair value of such consideration, as determined in good
faith by the Company.
7.8. Record of Holders. In case the Company shall take a record of
the holders of its Shares for the purpose of entitling them (a) to receive
a dividend or other distribution payable in Shares, Other Securities or in
Convertible Securities, or (b) to subscribe for or purchase Shares, Other
Securities or Convertible Securities, then such record date shall be
deemed to be the date of the issue or sale of the Shares, Other Securities
or Convertible Securities deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution or
the date of the issue of such right of subscription or purchase, as the
case may be.
<PAGE>
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Section 8. Adjustments for Issuance of Other Securities. In case any Other
Securities shall have been issued, or shall then be subject to issue upon the
conversion or exchange of any stock or other securities of the Company (or any
other issuer of Other Securities or any other entity referred to in Section 6
hereof) or to subscription, purchase or other acquisition pursuant to any rights
or options granted by the Company (or such other issuer or entity), the Holder
shall be entitled to receive upon exercise hereof such amount of Other
Securities (in lieu of or in addition to Shares) as is determined in accordance
with the terms hereof, treating all references to Shares herein as references to
Other Securities to the extent applicable, and the computations, adjustments and
readjustments provided for in Section 6 and Section 7 hereof with respect to the
number of Warrant Shares issuable upon exercise of this Warrant shall be made as
nearly as possible in the manner so provided and applied to determine the amount
of Other Securities from time to time receivable on the exercise of the Warrant,
so as to provide the Holder with the benefits intended by Section 6 and Section
7 hereof and the other provisions of this Warrant.
Section 9. No Dilution. The Company will not, by amendment of its
Certificate of Incorporation, or through any reorganization, transfer of assets,
consolidation, merger or dissolution, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant. Without limiting the generality
of the foregoing, the Company (a) will take all such action as may be necessary
or appropriate in order that the Company may validly and legally issue fully
paid and non-assessable Shares on the exercise of the Warrant from time to time,
and (b) will not transfer all or substantially all of its properties and assets
to any other entity, or consolidate with or merge into any other entity or
permit any such entity to consolidate with or merge into the Company, unless
such other entity shall expressly assume in writing and will be bound by all the
terms of this Warrant.
Section 10. Accountants' Certificate as to Adjustments. In the case of
each event that may require any adjustment or readjustment in the Warrant Shares
issuable on the exercise of this Warrant, the Company at its expense will
promptly prepare a certificate setting forth such adjustment or readjustment, or
stating the reasons why no adjustment or readjustment is being made, and
showing, in detail, the facts upon which any such adjustment or readjustment is
based, including a statement of (a) the number of shares of each class of the
Company's Common Stock then outstanding on a fully diluted basis, and (b) the
number of shares of each class of Warrant Shares to be received upon exercise of
this Warrant, in effect immediately prior to such adjustment or readjustment and
as adjusted and readjusted (if required by Section 6 or Section 7) on account
thereof. The Company will forthwith mail a copy of each such certificate to each
holder of a Warrant, and will, on the written request at any time of any holder
of a Warrant, furnish to such holder a like certificate setting forth the
calculations used to determine such adjustment or readjustment. At its option,
the holder of a Warrant may confirm the adjustment noted on the certificate by
causing such adjustment to be computed by an independent certified public
accountant at the expense of the Company.
Section 11. Notices of Record Date. In the event of:
(a) any taking by the Company of a record of the holders of any
class of securities for the purpose of determining the holders thereof who
are entitled to receive any dividend or other distribution, or any right
to subscribe for, purchase or otherwise acquire any shares of stock or
other securities of any class or property, or to receive any other right;
or
(b) any capital reorganization of the Company, any reclassification
or recapitalization of the capital stock of the Company or any transfer of
all or substantially all
<PAGE>
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the assets of the Company to or any consolidation or merger of the Company
with or into any other Person; or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company; or
(d) any proposed issue or grant by the Company of any shares of
stock or other securities of any class, or any right or option to
subscribe for, purchase or otherwise acquire any shares of stock or other
securities of any class (other than the issue of Warrant Shares on the
exercise of this Warrant and other than pursuant to the Equity Incentive
Plan),
then, and in each such event, the Company will mail or cause to be mailed to the
Holder a notice specifying (a) the date on which any such record is to be taken
for the purpose of such dividend, distribution or right, and stating the amount
and character of such dividend, distribution or right, (b) the date on which any
such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding-up is anticipated to
take place, and the time, if any is to be fixed, as of which the holders of
record of Shares (or Other Securities) shall be entitled to exchange their
Shares (or Other Securities) for securities or other property deliverable on
such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding-up and (c) the amount
and character of any shares of stock or other securities, or rights or options
with respect thereto, proposed to be issued or granted, the date of such
proposed issue or grant and the persons or class of persons to whom such
proposed issue or grant is to be offered or made.
Section 12. Reservation of Shares Issuable on Exercise of Warrant.
Sufficient shares of authorized but unissued Common Stock of the Company have
been reserved by appropriate action in connection with the prospective exercise
of the Warrant. The Company represents and warrants that the issuance of the
Warrant or the Warrant Shares will not require any further action by the members
of the Company, will not be subject to pre-emptive rights in any present or
future members of the Company and will not conflict with any provision of any
agreement to which the Company is a party or by which it is bound, and such
Shares, when issued upon exercise of the Warrant in accordance with their terms
or upon such conversion, will be duly authorized, fully paid and non-assessable.
Section 13. No Rights or Responsibilities as Member. This Warrant neither
entitles the Holder to any rights, nor subjects the Holder to any
responsibilities, as a stockholder of the Company.
Section 14. Exchange. This Warrant is exchangeable, upon the surrender
hereof by the registered holder at the principal office of the Company, for new
warrants of like tenor and date representing in the aggregate the right to
purchase the number of Warrant Shares purchasable hereunder, each of such new
warrants to represent the right to purchase such number of Warrant Shares as
shall be designated by said registered holder at the time of such surrender.
Section 15. Loss, Theft, Destruction or Mutilation of Warrant. Upon
receipt by the Company of evidence reasonably satisfactory to it of the loss,
theft, destruction or mutilation of this Warrant, and, in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it (which may
be the unsecured agreement of the Holder to indemnify the Company for any loss
on account thereof), and upon reimbursement to the Company of all
<PAGE>
-11-
reasonable expenses incidental thereto, and upon surrender and cancellation of
this Warrant, if mutilated, the Company will make and deliver a new warrant of
like tenor and date, in lieu of this Warrant.
Section 16. Remedies. The Company stipulates that the remedies at law of
the Holder in the event of any default or threatened default by the Company in
the performance of or compliance with any of the terms of this Warrant are not
and will not be adequate, and that such terms may be specifically enforced by a
decree for the specific performance of any agreement contained herein or by an
injunction against a violation of any of the terms hereof or otherwise.
Section 17. Transfer of Warrant. (a) This Warrant and all rights hereunder
are transferable, in whole or in part, only to the extent that, had the Holder
exercised this Warrant, in whole or in part, the Holder would be able to
transfer the Shares received upon exercise of this Warrant pursuant to Section 2
of the Stockholders' Agreement, except that Section 2.6 of the Stockholders'
Agreement shall apply to such transfer only as provided in paragraph (b) below.
(b) In the event that the Holder transfers any portion of this Warrant,
then all other holders of Warrants will be entitled to rights of first refusal
and tag-along rights with respect to their Warrants on the same terms as set
forth in Section 2.6 of the Stockholders' Agreement, the provisions of which are
hereby incorporated into this Warrant, mutatis mutandis.
(c) In addition, this Warrant and all rights hereunder are subject to the
"Drag-Along" rights set forth in Section 2.7 of the Stockholders' Agreement to
the same extent as if the Holder had exercised this Warrant for Shares, provided
that in exercise of the Drag-Along rights the Holder shall be entitled to
receive only the amount payable to holders of Shares, less the unpaid Exercise
Price.
(d) Any transfer permitted by this Section 17 hereof shall take place at
the office or agency of the Company by the registered Holder in person or by a
duly authorized attorney, upon surrender of this Warrant together with an
assignment hereof in the form of Exhibit B attached hereto properly endorsed.
Until transfer hereof on the registration books of the Company, the Company may
treat the registered Holder as the owner hereof for all purposes.
Notwithstanding anything contained in this Section 17, this Warrant is
transferable only to the extent, and only for the pro rata portion, that the
note issued to the Holder hereof simultaneously with this Warrant is
transferred.
Section 18. Amendments and Waivers. Any term of this Warrant may be
amended only with the written consent of the Company and the Holder; provided,
however, that any amendment to Section 2.1(c) hereof shall also require the
written consent of the Majority Holders. Any amendment or waiver effected in
accordance with this Section 18 shall be binding upon the Company, the Holder
and each transferee of this Warrant.
Section 19. Communications and Notices. All communications and notices
hereunder must be in writing, either delivered in hand or sent by first-class
mail, postage prepaid, or sent by telecopier, and, if to the Company, shall be
addressed to it at the address set forth on the first page hereof, or at such
other address as the Company may hereafter designate in writing by notice to the
registered Holder, and, if to such registered Holder, addressed to such Holder
at the address of such Holder as shown on the books of the Company.
<PAGE>
-12-
Section 20. Sundays, Holidays, etc. If the last or appointed day for the
taking of any action required or the expiration of any right granted herein
shall be a Sunday or a Saturday or shall be a legal holiday or a day on which
banking institutions in Boston, Massachusetts are authorized or required by law
to remain closed, then such action may be taken or right may be exercised on the
next succeeding day which is not a Sunday, a Saturday or a legal holiday and not
a day on which banking institutions in Boston, Massachusetts are authorized or
required by law to remain closed.
Section 21. Miscellaneous.
(a) THIS WARRANT SHALL BE BINDING UPON THE COMPANY'S SUCCESSORS AND
ASSIGNS. THIS WARRANT SHALL CONSTITUTE A CONTRACT UNDER SEAL AND, FOR ALL
PURPOSES, SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE
STATE OF DELAWARE.
(b) For all purposes of this Warrant, the original Holder and its
permitted transferees (pursuant to Section 17 hereof) shall be bound by all of
the terms and conditions contained in, and entitled to all of the benefits of,
this Warrant.
<PAGE>
-13-
IN WITNESS WHEREOF, PAPEREXCHANGE.COM, INC. has caused this COMMON STOCK
PURCHASE WARRANT to be signed in its corporate name and its corporate seal to be
impressed hereon by its duly authorized officers.
The Company:
Dated as of: PAPEREXCHANGE.COM, INC.
February __, 2000
By:________________________________
Name:
Title:
Attest:
_________________________
<PAGE>
Exhibit A
FORM OF SUBSCRIPTION
(To be signed only on exercise of Common Stock Purchase Warrant)
TO: PAPEREXCHANGE.COM, INC.
The undersigned, the registered Holder of the within Common Stock Purchase
Warrant of PaperExchange.com, Inc., hereby irrevocably elects to exercise this
Common Stock Purchase Warrant for, and to purchase thereunder, _____* Shares of
PaperExchange.com, Inc. and the undersigned herewith makes payment of $_______
therefor.
The undersigned requests that the Shares be issued in the name of
____________________, whose address is _______________________.
Dated: __________________ _____________________________________
(Signature must conform in all
respects to name of registered
holder as specified on the face
of the Warrant)
_____________________________________
(Address)
Signed in the presence of:
_________________________
- ----------
*Insert here the number of shares (all or part of the number of shares
called for in the Common Stock Purchase Warrant) as to which the Common Stock
Purchase Warrant is being exercised without making any adjustment for any other
stock or other securities or property or cash which, pursuant to the adjustment
provisions of the Common Stock Purchase Warrant, may be deliverable on exercise;
this subscription shall also automatically entitle the Holder of the Warrant to
any other amounts and securities which do not require the payment of additional
consideration, and this subscription also entitles the Holder to purchase any
other Shares or Other Securities which, pursuant to the adjustment provisions of
the Warrant, the Holder is entitled to purchase.
<PAGE>
Exhibit B
FORM OF ASSIGNMENT
(To be signed only on transfer of Common Stock Purchase Warrant)
ASSIGNMENT
For value received, the undersigned, _______________________, hereby
sells, assigns, and transfers unto ____________________ the right represented by
the within Common Stock Purchase Warrant to purchase _____________ Shares of
PaperExhange.com, Inc. (and the other rights with respect thereto provided by
the Warrant) to which the within Common Stock Purchase Warrant relates, and
appoints ___________ Attorney to transfer such right on the books of
PaperExchange.com, Inc. with full power of substitution in the premises.
Dated:_____________ _____________________________________
(Signature must conform in all
respects to name of registered
holder as specified on the face
of the Warrant)
_____________________________________
(Address)
Signed in the presence of:
_________________________
<PAGE>
SCHEDULE OF WARRANTS
<TABLE>
<CAPTION>
HOLDER NUMBER OF SHARES
<S> <C> <C>
1 Kraft Group LLC 993,056
2 Terrapin Partners LLC 112,500
3 Hilton Plein 50,000
4 Roger Stone 50,000
5 Roger Stone and Matthew Kaplan, 8,333
each as voting trustee for Jennifer
Stone
6 Roger Stone and Matthew Kaplan, 16,667
each as voting trustee for Matthew and
Karen Kaplan
7 Roger Stone and Matthew Kaplan, 8,333
each as voting trustee for Lauren
Stone
8 Steven Kaplan 1,389
9 PE.com Holdings LLC 426,389
</TABLE>
<PAGE>
EXHIBIT 10.7
PAPEREXCHANGE.COM, LLC
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT (the "AGREEMENT") is made as of December 30,
1999, by and among PaperExchange.com, LLC, a Delaware limited liability company
(the "COMPANY"), Rod Parsley (the "SELLER"), Madison Dearborn Capital Partners
III, L.P., a Delaware limited partnership ("MDCP"), Madison Dearborn Special
Equity III, L.P., a Delaware limited partnership ("MDSE") and Special Advisors
Fund I, LLC, a Delaware limited liability company ("SAF," together with MDCP and
MDSE, the "PURCHASERS," and each a "PURCHASER").
WHEREAS, the Seller desires to sell to MDCP, and MDCP desires to
purchase from the Seller, 157,252 economic interests of the Company (such
157,252 economic interests being referred to herein as the "ECONOMIC
INTERESTS");
WHEREAS, the Company desires to issue and sell to the Purchasers, and
the Purchasers desire to purchase from the Company, an aggregate of 314,503
membership interests of the Company (such 314,503 membership interests being
referred to herein as the "INTERESTS," together with the Economic Interests, the
"MEMBERSHIP INTERESTS").
NOW THEREFORE, in consideration of the mutual agreements,
representations, warranties and covenants herein contained, the parties hereto
agree as follows:
1. PURCHASE AND SALE. The Membership Interests and the aggregate purchase price
as set forth in this Section 1 shall be allocated to each of the Purchasers as
set forth on SCHEDULE 1 hereto.
1.1 PURCHASE AND SALE OF ECONOMIC INTERESTS. Subject to and upon the
terms and conditions set forth in this Agreement, the Seller agrees to sell to
MDCP, and MDCP hereby agrees to purchase from the Seller, at the Closing (as
hereinafter defined), the Economic Interests at a purchase price of $6.35923456
per Economic Interest. The aggregate purchase price payable by MDCP to the
Seller for all of the Economic Interests shall be $1,000,000.
1.2 PURCHASE AND SALE OF INTERESTS. Subject to and upon the terms and
conditions set forth in this Agreement, the Company agrees to issue and sell to
the Purchasers, and the Purchasers hereby agree to purchase from the Company, at
the Closing (as hereinafter defined), the Interests at a purchase price of
$6.35923456 per Interest. The aggregate purchase price payable by the Purchasers
to the Company for all of the Interests shall be $2,000,000.
1.3 CLOSING. The closing of the transactions contemplated under this
Agreement (the "CLOSING") shall take place at the Boston offices of Bingham Dana
LLP, 150 Federal Street, Boston, Massachusetts 02110 on or before December 29,
1999, or on such other date as may be agreed upon in writing between the
Purchasers and the Company.
1.4 DELIVERY. At the Closing, (i) the Purchasers shall deliver to the
Company, as set forth on SCHEDULE 1 hereto, a cash amount equal to $2,000,000 by
certified check or wire transfer; (ii) MDCP shall deliver to the Seller a cash
amount equal to $1,000,000 by certified check or
<PAGE>
wire transfer; (iii) the Seller shall deliver to MDCP an executed Assignment of
Economic Interests whereby the Seller assigns the Economic Interests to MDCP;
and (iv) the Company shall revise Exhibit A to the Operating Agreement (as
defined below) to reflect the Purchasers' purchase of the Membership Interests.
Notwithstanding the foregoing terms of this Section 1.4, the Seller hereby
authorizes and directs MDCP to deliver to the Company, on behalf of the Seller,
all amounts referred to in clause (ii) of this Section 1.4 and that the Company
remit such amounts to the Seller (promptly upon the Company's receipt thereof)
but only after the Company deducts therefrom any amounts owed to the Company by
the Seller and any amounts in respect of withholding or other employee taxes
payable by the Seller in connection with the Seller's obtaining ownership of the
Economic Interests to be purchased by MDCP hereunder. The Purchasers agree that
in connection with any conversion of the Company to a corporation, each
Purchaser shall, upon request of the Management Board of the Company (the
"MANAGEMENT BOARD"), execute documents required to effect such conversion,
including documents evidencing such Purchaser's agreement to comply with any
restrictions imposed by the Management Board upon such Purchaser's Membership
Interests (or the capital stock or other securities received in exchange for
such Membership Interests (or into which such Membership Interests are
converted)) with respect to the transfer or voting thereof. Each Purchaser
understands and agrees that this constitutes an irrevocable commitment which
such Purchaser shall not have the right to cancel or veto.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to the Purchasers as of the date hereof as follows:
2.1 ORGANIZATION AND STANDING; CERTIFICATE OF FORMATION. The Company is
a limited liability company duly organized, validly existing under, and by
virtue of, the laws of the State of Delaware, and is in good standing under such
laws. The Company has all requisite power and authority to own and operate its
properties and assets, and to carry on its business as presently conducted and
as proposed to be conducted. The Company is duly qualified and authorized to
transact business and is in good standing in each jurisdiction in which the
failure so to qualify would have a material adverse effect on its business,
properties, prospects, or financial condition. The Company has furnished the
Purchasers with copies of its Certificate of Formation and its Amended and
Restated Operating Agreement, dated as of June 1, 1999 (the "OPERATING
AGREEMENT").
2.2 POWER AND AUTHORITY. The Company has all requisite legal power and
authority to execute and deliver this Agreement, to authorize the issuance of
the Interests hereunder, and to carry out and perform its obligations under the
terms of this Agreement and the Operating Agreement and the transactions
contemplated hereby and thereby.
2.3 OWNERSHIP OF INTERESTS. The membership interests of the Company
consist of 37,408,468 outstanding membership interests and up to an additional
9,767,021 membership interests and/or economic interests (such outstanding and
additional interests being referred to collectively as the "PRESENT INTERESTS")
which may be outstanding in the future pursuant to the exercise of warrants
and/or options authorized to be issued (excluding the 2,000,000 options
authorized by the Management Board on or about November 23, 1999). The Present
Interests do not include (i) those certain membership interests and/or economic
interests of the Company issued by the Company to MSD Capital, L.P. and/or one
or more of its affiliates (collectively, "MSD CAPITAL") pursuant to that certain
Purchase Agreement, by and between the Company and
-2-
<PAGE>
MSD Capital, dated as of even date herewith, and (ii) those certain membership
interests and/or economic interests of the Company issued by the Company to
David Wetherell and/or one or more of his affiliates (collectively, "WETHERELL")
pursuant to that certain Purchase Agreement, by and between the Company and
Wetherell, dated as of even date herewith. The Interests acquired hereby shall
have the rights, preferences, privileges and restrictions set forth in the
Operating Agreement.
2.4 AUTHORIZATION. All limited liability company action on the part of
the Company, its managers, members, directors and officers necessary for the
authorization, execution, delivery and performance of this Agreement and the
Operating Agreement by the Company, the authorization of the transfer of the
Interests and the performance of all of the Company's obligations hereunder and
under the Operating Agreement have been taken or will be taken prior to the
Closing. This Agreement and the Operating Agreement constitute valid and legally
binding obligations of the Company, enforceable in accordance with their
respective terms, subject to laws of general application relating to bankruptcy,
insolvency and the relief of debtors and rules of law governing specific
performance, injunctive relief or other equitable remedies.
2.5 VALID ISSUANCE OF THE COMPANY'S INTERESTS. The Interests will, upon
issuance pursuant to the terms hereof, be duly authorized and validly issued in
compliance with the Certificate of Formation of the Company and the Operating
Agreement, and such Interests will be free and clear of any liens or
encumbrances; provided, however, that the Interests shall be subject to
restrictions on transfer under state and/or federal securities laws and pursuant
to the terms of the Operating Agreement.
2.6 NO CONFLICT. The execution and delivery of this Agreement by the
Company and the consummation of the transactions contemplated hereby will not
conflict with or result in any violation of or default by the Company (with or
without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation or to a loss of a
benefit under (i) any provision of the organizational documents of the Company
or (ii) any agreement or instrument, permit, franchise, license, judgment,
order, statute, law, ordinance, rule or regulations, applicable to the Company
or its respective properties or assets.
2.7 BROKERS. The Company has not retained, utilized or been represented
by any broker or finder in connection with the transactions contemplated by this
Agreement.
2.8 CONSENTS. All consents, approvals, orders and authorizations
required on the part of the Company in connection with the execution, delivery
or performance of this Agreement and the consummation of the transactions
contemplated herein have been obtained and are effective as of the Closing.
3. REPRESENTATIONS AND WARRANTIES OF THE SELLER. The Seller represents and
warrants to MDCP as follows:
3.1 VALID TRANSFER OF THE SELLER'S ECONOMIC INTERESTS. The Economic
Interests will be transferred to MDCP free and clear of any liens or
encumbrances; provided, however, that the Economic Interests shall be subject to
restrictions on transfer under state and/or federal securities laws and pursuant
to the terms of the Operating Agreement.
-3-
<PAGE>
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. Each of the Purchasers
represents and warrants to the Company as follows:
4.1 AUTHORIZATION. All action on the part of each Purchaser and, if
applicable, its officers, directors, managers, members, shareholders and/or
partners necessary for the authorization, execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated herein has
been taken. When executed and delivered, this Agreement will constitute the
legal, valid and binding obligation of each Purchaser, enforceable against each
Purchaser in accordance with its terms, except as such may be limited by
bankruptcy, insolvency, reorganization or other laws affecting creditors' rights
generally and by general equitable principles. Each Purchaser has all requisite
power and authority to enter into each of this Agreement and to carry out and
perform its obligations under the terms of this Agreement.
4.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. Each Purchaser is acquiring the
Membership Interests for its own account for investment and not for resale or
with a view to distribution thereof in violation of the Securities Act of 1933,
as amended, and all of the rules and regulations promulgated thereunder (the
"SECURITIES ACT").
4.3 INVESTOR STATUS; ETC. Each Purchaser certifies and represents to
the Company that it is an "Accredited Investor" as defined in Rule 501 of
Regulation D promulgated under the Securities Act and was not organized for the
purpose of acquiring any of the Membership Interests. Each Purchaser's financial
condition is such that it is able to bear the risk of holding the Membership
Interests for an indefinite period of time and the risk of loss of its entire
investment. Each Purchaser has been afforded the opportunity to ask questions of
and receive answers from the management of the Company concerning this
investment and has sufficient knowledge and experience in investing in companies
similar to the Company in terms of the Company's stage of development so as to
be able to evaluate the risks and merits of its investment in the Company.
4.4 MEMBERSHIP INTERESTS NOT REGISTERED. Each Purchaser understands
that the Membership Interests have not been registered under the Securities Act,
by reason of their issuance by the Company in a transaction exempt from the
registration requirements of the Securities Act. Each Purchaser understands that
the exemptions from registration afforded by Rule 144 (the provisions of which
are known to it) promulgated under the Securities Act depend on the satisfaction
of various conditions, and that, if applicable, Rule 144 may afford the basis
for sales only in limited amounts.
4.5 INVESTMENT REPRESENTATIONS. Each Purchaser represents and warrants
to the Company that: (i) it is a Delaware limited partnership, or a Delaware
limited liability company, as the case may be, (ii) each of its constituent
members is an "accredited investor" as such term is defined in Rule 501(a)
promulgated under the Securities Act, (iii) its principal office is located in
Three First National Plaza, Suite 3800, Chicago, Illinois 60602, and (iv) the
principal office of its general partner, or its manager, as the case may be, is
located in Three First National Plaza, Suite 3800, Chicago, Illinois 60602.
4.6 NO CONFLICT. The execution and delivery of this Agreement by each
Purchaser and the consummation of the transactions contemplated hereby will not
conflict with or result in any violation of or default by any Purchaser (with or
without notice or lapse of time, or both)
-4-
<PAGE>
under, or give rise to a right of termination, cancellation or acceleration of
any obligation or to a loss of a benefit under (i) any provision of the
organizational documents of any Purchaser or (ii) any agreement or instrument,
permit, franchise, license, judgment, order, statute, law, ordinance, rule or
regulations, applicable to any Purchaser or its respective properties or assets.
4.7 BROKERS. None of the Purchasers has retained, utilized or been
represented by any broker or finder in connection with the transactions
contemplated by this Agreement.
4.8 CONSENTS. All consents, approvals, orders and authorizations
required on the part of each Purchaser in connection with the execution,
delivery or performance of this Agreement and the consummation of the
transactions contemplated herein have been obtained and are effective as of the
Closing.
5. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AT CLOSING. The obligations of
the Company under Section 1 of this Agreement are subject to the fulfillment at
or before the Closing of each of the following conditions, any of which may be
waived in writing by the Company:
5.1 INSTRUMENT OF ACCESSION. Each Purchaser shall execute an Instrument
of Accession, substantially in the form of EXHIBIT A attached hereto,
simultaneously with the purchase of the Membership Interests hereunder, in order
to become a party to the Operating Agreement thereby agreeing to be bound by the
restrictions set forth in the Operating Agreement.
5.2 PERFORMANCE. Each Purchaser shall have performed or fulfilled all
agreements, obligations and conditions contained herein required to be performed
or fulfilled by them before the Closing.
5.3 PROCEEDINGS SATISFACTORY. All partnership, and/or limited liability
company, as the case may be, and legal proceedings taken by the Purchasers in
connection with the transactions contemplated by this Agreement and all
documents and papers relating to such transactions shall be satisfactory to the
Company, in the reasonable exercise of the judgment of the Company.
6. CONDITIONS TO THE OBLIGATIONS OF THE PURCHASERS AT CLOSING. The obligations
of the Purchasers under Section 1 of this Agreement are subject to the
fulfillment at or before the Closing of each of the following conditions, any of
which may be waived in writing by the Purchasers:
6.1 CONVERSION OF ECONOMIC INTERESTS. MDCP shall have received evidence
that the Economic Interests were converted into full membership interests of the
Company at or prior to the date hereof so that such Economic Interests,
effective immediately upon the transactions contemplated hereunder, shall have
all of the attendant rights and privileges that accompany full membership
interests pursuant to the Operating Agreement.
6.2 PERFORMANCE. The Company shall have performed or fulfilled all
agreements, obligations and conditions contained herein required to be performed
or fulfilled by them before the Closing.
6.3 PROCEEDINGS SATISFACTORY. All limited liability company and legal
proceedings taken by the Company in connection with the transactions
contemplated by this Agreement and
-5-
<PAGE>
all documents and papers relating to such transactions shall be satisfactory to
the Purchasers, in the reasonable exercise of the judgment of the Purchasers.
7. MISCELLANEOUS
7.1 ENTIRE AGREEMENT; SUCCESSORS AND ASSIGNS. This Agreement and the
exhibits hereto constitute the entire agreement among the parties relative to
the subject matter hereof. Any previous agreement among the parties is
superseded by this Agreement. Subject to the exceptions specifically set forth
in this Agreement, the terms and conditions of this Agreement shall inure to the
benefit of and be binding upon the respective executors, administrators, heirs,
successors and assigns of the parties.
7.2 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to contracts
entered into and wholly to be performed within the State of Delaware by Delaware
residents.
7.3 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same instrument.
7.4 HEADINGS. The headings of the Sections of this Agreement are for
convenience and shall not by themselves determine the interpretation of this
Agreement.
7.5 NOTICES. Any notice required or permitted hereunder shall be given
in writing and shall be conclusively deemed effectively given upon personal
delivery, or by telecopier (confirmed thereafter by U.S. mail) or delivery by
overnight courier, or five days after deposit in the United States mail, by
registered or certified mail, postage prepaid, addressed as set forth below
(with copies as indicated), or at such other address as each party may designate
by ten (10) days' advance written notice to all other parties:
<TABLE>
<CAPTION>
IF TO THE COMPANY: IF TO THE PURCHASERS:
<S> <C>
545 Boylston Street, 8th Floor Three First National Plaza, Suite 3800
Boston, MA 02116 Chicago, Illinois 60602
Attention: President and CEO Attention: Samuel M. Mencoff,
Telecopier No.: (617) 536-1573 Thomas S. Souleles
Telecopier No.: (312) 895-1056
WITH COPIES TO: WITH A COPY TO:
Bingham Dana LLP Kirkland & Ellis
150 Federal Street 200 E. Randolph Street
Boston, MA 02110 Chicago, Illinois 60602
Attention: Jonathan K. Bernstein, Esq. Attention: William S. Kirsch, Esq.
Telecopier No.: (617) 951-8736 Telecopier No.: (312) 861-2200
</TABLE>
7.6 SURVIVAL OF WARRANTIES. The representations and warranties of the
parties contained in or made pursuant to this Agreement shall survive the
execution and delivery of this Agreement and the Closing; provided, however,
that, except as provided above, such
-6-
<PAGE>
representations and warranties need only be accurate as of the date of such
execution and delivery and as of the Closing.
7.7 AMENDMENT OF AGREEMENT. Any provision of this Agreement may be
amended by a written instrument by agreement of the parties hereto.
[SIGNATURE PAGE TO FOLLOW]
-7-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Purchase
Agreement as of the day and year first above written.
PAPEREXCHANGE.COM, LLC
a Delaware limited liability company
By: /s/ Kent A. Dolby
------------------------------------
Name: Kent A. Dolby
Title: President and CEO
Address: 545 Boylston Street
Boston, MA 02116
MADISON DEARBORN CAPITAL
PARTNERS III, L.P.
a Delaware limited partnership
By: Madison Dearborn Partners III, L.P.,
its general partner
By: Madison Dearborn Partners, LLC,
its general partner
By: /s/ Samuel Mencoff
----------------------------
Name: Samuel M. Mencoff
Title: Managing Director
Address: Three First National Plaza,
Suite 3800
Chicago, Illinois 60602
<PAGE>
MADISON DEARBORN SPECIAL
EQUITY III, L.P.
a Delaware limited partnership
By: Madison Dearborn Partners III, L.P.,
its sole general partner
By: Madison Dearborn Partners, LLC,
its sole general partner
By: /s/ Samuel Mencoff
_________________________________
Name: Samuel M. Mencoff
Title: Managing Director
Address: Three First National Plaza,
Suite 3800
Chicago, Illinois 60602
SPECIAL ADVISORS FUND I, LLC
a Delaware limited liability company
By: Madison Dearborn Partners, LLC
its manager
By: /s/ Samuel Mencoff
Name: Samuel M. Mencoff
Title: Managing Director
Address: Three First National Plaza,
Suite 3800
Chicago, Illinois 60602
/s/ Rod Parsley
_____________________________________________
Rod Parsley
Address: 760 Tremont Street #3
_____________________________________
Boston, MA 02113
_____________________________________
<PAGE>
SCHEDULE 1
ALLOCATION OF MEMBERSHIP INTERESTS AND PURCHASE PRICE
PURCHASE FROM THE SELLER
- - MDCP is purchasing 157,252 Economic Interests from Rod Parsley for a total
purchase price of $1,000,000.
PURCHASE FROM THE COMPANY
- - MDCP is purchasing 281,180 Interests from the Company for a total purchase
price of $1,788,091.27.
- - MDSE is purchasing 9,735 Interests from the Company for a total purchase
price of $61,907.14.
- - SAF is purchasing 23,588 Interests from the Company for a total purchase
price of $150,001.59.
<PAGE>
EXHIBIT A
INSTRUMENT OF ACCESSION
Reference is hereby made to that certain Amended and Restated Operating
Agreement for PaperExchange.com, LLC, a Delaware limited liability company (the
"COMPANY"), dated as of June 1, 1999 (as amended, the "OPERATING AGREEMENT"), by
and among the Persons (as defined in the Operating Agreement) whose names are
set forth on Exhibit A thereto.
_______________________, as the [transferee and/or purchaser] of an
aggregate of ________ Membership Interests (as defined in the Operating
Agreement) of the Company, hereby agrees to become and hereby does become a
"MEMBER" of the Company and agrees to be bound by all of the terms and
provisions of the Operating Agreement as a Member of the Company.
IN WITNESS WHEREOF, the undersigned has executed and delivered this
Instrument of Accession as of the ___ day of ________, 1999.
[NAME OF TRANSFEREE/PURCHASER]
By:_______________________________
Name:
Title:
Address:__________________________
__________________________
__________________________
Accepted and Agreed to as of the
date set forth above.
PAPEREXCHANGE.COM, LLC
By: ________________________________
Name:
Title:
<PAGE>
EXHIBIT 10.8
PAPEREXCHANGE.COM, LLC
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT (the "AGREEMENT") is made as of December 30,
1999, by and between PaperExchange.com, LLC, a Delaware limited liability
company (the "COMPANY") and DSCKW Irrevocable Trust, a Massachusetts trust (the
"PURCHASER").
WHEREAS, the Company desires to issue and sell to the Purchaser, and
the Purchaser desires to purchase from the Company, 629,006 membership interests
of the Company (such 629,006 membership interests being referred to herein as
the "MEMBERSHIP INTERESTS").
NOW THEREFORE, in consideration of the mutual agreements,
representations, warranties and covenants herein contained, the parties hereto
agree as follows:
1. PURCHASE AND SALE.
1.1 PURCHASE AND SALE OF MEMBERSHIP INTERESTS. Subject to and upon the
terms and conditions set forth in this Agreement, the Company agrees to issue
and sell to the Purchaser, and the Purchaser hereby agrees to purchase from the
Company, at the Closing (as hereinafter defined), the Membership Interests at a
purchase price of $6.35923456 per Membership Interest. The aggregate purchase
price payable by the Purchaser to the Company for all of the Membership
Interests shall be $4,000,000.
1.2 CLOSING. The closing of the transactions contemplated under this
Agreement (the "CLOSING") shall take place at the Boston offices of Bingham Dana
LLP, 150 Federal Street, Boston, Massachusetts 02110 on or before December 30,
1999, or on such other date as may be agreed upon in writing between the
Purchaser and the Company.
1.3 DELIVERY. At the Closing, the Purchaser shall deliver to the
Company a cash amount equal to $4,000,000 by certified check or wire transfer;
and the Company shall revise Exhibit A to the Operating Agreement (as defined
below) to reflect the Purchaser's purchase of the Membership Interests. The
Purchaser agrees that in connection with any conversion of the Company to a
corporation, the Purchaser shall, upon request of the Management Board of the
Company (the "MANAGEMENT BOARD"), execute documents required to effect such
conversion, including documents evidencing the Purchaser's agreement to comply
with any restrictions imposed by the Management Board upon the Membership
Interests (or the capital stock or other securities received in exchange for
Membership Interests (or into which Membership Interests are converted)) with
respect to the transfer or voting thereof. The Purchaser understands and agrees
that this constitutes an irrevocable commitment which the Purchaser shall not
have the right to cancel or veto.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby represents
and warrants to the Purchaser as of the date hereof as follows:
2.1 ORGANIZATION AND STANDING; CERTIFICATE OF FORMATION. The Company is
a limited liability company duly organized, validly existing under, and by
virtue of, the laws of the State of Delaware, and is in good standing under such
laws. The Company has all requisite power and authority to own and operate its
properties and assets, and to carry on its business as presently
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conducted and as proposed to be conducted. The Company is duly qualified and
authorized to transact business and is in good standing in each jurisdiction in
which the failure so to qualify would have a material adverse effect on its
business, properties, prospects, or financial condition. The Company has
furnished the Purchaser with copies of its Certificate of Formation and its
Amended and Restated Operating Agreement, dated as of June 1, 1999 (the
"OPERATING AGREEMENT").
2.2 POWER AND AUTHORITY. The Company has all requisite legal power and
authority to execute and deliver this Agreement, to authorize the issuance of
the Membership Interests hereunder, and to carry out and perform its obligations
under the terms of this Agreement and the Operating Agreement and the
transactions contemplated hereby and thereby.
2.3 OWNERSHIP OF MEMBERSHIP INTERESTS. The membership interests of the
Company consist of 37,408,468 outstanding membership interests and up to an
additional 9,767,021 membership interests and/or economic interests (such
outstanding and additional interests being referred to collectively as the
"PRESENT INTERESTS") which may be outstanding in the future pursuant to the
exercise of warrants and/or options authorized to be issued (excluding the
2,000,000 options authorized by the Management Board on or about November 23,
1999). The Present Interests do not include (i) those certain membership
interests and/or economic interests of the Company issued by the Company to
Madison Dearborn Capital Partners III, L.P. ("MDCP"), Madison Dearborn Special
Equity III, L.P. ("MDSE") and Special Advisors Fund I, LLC ("SAF," together with
MDCP and MDSE, "MADISON") pursuant to that certain Purchase Agreement, by and
between the Company, Rod Parsley and Madison, dated as of even date herewith,
and (ii) those certain membership interests and/or economic interests of the
Company issued by the Company to MSD Capital, L.P. and/or one or more of its
affiliates (collectively, "MSD CAPITAL") pursuant to that certain Purchase
Agreement, by and between the Company and MSD Capital, dated as of even date
herewith. The Interests acquired hereby shall have the rights, preferences,
privileges and restrictions set forth in the Operating Agreement.
2.4 AUTHORIZATION. All limited liability company action on the part of
the Company, its managers, members, directors and officers necessary for the
authorization, execution, delivery and performance of this Agreement and the
Operating Agreement by the Company, the authorization of the transfer of the
Membership Interests and the performance of all of the Company's obligations
hereunder and under the Operating Agreement have been taken or will be taken
prior to the Closing. This Agreement and the Operating Agreement constitute
valid and legally binding obligations of the Company, enforceable in accordance
with their respective terms, subject to laws of general application relating to
bankruptcy, insolvency and the relief of debtors and rules of law governing
specific performance, injunctive relief or other equitable remedies.
2.5 VALID ISSUANCE OF THE COMPANY'S MEMBERSHIP INTERESTS. The
Membership Interests will, upon issuance pursuant to the terms hereof, be duly
authorized and validly issued in compliance with the Certificate of Formation of
the Company and the Operating Agreement, and such Membership Interests will be
free and clear of any liens or encumbrances; provided, however, that the
Membership Interests shall be subject to restrictions on transfer under state
and/or federal securities laws and pursuant to the terms of the Operating
Agreement.
2.6 NO CONFLICT. The execution and delivery of this Agreement by the
Company and the consummation of the transactions contemplated hereby will not
conflict with or result in any
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violation of or default by the Company (with or without notice or lapse of time,
or both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation or to a loss of a benefit under (i) any provision
of the organizational documents of the Company or (ii) any agreement or
instrument, permit, franchise, license, judgment, order, statute, law,
ordinance, rule or regulations, applicable to the Company or its respective
properties or assets.
2.7 BROKERS. The Company has not retained, utilized or been represented
by any broker or finder in connection with the transactions contemplated by this
Agreement.
2.8 CONSENTS. All consents, approvals, orders and authorizations
required on the part of the Company in connection with the execution, delivery
or performance of this Agreement and the consummation of the transactions
contemplated herein have been obtained and are effective as of the Closing.
3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser represents and
warrants to the Company as follows:
3.1 AUTHORIZATION. All action on the part of the Purchaser and, if
applicable, its trustees, officers, directors, managers, members, shareholders
and/or partners necessary for the authorization, execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated herein has been taken. When executed and delivered, this Agreement
will constitute the legal, valid and binding obligation of the Purchaser,
enforceable against the Purchaser in accordance with its terms, except as such
may be limited by bankruptcy, insolvency, reorganization or other laws affecting
creditors' rights generally and by general equitable principles. The Purchaser
has all requisite power and authority to enter into each of this Agreement and
to carry out and perform its obligations under the terms of this Agreement.
3.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. The Purchaser is acquiring the
Membership Interests for its own account for investment and not for resale or
with a view to distribution thereof in violation of the Securities Act of 1933,
as amended, and all of the rules and regulations promulgated thereunder (the
"SECURITIES ACT").
3.3 INVESTOR STATUS; ETC. The Purchaser certifies and represents to the
Company that it is an "Accredited Investor" as defined in Rule 501 of Regulation
D promulgated under the Securities Act and was not organized for the purpose of
acquiring any of the Membership Interests. The Purchaser's financial condition
is such that it is able to bear the risk of holding the Membership Interests for
an indefinite period of time and the risk of loss of its entire investment. The
Purchaser has been afforded the opportunity to ask questions of and receive
answers from the management of the Company concerning this investment and has
sufficient knowledge and experience in investing in companies similar to the
Company in terms of the Company's stage of development so as to be able to
evaluate the risks and merits of its investment in the Company.
3.4 MEMBERSHIP INTERESTS NOT REGISTERED. The Purchaser understands that
the Membership Interests have not been registered under the Securities Act, by
reason of their issuance by the Company in a transaction exempt from the
registration requirements of the Securities Act. The Purchaser understands that
the exemptions from registration afforded by Rule 144 (the provisions of which
are known to it) promulgated under the Securities Act depend on the satisfaction
of various conditions, and that, if applicable, Rule 144 may afford the basis
for sales only in limited amounts.
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3.5 INVESTMENT REPRESENTATIONS. The Purchaser represents and warrants
to the Company that: (i) it is a Massachusetts trust, (ii) each of its
constituent members is an "accredited investor" as such term is defined in Rule
501(a) promulgated under the Securities Act, and (iii) its principal office is
located at One Joy Street, Boston, Massachusetts 02108.
3.6 NO CONFLICT. The execution and delivery of this Agreement by the
Purchaser and the consummation of the transactions contemplated hereby will not
conflict with or result in any violation of or default by the Purchaser (with or
without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation or to a loss of a
benefit under (i) any provision of the organizational documents of the Purchaser
or (ii) any agreement or instrument, permit, franchise, license, judgment,
order, statute, law, ordinance, rule or regulations, applicable to the Purchaser
or its respective properties or assets.
3.7 BROKERS. The Purchaser has not retained, utilized or been
represented by any broker or finder in connection with the transactions
contemplated by this Agreement.
3.8 CONSENTS. All consents, approvals, orders and authorizations
required on the part of the Purchaser in connection with the execution, delivery
or performance of this Agreement and the consummation of the transactions
contemplated herein have been obtained and are effective as of the Closing.
4. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AT CLOSING. The
obligations of the Company under Section 1 of this Agreement are subject to the
fulfillment at or before the Closing of each of the following conditions, any of
which may be waived in writing by the Company:
4.1 INSTRUMENT OF ACCESSION. The Purchaser shall execute an Instrument
of Accession, substantially in the form of Exhibit A attached hereto,
simultaneously with the purchase of the Membership Interests hereunder, in order
to become a party to the Operating Agreement thereby agreeing to be bound by the
restrictions set forth in the Operating Agreement.
4.2 PERFORMANCE. The Purchaser shall have performed or fulfilled all
agreements, obligations and conditions contained herein required to be performed
or fulfilled by them before the Closing.
4.3 PROCEEDINGS SATISFACTORY. All trust and legal proceedings taken by
the Purchaser in connection with the transactions contemplated by this Agreement
and all documents and papers relating to such transactions shall be satisfactory
to the Company, in the reasonable exercise of the judgment of the Company.
5. CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER AT CLOSING. The
obligations of the Purchaser under Section 1 of this Agreement are subject to
the fulfillment at or before the Closing of each of the following conditions,
any of which may be waived in writing by the Purchaser:
5.1 PERFORMANCE. The Company shall have performed or fulfilled all
agreements, obligations and conditions contained herein required to be performed
or fulfilled by them before the Closing.
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5.2 PROCEEDINGS SATISFACTORY. All limited liability company and legal
proceedings taken by the Company in connection with the transactions
contemplated by this Agreement and all documents and papers relating to such
transactions shall be satisfactory to the Purchaser, in the reasonable exercise
of the judgment of the Purchaser.
6. MISCELLANEOUS
6.1 ENTIRE AGREEMENT; SUCCESSORS AND ASSIGNS. This Agreement and the
exhibits hereto constitute the entire agreement among the parties relative to
the subject matter hereof. Any previous agreement among the parties is
superseded by this Agreement. Subject to the exceptions specifically set forth
in this Agreement, the terms and conditions of this Agreement shall inure to the
benefit of and be binding upon the respective executors, administrators, heirs,
successors and assigns of the parties.
6.2 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to contracts
entered into and wholly to be performed within the State of Delaware by Delaware
residents.
6.3 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same instrument.
6.4 HEADINGS. The headings of the Sections of this Agreement are for
convenience and shall not by themselves determine the interpretation of this
Agreement.
6.5 NOTICES. Any notice required or permitted hereunder shall be given
in writing and shall be conclusively deemed effectively given upon personal
delivery, or by telecopier (confirmed thereafter by U.S. mail) or delivery by
overnight courier, or five days after deposit in the United States mail, by
registered or certified mail, postage prepaid, addressed as set forth below
(with copies as indicated), or at such other address as each party may designate
by ten (10) days' advance written notice to all other parties:
IF TO THE COMPANY: IF TO THE PURCHASER:
545 Boylston Street, 8th Floor DSCKW Irrevocable Trust
Boston, MA 02116 One Joy Street
Attention: President and CEO Boston, MA 02108
Telecopier No.: (617) 536-1573 Attention: Anastasios Parafestas
Telecopier No.: (617) 531-4872
WITH COPIES TO:
Bingham Dana LLP
150 Federal Street
Boston, MA 02110
Attention: Jonathan K. Bernstein, Esq.
Telecopier No.: (617) 951-8736
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6.6 SURVIVAL OF WARRANTIES. The representations and warranties of the
parties contained in or made pursuant to this Agreement shall survive the
execution and delivery of this Agreement and the Closing; provided, however,
that, except as provided above, such representations and warranties need only be
accurate as of the date of such execution and delivery and as of the Closing.
6.7 AMENDMENT OF AGREEMENT. Any provision of this Agreement may be
amended by a written instrument by agreement of the parties hereto.
[SIGNATURE PAGE TO FOLLOW]
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IN WITNESS WHEREOF, the parties hereto have executed this Purchase
Agreement as of the day and year first above written.
PAPEREXCHANGE.COM, LLC
a Delaware limited liability company
By: /s/ Kent Dolby
------------------------------------
Name: Kent A. Dolby
Title: President and CEO
Address: 545 Boylston Street
Boston, MA 02116
DSCKW IRREVOCABLE TRUST
By: /s/ A. Parafestas
------------------------------------
Anastasios Parafestas, as Trustee
Address: One Joy Street
Boston, MA 02108
<PAGE>
EXHIBIT A
FORM OF INSTRUMENT OF ACCESSION
<PAGE>
EXHIBIT 10.9
INTEREST PURCHASE AGREEMENT
This INTEREST PURCHASE AGREEMENT (this "Agreement") is dated as of
December 20, 1999, by and between PaperExchange.com, LLC, a Delaware limited
liability company (the "Company"), and Kent A. Dolby (the "Holder").
WHEREAS, the Company wishes to sell and the Holder wishes to buy certain
ownership interests in the Company on the terms and subject to the restrictions
contained in this Agreement.
NOW, THEREFORE, in consideration of the mutual promises and agreements set
forth herein, the Company and the Holder agree as follows:
1. DEFINITIONS. As used herein, the following terms shall have the
meanings specified below:
"Act" has the meaning set forth in Section 4(a) hereof.
"Balance Sheet" means the balance sheet of the Company dated as of
December 31, 1998.
"Company" has the meaning set forth in the preamble hereto.
"Employment Agreement" means the Employment Agreement of even date
herewith between the Company and the Holder.
"Financial Statements" means the unaudited financial statements of the
Company for the period commencing on April 10, 1998 and ending on December 31,
1998.
"Fully-Diluted Basis" means the calculation of all of the issued and
outstanding equity interests in the Company after giving effect to the exercise
of all Warrants.
"Holder" has the meaning set forth in the introductory paragraph hereof.
"Imputed Rate" means the applicable Federal rate as defined under Section
1274(d) of the Internal Revenue Code of 1986, as amended.
"Interest Price" means $2.38284 per Membership Interest.
"Interests" means the Membership Interests of the Company issued to the
Holder pursuant to the terms hereof, and any other units or securities of a
successor entity issued to the Holder pursuant to any recapitalization,
reorganization, or merger of the Company, including in connection with a
Reorganization.
"Management Board" means the management board of the Company or, in the
event of a Reorganization, any other similar managing body of the successor
entity.
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"Membership Interest" has the meaning set forth in the Operating
Agreement.
"Note" has the meaning set forth in Section 2 hereof.
"Operating Agreement" means the Company's Amended and Restated Operating
Agreement, dated as of June 1, 1999, among the Company and its members, as
amended by the Amendment to the Amended and Restated Operating Agreement, dated
as of August 26, 1999, and the Second Amendment to the Amended and Restated
Operating Agreement, dated as of November 23, 1999, and, after the date hereof,
the Operating Agreement Amendment, all as further amended from time to time.
"Operating Agreement Amendment" has the meaning set forth in Section 2
hereof.
"Option Agreement" means the Equity Option Agreement of even date herewith
between the Company and the Holder.
"Percentage Interest" has the meaning set forth in the Operating
Agreement.
"Purchase Price" has the meaning set forth in Section 2 hereof.
"Reorganization" means the reorganization or conversion of the Company
from a limited liability company into any other form of entity, including any
such reorganization effected by way of merger or transfer of all or
substantially all of the assets or Membership Interests and Economic Interests
(as such term is defined in the Operating Agreement) of the Company to a
corporation or other entity formed at the direction of the Management Board for
purposes of such reorganization.
"Transfer" has the meaning ascribed to such term in Section 7 of the
Operating Agreement.
"Warrants" means those certain warrants to purchase equity interests of
the Company issued on October 15, 1999, as reflected in the chart in Section
2.2(e) hereof.
2. PURCHASE AND SALE OF INTERESTS.
2.1 Subject to the terms and conditions hereinafter set forth and in
reliance on the representations and warranties contained herein, the Company
hereby issues and sells to the Holder and the Holder hereby purchases from the
Company, on the date hereof, 441,754 Interests. If all of the Employee's options
were exercised pursuant to the Option Agreement, the Interests would represent a
one percent (1%) Percentage Interest in the Company calculated as of the date
hereof on a Fully-Diluted Basis. The aggregate purchase price paid by the Holder
for the Interests will be $1,052,632 (the "Purchase Price"). On the date hereof
(a) the full amount of the Purchase Price will be paid to the Company by
delivery of the Holder's promissory note to the Company in an aggregate
principal amount equal to the Purchase Price and in the form of Exhibit A hereto
(the "Note"), (b) the Operating Agreement shall be amended to reflect the
Holder's purchase of the Interests hereunder and the Holder's admission as a
Member of the Company, in accordance with that certain amendment to the
Operating Agreement to be executed by the Company and each of the Members in the
form of Exhibit B attached hereto (the "Operating Agreement Amendment"), (c) the
Holder shall execute the
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Irrevocable Voting Proxy of even date herewith in favor of Robert K. Kraft, and
(d) the Holder will deliver to and pledge all of the Interests to the Company
pursuant to the terms of the Note (including without limitation executing UCC-1
financing statements in connection with the Note), together with appropriate
instruments of assignment thereof reasonably acceptable to, and duly executed in
blank by, the Holder.
2.2 Representations and Warranties of the Company. The Company represents
and warrants as follows:
(a) After giving effect to the purchase and sale effected hereby the
Interests will be duly authorized and validly issued in compliance with the
Certificate of Formation of the Company and the Operating Agreement.
(b) The Company is a limited liability company organized, validly
subsisting and in good standing under the laws of Delaware. The Company has all
necessary corporate power, authority and capacity to own its properties and
assets and to carry on its business. The Company has full right, power, capacity
and authority to enter into and perform its obligations under this Agreement,
the Employment Agreement and the Option Agreement. Copies of the certificate of
formation and Operating Agreement of the Company including all amendments
thereto and restatements thereof are annexed as Schedule 1.
(c) The entering into, execution and delivery by the Company of this
Agreement, the Employment Agreement and the Option Agreement, and the other
agreements contemplated herein to which it is a party, has been duly authorized
by all necessary action on behalf of the Company. This Agreement and the
Employment Agreement have been duly executed and delivered by the Company. This
Agreement, the Employment Agreement and the Option Agreement constitute the
legal, valid, and binding obligation of the Company enforceable against it in
accordance with their terms (subject, as to the enforcement of remedies, to
bankruptcy, reorganization, insolvency, moratorium, and other laws relating to
or affecting creditors' rights generally and subject to the availability of
equitable remedies). Neither the execution and delivery of this Agreement, nor
the Employment Agreement, nor the Option Agreement, nor the performance by the
Company of its obligations hereunder or thereunder will conflict with, or, to
the Company's knowledge, result in a breach of the terms, conditions or
provisions of, or constitute a default under, or result in any violation of, the
laws applicable to the Company, any judgment, order, writ, injunction or decree
of any governmental or regulatory authority, the organizational documents of the
Company, or the provisions of any agreement, arrangement or understanding to
which the Company is a party or by which it, its business or its assets and
properties are bound or affected.
(d) To the Company's knowledge, it holds all material licenses,
permits and authorizations necessary for the lawful operation of its business
pursuant to all applicable statutes, laws, ordinances, rules and regulations of
all authorities having jurisdiction over the Company or over any part of the
business. To the Company's knowledge, it is not in violation of any laws or
regulations concerning its business, except for violations that are immaterial
to the condition and operation of the business.
(e) On closing of the Holder's purchase of the Interests after
giving effect to the transactions contemplated hereby, the ownership of the
Company on a Fully-Diluted Basis will be as follows:
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MEMBERSHIP WARRANTS DILUTED
INTERESTS @$2/SHARE TOTAL OWNERSHIP
- --------------------------------------------------------------------------------
Kraft Group LLC 22,026,000 2,979,168 25,005,168 58.96268%
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Internet Capital 9,457,320 1,279,167 10,736,487 25.31685%
Group (PE.com
Holdings)
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Terrapin Partners LLC 2,495,253 337,500 2,832,753 6.67969%
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Hilton Plein 1,109,001 150,000 1,259,001 2.96875%
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Roger Stone 1,109,001 150,000 1,259,001 2.96875%
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M&M Kaplan 369,669 50,001 419,670 0.98959%
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L Stone 184,833 24,999 209,832 0.49478%
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J Stone 184,833 24,999 209,832 0.49478%
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Steve Kaplan 30,804 4,167 34,971 0.08246%
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Kent A. Dolby 441,754 441,754 1.04167%
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TOTAL SHARES
OUTSTANDING 37,408,468 5,000,001 42,408,469 100%
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Except as set forth on Schedule 2 attached hereto, and except as set forth
immediately above, there are no outstanding securities convertible into or
exchangeable or exercisable for any Membership Interests or Economic Interests
in the Company, nor does the Company have outstanding any rights to subscribe
for or to purchase, or any options for the purchase of, or any agreements
providing for the issuance of, any Membership Interests or Economic Interests in
the Company or any securities convertible into or exchangeable or exercisable
for any Membership Interests or Economic Interests in the Company.
(f) The Financial Statements have been prepared in accordance with
generally accepted accounting principles, consistently applied. The Balance
Sheet presents fairly a true and complete statement in all material respects of
the financial condition, assets and properties and liabilities of the Company as
at December 31, 1998 and the related income statements forming a part of the
Financial Statements accurately sets forth in all material respects the results
of the operations of the Company throughout the period covered thereby. The
Financial Statements do not contain any extraordinary items or items of special
or nonrecurring income or any other income not earned in the ordinary course of
business, except as expressly specified therein.
(g) To the Company's knowledge, since the date of the Balance Sheet,
there has not been any event or events, alone or in the aggregate, having a
material adverse affect on the Company (excluding general economic conditions).
3. RESTRICTIONS ON TRANSFER. The Holder agrees (i) to be bound by the
transfer restrictions set forth in the Operating Agreement, and (ii) to execute
the Operating Agreement Amendment simultaneously with the purchase of the
Interests hereunder. Upon the Transfer by the Holder of all or any portion of
the Interests, other than pursuant to any
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Reorganization or in connection with permitted assignments under the terms of
the Operating Agreement, the Note shall become immediately due and payable. The
Holder agrees that in connection with any Reorganization the Holder shall upon
request of the Management Board execute documents required to effect such
Reorganization, including documents evidencing the Holder's agreement to comply
with any restrictions imposed by the Management Board generally upon all of the
holders (other than Kraft, PE.com Holdings LLC ("PEH"), or any transferees or
assignees of Kraft or PEH) of Membership Interests (or the capital stock or
other securities received in exchange for Membership Interests (or into which
Membership Interests are converted) in a Reorganization) with respect to the
Transfer or voting thereof. The Holder understands and agrees that this
constitutes an irrevocable commitment which the Holder shall not have the right
to cancel or veto.
4. INVESTMENT REPRESENTATIONS.
(a) The Holder represents that the Interests are being acquired by him for
his own account for investment and not with a view to the distribution thereof.
The Holder understands that the Interests have not been registered under the
Securities Act of 1933, as amended (the "Act"), on the grounds that the offer
and sale of the Interests to him are exempt from the registration requirements
of the Act under Section 4(2) thereof as a transaction not involving any public
offering of the Interests. The Holder understands that the Company's reliance on
such exemption is predicated in part on the representations of the Holder which
are contained herein.
(b) The Holder understands that he must bear the economic risk of his
investment in the Interests for an indefinite period of time because the
Interests have not been registered under the Act and, therefore, cannot be sold
unless they are subsequently registered under the Act or an exemption from such
registration is available. The Holder agrees that he will not offer to Transfer
any of the Interests except as expressly permitted by the Operating Agreement
and this Agreement and then only after the Company has received an opinion of
counsel that such offer or Transfer is not in violation of the registration
requirements of the Securities Act of 1933, as amended, or other applicable law.
(c) The Holder represents that he is a resident of the Commonwealth of
Pennsylvania.
(d) The Holder represents and confirms that he has had an opportunity to
obtain information concerning the Company as desired to evaluate the merits and
risks in holding the Interests, and the Holder is not relying on any statement,
representation or warranty made by the Company or any person except for the
representations and warranties of the Company set forth in this Agreement.
5. GENERAL.
5.1. Notices. All notices, demands and other communications hereunder
shall be in writing or by written telecommunication, and shall be deemed to have
been duly given if delivered personally or if mailed by certified mail, return
receipt requested, postage prepaid, or if sent by overnight courier, or sent by
written telecommunication, as follows:
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If to the Company, to:
PaperExchange.com, LLC
545 Boylston Street
Boston, Massachusetts 02108
Attention: Chairman
With a copy sent contemporaneously to:
Jonathan K. Bernstein, Esq.
Bingham Dana LLP
150 Federal Street
Boston, Massachusetts 02110
If to the Holder, to:
Kent A. Dolby
632 Olympia Hills Circle
Berwyn, Pennsylvania 19312
With a copy sent contemporaneously to:
Michael A. Schlesinger, Esq.
Tucker Flyer
1615 L Street, N.W.
Suite 400
Washington, D.C. 20036
Any such notice shall be effective (a) if delivered personally, when
received, (b) if sent by overnight courier, when receipted for, (c) if mailed,
three (3) days after being mailed as described above, and (d) if sent by written
telecommunication, when dispatched.
5.2. Equitable Remedies. Each of the parties hereto acknowledges and
agrees that upon any breach by the Holder of his obligations under Section 3
hereof, the Company will have no adequate remedy at law, and accordingly will be
entitled to specific performance and other appropriate injunctive and equitable
relief.
5.3. Severability. If any provision of this Agreement is or becomes
invalid, illegal or unenforceable in any respect under any law, the validity,
legality and enforceability of the remaining provisions hereof shall not in any
way be affected or impaired.
5.4. Waivers. No delay or omission by either party hereto in exercising
any right, power or privilege hereunder shall impair such right, power or
privilege, nor shall any single or partial exercise of any such right, power or
privilege preclude any further exercise thereof or the exercise of any other
right, power or privilege.
5.5. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
<PAGE>
-7-
5.6. Assigns. This Agreement shall not be assignable or transferable by
the Holder without the Company's prior written consent thereto. Any
Reorganization will require that, at closing thereon, this Agreement, the
Employment Agreement and the Option Agreement, and all of the Company's
obligations hereunder and thereunder, are fully assumed by the Company's
transferee or successor in interest.
5.7. Entire Agreement. This Agreement contains the entire understanding of
the parties, supersedes all prior agreements and understandings relating to the
subject matter hereof and shall not be amended except by a written instrument
hereafter signed by each of the parties hereto. Nothing in this Agreement shall
be construed as a grant to the Holder of any right to continuing employment with
the Company or to restrict in any way the right to terminate the Holder's
employment at any time.
5.8. Governing Law. This Agreement and the obligations of the parties
hereunder shall be deemed to be a contract under seal and shall for all purposes
be governed by and construed in accordance with the internal laws of the State
of Delaware without reference to principles of conflicts of law.
5.9 Consent to Jurisdiction, Counsel. The Holder agrees that the courts of
the Commonwealth of Massachusetts and the United States District Court for the
District of Massachusetts shall have exclusive jurisdiction to hear and
determine any claims or disputes between or among the Holder and any person or
entity (including, without limitation, the Company) pertaining directly or
indirectly to this Agreement or to any matter arising hereunder. The Holder
expressly submits and consents in advance to such jurisdiction in any action or
proceeding commenced in such courts, hereby waiving personal service of the
summons and complaint, or other process or papers issued therein, and agreeing
that service of such summons and complaint, or other process or papers, may be
made by registered or certified mail addressed to the Holder at the address set
forth herein. The Holder acknowledges that he has carefully read this Agreement
and that he has had an opportunity to consult with an attorney of its own
selection before signing it and he understands the effects of this Agreement and
is signing it voluntarily
5.10. Construction. The language used in this Agreement will be deemed to
be the language chosen by the parties to express their mutual intent, and no
rule of strict construction will be applied against any party.
5.11. Waiver of Jury Trial. EACH PARTY HERETO WAIVES ITS RIGHTS TO A JURY
TRIAL WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN
CONNECTION WITH THIS AGREEMENT, ANY AGREEMENT, CONTRACT OR OTHER DOCUMENT OR
INSTRUMENT EXECUTED IN CONNECTION HEREWITH, OR ANY OF THE TRANSACTIONS
CONTEMPLATED HEREBY.
[Execution page to follow.]
<PAGE>
IN WITNESS WHEREOF, and intending to be legally bound hereby, the parties
hereto have caused this Agreement to be duly executed as of the date and year
first above written.
THE COMPANY: PAPEREXCHANGE.COM, LLC
By: /s/ Robert K. Kraft
------------------------
Name: Robert K. Kraft
Title: Chairman
THE HOLDER:
/s/ Kent A. Dolby
----------------------------
Kent A. Dolby
<PAGE>
SCHEDULE 1
Formation and Organizational Documents
<PAGE>
SCHEDULE 2
Outstanding Rights to Purchase or Subscribe
o Two (2) Employees are permitted to purchase an aggregate maximum of
$200,000 of restricted equity in the Company in connection with an IPO.
o Outstanding options granted pursuant to the Company's 1998 Equity Option
Plan, as amended, to purchase an aggregate of 2,757,248 Economic Interests
of the Company.
<PAGE>
EXHIBIT A
Form of Note
<PAGE>
EXHIBIT B
Operating Agreement Amendment
<PAGE>
EXHIBIT 10.10
PAPEREXCHANGE.COM, LLC
EQUITY OPTION AGREEMENT
Kent A. Dolby Date Option Granted: December 20, 1999
------------------------------
Name of Optionee
632 Olympia Hills Circle
Berwyn, Pennsylvania 19312
------------------------------
Residence Address
THIS AGREEMENT is made as of the date set forth above between
PaperExchange.com, LLC, a Delaware limited liability company (the "Company") and
the optionee named above (the "Optionee").
RECITAL
The Management Board of the Company (the "Board"), has determined that it
is to the advantage and interest of the Company and its members to grant the
option provided for herein to the Optionee as an inducement to enter or remain
in the service of the Company and as an incentive for increased effort during
such service. In consideration of the mutual covenants herein contained, the
parties hereto agree as follows:
1. Grant of Option
(a) The Company grants to the Optionee the right and option (the
"Option") to purchase on the terms and conditions hereinafter set forth all or
any part of 1,767,020 Membership Interests (as such term is defined in the
Operating Agreement) (the "Shares") of the Company (comprising, if the Option
was fully exercised, the equivalent of an aggregate of a four percent (4%)
Percentage Interest (as such term is defined in the Operating Agreement)
computed on a Fully-Diluted Basis (as such term is defined in that certain
Interest Purchase Agreement dated of even date herewith between the Company and
the Optionee (the "Interest Purchase Agreement")) in the Company as of the date
hereof) at the purchase price of $2.38284 per Share. The Option shall become
exercisable over time as set forth on Schedule 1 attached hereto or as otherwise
provided herein.
(b) Nothing contained herein shall be construed to amend, alter or
modify the terms or provisions set forth in the Employment Agreement between the
Company and the Optionee dated as of December __, 1999 (the "Employment
Agreement"). This is the Option referred to in Section 4(d) of the Employment
Agreement.
1.
<PAGE>
(c) If within twelve (12) months after the occurrence of a Change of
Control (as defined below) the Optionee's employment with the Company is
terminated without Cause (as defined in the Employment Agreement) or with Good
Reason (as defined in the Employment Agreement), the entire Option, to the
extent that all or any portion of the Option has not become exercisable pursuant
to Schedule 1 attached hereto, shall become fully exercisable immediately upon
such termination.
A "Change in Control" shall be deemed to have occurred for purposes of this
Agreement on the effective date of (a) any Person (as such term is used in
Section 13(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) becoming the "beneficial owner" (as determined pursuant to Rule 13d-3
promulgated under the Exchange Act) of fifty percent (50%) or more of the voting
equity interests of the Company; or (b) the approval by the Company's equity
interest holders of (A) an agreement to merge, consolidate or otherwise combine
with, or otherwise enter into a transaction with, another Person, which will
result (whether separately or in connection with a series of related
transactions) in a change of ownership of fifty percent (50%) or more of the
current voting control of, or beneficial rights to, the voting equity interests
of the Company, or (B) an agreement to sell or otherwise dispose of all or
substantially all of the Company's assets (including, without limitation, a plan
of liquidation or dissolution) which will result in a change of ownership of
fifty percent (50%) or more of either control of the Company's assets or its
voting equity interests, or (C) a fundamental alteration in the nature of the
Company's business. Notwithstanding anything in the immediately preceding
sentence to the contrary, a "Change in Control" shall not include any
transaction or series of transactions described in the preceding sentence in
which (I) the Company or any of its subsidiaries, (II) an employee benefit plan
of the Company or any of its subsidiaries, or a trustee or other fiduciary
holding securities under an employee benefit plan of the Company or any of its
subsidiaries, (III) Persons (and the beneficial or ultimate owners or Affiliates
(as hereinafter defined) of such Persons) who are Members (as defined in the
Operating Agreement referred to in Section 9 hereof) of the Company on the date
hereof, (IV) a company owned, directly or indirectly, by Members in
substantially the same proportions as their ownership of the Company, or (V) an
underwriter temporarily holding securities (an "Investor") pursuant to an
offering of such securities, is or becomes a "beneficial owner", directly or
indirectly, of securities of the Company representing 50% or more of the
combined voting power of all voting securities of the Company then outstanding,
or comes to control fifty percent (50%) or more of the Company's assets.
"Affiliate" shall mean any person or business entity which controls, is
controlled by, or is under the common control with, any other person.
2. Exercise.
(a) The right to exercise the Option granted hereunder in accordance
with Sections 1(a) or 1(c), to the extent unexercised, shall remain in effect
for a period of five (5) years from the date of grant of this Option.
(b) This Option shall become exercisable at the times specified in
Sections 1(a) and 1(c) of this Agreement. This Option shall remain exercisable
as provided in Section 2(a) of this Agreement
2.
<PAGE>
3. Method of Exercise. To the extent that the right to exercise has
accrued hereunder, the Option may be exercised from time to time by written
notice to the Company stating the number of Shares which are being purchased
pursuant to this Option, together with payment, in full, in cash or by certified
or cashier's check payable to the order of the Company, of the purchase price
for such Shares exercised. If requested by the Board, prior to completing the
sale of the equity as contemplated hereunder, the Optionee shall supply the
Board with a representation that the Shares are not being acquired with a view
to distribution and will be sold or otherwise disposed of only in accordance
with applicable federal and state statutes, rules and regulations. As a
condition to the exercise of the Option, in whole or in part, the Board may, in
its sole discretion, require the Optionee to pay, in addition to the purchase
price for the Shares being purchased, an amount equal to any federal, state or
local taxes that the Board has determined are required to be paid in connection
with the exercise of the Option. As soon after the notice of exercise as the
Company is reasonably able to comply, the Company shall, without transfer or
issue tax to the Optionee or other person entitled to exercise the Option,
update its records to reflect the change in the ownership of the Company due to
the exercise of this Option.
In the Board's sole discretion, payment of the purchase price for
the Shares to be delivered, but not of the amount of any withholding taxes, may
be made in whole or in part with Shares. If requested by the Board, prior to the
acceptance of payment with Shares in the Company, the Optionee shall supply the
Board with a written representation and warranty that he has good and marketable
title to the Shares, free and clear of liens and encumbrances. The value of the
Shares tendered in payment for the Shares purchased shall be its fair market
value (as determined by the Board in good faith) on the date of the Optionee's
notice of exercise.
The Optionee may from time to time exercise the Option for less than the
full number of Shares for which the Option is exercisable.
4. Termination of Option. The Option shall terminate and expire upon the
earliest to occur of:
(a) The last date for exercise of the Option as provided in Section
2(a) of this Agreement; or
(b) The termination of the Option pursuant to Section 5(b) hereof.
Subject to Section 1(c) hereof, a termination of employment of the
Optionee for any reason shall not accelerate or otherwise affect the equity with
respect to which the Option may be exercised, and the Option may only thereafter
be exercised with respect to the portion of the Shares for which it was
exercisable at the date of such termination of employment. In the event of
termination of the Optionee's employment with the Company due to the Optionee's
death, the Option may continue to be exercised prior to its expiration by his
personal representative, or if there is no personal representative, by his heir
or legatee. However, the Option may only be exercised with respect to the
portion of the Shares for which it was exercisable at the date of the Optionee's
death.
3.
<PAGE>
Termination of employment (other than by reason of death) for
purposes hereof shall be deemed to take place upon the earliest to occur of the
following: (i) the date of the Optionee's retirement under the normal retirement
policies of the Company or any Affiliate; (ii) the date the Optionee receives
notice or advice that his employment is terminated; (iii) the date the Optionee
provides notice to the Company that his employment is terminated; or (iv) the
date the Optionee's employment is terminated for Disability (as such term is
defined in the Employment Agreement) pursuant to Section 6(a) of the Employment
Agreement. The fact that the Optionee may receive payment from the Company or
any Affiliate after termination for vacation pay, for services rendered prior to
termination, for salary in lieu of notice or for other benefits shall not affect
the termination date.
5. Adjustments.
(a) If the outstanding Shares of the Company change from the date an
Option is granted due to a combination or subdivision of outstanding Shares or a
distribution payable pro rata to the Members and Assignees (as such term is
defined in the Operating Agreement) of the Company in Shares, the number of
Shares for which such Option shall thereafter be or become exercisable, and the
price to be paid for any Share on exercise of such Option, shall be
proportionately adjusted. In the event of any reclassification or change of
outstanding Shares (including pursuant to a Reorganization (as such term is
defined in the Interest Purchase Agreement)), immediately thereafter (and
subject to further adjustment for subsequent events) any outstanding Option
shall thereafter relate to shares, units or other equity interests in the
Company equivalent in kind and value to those shares, units or other equity
interests in the Company the Optionee would have received if he or she had held
of record the full remaining number of Shares such to the Option immediately
prior to such reclassification or change.
(b) Notwithstanding the provisions of subsection (a) of this Section
5, upon the dissolution or liquidation of the Company or upon any
reorganization, merger or consolidation with one or more entities in which the
Company is not the surviving entity, or upon a sale of substantially all of the
assets of the Company or of more than 80% of the then outstanding equity of the
Company to another entity, this Option shall terminate, provided, however, that
(i) this Option, if no option has been tendered by a surviving or successor
entity in accordance with all of the terms of provision (ii) immediately below,
shall become fully exercisable subject Section 5(c) below for a period of at
least 30 days before the effective date of such dissolution, liquidation,
merger, consolidation or sale of equity or assets or (ii) in its sole and
absolute discretion, any surviving or successor entity may, but shall not be
obligated to, tender to the Optionee an option or options to purchase equity of
such surviving or successor entity (or an Affiliate thereof) containing such
terms and provisions as shall be required substantially to preserve the rights
and benefits of the Optionee's Option as then outstanding. The provisions of
this paragraph (b) will not apply to a Reorganization.
(c) This Option shall not be exercisable (and any attempted exercise
will be deemed null and void) if such exercise would create a right of recovery
for "short-swing profits" under Section 16(b) of the Exchange Act.
4.
<PAGE>
(d) Any adjustment required by this Section 5 shall be determined
and made by the Board.
6. Non-Transferability. The Option is not assignable or transferable by
the Optionee, either voluntarily or by operation of law, otherwise than by will
or by the laws of descent and distribution, and is exercisable, during the
Optionee's lifetime, only by the Optionee.
7. No Ownership Rights. The Optionee or other person entitled to exercise
the Option shall have no rights or privileges with respect to any Shares subject
hereto, and no adjustment (except such adjustments as may be effected pursuant
to the provisions of Section 5 hereof) shall be made for dividends or
distribution of rights in respect of such equity if the record date is prior to
the date on which the Optionee or such person becomes the holder of record.
The Option will not be treated as an incentive stock option within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended.
8. Conditions to Issuance of Option. THE COMPANY'S OBLIGATION TO ISSUE A
MEMBERSHIP INTEREST UPON EXERCISE OF THE OPTION IS EXPRESSLY CONDITIONED UPON
THE COMPLETION BY THE COMPANY OF ANY REGISTRATION OR OTHER QUALIFICATION OF SUCH
SECURITY UNDER ANY STATE AND/OR FEDERAL LAW OR RULINGS OR REGULATIONS OR ANY
GOVERNMENT REGULATORY BODY OR THE MAKING OF SUCH INVESTMENT REPRESENTATIONS OR
OTHER REPRESENTATIONS AND AGREEMENTS BY THE OPTIONEE OR ANY PERSON ENTITLED TO
EXERCISE THE OPTION IN ORDER TO COMPLY WITH THE REQUIREMENTS OF ANY EXEMPTION
FROM ANY SUCH REGISTRATION OR OTHER QUALIFICATION OF SUCH SECURITY WHICH THE
BOARD SHALL, IN ITS SOLE DISCRETION, DEEM NECESSARY OR ADVISABLE. SUCH REQUIRED
REPRESENTATIONS AND AGREEMENTS INCLUDE REPRESENTATIONS AND AGREEMENTS THAT THE
OPTIONEE, OR ANY OTHER PERSON ENTITLED TO EXERCISE THE OPTION, (A) IS NOT
PURCHASING SUCH SECURITY FOR DISTRIBUTION AND (B) AGREES TO HAVE PLACED UPON THE
FACE AND REVERSE OF ANY CERTIFICATE FOR SUCH SECURITY A LEGEND SETTING FORTH ANY
REPRESENTATIONS AND AGREEMENTS WHICH HAVE BEEN GIVEN TO THE BOARD OR A REFERENCE
THERETO AND STATING THAT, PRIOR TO MAKING ANY SALE OR OTHER DISPOSITION OF ANY
SUCH SECURITY, THE OPTIONEE, OR ANY OTHER PERSON ENTITLED TO EXERCISE THE
OPTION, WILL GIVE THE COMPANY NOTICE OF INTENTION TO SELL OR DISPOSE OF THE
SECURITY NOT LESS THAN FIVE DAYS PRIOR TO SUCH SALE OR DISPOSITION.
9. Operating Agreement. Upon the exercise of any portion of this Option,
the Optionee agrees to become a party to the Company's Amended and Restated
Operating Agreement, dated as of June 1, 1999, as may be amended from time to
time, (as a Member) and be bound by such agreement's terms and conditions (as a
Member).
10. Method of Acceptance. This Agreement is addressed to the Optionee in
duplicate and shall not be effective until the Optionee executes the acceptance
below and returns one copy
5.
<PAGE>
to the Company, thereby acknowledging that he has read and agreed to all the
terms and conditions of this Agreement.
<PAGE>
EXECUTED this 20th day of December, 1999.
PAPEREXCHANGE.COM, LLC
By: /s/ Robert Kraft
---------------------------
Title: Chairman
---------------------------
<PAGE>
ACCEPTED:
/s/ Kent A. Dolby
- ----------------------------
Kent A. Dolby
December 20, 1999
- ----------------------------
Date
<PAGE>
SCHEDULE 1
Vesting Schedule
Date Percent of Optionee's
---- Option Becoming Exercisable
---------------------------
- --------------------------------------------------------------------------------
End of Month 1* 1.041667%
- --------------------------------------------------------------------------------
End of Month 2 1.041667%
- --------------------------------------------------------------------------------
End of Month 3 1.041667%
- --------------------------------------------------------------------------------
End of Month 4 1.041667%
- --------------------------------------------------------------------------------
End of Month 5 1.041667%
- --------------------------------------------------------------------------------
End of Month 6 1.041667%
- --------------------------------------------------------------------------------
End of Month 7 1.041667%
- --------------------------------------------------------------------------------
End of Month 8 1.041667%
- --------------------------------------------------------------------------------
End of Month 9 1.041667%
- --------------------------------------------------------------------------------
End of Month 10 1.041667%
- --------------------------------------------------------------------------------
End of Month 11 1.041667%
- --------------------------------------------------------------------------------
End of Month 12 1.041667%
- --------------------------------------------------------------------------------
End of Month 13 2.604166%
- --------------------------------------------------------------------------------
End of Month 14 2.604166%
- --------------------------------------------------------------------------------
End of Month 15 2.604166%
- --------------------------------------------------------------------------------
End of Month 16 2.604166%
- --------------------------------------------------------------------------------
End of Month 17 2.604166%
- --------------------------------------------------------------------------------
End of Month 18 2.604166%
- --------------------------------------------------------------------------------
End of Month 19 2.604166%
- --------------------------------------------------------------------------------
End of Month 20 2.604166%
- --------------------------------------------------------------------------------
End of Month 21 2.604166%
- --------------------------------------------------------------------------------
End of Month 22 2.604166%
- --------------------------------------------------------------------------------
End of Month 23 2.604166%
- --------------------------------------------------------------------------------
End of Month 24 2.604166%
- --------------------------------------------------------------------------------
End of Month 25 2.604166%
- --------------------------------------------------------------------------------
End of Month 26 2.604166%
- --------------------------------------------------------------------------------
End of Month 27 2.604166%
- --------------------------------------------------------------------------------
End of Month 28 2.604166%
- --------------------------------------------------------------------------------
End of Month 29 2.604166%
- --------------------------------------------------------------------------------
End of Month 30 2.604166%
- --------------------------------------------------------------------------------
End of Month 31 2.604166%
- --------------------------------------------------------------------------------
End of Month 32 2.604166%
- --------------------------------------------------------------------------------
End of Month 33 2.604166%
- --------------------------------------------------------------------------------
End of Month 34 2.604166%
- --------------------------------------------------------------------------------
End of Month 35 2.604166%
- --------------------------------------------------------------------------------
End of Month 36 2.604166%
- --------------------------------------------------------------------------------
Fourth Anniversary of the Effective Date** 25.0%
- --------------------------------------------------------------------------------
Total: 100%
* Month 1 shall mean the first full month following the Effective Date.
** "Effective Date" has the meaning ascribed to such term in the Employment
Agreement.
<PAGE>
Exhibit 10.11
PROMISSORY NOTE
$1,052,632.00 December 20, 1999
FOR VALUE RECEIVED, the undersigned, KENT A. DOLBY (the "Maker"),
absolutely and unconditionally promises to pay to PAPEREXCHANGE.COM, LLC, a
Delaware limited liability company (the "Company"), at 545 Boylston Street,
Boston, Massachusetts 02108, or at such other place as the Company may from time
to time designate in writing, in lawful money of the United States of America
and in immediately available funds, the principal sum of ONE MILLION FIFTY-TWO
THOUSAND SIX HUNDRED THIRTY-TWO DOLLARS AND NO CENTS ($1,052,632.00) in the
amounts and at the times set forth below. Interest shall accrue on the
outstanding principal amount hereof from the date hereof through and including
the date on which such principal amount is paid in full, computed on the basis
of a year of 365 or 366 days, as the case may be, at a rate per annum of 6.2%,
compounded annually, and shall be due and payable in full on the final maturity
hereof. Capitalized terms used herein which are not otherwise defined herein
shall have the meanings ascribed to such terms in the Interest Purchase
Agreement dated as of December 20, 1999, between the Company and the Maker (as
amended from time to time, the "Purchase Agreement"). This is the "Note" issued
pursuant to the Purchase Agreement.
The principal of and accrued interest on this Note, if not earlier paid in
full, shall be due and payable in full on December 20, 2003 (the "Maturity
Date").
The Maker may prepay this Note, in whole or in part, at any time or times
prior to the Maturity Date without penalty or premium.
Any overdue payment of principal and, to the extent permitted by
applicable law, overdue interest, shall bear interest until such overdue
principal or interest is paid, computed on the basis of a year of 365 or 366
days, as the case may be, and paid for the actual number of days elapsed, at a
rate per annum of 10%.
In order to secure the due and punctual payment and performance of his
obligations hereunder, the Maker hereby pledges, assigns and grants a continuing
security interest in and lien on the Interests, and all income therefrom,
increases therein and proceeds thereof, to be held by the Company subject to the
terms and conditions hereinafter set forth. Upon repayment of this Note in full
in cash, all of the Company's security interest and lien granted hereunder shall
immediately terminate and the Company shall promptly provide a written release
to Maker.
In the event that the Maker shall, by dividend, if applicable,
distribution of capital or recapitalization of the Company upon or in respect of
the Interests,
<PAGE>
-2-
acquire any additional interests or other ownership units of the Company or any
securities exchangeable for or convertible into such interests or other
ownership units (collectively, "Other Securities"), the Maker shall forthwith
deliver to and pledge such Other Securities to the Company under this Note,
accompanied by appropriate instruments of assignment thereof duly executed in
blank by the Maker. For purposes of this Note the term "Interests" shall include
the Interests under (and as defined in) the Purchase Agreement, and any Other
Securities. The Maker shall not sell, assign or otherwise transfer any of his
right, title or interest in or to any of the Interests except for the pledge of
the Interests to the Company pursuant hereto. Notwithstanding any term contained
herein to the contrary, the disposition of the Interests arising solely as a
result of (i) a transfer of Interests permitted under the Operating Agreement
(as such term is defined in the Purchase Agreement), or (ii) the Reorganization
(as such term is defined in the Purchase Agreement), shall not constitute a
violation of the Maker's covenant contained in the immediately preceding
sentence so long as the Maker takes all actions that the Company reasonably
requests in order for the Company to maintain its first priority perfected
security interest in the Interests (including any Interests to be transferred)
until the payment in full in cash of this Note.
If applicable, the Maker shall be entitled to receive all cash dividends
or other cash distributions paid in respect of the Interests and to vote the
Interests and to give consents, waivers and ratifications in respect of the
Interests unless and until (a) the Maker shall fail to pay any installment of
principal or interest due hereunder and such failure is not remedied within five
days following the date on which the Company delivers notice of such default to
the Maker, or (b) any transfer by the Maker of the Interests except as expressly
permitted under this Note, (c) a voluntary proceeding is filed by the Maker or
an involuntary proceeding is filed against the Maker (which such involuntary
proceeding is not dismissed within 60 days after filing) seeking liquidation,
reorganization or an arrangement with the Maker's creditors under any provision
of the United States Bankruptcy Code as then in effect or any state insolvency
laws, or (d) the Company shall cease to have a first priority perfected security
interest in the Interests other than as a result of the Company's own act or
omission (each of (a), (b), (c) and (d) above being referred to herein as an
"Event of Default"). Except as set forth in the immediately preceding sentence,
all sums or other property paid or distributed upon or with respect to the
Interests shall be paid over and delivered to the Company to be held as further
security for the due and punctual payment and performance of the Maker's
obligations hereunder. In the event that, notwithstanding the immediately
preceding sentence, any such sums or other property are received by the Maker,
such sums or property shall be held in trust for the Company and promptly paid
over and delivered to the Company.
Upon the occurrence and during the continuance of any Event of Default,
the Company shall have the following rights and remedies (to the extent
permitted by applicable law) in addition to the rights and remedies of a secured
party under
<PAGE>
-3-
the Uniform Commercial Code of the Commonwealth of Massachusetts, all such
rights and remedies being cumulative, not exclusive, and enforceable
alternatively, successively or concurrently:
(a) If the Company so elects and gives written notice of such
election to the Maker, the Company may vote any or all of the Interests,
if applicable, possessing voting rights (whether or not the same shall
have been transferred into its name or the name of its nominee or
nominees) and give all consents, waivers and ratifications in respect of
the Interests and otherwise act with respect thereto as though it were the
outright owner thereof, the Maker hereby irrevocably constituting and
appointing the Company the proxy and attorney-in-fact of the Maker, with
full power of substitution, to do so;
(b) The Company may demand, sue for, collect or make any compromise
or settlement in respect of any Interests held by it hereunder that it
deems suitable;
(c) The Company may sell, resell, assign and deliver, or otherwise
dispose of any or all of the Interests, for cash and/or credit and upon
such terms at such place or places and at such time or times and to such
persons, firms, companies or corporations as the Company shall approve,
all without demand for performance by the Maker or advertisement or any
further notice whatsoever except such as may be required by law; and
(d) The Company may at any time, at its option, cause all or any
part of the Interests held by it to be transferred into its name or the
name of its nominee or nominees, receive any income thereon and hold such
income as additional collateral or apply it to the obligations hereunder.
Notwithstanding anything herein to the contrary, upon the occurrence of any
Event of Default all of the unpaid principal and interest hereunder shall be
immediately due and payable automatically and without any requirement of any
notice from or action by the Company and without presentment, demand, protest
and other notice of any kind, all of which are hereby expressly waived by the
Maker.
No provision of this Note shall require the payment of, or permit
contracting for, charging, receiving or collecting interest in excess of the
rate then permitted by applicable law. Regardless of any provision contained
herein, the Company shall not be entitled to contract for, charge, take,
reserve, receive or apply, as interest hereunder, any amount in excess of the
highest lawful rate, and, in the event the Company ever contracts for, charges,
takes, reserves, receives or applies as interest any such excess, it shall be
deemed a partial prepayment of principal and treated hereunder as such, and if
the principal debt is paid in full, any remaining excess shall forthwith be paid
to the Maker.
<PAGE>
-4-
The Maker hereby (a) waives presentment, demand, protest and notice of
presentment, notice of dishonor of this debt and each and every other notice of
any kind respecting this Note except notices of default as provided herein and
(b) agrees that this Note shall be binding upon it and its successors and
assigns.
Notwithstanding anything contained in this Note to the contrary, it is
understood and agreed that recourse against the Maker under any rule of law,
statute or constitution or by enforcement of any assessments or penalties or
otherwise for the payment of the principal of this Note against the Maker or his
legal representatives or permitted assigns or successors shall, as of the time
that recourse is sought against the Maker, be limited to 40% of the then
outstanding principal amount due under this Note; provided that no term
contained herein shall limit the recourse of the Company against the Interests
which are pledged as security for this Note.
The Maker shall pay on demand all collection costs and expenses, including
reasonable legal fees and disbursements, incurred by the Maker in enforcing
payment hereof.
Without the prior written consent of the Maker, this Note may not be sold,
exchanged or otherwise transferred by the Company to any party other than a
party that is a successor in interest to all or substantially all of the
Company's assets by merger, reorganization or otherwise.
THIS NOTE SHALL BE DEEMED TO TAKE EFFECT AS A SEALED INSTRUMENT UNDER AND
SHALL BE CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE COMMONWEALTH OF
MASSACHUSETTS, WITHOUT REFERENCE TO PRINCIPLES OF CONFLICTS OF LAW.
[Remainder of page intentionally left blank]
<PAGE>
IN WITNESS WHEREOF, the Maker has executed this Note as an instrument
under seal as of the day and year first above written.
Illegible
- ---------
Witness
/s/ Kent A. Dolby
-----------------
KENT A. DOLBY
<PAGE>
Exhibit 10.12
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (this "Agreement"), dated as of December 20,
1999, is between PAPEREXCHANGE.COM, LLC, a Delaware limited liability company
(the "Employer"), and KENT A. DOLBY (the "Employee").
WHEREAS, the Employer wishes to enter into this Agreement with the
Employee, and the Employee wishes to enter into this Agreement with the
Employer, on the terms set forth below.
NOW, THEREFORE, it is hereby agreed as follows:
ss.1. EMPLOYMENT. The Employer hereby employs the Employee, and the
Employee hereby accepts employment, upon the terms and subject to the conditions
hereinafter set forth.
ss.2. DUTIES. The Employee shall be employed by the Employer as President
and Chief Executive Officer and shall be appointed a member of the management
board of the Employer (or, in the case of a corporate successor or formation of
a parent corporation, the board of directors of such successor or parent
corporation) (the "Management Board"). In such capacities, the Employee shall
have both the general and specific responsibilities and duties assigned by the
Management Board, which shall be those as are customarily rendered by the
president and chief executive officer of a company comparable to the Employer.
The Employee shall report directly to the Management Board and shall not be
required to locate outside the greater Boston area. The Employee agrees to
devote his full professional time and best efforts to the performance of his
duties to the Employer. Nothing in this Agreement, however, shall prohibit the
Employee from making passive investments (other than investments prohibited by
Section 9 hereof) or participating in charitable, educational or professional
organizations and activities.
ss.3. TERM.
(a) Initial Term. The initial term of employment of the Employee hereunder
shall commence on the date that the Employee commences full-time employment with
the Employer (such date to occur not later than December 24, 1999) (the
"Effective Date"), and continue until the fourth anniversary of the Effective
Date (the "Initial Expiration Date"), unless terminated earlier pursuant to
Section 6 hereof.
(b) Renewal Term(s). The term of the Employee's employment hereunder shall
be extended automatically for additional periods of one (1) year each (the
"Renewal Term(s)") commencing on the day after the Initial Expiration Date or
the expiration date of the then current Renewal Term, as the case may be (each
an "Expiration Date"), unless either party notifies the other to the contrary in
writing at least ninety (90) days before any Expiration Date. If this Agreement
is not renewed after the Initial Expiration Date or the Expiration Date of the
then current Renewal Term in accordance with the terms hereof, the Employee
shall thereupon become an employee-at-will (unless 90 days' prior notice has
been given to the Employee as to termination hereunder) and shall only be
subject to
<PAGE>
2
termination upon 90 days' prior written notice from the Employer. The term of
the Employee's employment hereunder, including the initial term of employment
under Section 3(a) hereof and any Renewal Term, is referred to as the "Term".
ss.4. COMPENSATION AND BENEFITS. During the Term, in consideration for the
services of the Employee hereunder, the Employer shall compensate the Employee
as follows:
(a) Salary. The Employer shall pay the Employee, in accordance with the
Employer's then current payroll practices, a salary of $300,000 per annum. The
Employee shall be eligible for annual pay increases as determined by the
Management Board in its sole discretion.
(b) Performance Bonus. The Employer and the Employee will discuss possible
bonus arrangements with respect to the period commencing on the date of this
Agreement and ending at the end of the fiscal year of the Employer ending on
December 31, 2000 (the "Initial Bonus"). The Initial Bonus shall be greater than
or equal to $200,000 and shall be paid on or before February 15, 2001. With
respect to subsequent fiscal years of the Employer, the Employee shall be
entitled to receive from the Employer, within forty-five (45) days after the end
of such fiscal year, an annual performance bonus to be determined at the sole
discretion of the Management Board, based on a target bonus of at least
$200,000. The Employee shall also be eligible to participate in any stock option
plans, stock purchase plans, deferred compensation plans and any other similar
arrangements established by the Employer from time to time for the benefit of
the Employer's employees or executives; provided that any grants to the Employee
under any of such plans or arrangements shall be at the sole discretion of the
Management Board.
(c) Equity. The Employee shall be entitled to the right to purchase
Interests (as used herein, the term "Interests" shall have the meaning ascribed
to it in the Purchase Agreement) in the Employer by entering into an Interest
Purchase Agreement with the Employer dated as of the Effective Date (the
"Purchase Agreement") substantially in the form of Exhibit A attached hereto.
(d) Options. The Employee shall be granted options to purchase an interest
in the Employer pursuant to the Equity Option Agreement, by and between the
Employer and the Employee, dated as of the Effective Date (the "Option
Agreement") substantially in the form of Exhibit B attached hereto.
(e) Vacation. The Employee shall be entitled to vacation consistent with
the Employer's policies but not in any event less than four (4) weeks during
each full calendar year of the Term. Any vacation shall be taken at the
reasonable and mutual convenience of the Employer and the Employee. Treatment of
any accrued vacation not taken in any calendar year is subject to the practices
and policies of the Employer.
(f) Insurance; Other Benefits. Accident, disability and medical insurance
for the Employee shall be provided by the Employer under group accident,
disability and medical insurance plans maintained by the Employer for its other
employees at the management level. The Employer shall provide the Employee with
life insurance at a level of four (4) times the Employee's annual salary (the
"Base Coverage"). The Base Coverage shall be provided under the group life
insurance plan maintained by the Employer and/or
<PAGE>
3
through reimbursement by the Employer of premiums paid by the Employee to obtain
(under the Employer's group life insurance plan or under a separate or
supplemental life insurance policy obtained by the Employee) that portion of the
Base Coverage not already paid for by the Employer under the Employer's group
life insurance plan; provided that the life insurance coverage under any such
separate or supplemental policy not provided under the Employer's group life
insurance plan is available to the Employee on customary terms and at reasonable
rates. The Employee shall participate in all retirement and other benefit plans
of the Employer available from time to time to employees and/or senior
executives of the Employer in accordance with their respective terms. The
employment benefits described in this clause (f) may be modified from time to
time by the Employer for all such employees and/or senior executives (as the
case may be) generally, including the Employee.
ss.5. EXPENSES. The Employer shall reimburse the Employee for all
reasonable expenses of types authorized by the Employer and in accordance with
its policies incurred by the Employee in the performance of his duties
hereunder. The Employee shall comply with such budget limitations and approval
and reporting requirements with respect to expenses as the Employer may
establish from time to time. In addition, the Employer shall pay or reimburse
the Employee for up to $100,000 of expenses related to the Employee's (and his
family's) relocation to Boston, Massachusetts, or the surrounding area.
ss.6. TERMINATION. The Employee's employment hereunder shall commence on
the Effective Date and continue until the Initial Expiration Date or any
Expiration Date hereunder, as the case may be, except that the employment of the
Employee hereunder shall earlier terminate:
(a) Death or Disability. Upon the death of the Employee during the term of
his employment hereunder or in the event of the Employee's Disability (as
defined below) upon thirty (30) days' prior written notice from the Employer.
The Employee shall be deemed Disabled if an independent medical doctor (selected
by the Employer's health or disability insurer) certifies that the Employee has
for 150 consecutive or nonconsecutive days in any twelve (12) month period been
disabled in a manner which renders him materially unable to perform his duties
under this Agreement. Any refusal by the Employee to submit to a medical
examination requested by the Employer, for the purpose of certifying Disability
under this Section 6(a), shall be deemed to constitute conclusive evidence of
the Employee's Disability.
(b) For Cause. For "Cause," immediately upon written notice by the
Employer to the Employee. For purposes of this Agreement, a termination shall be
for Cause if any one or more of the following has occurred:
(i) the Employee shall have committed an act of fraud, embezzlement,
or misappropriation against the Employer, including, but not limited to,
the offer, payment, solicitation or acceptance of any unlawful bribe or
kickback with respect to the Employer's business; or
(ii) the Employee shall have been convicted by a court of competent
jurisdiction of, or pleaded guilty or nolo contendere to, any felony
(other than a traffic-related felony which does not involve the death of a
human) or any crime involving moral turpitude that the Management Board of
the Employer reasonably
<PAGE>
4
determines would have a material adverse effect on the operations or
reputation of the Employer; or
(iii) the Employee shall have been chronically absent from work
(excluding vacations, illnesses, Disability, or leaves of absence approved
by the Employer), and shall not have corrected such problem within 10 days
following written notice from the Employer; or
(iv) the Employee shall have intentionally committed a breach of any
of the covenants, terms or provisions of Sections 7, 8 or 9 hereof; or
(v) the Employee shall have breached any one or more of the
provisions (including, without limitation, the Employee's agreement to
perform the responsibilities and duties described in Section 2 hereof) of
this Agreement (excluding Sections 7, 8 or 9 hereof), and, in any such
case, such breach shall have continued for a period of thirty (30) days
after written notice to the Employee specifying such breach in reasonable
detail; or
(vi) the Employee shall have engaged in the unlawful use (including
being under the influence) or possession of illegal drugs on the
Employer's premises.
(c) Without Cause. Immediately, upon written notice by the Employer to the
Employee.
(d) Good Reason. In the event of written notice by the Employee that he is
terminating his employment for "Good Reason" on account of any of the following:
(i) The Employer materially changes or diminishes the Employee's
titles, duties or responsibilities as set forth in Section 2 above without
his consent, (ii) the Employer removes the Employee as a member of the
Employer's Management Board (other than in connection with a termination
of the Employee), or (iii) the Employee is not elected to serve as a
member of the Employer's Management Board (other than due to the
Employee's voluntary written decision not to seek such election or in
connection with the termination of the Employee); or
(ii) The Employer requires the Employee to relocate outside of the
Greater Boston, Massachusetts metropolitan area; or
(iii) The Employer imposes requirements on the Employee, or gives
instructions or direction to the Employee, which are (i) contrary to or in
violation of any law, rule, ordinance or regulation and (ii) not withdrawn
by the Employer after written request by the Employee; or
(iv) There occurs an intentional breach (including, but not limited
to, a failure to make any payment or provide any benefit referred to in
this Agreement) by the Employer of any of its obligations under this
Agreement, the Purchase Agreement, or the Option Agreement, which breach
has not been cured in all material respects within thirty (30) days.
<PAGE>
5
Any termination pursuant to clauses (d)(i) through (d)(iv) of this Section
6 is subject to the following: The Employee shall provide the Employer with
30-day advance written notice of a termination for Good Reason setting forth in
reasonable detail the facts and circumstances claimed to provide a basis for the
termination. Such notice may only be given within sixty (60) days following the
Employee's receipt of notice of (or the Employee's discovery of) the occurrence
of the event that provides the basis for the termination and any failure to give
notice on the basis of an event shall bar the Employee from terminating on
account of Good Reason on the basis of that event, but shall not waive the
Employee's rights as to any other or any future Good Reason events. If within
the thirty (30) day period, the Employer takes actions reasonably satisfactory
to the Employee to remedy the basis for the Good Reason termination, such notice
of termination shall be considered null and void.
(e) Resignation. Upon sixty (60) days' written notice by the Employee to
the Employer for any reason whatsoever.
(f) Rights and Remedies on Termination. Except as set forth in Section
6(g) hereof, the Employee shall not be entitled to any severance or other
compensation after termination under this Section 6 other than payment of any
portion of his salary earned prior to termination, and any expense
reimbursements under Section 5 hereof for expenses incurred in the performance
of his duties prior to termination. No bonus shall be payable for the fiscal
year (or portion thereof) in which the termination occurs, no compensation or
benefits shall accrue or be owing in respect of any period after the effective
date of termination, and no liability of any kind shall accrue on account of
such termination.
(g) Severance. Notwithstanding anything contained in Section 6(f) hereof,
and subject to the Employee complying with the provisions of Sections 7, 8 and 9
hereof, in the event that (i) the Employee is terminated pursuant to Section
6(c) hereof or (ii) the Employee is terminated pursuant to Section 6(a) hereof
in the event of a Disability, or (iii) the Employee terminates this Agreement
pursuant to Section 6(d) hereof, the Employee shall be entitled to receive (in
installments consistent with the Employer's payroll practices), following the
Employee's execution of a release in a form reasonably satisfactory to the
Employer and the Employee (which such release shall not include a release of the
Employee's vested rights and claims with respect to any equity interests,
options or other benefits acquired or held by the Employee or any COBRA or other
statutory post-termination benefit rights), severance compensation as set forth
in the following table:
Date of Termination Severance Compensation
- ------------------- ----------------------
Within Year 1 $500,000
Within Year 2 $150,000
"Year 1" shall mean the period commencing on the Effective Date and ending one
day prior to the first anniversary thereof; and "Year 2" shall mean the period
commencing on the first anniversary of the Effective Date and ending one day
prior to the second anniversary of the Effective Date.
<PAGE>
6
If termination occurs pursuant to Sections 6(a), 6(c) or 6(d) hereof after Year
2, the Management Board, in its sole discretion, shall determine the Employee's
severance, if any. The Employee's rights to severance under this Section 6(g)
shall be without regard to any employment or compensation obtained by the
Employee after termination of the Employee's employment under this Agreement.
ss.7. CONFIDENTIALITY.
(a) Definition. The term "Confidential Information" includes all
information which is acquired by the Employee from the Employer, its other
employees, its suppliers or customers, its agents or consultants, or others,
during the Employee's employment by the Employer, and which relates to the
present or potential businesses, products or services of the Employer, as well
as any other information as may be designated by the Employer as confidential.
The term Confidential Information may relate, for example, to Inventions (as
defined below), trade secrets, computer software, research, developments,
designs, engineering, manufacturing, purchasing, supplier lists, customer lists,
price lists, accounting, profit margins, marketing or sales volume information
or business or strategic plans; may include information contained, for example,
in drawings, models, data, specifications, reports, compilations or computer
programs; and may be in the nature of unwritten knowledge or technical or
manufacturing know-how.
(b) Acknowledgment. The Employee recognizes and acknowledges that:
(i) the Employer's Confidential Information is a valuable, special
and unique asset of the Employer's business;
(ii) access to and knowledge of the Confidential Information by the
Employee may be required so that the Employee can perform his/her duties
as an employee of the Employer;
(iii) it is vital to the Employer's legitimate business interests
that (A) the confidentiality of the Confidential Information be preserved
and (B) the Confidential Information only be used for the benefit of the
Employer;
(iv) disclosure of the Confidential Information to any other person
or entity outside the Employer or use of the Confidential Information by
or on behalf of any other person or entity could result in irreparable
harm to the Employer;
(v) disclosure or use beyond the permitted scope of Confidential
Information entrusted to the Employer by its customers and contractors
could expose the Employer to substantial damages;
(vi) the Confidential Information is and shall remain the exclusive
property of the Employer; and
(vii) nothing in this Agreement shall be construed as a grant to the
Employee of any rights, title or interest in, to or under the Confidential
Information.
(c) Restrictions. The Employee shall not, during or after the term of the
Employee's employment by the Employer, in whole or in part, disclose such
Confidential Information to any person, firm, corporation, association or other
entity for any reason or purpose whatsoever, nor
<PAGE>
7
shall the Employee make use of any such Confidential Information for the
Employee's own purposes or for the benefit of any person, firm, corporation or
other entity under any circumstances during or after the term of the Employee's
employment, provided that if applicable law restricts the duration of the
confidentiality and nonuse obligations set forth in this clause (c) (the
"Confidentiality and Non-Use Obligations") for Confidential Information that is
not also a trade secret under applicable law ("Other Confidential Information"),
the Confidentiality and Non-Use Obligations as to Other Confidential Information
shall remain in effect during the term of the Employee's employment and for a
period of five (5) years thereafter, but shall be perpetual as to trade secrets.
(d) Exclusions. The Confidentiality and Non-use Obligations shall not
apply to such Confidential Information which the Employee can establish:
(i) was known by the Employee prior to disclosure hereunder; or
(ii) was lawfully in the public domain prior to its disclosure
hereunder, or becomes publicly available other than through a breach of
this Agreement; or
(iii) was disclosed to the Employee by a third party who was not, at
the time of the disclosure, directly or indirectly bound by any
confidentiality obligation to the Employer with respect thereto;
provided that only the specific information that meets the exclusion shall be
excluded and not any other information that happens to appear in proximity to
such excluded portion (for example, a portion of a document may be excluded
without affecting the confidential nature of those portions that do not
themselves qualify for exclusion).
(e) Required Disclosures. The Employee agrees to notify the Employer
promptly upon receiving notice about any court order or other legal requirement
that seeks to compel disclosure of any Confidential Information and reasonably
to cooperate with the Employer in the exercise of the Employer's right to
protect the confidentiality of the Confidential Information before any tribunal
or governmental agency. Disclosure of Confidential Information pursuant to a
court order or other legal requirement that purports to compel disclosure of any
Confidential Information shall not alter the character of that information as
Confidential Information hereunder. So long as the Employee is otherwise in
compliance with each of the immediately preceding sentences in this paragraph
(e), disclosure by the Employee that is compelled or required by legal process
or proceedings or by any governmental or quasi-governmental authority shall in
no event be deemed a breach or violation by the Employee of this Agreement.
(f) Return of Confidential Information. All originals, copies, digests and
summaries of all written or otherwise recorded documents, writings, materials,
software or other media, or items or information of any kind, concerning
Confidential Information or any Inventions (as hereinafter defined), are and
shall continue to be the exclusive property of the Employer. Immediately upon
any termination of the Employee's employment or at any time upon the request of
the Employer, the Employee shall deliver to the Employer, or its designee, all
of such documents, writings, materials, software and other media, other items
and information then in the Employee's actual or potential constructive
possession or control. If the material is such that it cannot reasonably be
delivered, the Employee shall, upon the request of the Employer, provide
reasonable evidence that such materials have been destroyed, including but not
limited to, the
<PAGE>
8
purging and/or erasing of any and all computer records and/or data files.
Subject to Section 7(c) hereof, the provisions of this Section 7 shall survive
the termination of this Agreement for a period of five (5) years thereafter.
ss.8. INTELLECTUAL PROPERTY AND INVENTIONS.
(a) Assignment. The Employee hereby sells, transfers and assigns to (and
the following shall be the exclusive property of) the Employer, or to its
designee, the entire right, title and interest of the Employee in and to all
inventions (including without limitation discoveries of new technology and
improvements to existing technology), ideas, discoveries, improvements,
Confidential Information, know-how, innovations, writings, works and other
developments or improvements, whether or not patented or patentable,
copyrightable, or reduced to practice or writing, made, discovered, invented,
authored, created, developed, originated or conceived by the Employee, solely or
jointly, during the term of the Employee's employment by the Employer, which
arise out of research or any other activities conducted by, for or under the
direction of the Employer, whether or not conducted at the Employer's
facilities, during working hours or using the Employer assets, or which relate
directly or indirectly to methods, programs, computer software, apparatus,
designs, plans, models, specifications, formulations, techniques, products,
processes or devices, sold, leased, used or under consideration or development
by the Employer (hereinafter collectively "Inventions"). The Employee
acknowledges that all copyrightable materials developed or produced by the
Employee within the scope of the Employee's employment by the Employer
constitute works made for hire.
(b) Disclosure & Cooperation. The Employee shall use his best efforts to
communicate promptly and disclose to the Employer, in such form as the Employer
may reasonably request, all information, details and data pertaining to any such
Inventions, and the Employee shall execute and deliver to the Employer or its
designee such formal transfers and assignments and such other papers and
documents and shall give such testimony as may reasonably be deemed necessary or
required of the Employee by the Employer or its designee to develop, preserve or
extend the Employer's rights relating to any Inventions and to permit the
Employer or its designee to file and prosecute patent applications and, as to
copyrightable material, to obtain copyrights thereof.
ss.9. NON-COMPETITION AND NON-INTERFERENCE.
(a) During the Term of Employment. During the Employee's employment by the
Employer, the Employee will comply with all lawful policies and rules that may
from time to time be established by the Employer, and will not engage directly
or indirectly (except as expressly permitted under this Agreement) in any
business or enterprise which in any way is competitive or conflicting with the
interests or business of the Employer. In addition, in consideration of the
Employee's employment by the Employer, the Employee recognizes that the Employee
owes a duty of loyalty to the Employer and agrees that the Employee will not
(except as expressly permitted under this Agreement) during the Employee's
employment with the Employer take personal advantage (whether directly or
indirectly through the Employee's family members or affiliates) of any business
opportunity which is in the same or a closely-related line of business as that
engaged in by the Employer during the term of this Agreement. The Employee
understands and agrees that he/she is required to devote his/her full
professional time and use his/her best efforts in the course of the Employee's
employment with the Employer and to act at all times in the best interests of
the Employer.
<PAGE>
9
(b) Acknowledgment. The Employee understands and recognizes that (i) his
working for a competitor of the Employer would lead to the inevitable disclosure
of the Employer's Confidential Information; (ii) in the course of the Employee's
employment with the Employer, customers and others may come to recognize and
associate the Employee with the Employer, its products and services, and that
the Employee will thereby benefit from the Employer's goodwill; and (iii) if the
Employee were to engage in competition with the Employer, directly or
indirectly, the Employee would thereby usurp the Employer's goodwill.
(c) Competition Generally.
(i) In consideration for the Employer's agreement set forth in
Section 6(g) above and subject to clause (c)(ii) below, the Employee
agrees that, during the two-year period commencing upon the date of the
Employee's termination of employment and continuing for the next two (2)
years (the "Non-competition Period"), the Employee shall not, directly or
indirectly:
(1) solicit, service, accept orders from, or otherwise have
business contact with any person or entity who has, within the
one-year period immediately prior to such termination of the
Employee's employment, been a customer (including, without
limitation, a reseller and/or end user of products) of the Employer,
if such contact could reasonably be expected to directly or
indirectly divert business from or adversely affect the business of
the Employer;
(2) interfere with the contractual relations between the
Employer and any of its employees;
(3) work for, invest in or have an interest in any person or
entity engaged (all or partially) in the business of providing an
electronic internet-based forum for the buying, selling or trading
of products which are products for which the Employer provides an
electronic internet-based forum for buying, selling or trading (or
for which the Employer has, pursuant to the direction of the
Management Board, developed a business plan to provide an electronic
internet-based forum for the buying, selling or trading) prior to
the termination of the Employee's employment with the Employer,
anywhere in the Territory (as hereinafter defined); or
(4) employ or cause to be employed in any capacity, or retain
or cause to be retained as a consultant, any person who was employed
by the Employer at any time during the six (6) month period ended on
the date of termination of the Employee's employment.
The Employee agrees to inform the Employer of the name and address
of any employer(s) the Employee may have or any business with which the
Employee may be involved, directly or indirectly, within the
Non-competition Period. The Non-competition Period shall be extended for
so long as the Employee violates the non-competition obligations set forth
in this paragraph (c) and for any periods of time required for litigation
to enforce its provisions. The Employee further agrees to provide any such
employer(s) with a copy of this Agreement. "Territory" means at any date,
the geographic area in which the Employer then offers or plans to offer
its
<PAGE>
10
goods or services or from which it acquires or plans to acquire goods or
services. The Employee hereby acknowledges that the Territory is
world-wide.
(ii) In the event that the Employee (1) is terminated pursuant to
Section 6(a) hereof in the event of a Disability, (2) is terminated
pursuant to Section 6(c) hereof, or (3) terminates this Agreement pursuant
to Section 6(d) hereof, the Employee shall not be bound by the
non-competition obligations set forth in clause (c)(i) above unless (x)
the Employer delivers written notice within thirty (30) days after the
effective date of the termination of employment to the effect that the
Employer is electing to keep the Employee bound by such non-competition
obligations and (y) the Employer agrees to pay to the Employee $300,000
per year in exchange for such non-competition obligations, offset by any
other amounts paid to the Employee as severance during such year pursuant
to Section 6(g) hereof. Such additional payment shall be paid in quarterly
installments in advance. In the event the Employer elects, in its sole
discretion, to cause the Employee to be bound by the non-competition
obligations under this clause (ii) such election shall be for a period of
not less than one (1) year and the Employer, in its discretion, shall have
the one-time right to renew such election for a period of an additional
one (1) year provided that the Employer gives the Employee not less than
ninety (90) days written notice prior to the end of the first year for
which the Employer imposed the non-competition obligation under this
clause (ii). The Employee's rights to payment pursuant to this clause (ii)
in exchange for his non-competition obligations shall be without regard to
any employment or compensation obtained by the Employee (other than
compensation paid by the Employer) after termination of the Employee's
employment under this Agreement.
(iii) Notwithstanding anything contained in clause (c)(i)(3) of this
Section 9, the Employee shall have the right to own, as a
passive-investment only, up to three percent (3%) of the securities of any
publicly-traded company.
(d) Disparagement. The Employee and the Employer each agrees that during
the course of employment and after the termination of employment with the
Employer, the Employee will not disparage the Employer, its products, services,
agents or employees, and the Employer will not disparage the Employee.
(e) Reasonableness. The Employee understands and agrees that because of
the nature of the Employer's products, services, and customers, because of the
Employee's key position with the Employer, and because the Employer's business
is international in scope, the duration of the Non-competition Period is
reasonable and necessary. The Employee understands and agrees that, although his
authority may or may not from time to time extend to the entire Territory, the
information the Employee may learn in the course of employment and the goodwill
to which the Employee may be exposed belong exclusively to the Employer and have
implications and applications that are international in scope. Accordingly, the
Employee agrees that the scope of the geographical restriction on competition
with the Employer in the Territory is reasonable and necessary. The Employee
represents that he has, and brings to his employment with the Employer,
marketable skills which will enable the Employee to secure employment and earn a
living for the duration of this Agreement without competing with the Employer
directly or indirectly. Accordingly, the Employee agrees that any harm to the
Employee caused by the enforcement of this Agreement will be outweighed by the
harm to the Employer should this Agreement not be
<PAGE>
11
enforced. If at any time any of the provisions of this Section 9 shall be deemed
invalid or unenforceable or are prohibited by the laws of the state or place
where they are to be performed or enforced, by reason of being vague or
unreasonable as to duration or geographic scope or scope of activities
restricted, or for any other reason, such provisions shall be considered
divisible and shall become and be immediately amended to include only such
restrictions and to such extent as shall be deemed to be reasonable and
enforceable by the court or other body having jurisdiction over this Agreement;
and the Employer and the Employee agree that the provisions of this Section 9,
as so amended, shall be valid and binding as though any invalid or unenforceable
provision had not been included herein.
ss.10. INDEMNIFICATION
To the fullest extent permitted or required by the laws of the state
of incorporation or formation of the Employer, as may apply from time to time,
the Employer shall indemnify and hold harmless (including advance payment of
expenses) the Employee, in accordance with the terms of such laws, if the
Employee is made a party, or 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 the Employee is or
was an officer or director of the Employer or any subsidiary or affiliate of the
Employer, against expenses (including reasonable attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by him in
connection with any such action, suit or proceeding, which indemnification shall
include the protection of the applicable indemnification provisions of the
Amended and Restated Operating Agreement of the Employer from time to time in
effect; provided that the Employer shall have no obligation to provide
indemnification under this Section 10 for any such expenses, judgments, fines
and amounts incurred by the Employee and arising out of the Employee's gross
negligence or willful misconduct. This Section 10 shall survive the termination
of this Agreement for any reason whatsoever.
ss.11. GENERAL.
(a) Notices. All notices and other communications hereunder shall be in
writing or by written telecommunication, and shall be deemed to have been duly
given if delivered personally or if mailed by certified mail, return receipt
requested, postage prepaid or sent by overnight courier, written
telecommunication or telecopy, to the relevant address set forth below, or to
such other address as the recipient of such notice or communication shall have
specified to the other party hereto in accordance with this Section 11(a):
If to the Employer, to:
PaperExchange.com, LLC
545 Boylston Street, 8th Floor
Boston, Massachusetts 02108
Attention: Chairman
With a copy sent contemporaneously to:
Jonathan K. Bernstein, Esq.
Bingham Dana LLP
150 Federal Street
<PAGE>
12
Boston, Massachusetts 02110
If to the Employee, to:
Kent A. Dolby
632 Olympia Hills Circle
Berwyn, Pennsylvania 19312
With a copy sent contemporaneously to:
Michael A. Schlesinger, Esq.
Tucker Flyer
1615 L Street, N.W.
Suite 400
Washington, D.C. 20036
Any such notice shall be effective (i) if delivered personally or by telecopier,
when received, (ii) if sent by overnight courier, when receipted for and (iii)
if mailed, 3 days after being mailed as described above.
(b) Equitable Remedies. Each of the parties hereto acknowledges and agrees
that upon any breach by the Employee of his obligations under Sections 7, 8 and
9 hereof, the Employer will have no adequate remedy at law, and accordingly will
be entitled to specific performance and other appropriate injunctive and
equitable relief.
(c) Severability. If any provision of this Agreement is or becomes
invalid, illegal or unenforceable in any respect under any law, the validity,
legality and enforceability of the remaining provisions hereof shall not in any
way be affected or impaired.
(d) Waivers. No delay or omission by either party hereto in exercising any
right, power or privilege hereunder shall impair such right, power or privilege,
nor shall any single or partial exercise of any such right, power or privilege
preclude any further exercise thereof or the exercise of any other right, power
or privilege.
(e) Counterparts. This Agreement may be executed in multiple counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
(f) Assigns. This Agreement shall be binding upon and inure to the benefit
of the heirs and successors of each of the parties hereto. The Employer may
assign this Agreement to any successor to all or substantially all of the
Employer's business.
(g) Entire Agreement. This Agreement contains the entire understanding of
the parties, supersedes all prior agreements and understandings relating to the
subject matter hereof and shall not be amended except by a written instrument
hereafter signed by each of the parties hereto.
(h) Waiver of Jury Trial;Consent to Jurisdiction, Counsel. EACH PARTY
HERETO WAIVES ITS RIGHTS TO A JURY TRIAL WITH RESPECT TO ANY ACTION
<PAGE>
13
OR CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS AGREEMENT, ANY
AGREEMENT, CONTRACT OR OTHER DOCUMENT OR INSTRUMENT EXECUTED IN CONNECTION
HEREWITH, OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY. Each party hereto
agrees that the courts of the Commonwealth of Massachusetts and the United
States District Court for the District of Massachusetts shall have exclusive
jurisdiction to hear and determine any claims or disputes between or among the
Employee and any person or entity (including, without limitation, the Employer)
pertaining directly or indirectly to this Agreement or to any matter arising
hereunder. Each party hereto expressly submits and consents in advance to such
jurisdiction in any action or proceeding commenced in such courts, hereby
waiving personal service of the summons and complaint, or other process or
papers issued therein, and agreeing that service of such summons and complaint,
or other process or papers, may be made by registered or certified mail
addressed to such party at the address set forth herein. The Employee
acknowledges that he has carefully read this Agreement and that he has had an
opportunity to consult with an attorney of his own selection before signing it
and he understands the effects of this Agreement and is signing it voluntarily
(i) Construction. The language used in this Agreement will be deemed to be
the language chosen by the parties to express their mutual intent, and no rule
of strict construction will be applied against any party.
(j) Governing Law. This Agreement and the performance hereof shall be
construed and governed in accordance with the laws of the Commonwealth of
Massachusetts.
[Execution page follows.]
<PAGE>
IN WITNESS WHEREOF, and intending to be legally bound hereby, the parties
hereto have caused this Agreement to be duly executed as of the date and year
first above written.
PAPEREXCHANGE.COM, LLC
By: /s/ Robert K. Kraft
------------------------
Name: Robert K. Kraft
Title: Chairman
/s/ Kent A. Dolby
-----------------------------
Kent A. Dolby
<PAGE>
Exhibit A
Interest Purchase Agreement
<PAGE>
Exhibit B
Equity Option Agreement
<PAGE>
Exhibit 10.13
EMPLOYMENT AGREEMENT
HILTON PLEIN
This Employment Agreement (the "Agreement") is made to be effective
on and as of April 9, 1998, (the "Effective Date") by and between
PAPEREXCHANGE.COM, LLC (the "Company"), a Delaware limited liability company,
with its Executive Offices at 4 East Fabish Drive, Buffalo Grove, Illinois
60089-7031 and Hilton Plein, ("Employee").
RECITALS
1. The Company wishes to assure itself of the services of Employee for the
period provided in this Agreement.
2. Employee is willing to serve in the employ of the Company on a full-time
basis for said period.
OPERATIVE PROVISIONS
In consideration of the above recitals, which are incorporated into
and are a material part of the operative provisions of this Agreement, and of
the promises, covenants and conditions stated herein, Company and Employee agree
as follows:
1.
<PAGE>
1. POSITION AND RESPONSIBILITIES.
1.1 During the period of Employee's employment hereunder, Employee agrees
to serve as Chief Technology Officer. Employee shall render administrative and
management services to the Company: (1) as delegated by the Company's Management
Board; and (2) as are customarily performed by persons in a similar employment
capacity.
2. TERM.
2.1 The period of Employee's employment under this Agreement shall be
deemed to have commenced on the Effective Date and shall continue for a period
of two (2) full years thereafter. At the end of the two (2) year period, this
Agreement shall be automatically renewed for consecutive one year renewal terms
unless the Company provides written notice of non-renewal at least ninety (90)
days prior to the end of the initial two year period; or, if renewed for one or
more one-year renewal periods, written notice of non-renewal must be given by
Employee or the Company not less than thirty (30) days prior to the end of the
then current renewal period.
2.2 During the period of Employee's employment hereunder, except for
periods of absence occasioned by illness, reasonable vacation periods, and
reasonable leaves of absence, Employee shall devote substantially all of
Employee's business time, attention, skill, and efforts to the faithful
performance of Employee's duties hereunder, including activities and services
related to the organization, operation and management of the Company and
participation in community and civic organizations; provided, however, that,
with approval which shall not be unnecessarily withheld, from time to time,
Employee may serve, or continue to serve, on the boards of directors of, and
hold any other offices or positions in, companies or organizations which will
not present any conflict of interest with the Company, example of which may be
set
2.
<PAGE>
forth in an attachment to this Agreement to be initialled when approved by the
Company and Employee. No provision of this Agreement will be construed to be
deemed to prevent Employee from making personal investments which do not involve
business enterprises competitive with the business of the Company.
3. COMPENSATION, BENEFITS AND REIMBURSEMENT.
3.1 The compensation specified under this Agreement shall constitute the
salary and benefits paid for Employee's performance of the duties described in
Article 1. The Company shall pay Employee as compensation a salary of not less
than $137,500 per year ("Base Salary"). The Base Salary shall be payable in
accordance with Company's payroll practices. During the period of this
Agreement, Employee's Base Salary shall be reviewed at least annually. Such
review shall be conducted and reviewed by the Company's Management Board. No
downward adjustment shall be made in the Base Salary without Employee's written
approval. If Employee's Base Salary is adjusted after any such annual review,
the adjusted Base Salary thereafter shall become the "Base Salary" for purposes
of this Agreement.
3.2 Employee will be eligible for bonus consideration on an annual basis
in an amount to be determined in the sole discretion of the Company's Management
Board.
3.3 The Company shall also provide Employee, at no cost to Employee, with
a health insurance policy. Without limiting the generality of the foregoing
provisions of this Article 3.3, Employee will be entitled to participate in or
receive benefits under any employee benefit plans including, but not limited to,
retirement plans, supplemental retirement plans, pension plans, profit-sharing
plans, health-and-accident insurance, medical insurance, dental insurance, life
insurance, disability insurance, or any other employee benefit plan or
arrangement made
3.
<PAGE>
available by the Company to its key executive and management employees, subject
to and on a basis consistent with the terms, conditions and overall
administration of such plans and arrangements.
3.4 The Company will secure Employee's election as a director for as long
as Employee is employed pursuant to this Agreement.
3.5 The Company will not, without Employee's prior written consent, make
any changes in benefit plans, arrangements or perquisites which would adversely
affect Employee's rights or benefits thereunder unless otherwise required by
law; provided, however, that the Company may materially reduce or modify
benefits and perquisites generally provided to employees on a nondiscriminatory
basis and any such reduction shall not constitute a breach of this Agreement.
3.6 The Management Board will consider a discretionary award of equity
options to Employee at least annually.
3.7 The Company shall pay or reimburse Employee for all reasonable travel,
and other reasonable expenses incurred by Employee in performance of Employee's
obligations under this Agreement.
3.8 Company shall grant Employee two (2) weeks of fully compensated
vacation per annum under this Agreement.
4.
<PAGE>
4. TERMINATION WITHOUT CAUSE.
Either party shall have the right to terminate this Agreement, without
cause, upon providing 90 days prior written notice to the other party. If the
Company terminates this Agreement without cause, Employee's Base Salary will
continue to be paid to Employee for two (2) years.
5. TERMINATION FOR CAUSE.
5.1 Either party shall have the right to terminate this Agreement for
cause. "Termination for Cause" for Company shall mean termination because of
Employee's material failure, gross negligence or willful neglect to perform
Employee's stated duties and failure to cure such material failure, gross
negligence or willful neglect within ten (10) days after delivery of written
notice specifying the alleged material failure or willful neglect, conviction of
or pleading guilty or nolo contendere to any crime or offense punishable as a
felony, violation of any final cease and desist order pertaining to the affairs
of the Company, or any other willful or material breach of this Agreement. For
purposes of this Article, no act, or the failure to act, on Employee's part
shall be "willful" unless done, or omitted to be done, not in good faith and
without reasonable belief that the action or omission was in the best interest
of the Company or its affiliates. Acts or omissions shall be considered to be
done with "gross negligence" if they involve reckless or wanton disregard for
the best interest of the Company or its affiliates. "Termination for Cause" for
Employee shall mean termination because of Company's material failure to perform
the terms of this Agreement.
5.
<PAGE>
5.2 If Employee cannot perform his duties hereunder due to illness for
four (4) consecutive months, Company may terminate this Agreement due to
Employee's disability.
6. NOTICE.
6.1 Any purported termination of Employee's employment by the Company or
by Employee shall be communicated by Notice of Termination to the other party.
For purposes of this Agreement, a "Notice of Termination" shall mean a written
notice which shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of Employee's employment under the
provision so indicated.
6.2 "Date of Termination" shall mean the date specified in the Notice of
Termination, which, in the case of a Termination for Cause, shall not be less
than thirty (30) days from the date such Notice of Termination is given, except
as otherwise provided in Article 5.1.
7. POST-TERMINATION OBLIGATIONS.
7.1 The obligation of Company to make all payments and provide all
benefits to Employee under the applicable provisions of this Agreement shall be
subject to Employee's compliance with Article 8 during the term of this
Agreement and for two (2) full years after the expiration or termination
thereof.
7.2 Employee shall, upon reasonable notice, furnish such information and
assistance to the Company as may reasonably be required by the Company in
connection with any litigation or governmental investigation in which it or any
of its subsidiaries or affiliates, is, or may
6.
<PAGE>
become, a party. Employee and Company will mutually establish a reasonable rate
of compensation for furnishing such information and assistance. In addition,
Employee shall be entitled to be reimbursed for all expenses reasonably incurred
thereby.
8. CONFIDENTIALITY, INTELLECTUAL PROPERTY AND NON-COMPETITION.
8.1 As used herein "Confidential Information" shall mean all information
concerning Company, and its business of providing related services (collectively
the "Business") which information is not generally available to the public and
is valuable to the business of Company, including, but not limited to, customer
lists, customer information, business relationships, trade secrets, technical
know-how, processes, methods, techniques, procedures, expertise, software
programs, data bases, documentation, financial data, personnel information,
marketing strategies and programs, and pricing information, and all other data
and information treated by Company as Confidential Information. Confidential
Information shall not include any information or data which (1) is available to
the public, (2) becomes public information or widely known through no fault of
Employee.
8.2 Employee acknowledges that during the course of Employee's employment
with the Company, Employee will have learned or developed in trust and
confidence Confidential Information owned by the Company. At all times during
Employee's employment with the Company and after the termination thereof,
Employee shall maintain the Confidential Information in strict confidence and
shall not divulge the Confidential Information to any person,
7.
<PAGE>
corporation or other entity, or use in any manner, or knowingly allow another to
have access to the Confidential Information.
8.3 Employee agrees that, except as required in the performance of
Employee's duties, Employee will not, at any time during Employee's employment
or any time after the termination of Employee's employment, use, publish, or
otherwise disclose in any way to any person, firm or corporation any
Confidential Information of Company, or of any other party to which Company owes
an obligation of confidence, and which has not become a part of the public
domain through no fault of Employee.
8.4 All notes, reports, studies, data, computer printouts, financial
information, business plans, analysis, or other documents created by or given to
Employee during employment concerning or related to Company's Business in all
media forms, and whether or not containing or relating to Confidential
Information, are the property of the Company and will be promptly delivered to
Company upon the termination of Employee's employment.
8.5 Employee agrees that, at all times Employee's employment with Company
and for a period of two (2) years thereafter, Employee shall not directly or
indirectly attempt to hire any employee of the Company or to induce any employee
of Company to terminate his or her employment with Company.
8.6 For a period of two (2) years after termination of this Agreement,
Employee shall not, directly or indirectly, engage in, or have any interest
(whether equity, profit participation, revenue sharing or commission based) in,
any person, partnership corporation or any other entity (whether as an employee,
officer, director, agent, security holder, creditor, consultant or
8.
<PAGE>
independent contractor) which competes with the Company in any territory in
which the Company's products or services are available to existing and potential
customers.
8.7 Employee recognizes and affirms that in the event of breach by
Employee of any of the provisions of this Article 8, money damages would be
inadequate and Company would have no adequate remedy at law. Accordingly,
Employee agrees that Company shall have the right, in addition to any other
rights and remedies existing in its favor, to enforce its rights and Employee
obligations under this Article 8 not only by an action or actions for damages,
but also by an action or actions for specific performance, injunction and/or
other equitable relief to enforce or prevent any violations, whether
anticipatory, continuing or future, of the provisions of the Article 8.
8.8 If any of the provisions of Article 8 of this Agreement are
adjudicated to be excessively broad as to: (1) geographic area, (2) the nature
of the business activity involved, (3) duration in time, or (4) any other
attribute, the parties authorize the court construing the same to modify the
excessively broad provisions to such limited extent as is reasonable, given the
original express of intent of the parties, and to enforce the restriction as
modified or to eliminate the restriction if it cannot be reasonably modified.
Any provisions of this Agreement not so modified or eliminated shall remain in
full force and effect.
8.9 Employee agrees that, except as otherwise required by law and
excluding any proceedings under Article 18 hereof in which the Company and the
Employee are adverse to one another, Employee will not at any time without the
prior consent of Company discuss or otherwise divulge to any person or entity
other than Employee's legal counsel any opinion, information, evidence or
testimony which Employee is to offer in any litigation, arbitration, or
9.
<PAGE>
other adversarial proceeding in which the Company, its interests or the
interests of its shareholders are directly or indirectly involved. If Employee
is contacted by or approached by any person or entity to discuss or disclose any
such matters, Employee will immediately report the occurrence to Company. If
Employee is served with legal process of any kind which requires Employee to
disclose any such matters, Employee will immediately report such service to
Company, provide Company with copies of the process, and decline to respond to
the process until: (1) the last date permitted for response to the process, or
(2) Company's counsel shall have determined how to proceed in the Company's best
interest, whichever event shall first occur. The covenants given by Employee
under this Article 8 will survive the termination of Employee's employment.
9. SOURCE OF PAYMENTS.
Subject to the provisions of Article 11, all payments provided in
this Agreement shall be timely paid in cash or by check from the general funds
of the Company or any successor Company.
10. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties
hereto and supersedes any prior employment agreement between Company or any
predecessor of the Company and Employee, except that this Agreement shall not
affect or operate to reduce any benefit or compensation inuring to Employee of a
kind elsewhere provided. No provision of this Agreement shall be interpreted to
mean (1) that Employee is subject to receiving fewer benefits than those
available to Employee without reference to this Agreement, or (2) that the
benefits
10.
<PAGE>
available to Employee will be paid or provided on terms and conditions other
than those stated in the individual benefit plans and policies.
11. NO ATTACHMENT.
11.1 Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
11.2 This Agreement shall be binding upon, and inure to the benefit of,
Employee and the Company and their respective successors and assigns.
12. MODIFICATION AND WAIVER.
12.1 This Agreement shall not be modified or amended except by an
instrument in writing signed by the parties hereto.
12.2 No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each written waiver shall operate only
as to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
13. SEVERABILITY.
11.
<PAGE>
If, for any reason, any provision of this Agreement, or any part of
any provision, is held invalid, such invalidity shall not affect any other
provision of this Agreement or any part of such provision not held so invalid,
and each such other provision and part thereof shall to the full extent
consistent with law continue in full force and effect.
14. HEADINGS FOR REFERENCE ONLY.
The headings of articles and paragraphs herein are included solely
for convenience of reference and shall not control the meaning or interpretation
of any of the provisions of this Agreement.
15. GOVERNING LAW.
This Agreement is entered into in the State of Illinois, and it
shall be governed by and be construed under the laws of the State of Illinois,
without regard to the choice of law principles of that state.
16. Notices. Any notice or other communication required or which may be
given hereunder shall be in writing and shall be delivered personally,
telegraphed, telexed or sent by facsimile, or sent by certified, registered or
express mail, postage prepaid, and shall be deemed
12.
<PAGE>
given when so delivered personally, telegraphed or telexed or sent by facsimile,
or if mailed, two days after the date of mailing, as follows:
If to Company to: PaperExchange.com, LLP
4 East Fabish Drive
Buffalo Grove, Illinois 60089-7031
Attn: ____________________________
If to Employee to: Hilton Plein
4 East Fabish Drive
Buffalo Grove, Illinois 60089-7031
The Company and Employee will provide written notice to each other in the
event of any change in the above addresses.
17. Assignment. This Agreement shall be binding upon, and shall inure to the
benefit of, the parties, and their respective successors, assigns, heirs and
representatives. Notwithstanding the foregoing, however, Employee may not assign
any of Employee's rights, or delegate any of Employee's duties, hereunder
without the prior written consent of Company. Company may assign this Agreement
upon notice to Employee without securing Employee's prior written consent in
connection with any sale of substantially all of Company's assets or if Company
merges into or consolidates with another business entity.
13.
<PAGE>
18. Arbitration of Disputes.
a. Arbitration. All Arbitration Claims (defined below) between the parties
shall be resolved by submission to final and binding arbitration under the rules
of the American Arbitration Association ("AAA"). The parties may agree on a
retired judge from the AAA panel. If they are unable to agree, AAA will provide
a list of three available judges and each party shall strike one. The remaining
judge shall serve as the arbitrator for purposes of resolving such dispute. The
parties agree that arbitration must be initiated within 60 days after a party
delivers a notice of intention to arbitrate pursuant to Article (b) below.
b. Initiation of Arbitration; Submission Agreement. Any party to this
Agreement may initiate arbitration of a dispute subject to this Paragraph, by
sending written notice of an intention to arbitrate by registered or certified
mail to all other parties and to AAA. The notice shall contain a description of
the Arbitration Claim(s) asserted by the party, the amount involved and the
remedy sought. In the event a demand for arbitration is made by any party to
this Agreement, the parties agree to execute a Submission Agreement provided by
AAA, in a form customarily used by AAA, setting forth (i) the rights of the
parties if the matter is arbitrated and (ii) the rules and procedures to be
followed at the arbitration hearing. Notwithstanding anything to the contrary
contained in this Agreement, each party shall bear its own legal, consulting and
expert witness fees in connection with any arbitration proceeding under this
Article 18.
c. One-Year To Initiate Arbitration Claim. The parties agree that
arbitration must be initiated within one year after the occurrence of the events
on which any Arbitration Claim is
14.
<PAGE>
based, and a party's failure to initiate arbitration within such one-year period
constitutes an absolute bar to the institution of any new proceedings.
d. "Arbitration Claim" Defined. For purposes of this Agreement,
"Arbitration Claims" shall mean any contract, tort, statutory or other claim,
demand, cause of action or dispute asserted by any party to this Agreement
against any other party to this Agreement, arising out of or related to (i) this
Agreement or any modification, amendment or supplement thereof, or (ii) the
employment relationship between the parties.
e. Intent of the Parties- Adequate Consideration. By this provision, it is
the intent of the parties to establish procedures to accomplish the informal and
inexpensive resolution of any Arbitration Claim between the parties without
resort to litigation. The parties agree that their mutual, binding promises to
arbitrate any Arbitration Claim between them represent valuable and adequate
consideration for the enforceability of this provision.
NOTICE: BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE
ANY DISPUTE ARISING OUT OF THE MATTERS INCLUDED IN THE "ARBITRATION OF DISPUTES"
PROVISION DECIDED BY NEUTRAL ARBITRATION AND YOU ARE GIVING UP ANY RIGHTS YOU
MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A COURT OR JURY TRIAL. BY
INITIALING IN THE SPACE BELOW YOU ARE GIVING UP YOUR JUDICIAL RIGHTS TO
DISCOVERY AND APPEAL, UNLESS THOSE RIGHTS ARE SPECIFICALLY INCLUDED OR PROVIDED
FOR IN THE "ARBITRATION OF DISPUTES" PROVISION. IF YOU REFUSE
15.
<PAGE>
TO SUBMIT TO ARBITRATION AFTER AGREEING TO THIS PROVISION, YOU MAY BE COMPELLED
TO ARBITRATE UNDER ILLINOIS LAW. YOUR AGREEMENT TO THIS ARBITRATION PROVISION IS
VOLUNTARY.
WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES
ARISING OUT OF THE MATTERS INCLUDED IN THIS "ARBITRATION OF DISPUTES" PROVISION
TO NEUTRAL ARBITRATION.
/s/ [ILLEGIBLE]
---------------------- ----------------------
Company's Initials Employee's Initials
f. Attorneys Fees. The prevailing party in any such arbitration shall be
entitled to recover all costs incurred and reasonable attorneys fees from the
other party in addition to any other relief granted or awarded.
16.
<PAGE>
TO SUBMIT TO ARBITRATION AFTER AGREEING TO THIS PROVISION, YOU MAY BE COMPELLED
TO ARBITRATE UNDER ILLINOIS LAW. YOUR AGREEMENT TO THIS ARBITRATION PROVISION IS
VOLUNTARY.
WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES
ARISING OUT OF THE MATTERS INCLUDED IN THIS "ARBITRATION OF DISPUTES" PROVISION
TO NEUTRAL ARBITRATION.
/s/ H.P.
---------------------- ----------------------
Company's Initials Employee's Initials
f. Attorneys Fees. The prevailing party in any such arbitration shall be
entitled to recover all costs incurred and reasonable attorneys fees from the
other party in addition to any other relief granted or awarded.
16.
<PAGE>
Company and Employee have executed this Agreement to be effective on
and as of the Effective Date given hereinabove.
"EMPLOYEE"
By:
--------------------------
Hilton Plein
"COMPANY"
PAPEREXCHANGE.COM, LLC
By: /s/ [ILLEGIBLE]
--------------------------
17.
<PAGE>
TO SUBMIT TO ARBITRATION AFTER AGREEING TO THIS PROVISION, YOU MAY BE COMPELLED
TO ARBITRATE UNDER ILLINOIS LAW. YOUR AGREEMENT TO THIS ARBITRATION PROVISION IS
VOLUNTARY.
WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES
ARISING OUT OF THE MATTERS INCLUDED IN THIS "ARBITRATION OF DISPUTES" PROVISION
TO NEUTRAL ARBITRATION.
/s/ H.P.
---------------------- ----------------------
Company's Initials Employee's Initials
f. Attorneys Fees. The prevailing party in any such arbitration shall be
entitled to recover all costs incurred and reasonable attorneys fees from the
other party in addition to any other relief granted or awarded.
16.
<PAGE>
EXHIBIT 10.14(a)
PAPEREXCHANGE.COM, LLC
1998 EQUITY OPTION PLAN
AMENDED AS OF
MAY 7, 1999
1. PURPOSE
The purpose of the Plan is to further the interests of the Company and any
Affiliate of the Company by strengthening the desire of Employees to continue
their employment with the Company and any affiliate of the Company and by
securing other benefits for the Company and any affiliate of the Company through
Options to be granted hereunder.
2. DEFINITIONS
Whenever used herein the following terms shall have the following
meanings, respectively:
(a) "Affiliate" shall mean any person or business entity which controls,
is controlled by, or is under the common control with, any other person.
(b) "Board" shall mean the Management Board of the Company.
(c) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(d) "Committee" shall mean the Company's Equity Option Committee or
Compensation Committee appointed by the Board, of it no such committee has been
appointed, reference to "Committee" herein shall be deemed to refer to the
Board.
(e) "Economic Interests," "Assignee", and "Member" shall have the meanings
ascribed to such terms in the Company's Operating Agreement.
(f) "Equity Interest" shall mean the ownership of an Economic Interest in
the Company. An Economic Interest may be expressed in terms of Shares, with all
Shares owned by any holder being such person's Shares or total Economic
Interests.
(g) "Company" shall mean PaperExchange.com, LLC, a Delaware Limited
Liability Company.
(h) "Disinterested Person" shall have the meaning set forth in Rule
16(b)-3(d)(3) promulgated by the Securities and Exchange Commission pursuant to
the Securities Exchange Act of 1934, as amended (the "1934 Act"), which provides
that a disinterested person is a member of the Board who, at the time of the
grant of an Option, is not eligible, and for at least one year prior to the
grant of an Option has not been eligible, to participate in the Plan or any
1.
<PAGE>
plan of the Company or any affiliate of the Company entitling the person to
acquire equity, equity options or equity appreciation rights of the Company.
(i) "Employee" shall mean, in connection with Options, any director,
officer, employee or independent contractor of the Company or any Affiliate of
the Company, it being understood that the Board may in its discretion also grant
Options to induce individuals to become and remain as directors, officers,
employees or independent contractors and that such persons, for purposes of
receiving Options hereunder, shall be deemed "Employees."
(j) "Fair Market Value" of the Company as of the date of this Plan is
determined to be $10,000,000. The Fair Market Value of the Company in the future
shall be determined by the Board in accordance with Section 20.20312 of the
Federal Estate Tax Regulations.
(k) "Option" shall mean an Option granted under the Plan.
(l) "Optionee" shall mean any Employee who has been granted an Option to
purchase equity in the Company under the Plan.
(m) "Permanent Disability" shall mean termination of employment with the
Company or any Subsidiary or Parent Corporation of the Company with the consent
of the Company or such Subsidiary or Parent Corporation by reason of permanent
and total disability within the meaning of Section 22(e)(3) of the Code.
(n) "Plan" shall mean this PaperExchange.com, LLC 1998 Equity Option Plan.
3. ADMINISTRATION
(a) The Plan shall be administered either (i) by the board, with the
majority of the Board acting at any time consisting of Disinterested Persons, or
(ii) in the discretion of the Board, by a Committee of at least three persons
appointed by the Board, at least two of such members being members of the Board
and all of such members being Disinterested Persons; provided, however, that if
a majority of the Board does not consist of Disinterested Persons, the Board
shall appoint a Committee consisting of Disinterested Persons. The Board may
from time to time appoint members of the Committee in substitution for or in
addition to members previously appointed and may fill vacancies.
(b) Any action of the Committee with respect to the administration of the
Plan shall be taken by majority vote or by written consent of a majority of its
members.
(c) Subject to the provisions of the Plan, the Committee or the Board
shall have the authority to construe and interpret the Plan, to define the terms
used therein, to determine the time or times an Option may be exercised and the
number of shares which may be exercised at
2.
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any one time, to prescribe, amend and rescind rules and regulations relating to
the Plan, to approve and determine the duration of leaves of absence which may
be granted to participants without constituting a termination of their
employment for purposes of the Plan, and to make all other determination
necessary or advisable for the administration of the Plan. All determinations
and interpretations made by the Committee shall be conclusive and binding on all
Employees and on their guardians, legal representatives and beneficiaries.
(d) The Company will indemnify and hold harmless the members of the Board
and the Committee from and against any and all liabilities, costs and expenses
incurred by such persons as a result of any act, or omission to act, in
connection with the performance of such persons' duties, responsibilities and
obligations under the Plan, other than such liabilities, costs and expenses as
may result from the negligence, gross negligence, bad faith, willful misconduct
and/or criminal acts of such persons.
(e) The Company will provide financial information to the Optionees on the
same basis as the Company provides such information to its members.
4. PERCENTAGE OF COMPANY SUBJECT TO PLAN
The equity to be offered under the Plan shall not exceed 1,000,000 Shares
or Economic Interests. If any Option granted hereunder shall expire or terminate
for any reason without having been exercised in full, the unpurchased equity
subject thereto shall again be available for purposes of this Plan.
5. ELIGIBILITY AND PARTICIPATION
(a) The Committee shall determine the Employees to whom Options shall be
granted and the amount of equity to be subject to each Option. An Employee who
has been granted an Option may, if he is otherwise eligible, be granted an
additional Option or Options if the Committee shall so determine.
(b) The Board shall have the authority, without member approval, to amend
the Plan, to exclude from eligibility any Employee who owns equity possessing
more than ten percent (10%) of the voting power or value the outstanding equity
of the Company or any Affiliate if such action is required to qualify the Plan
at any time in any state.
(c) Each Option shall be evidenced by a written Equity Option Agreement
with such terms and conditions and in such form as determined by the Committee.
Each Equity Option Agreement shall be executed by the Committee and the
Optionee.
(d) The Committee may grant a Phantom Option to any Employee who the
Committee determines would not be a suitable purchaser of unregistered
securities in a private offering under Regulation D of the Securities Act of
1933, as amended (the "1933 Act"). A
3.
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Phantom Option shall have all characteristics of any other Option granted
hereunder, unless provided herein to the contrary.
6. PURCHASE PRICE
(a) The purchase price covered by each Option shall not be less than
eighty-five percent (85%) of the Fair Market Value of the Shares or Economic
Interests being purchased as established on the date the Option is granted.
7. DURATION OF OPTIONS
The expiration date of each Option and all rights thereunder shall be
determined by the Committee. In the event the Committee does not specify the
expiration date of the Option, the expiration date shall be five (5) years from
the date on which the Option is granted, and shall be subject to earlier
termination as provided herein.
8. EXERCISE OF OPTIONS
(a) An Option shall be exercisable at such time or times and subject to
such terms and conditions as shall be determined by the Committee at the time of
grant; provided, however, that the Committee may waive any installment exercise
or waiting period provisions, in whole or in part at any time after the date of
grant, based on such factors as the Committee shall deem appropriate in its sole
discretion.
As a condition to the exercise, in whole or in part, of any Option,
the Committee may in its sole discretion require the Optionee to pay, in
addition to the purchase price of the equity covered by the Option, an amount
equal to any federal, state and local taxes that the Committee has determined
are required to be paid in connection with the exercise of such Option.
(b) No Option will be exercisable (and any attempted exercise will be
deemed null and void) if such exercise would create a right of recovery for
"short-swing profits" under Section 16(b) of the 1934 Act.
(c) Phantom Options may not be exercised. Instead, the Company shall pay
the Optionee the amount which the Fair Market Value of each Phantom Option Share
exceeds the per Share exercise price in cash when the Phantom Option vests.
9. METHOD OF EXERCISE
(a) To the extent that the right to exercise an Option, in whole or in
part, has accrued, Options may be exercised from time to time by giving written
notice to the Company stating the Shares or Economic Interest with respect to
which the Option is being exercised, accompanied by payment in full, by cash or
by certified or cashier's check payable to the order of the Company or
4.
<PAGE>
the equivalent thereof acceptable to the Company, of the purchase price for the
equity being purchased and, if applicable, any federal, state or local taxes
required to be paid in accordance with the provisions of Section 8 hereof. The
Company shall update its books and records to reflect the change in ownership of
the Company as a result of the exercise of the Option.
(b) In the Committee's discretion, payment of the purchase price for the
Shares or Economic Interest with respect to which the Option is being exercised
may be made in whole or in part with Economic Interest in the Company. If
requested by the Committee, prior to accepting payment in such a manner, the
Optionee, or any other person entitled to exercise the Option, shall supply the
Committee with a representation and warranty in writing that he has good and
marketable title to the Shares or Economic Interest free and c1ear of all liens
and encumbrances. The value of the Shares or Economic Interest tendered in
payment for the Option exercise shall be its Fair Market Value on the date of
the Optionee's exercise.
(c) If an Optionee, or other person entitled to exercise an Option, fails
to accepts delivery of or fails to pay for all or any portion of the Shares or
Economic Interest requested in the notice of exercise, upon tender of delivery
of or fails to pay for all or any portion of the Shares or Economic Interest
requested in the notice of exercise, upon tender of delivery thereof, the
Committee shall have the right to terminate his Option with respect to such
Share or Economic Interest.
10. NON-TRANSFERABILITY OF OPTIONS
No Option granted under the Plan shall be assignable or transferable by
the Optionee, either voluntarily or by operation of law, otherwise than by will
or the laws of descent and distribution, and shall be exercisable during his
lifetime only by the Optionee.
11. CONTINUANCE OF EMPLOYMENT
Nothing contained in the Plan or in any Option granted under the Plan
shall confer upon any Optionee any rights with respect to the continuation of
his employment by the Company or any Affiliate or interfere in any way with the
right of the Company or any Affiliate at any time to terminate such employment
or to increase or decrease the compensation of the Optionee from the rate in
existence at the time of the grant of an Option.
12. TERMINATION OF EMPLOYMENT OTHER THAN BY DEATH OR PERMANENT DISABILITY
Except as the Committee may determine otherwise with respect to any
Options granted hereunder:
(a) If an Optionee ceases to be an Employee for any reason other than his
death or Permanent Disability, any Options granted to him under the Plan shall
terminate three months from the date on which such Optionee terminates his
employment unless such Optionee has been
5.
<PAGE>
rehired by the Company and is an Employee on such date. During such three-month
period, the Optionee may exercise any Option granted to him but only to the
extent such Option was exercisable on the date of termination of his employment
and provided that such Option has not expired or otherwise terminated as
provided herein. A leave of absence approved in writing by the Committee shall
not be deemed a termination of employment for purposes of this Section 12, but
no Option may be exercised during any such leave of absence, except during the
first 30 days thereof.
(b) Termination of employment other than by death or Permanent Disability
for purposes hereof shall be deemed to take place upon the earliest to occur of
the following: (i) the Optionee's retirement under the normal retirement
policies of the Company or any Affiliate; (ii) the date of the Optionee's
retirement with the approval of the Committee because of disability other than
Permanent Disability; (iii) the date an Optionee receives notice or advice that
his employment is terminated; or (iv) the date an Optionee ceases to render his
services to the Company or any Affiliate (absences for temporary illness,
emergencies and vacations or leaves of absence approved in writing by the
Committee excepted). The fact that the Optionee may receive payment from the
Company or any Affiliate after termination for vacation pay, for services
rendered prior to termination, for salary in lieu of notice, or for other
benefits shall not affect the termination date.
13. DEATH OR PERMANENT DISABILITY OF OPTIONEE
Except as the Committee may determine otherwise with respect to any
Options granted hereunder:
If an Optionee shall die at a time when he is employed by the Company or
any Affiliate or if the Optionee shall cease to be an Employee by reason of
Permanent Disability, any Options granted to him under the Plan shall terminate
one year after the date of his death or termination of employment due to
Permanent Disability unless by its terms it shall expire before such date or
otherwise terminate as provided herein, and shall only be exercisable to the
extent that it would have been exercisable on the date of his death or his
retirement due to Permanent Disability. In the case of death, the Option may be
exercised by the person or persons to whom the Optionee's rights under the
Option shall pass by will or by the laws of descent and distribution.
14. PURCHASE NOT FOR DISTRIBUTION
Each Optionee shall, by accepting the grant of an Option under the Plan,
represent and agree, for himself and his transferees by will or the laws of
descent and distribution, that all equity purchased upon exercise of the Option
will be received and held without a view to distribution except as may be
permitted by the Securities Act of 1933, as amended (the "1933 Act"), and the
rules and regulations promulgated thereunder. After each notice of exercise of
any portion of an Option, if requested by the Committee, the person entitled to
exercise the Option must agree in writing that the Shares or Economic Interest
is being acquired in good faith without
6.
<PAGE>
a view to distribution except as may be permitted by the 1933 Act, and the rules
and regulations promulgated thereunder.
15. PRIVILEGES OF EQUITY OWNERSHIP
No person entitled to exercise any Option granted under the Plan shall
have any of the rights or privileges of a Member of the Company with respect to
any Shares or Economic Interest in the Company issuable upon exercise of such
Option until such person has been admitted as a Member pursuant to the Operating
Agreement. The Company may admit an Optionee as a Member only upon satisfaction
of the requirements for Membership, then in effect, as set forth in the
Company's Operating Agreement. An Optionee who purchases Shares or an Economic
Interest in the Company upon exercise of an Option will have the rights of an
Assignee until such person becomes a Member. No adjustment shall be made for
dividends or distributions of rights in respect of such Shares or Economic
Interest if the record date is prior to the date on which such person becomes
the holder of record, except as provided in Section 16 hereof.
16. ADJUSTMENTS
(a) If the outstanding Shares or Economic Interests of the Company change
from the date the Option is granted due to a combination or subdivision of
outstanding Shares or Economic Interests or a dividend or other distribution
payable pro-rata to the Members in Shares or Economic Interests, the aggregate
purchase price applicable to the unexercised portion of any outstanding Option
shall be adjusted accordingly; otherwise there will be no such adjustments.
(b) Notwithstanding the provisions of subsection (a) of this Section 16,
upon the dissolution or liquidation of the Company or upon any reorganization,
merger, or consolidation with one or more corporations as a result of which the
Company is not the surviving entity, or upon a sale of substantially all the
assets of the Company or of more than 80% of the then outstanding equity of the
Company to another corporation or entity, the Plan and each outstanding Option
shall terminate; provided, however, that (i) each Option, for which no option
has been tendered by the surviving corporation in accordance with all of the
terms of provision (ii) immediately below shall become fully exercisable subject
to the provisions of Sections 8(b) and (c) hereof within 30 days before the
effective date of such dissolution, liquidation, merger, consolidation or sale
of stock or assets in which the Company is not the surviving entity; or (ii) in
its sole and absolute discretion, the surviving corporation may, but shall not
be obligated to, tender to any Optionee holding an Option an option or options
to purchase equity of the surviving entity, and such new option or options shall
contain such terms and provisions as shall be required substantially to preserve
the rights and benefits of any Option then outstanding under the Plan.
(c) Adjustments under this Section 16 shall be made by the Committee,
whose determination as to what adjustments shall be made, and the extent
thereof, shall be final, binding and conclusive.
7.
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17. AMENDMENT AND TERMINATION OF PLAN
(a) The Board may from time to time, with respect to any Shares or
Economic Interests at the time not subject to Options, suspend or terminate the
Plan or amend or revise the terms of the Plan; provided that any amendment to
the Plan shall be approved by a majority of the Members of the Company if the
amendment would (i) materially increase the benefits accruing to participants
under the Plan; or (ii) materially modify the requirements as to eligibility for
participation in the P1an.
(b) No amendment, suspension or termination of the Plan shall, without the
consent of the Optionee, alter or impair any rights or obligations under any
Option theretofore granted to such Optionee under the Plan.
The terms and conditions of any Option granted to an Optionee under the
Plan may be modified or amended only by a written agreement executed by the
Optionee and the Company.
18. EFFECTIVE DATE OF PLAN
This Plan shall become effective upon adoption by the Board and the
Members.
19. TERM OF PLAN
No Option shall be granted pursuant to the Plan after ten years from the
date of adoption of the Plan by the Board.
This Plan is amended effective as of May 7, 1999.
8.
<PAGE>
EXHIBIT 10.14(b)
PAPEREXCHANGE.COM, LLC
EQUITY OPTION AGREEMENT
__________________________ Date Option Granted: __________
Name of Optionee
__________________________
__________________________ No. ____________
Residence Address
THIS AGREEMENT is made as of the date set forth above between
PaperExchange.com, LLC, a Delaware Limited Liability Company (the "Company") and
the optionee named above (the "Optionee").
RECITAL
The Management Board of the Company (the "Board") thereof, has determined
that it is to the advantage and interest of the Company and its members to grant
the option provided for herein to Optionee as an inducement to remain in the
service of the Company or any Subsidiary and Parent Corporation of the Company
and as an incentive for increased effort during such service. In consideration
of the mutual covenants herein contained, the parties hereto agree as follows:
1. Grant of Option
(a) Pursuant to and subject to the terms and conditions of the
PaperExchange.com, LLC 1998 Equity Option Plan (the "Plan"), the Company grants
to the Optionee the right and option (the "Option") to purchase on the terms and
conditions hereinafter set forth all or any part of an aggregate of____________
percent (the "Option Equity Percent") of the equity of the Company at the
purchase price of $_____________. Such Option shall be exercisable as follows:
one-twelvfth (1/12) of the Option at the close of each quarter, beginning
at the close of the first full quarter after this Option is granted to
Optionee, until the full amount of the Option is exercisable.
(b) Nothing contained herein shall be construed to amend, alter or
modify the terms or provisions set forth in the Employment Agreement between the
Company and Employee.
1.
<PAGE>
2. Exercise.
(a) The right to exercise the Option granted hereunder, to the
extent unexercised, shall remain in effect for a period of five (5) years from
the date of grant of this Option.
(b) This Option is exercisable at the times specified Sections 1(a)
and 2(a) of this Agreement.
3. Method of Exercise. To the extent that the right to purchase equity has
accrued hereunder, the Option may be exercised from time to time by written
notice to the Company stating the portion of the Option Equity Percent which is
being purchased pursuant to this Option, together with payment, in full, in cash
or by certified or cashier's check payable to the order of the Company, of the
purchase price for the portion of the Option Equity Percent being exercised. If
requested by the Board, prior to completing the sale of the equity as
contemplated hereunder, the Optionee shall supply the Board with a
representation that the equity is not being acquired with a view to distribution
and will be sold or otherwise disposed of only in accordance with applicable
federal and state statutes, rules and regulations. As a condition to the
exercise of the Option, in whole or in part, the Board may, in its sole
discretion, require the Optionee to pay, in addition to the purchase price for
the equity being purchased, an amount equal to any federal, state or local taxes
that the Board has determined are required to be paid in connection with the
exercise of the Option. As soon after the notice of exercise as the Company is
reasonable able to comply, the Company shall, without transfer or issue tax to
the Optionee or other person entitled to exercise the Option, update its records
to reflect the change in the ownership of the Company due the exercise of this
Option.
In the Board's sole discretion, payment of the purchase price for
the equity to be delivered, but not of the amount of any withholding taxes, may
be made in whole or in part with an equity interest in the Company. If requested
by the Board, prior to the acceptance of payment with an equity interest in the
Company, the Optionee shall supply the Board with a written representation and
warranty that he has good and marketable title to the equity interest, free and
clear of liens and encumbrances. The value of the equity interest tendered in
payment for the equity being purchased shall be its Fair Market Value on the
date of the Optionee's notice of exercise.
The Optionee may exercise the Option for less than the total Option Equity
Percent for which the Option is exercisable.
4. Termination of Option. The Option shall terminate and expire upon the
earliest to occur of:
(a) The last date for exercise of the Option as provided in Section
2(a) of this Agreement;
2.
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(b) The expiration of ninety (90) days after the date of the
Optionee's termination of employment with the Company or any Subsidiary and
Parent Corporation of the Company other than by reason of death or Permanent
Disability, unless the Optionee has been rehired and is an employee of the
Company or any Subsidiary and Parent Corporation of the Company on such date;
but if the termination of employment is for cause, the date of such termination
for cause will apply;
(c) The expiration of one year from the date of the Optionee's
termination of employment with the Company or any Subsidiary and Parent
Corporation of the Company by reason of death or Permanent Disability; or
(d) The termination of the Option pursuant to Section 6 hereof.
A termination of employment by reason of the death, retirement or
Permanent Disability of the Optionee or otherwise shall not accelerate or
otherwise affect the equity with respect to which the Option may be exercised,
and the Option may only be exercised with respect to the portion of the Option
Equity Percent for which it was exercisable at the date of such termination of
employment. In the event of the Optionee's death, the Option may be exercised
prior to its expiration or termination by his personal representative, or if
there is no personal representative, by his heir or legatee.
Termination of employment (other than by reason of death or
Permanent Disability) for purposes hereof shall be deemed to take place upon the
earliest to occur of the following: (i) the date of the Optionee's retirement
under the normal retirement policies of the Company or any Subsidiary and Parent
Corporation of the Company; (ii) the date of the Optionee's retirement with the
approval of the Board because of disability other than Permanent Disability;
(iii) the date the Optionee receives notice or advice that his employment is
terminated; or (iv) the date the Optionee ceases to render his services to the
Company or any affiliate of the Company (absences for temporary illness,
emergencies and vacations or leaves of absence of not more than ninety (90)
days' duration and approved in writing by the Board excepted). The fact that the
Optionee may receive payment from the Company or any Subsidiary and Parent
Corporation of the Company after termination for vacation pay, for services
rendered prior to termination, for salary in lieu of notice or for other
benefits shall not affect the termination date
As defined in the Plan, "Permanent Disability" means termination of
employment with the Company or any affiliate of the Company with the consent of
the Company or Subsidiary and Parent Corporation by reason of permanent and
total disability within the meaning of Section 22(e)(3) of the Code.
5. Adjustments. If there is any change in the Percentage Interests of the
Company from the date this Option was granted (provided the Option does not
thereby terminate pursuant
3.
<PAGE>
to Section 6 hereof), then the purchase price of this Option shall be
accordingly adjusted as determined by the Board.
6. Cessation of Legal Existence. Upon the dissolution or liquidation of
the Company, the reorganization, merger or consolidation of the Company with one
or more entities as a result of which the Company is not the surviving entity or
the sale of substantially all the assets of the Company or of more than 80% of
the then outstanding equity of the Company to another corporation or entity, the
Option granted hereunder shall terminate; provided, however, that: (i) each
Option for which no option has been tendered by the surviving corporation in
accordance with all of the terms of provision (ii) immediately below shall,
within 30 days before the effective date of such dissolution or within 30 days
before the effective date of such dissolution or liquidation, merger or
consolidation or sale of equity or assets in which the Company is not the
surviving entity, become fully exercisable subject to the provisions of Section
16(b) and (c) of the Plan; or (ii) in its sole and absolute discretion, the
surviving corporation may, but shall not be so obligated to, tender to any
Optionee holding an Option, an option or options to purchase equity of the
surviving entity, and such new option or options shall contain such terms and
provisions as shall be required substantially to preserve the rights and
benefits of any Option then outstanding under the Plan.
7. Non-Transferability. The Option is not assignable or transferable by
the Optionee, either voluntarily or by operation of law, otherwise than by will
or by the laws of descent and distribution, and is exercisable, during the
Optionee's lifetime, only by the Optionee.
8. No Ownership Rights. The Optionee or other person entitled to exercise
the Option shall have no rights or privileges as a Member with respect to any
equity interest subject hereto until the Optionee or such person has become the
holder of record of such equity, and no adjustment (except such adjustments as
may be effected pursuant to the provisions of Section 5 hereof) shall be made
for dividends or distribution of rights in respect of such equity if the record
date is prior to the date on which the Optionee or such person becomes the
holder of record.
9. Plan Controls. The Option shall be subject to and governed by the
provisions of the Plan (a copy of which is attached hereto as Exhibit A), which
the Board alone shall have the authority to interpret and construe. In the event
of any conflict between the provisions of this Agreement and the Plan, the Plan
shall govern. All determinations and interpretations thereof made by the Board
shall be conclusive and binding on all parties hereto and upon their successors
and assigns. All capitalized terms not otherwise defined herein shall have the
same meanings as set forth in the Plan.
The Option will not be treated as an incentive stock option within
the meaning of Section 422 of the Code.
10. Conditions to Issuance of Option. THE COMPANY'S OBLIGATION TO ISSUE AN
EQUITY INTEREST UPON EXERCISE OF THE OPTION IS EXPRESSLY CONDITIONED UPON THE
COMPLETION BY THE COMPANY OF ANY
4.
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REGISTRATION OR OTHER QUALIFICATION OF SUCH EQUITY UNDER ANY STATE AND/OR
FEDERAL LAW OR RULINGS OR REGULATIONS OR ANY GOVERNMENT REGULATORY BODY OR THE
MAKING OF SUCH INVESTMENT REPRESENTATIONS OR OTHER REPRESENTATIONS AND
AGREEMENTS BY THE OPTIONEE OR ANY PERSON ENTITLED TO EXERCISE THE OPTION IN
ORDER TO COMPLY WITH THE REQUIREMENTS OF ANY EXEMPTION FROM ANY SUCH
REGISTRATION OR OTHER QUALIFICATION OF SUCH EQUITY WHICH THE BOARD SHALL, IN ITS
SOLE DISCRETION, SEEM NECESSARY OR ADVISABLE. SUCH REQUIRED REPRESENTATIONS AND
AGREEMENTS INCLUDE REPRESENTATIONS AND AGREEMENTS THAT THE OPTIONEE, OR ANY
OTHER PERSON ENTITLED TO EXERCISE THE OPTION, (A) IS NOT PURCHASING SUCH EQUITY
FOR DISTRIBUTION AND (B) AGREES TO HAVE PLACED UPON THE FACE AND REVERSE OF ANY
CERTIFICATE FOR SUCH SHARES A LEGEND SETTING FORTH ANY REPRESENTATIONS AND
AGREEMENTS WHICH HAVE BEEN GIVEN TO THE BOARD OR A REFERENCE THERETO AND STATING
THAT, PRIOR TO MAKING ANY SALE OR OTHER DISPOSITION OF ANY SUCH SHARES, THE
OPTIONEE, OR ANY OTHER PERSON ENTITLED TO EXERCISE THE OPTION, WILL GIVE THE
COMPANY NOTICE OF INTENTION TO SELL OR DISPOSE OF THE EQUITY NOT LESS THAN FIVE
DAYS PRIOR TO SUCH SALE OR DISPOSITION.
12. Irrevocable Proxy. Optionee agrees to grant the Board an irrevocable
proxy to vote all exercised and unexercised equity which is granted or acquired
pursuant to this Option (the "Proxy") the form of which is attached as Exhibit
"A" hereto. Such proxy shall remain in effect for the maximum time permitted
under Delaware law or until it is terminated by the Management Board, whichever
is sooner.
13. Operating Agreement. Upon the exercise of any portion of this Option,
Optionee agrees to become a party to the Company's operating agreement and be
bound by such agreement's terms and conditions.
14. Method of Acceptance. This Agreement is addressed to the Optionee in
duplicate and shall not be effective until the Optionee executes the acceptance
below and returns one copy to the Company, thereby acknowledging that he has
read and agreed to all the terms and conditions of this Agreement and the Plan.
/
/
/
/
/
/
/
5.
<PAGE>
EXECUTED this ___ day of __________________,199_.
PAPEREXCHANGE.COM, LLC
By:________________________________
Title:_____________________________
ACCEPTED:
__________________________
Signature of Optionee
__________________________
Date
6.
<PAGE>
Exhibit 10.15(a)
PAPEREXCHANGE.COM, INC.
2000 EQUITY INCENTIVE PLAN
<PAGE>
TABLE OF CONTENTS
1. Purpose........................................................1
2. Definitions....................................................1
3. Term of the Plan...............................................1
4. Stock Subject to the Plan......................................1
5. Administration.................................................1
6. Authorization and Eligibility..................................1
7. Specific Terms of Awards.......................................1
8. Adjustments for Corporate Actions..............................1
9. Settlement of Awards...........................................1
10. Non-Transferability of Awards..................................1
11. Reservation of Stock...........................................1
12. Limitation of Rights in Stock; No Special Service Rights.......1
13. Nonexclusivity of the Plan.....................................1
14. Termination and Amendment of the Plan..........................1
15. Notices and Other Communications...............................1
16. Governing Law..................................................1
<PAGE>
PAPEREXCHANGE.COM, INC.
2000 EQUITY INCENTIVE PLAN
1. Purpose
This Plan is intended to encourage ownership of Common Stock by directors,
employees and consultants of the Company and its Affiliates and to provide
additional incentives for them to promote the success of the Company's business
through the grant of Awards of shares of the Company's Common Stock. The Plan is
intended to be an incentive stock option plan within the meaning of Section 422
of the Code but not all Awards granted hereunder are required to be Incentive
Options.
2. Definitions
As used in this Plan the following terms shall have the respective
meanings set out below, unless the context clearly requires otherwise:
2.1. Affiliate means any corporation, partnership, limited liability
company, business trust, or other entity controlling, controlled by or under
common control with the Company.
2.2. Award means any grant or sale pursuant to the Plan of Options,
Restricted Stock, or Stock Grants.
2.3. Award Agreement means an agreement between the Company and the
recipient of an Award, setting forth the terms and conditions of the Award.
2.4. Board means the Company's Board of Directors.
2.5. Code means the Internal Revenue Code of 1986, as amended from time to
time, or any statute successor thereto, and any regulations issued from time to
time thereunder.
2.6. Committee means any committee of the Board delegated by the Board
responsibility for the administration of the Plan, as provided in Section 5 of
the Plan. For any period during which no such committee is in existence
"Committee" shall mean the Board and all authority and responsibility assigned
the Committee under the Plan shall be exercised, if at all, by the Board.
2.7. Common Stock or Stock means common stock, par value $0.001 per share,
of the Company.
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2.8. Company means PaperExchange.com, Inc., a corporation organized under
the laws of the State of Delaware.
2.9. Grant Date means the date as of which an Option is granted, as
determined under Section 7.1(a).
2.10. Incentive Option means an Option which by its terms is to be treated
as an "incentive stock option" within the meaning of Section 422 of the Code.
2.11. Market Value means the value of a share of Common Stock on any date
as determined by the Committee.
2.12. Nonstatutory Option means any Option that is not an Incentive
Option.
2.13. Option means an option to purchase shares of Common Stock.
2.14. Optionee means a Participant to whom an Option shall have been
granted under the Plan.
2.15. Participant means any holder of an outstanding Award under the Plan.
2.16. Plan means this 2000 Equity Incentive Plan of the Company, as
amended from time to time.
2.17. Restricted Stock means a grant or sale of shares of Common Stock to
the Participant subject to a Risk of Forfeiture.
2.18. Restriction Period means the period of time during which any grant
of Restricted Stock remains at Risk of Forfeiture as described in Section 7.2(d)
and the applicable Award Agreement.
2.19. Risk of Forfeiture means a limitation on the right of the
Participant to retain an Award of Restricted Stock, including a right in the
Company to reacquire the Shares at less than their then Market Value, arising
because of the occurrence or non-occurrence of specified events or conditions.
2.20. Stock Grant means the grant of shares of Common Stock not subject to
restrictions or other forfeiture conditions.
2.21. Stockholders' Agreement means any agreement by and among the holders
of at least a majority of the outstanding voting securities of the
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Company and setting forth, among other provisions, restrictions upon the
transfer of shares of Stock or on the exercise of rights appurtenant thereto.
2.22. Ten Percent Owner means a person who owns, or is deemed within the
meaning of Section 422(b)(6) of the Code to own, stock possessing more than 10%
of the total combined voting power of all classes of stock of the Company (or
any Affiliate). Whether a person is a Ten Percent Owner shall be determined with
respect to each Option based on the facts existing immediately prior to the
Grant Date of such Option.
3. Term of the Plan
Unless the Plan shall have been earlier terminated by the Board, Awards
may be granted hereunder at any time in the period commencing on the approval of
the Plan by the Board and ending immediately prior to the tenth anniversary of
the earlier of the adoption of the Plan by the Board or approval of the Plan by
the Company's shareholders. Awards granted pursuant to the Plan within such
period shall not expire solely by reason of the termination of the Plan. Awards
of Incentive Options granted prior to shareholder approval of the Plan are
hereby expressly conditioned upon such approval, but in the event of the failure
of the shareholders to approve the Plan shall thereafter and for all purposes be
deemed to constitute Nonstatutory Options.
4. Stock Subject to the Plan
At no time shall the number of shares of Common Stock issued pursuant to
or subject to outstanding Awards granted under the Plan exceed 4,550,000 shares
of Common Stock; subject, however, to the provisions of Section 8 of the Plan.
For purposes of applying the foregoing limitation, if any Option expires,
terminates, or is cancelled for any reason without having been exercised in
full, or any Award of Restricted Stock should be forfeited by the recipient
thereof, the shares not purchased by the Optionee or forfeited by such a
recipient shall again be available for Awards thereafter to be granted under the
Plan. Shares of Common Stock issued pursuant to the Plan may be either
authorized but unissued shares or shares held by the Company in its treasury.
5. Administration
The Plan shall be administered by the Committee; provided, however, that
at any time and on any one or more occasions the Board may itself exercise any
of the powers and responsibilities assigned the Committee under the Plan and
when so acting shall have the benefit of all of the provisions of this Plan
pertaining to the Committee's exercise of its authorities hereunder.
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Subject to the provisions of the Plan, the Committee shall have complete
authority, in its discretion, to make or to select the manner of making all
needful determinations with respect to each Award to be granted by the Company
under the Plan in addition to any other determination allowed the Committee
under the Plan including the director, employee or consultant to receive the
Award and the form of Award. In making such determinations, the Committee may
take into account the nature of the services rendered by the respective
employees, consultants, and directors, their present and potential contributions
to the success of the Company and its subsidiaries, and such other factors as
the Committee in its discretion shall deem relevant. Subject to the provisions
of the Plan, the Committee shall also have complete authority to interpret the
Plan, to prescribe, amend and rescind rules and regulations relating to it, to
determine the terms and provisions of the respective Award Agreements (which
need not be identical), and to make all other determinations necessary or
advisable for the administration of the Plan. The Committee's determinations
made in good faith on matters referred to in this Plan shall be conclusive.
6. Authorization and Eligibility
Pursuant and subject to the terms of this Plan, the Committee may grant
from time to time and at any time prior to the termination of the Plan one or
more Awards, either alone or in combination with any other Awards, to any
non-employee member of the Board or of any board of directors (or similar
governing authority) of any Affiliate or any employee of or consultant to one or
more of the Company and its Affiliates. However, only employees of the Company,
and of any parent or subsidiary corporations of the Company, as defined in
Sections 424(e) and (f), respectively, of the Code, shall be eligible for the
grant of an Incentive Option. Further, in no event shall the number of shares of
Common Stock covered by Options or other Awards granted to any one person in any
one calendar year exceed 25% of the aggregate number of shares of Common Stock
subject to the Plan.
Each grant of an Award shall be subject to all applicable terms and
conditions of the Plan (including but not limited to any specific terms and
conditions applicable to that type of Award set out in the following Section),
and such other terms and conditions, not inconsistent with the terms of the
Plan, as the Committee may prescribe. No prospective Participant shall have any
rights with respect to an Award, unless and until such Participant has executed
an agreement evidencing the Award, delivered a fully executed copy thereof to
the Company, and otherwise complied with the applicable terms and conditions of
such Award.
7. Specific Terms of Awards
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7.1. Options.
(a) Date of Grant. The granting of an Option shall take place at the time
specified in the Award Agreement. Only if expressly so provided in the
applicable Award Agreement shall the Grant Date be the date on which the Award
Agreement shall have been duly executed and delivered by the Company and the
Optionee.
(b) Exercise Price. The price at which shares may be acquired under each
Incentive Option shall be not less than 100% of the Market Value of Common Stock
on the Grant Date, or not less than 110% of the Market Value of Common Stock on
the Grant Date if the Optionee is a Ten Percent Owner. The price at which shares
may be acquired under each Nonstatutory Option shall not be so limited solely by
reason of this Section.
(c) Option Period. No Incentive Option may be exercised on or after the
tenth anniversary of the Grant Date, or on or after the fifth anniversary of the
Grant Date if the Optionee is a Ten Percent Owner. The Option period under each
Nonstatutory Option shall not be so limited solely by reason of this Section.
(d) Exercisability. An Option may be immediately exercisable or become
exercisable in such installments, cumulative or non-cumulative, as the Committee
may determine. In the case of an Option not otherwise immediately exercisable in
full, the Committee may accelerate the exercisability of such Option in whole or
in part at any time, provided the acceleration of the exercisability of any
Incentive Option would not cause the Option to fail to comply with the
provisions of Section 422 of the Code.
(e) Termination of Association with the Company. Unless the Committee
shall provide otherwise in the grant of a particular Option under the Plan, if
the Optionee's employment or other association with the Company and its
Affiliates is terminated, whether voluntarily or otherwise, any outstanding
Option of the Optionee shall cease to be exercisable in any respect not later
than ninety (90) days following such termination and, for the period it remains
exercisable following termination, shall be exercisable only to the extent
exercisable at the date of termination. Military, sick or other bona fide leave
shall not be deemed a termination of employment or other association, provided
that it does not exceed the longer of ninety (90) days or the period during
which the absent Optionee's reemployment rights, if any, are guaranteed by
statute or by contract.
(f) Exercise of Option. An Option may be exercised by the Optionee giving
written notice, in the manner provided in Section 15, specifying the number of
shares with respect to which the Option is then being exercised.
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The notice shall be accompanied by payment in the form of cash, or certified or
bank check payable to the order of the Company in an amount equal to the
exercise price of the shares to be purchased or, if the Committee had so
authorized on the grant of any particular Option hereunder (and subject such
conditions, if any, as the Committee may deem necessary to avoid adverse
accounting effects to the Company) by delivery of shares of Common Stock held at
least six (6) months which have a Market Value equal to the exercise price of
the shares to be purchased. Payment of any exercise price may also be made
through and under the terms and conditions of any formal cashless exercise
program maintained by the Company if the Stock becomes traded on an established
market. Receipt by the Company of such notice and payment shall constitute the
exercise of the Option. Within 30 days thereafter but subject to the remaining
provisions of the Plan, the Company shall deliver or cause to be delivered to
the Optionee or his agent a certificate or certificates for the number of shares
then being purchased. Such shares shall be fully paid and nonassessable.
(g) Limit on Incentive Option Characterization. An Incentive Option shall
be considered to be an Incentive Option only to the extent that the number of
shares of Common Stock for which the Option first becomes exercisable in a
calendar year do not have an aggregate Market Value (as of the date of the grant
of the Option) in excess of the "current limit". The current limit for any
Optionee for any calendar year shall be $100,000 minus the aggregate Market
Value at the date of grant of the number of shares of Common Stock available for
purchase for the first time in the same year under each other Incentive Option
previously granted to the Optionee under the Plan, and under each other
incentive stock option previously granted to the Optionee under any other
incentive stock option plan of the Company and its Affiliates, after December
31, 1986. Any shares of Common Stock which would cause the foregoing limit to be
violated shall be deemed to have been granted under a separate Nonstatutory
Option, otherwise identical in its terms to those of the Incentive Option.
(h) Notification of Disposition. Each person exercising any Incentive
Option granted under the Plan shall be deemed to have covenanted with the
Company to report to the Company any disposition of such shares prior to the
expiration of the holding periods specified by Section 422(a)(1) of the Code
and, if and to the extent that the realization of income in such a disposition
imposes upon the Company federal, state, local or other withholding tax
requirements, or any such withholding is required to secure for the Company an
otherwise available tax deduction, to remit to the Company an amount in cash
sufficient to satisfy those requirements.
7.2. Restricted Stock.
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(a) Purchase Price. Shares of Restricted Stock shall be issued under the
Plan for such consideration, in cash, other property or services, as is
determined by the Committee.
(b) Issuance of Certificates. Each Participant receiving a Restricted
Stock Award, subject to subsection (c) below, shall be issued a stock
certificate in respect of such shares of Restricted Stock. Such certificate
shall be registered in the name of such Participant, and, if applicable, shall
bear an appropriate legend referring to the terms, conditions, and restrictions
applicable to such Award substantially in the following form:
The transferability of this certificate and the shares represented
by this certificate are subject to the terms and conditions of
PaperExchange.com, Inc. 2000 Equity Incentive Plan and an Award
Agreement entered into by the registered owner and
PaperExchange.com, Inc. Copies of such Plan and Agreement are on
file in the offices of PaperExchange.com, Inc.
(c) Escrow of Shares. The Committee may require that the stock
certificates evidencing shares of Restricted Stock be held in custody by a
designated escrow agent (which may but need not be the Company) until the
restrictions thereon shall have lapsed, and that the Participant deliver a stock
power, endorsed in blank, relating to the Stock covered by such Award.
(d) Restrictions and Restriction Period. During the period established by
the Committee and set forth in the Award Agreement, i.e., the Restriction
Period, Restricted Stock shall be subject to limitations on transferability and
a Risk of Forfeiture (which may take the form of a right of the Company to
repurchase the Restricted Stock for such consideration, if any, as the Committee
shall have determined at grant) arising on the basis of such conditions, related
to the performance of services, Company or Affiliate performance or otherwise,
as the Committee may determine. Any such Risk of Forfeiture may be waived, or
the Restriction Period shortened, at any time by the Committee on such basis as
it deems appropriate.
(e) Rights Pending Lapse of Risk of Forfeiture or Forfeiture of Award.
Except as otherwise provided in the Plan, at all times prior to lapse of any
Risk of Forfeiture applicable to, or forfeiture of, an Award of Restricted
Stock, the Participant shall have all of the rights of a stockholder of the
Company, including the right to vote the shares, and the right to receive any
dividends with respect to the shares of Restricted Stock. The Committee, as
determined at the time of Award, may permit or require the payment of cash
dividends to be deferred and, if the Committee so determines, reinvested in
additional Restricted Stock to the extent shares are available under Section 4.
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(f) Effect of Termination of Employment or Association. Unless otherwise
determined by the Committee at or after grant and subject to the applicable
provisions of the Award Agreement, upon termination of a Participant's
employment or other association with the Company and its Affiliates for any
reason during the Restriction Period, all shares of Restricted Stock still
subject to Risk of Forfeiture shall be forfeited or subject to the Company's
right of repurchase (as determined from the form of the Risk of Forfeiture);
provided, however, that military, sick or other bona fide leave shall not be
deemed a termination of employment or other association, if it does not exceed
the longer of ninety (90) days or the period during which the absent
Participant's reemployment rights, if any, are guaranteed by statute or by
contract.
(g) Lapse of Restrictions. If and when the Restriction Period expires
without a prior forfeiture of the Restricted Stock, the certificates for such
shares shall be delivered to the Participant promptly if not theretofore so
delivered.
7.3. Stock Grants. Stock Grants shall be awarded solely in recognition of
significant contributions to the success of the Company or its Affiliates, in
lieu of compensation otherwise already due and in such other limited
circumstances as the Committee deems appropriate. Stock Grants shall be made
without forfeiture conditions of any kind.
7.4. Awards to Participants Outside the United States. The Committee may
modify the terms of any Award under the Plan granted to a Participant who is, at
the time of grant or during the term of the Award, resident or primarily
employed outside of the United States in any manner deemed by the Committee to
be necessary or appropriate in order that such Award shall conform to laws,
regulations, and customs of the country in which the Participant is then
resident or primarily employed, or so that the value and other benefits of the
Award to the Participant, as affected by foreign tax laws and other restrictions
applicable as a result of the Participant's residence or employment abroad,
shall be comparable to the value of such an Award to a Participant who is
resident or primarily employed in the United States. An Award may be modified
under this Section 7.4 in a manner that is inconsistent with the express terms
of the Plan, so long as such modifications will not contravene any applicable
law or regulation.
8. Adjustments for Corporate Actions
8.1. Stock Dividend, Etc. In the event of any distribution on Stock
payable in Stock or any split-up or contraction in the number of shares of Stock
after the date of an Award Agreement evidencing an Award, the
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remaining number of shares of Stock subject to such Award and the price to be
paid for any share subject to the Award, if any, shall be proportionately
adjusted.
8.2. Stock Reclassification. In the event of any reclassification or
change of outstanding shares of Stock, immediately thereafter (and subject to
further adjustment for subsequent events) any outstanding Award shall thereafter
relate to shares of stock or other securities equivalent in kind and value to
those shares which the Participant would have received if he or she had held of
record the full remaining number of shares of Stock subject to the Award
immediately prior to such reclassification or change.
8.3. Consolidation or Merger. Subject to the remainder of this Section
8.3, in the event of any consolidation or merger of the Company with or into
another company or in case of any sale or conveyance to another company or
entity of the property of the Company as a whole or substantially as a whole,
immediately thereafter (and subject to further adjustment for subsequent events)
any outstanding Award shall thereafter relate to shares of stock or other
securities equivalent in kind and value to those shares and other securities the
Participant would have received if he or she had held of record the full
remaining number of shares of Stock subject to the Award immediately prior to
such consolidation, merger, sale or conveyance. However, unless any Award
Agreement evidencing the grant of an Option shall provide different or
additional terms, in any such transaction the Committee, in its discretion, may
provide instead that any outstanding Option shall terminate, to the extent not
exercised by the Optionee prior to termination, either (a) at the close of a
period of not less than ten (10) days specified by the Committee and commencing
on the Committee's delivery of written notice to the Optionee of its decision to
terminate such Option without payment of consideration as provided in the
following clause or (b) as of the date of the transaction, in consideration of
the Company's payment to the Optionee of an amount of cash equal to difference
between the aggregate Market Value of the shares of Stock for which the Option
is then exercisable and the aggregate exercise price for such shares under the
Option.
8.4. Other. In the event of any corporate action not specifically covered
by the preceding Sections, including but not limited to an extraordinary cash
distribution on Stock, a corporate separation or other reorganization or
liquidation, the Committee may make such adjustment of outstanding Awards and
their terms, if any, as it, in its sole discretion, may deem equitable and
appropriate in the circumstances.
8.5. Related Matters. Any adjustment in Awards made pursuant to this
Section 8 shall be determined and made, if at all, by the Committee and
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shall include any correlative modification of terms, including of option
exercise prices, Risks of Forfeiture and applicable repurchase prices for
Restricted Stock, which the Committee may deem necessary or appropriate so as to
ensure the rights of the Participants in their respective Awards are not
substantially diminished nor enlarged as a result of the adjustment and
corporate action. No fraction of a share shall be purchasable or deliverable
upon exercise, but in the event any adjustment hereunder of the number of shares
covered by an Award shall cause such number to include a fraction of a share,
such number of shares shall be adjusted to the nearest smaller whole number of
shares. In the event of changes in the outstanding Stock by reason of any stock
dividend, split-up, contraction, reclassification, or change of outstanding
shares of Stock of the nature contemplated by this Section 8, the number and
kind of shares of Stock available for the purposes of the Plan as stated in
Section 4 shall be correspondingly adjusted.
9. Settlement of Awards
9.1. Violation of Law. Notwithstanding any other provision of the Plan,
if, at any time, in the reasonable opinion of the Company, the issuance of
shares of Common Stock covered by an Award may constitute a violation of law,
then the Company may delay such issuance and the delivery of a certificate for
such shares until (i) approval shall have been obtained from such governmental
agencies, other than the Securities and Exchange Commission, as may be required
under any applicable law, rule, or regulation and (ii) in the case where such
issuance would constitute a violation of a law administered by or a regulation
of the Securities and Exchange Commission, one of the following conditions shall
have been satisfied:
(a) the shares are at the time of the issue of such shares effectively
registered under the Act; or
(b) the Company shall have received an opinion, in form and substance
satisfactory to the Company, from the Company's legal counsel to the effect that
the sale, transfer, assignment, pledge, encumbrance or other disposition of such
shares or such beneficial interest, as the case may be, does not require
registration under the Securities Act of 1933, as amended or any applicable
State securities laws.
The Company shall make all reasonable efforts to bring about the
occurrence of said events.
9.2. Execution of Stockholders' Agreement; Interpretation. If when Stock
is otherwise to be issued pursuant to an Award there is any existing
Stockholders Agreement, and the Committee has directed (whether at or after
grant) that the recipient of the Award become a party to such
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Agreement as a condition of the Award, the Company shall be under no obligation
to issue such shares until such time as the recipient of the Award (and any
person who exercises any Option, in whole or in part), has become a party to and
bound by the Stockholders' Agreement. In the event of any conflict between the
provisions of this Plan and the provisions of the Stockholders' Agreement, the
provisions of the Stockholders' Agreement shall control, but insofar as possible
the provisions of the Plan and such Agreement shall be construed so as to give
full force and effect to all such provisions.
9.3. Investment Representation. The Company shall be under no obligation
to issue any shares covered by any Award unless the shares to be issued pursuant
to Awards granted under the Plan have been effectively registered under the
Securities Act of 1933, as amended, or the Participant shall give a written
representation to the Company which is satisfactory in form and substance to its
counsel and upon which the Company may reasonably rely, that he or she is
acquiring the shares for his or her own account for the purpose of investment
and not with a view to, or for sale in connection with, the distribution of any
such shares.
9.4. Registration. If the Company shall deem it necessary or desirable to
register under the Securities Act of 1933, as amended or other applicable
statutes any shares of Stock issued or to be issued pursuant to Awards granted
under the Plan, or to qualify any such shares of Stock for exemption from the
Securities Act of 1933, as amended or other applicable statutes, then the
Company shall take such action at its own expense. The Company may require from
each recipient of an Award, or each holder of shares of Stock acquired pursuant
to the Plan, such information in writing for use in any registration statement,
prospectus, preliminary prospectus or offering circular as is reasonably
necessary for such purpose and may require reasonable indemnity to the Company
and its officers and directors from such holder against all losses, claims,
damage and liabilities arising from such use of the information so furnished and
caused by any untrue statement of any material fact therein or caused by the
omission 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
under which they were made. In addition, the Company may require of any such
person that he or she agree that, without the prior written consent of the
Company or such managing underwriter, he or she will not sell, make any short
sale of, loan, grant any option for the purchase of, pledge or otherwise
encumber, or otherwise dispose of, any shares of Common Stock during the one
hundred-eighty (180) day period commencing on the effective date of the
registration statement relating to such underwritten public offering of
securities.
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9.5. Placement of Legends; Stop Orders; etc. Each share of Common Stock to
be issued pursuant to Awards granted under the Plan may bear a reference to the
investment representation made in accordance with Section 9.3 in addition to any
other applicable restriction under the Plan, the terms of the Award and if
applicable under the Stockholders' Agreement and to the fact that no
registration statement has been filed with the Securities and Exchange
Commission in respect to said Common Stock. All certificates for shares of
Common Stock or other securities delivered under the Plan shall be subject to
such stock transfer orders and other restrictions as the Committee may deem
advisable under the rules, regulations, and other requirements of any stock
exchange upon which the Common Stock is then listed, and any applicable Federal
or state securities law, and the Committee may cause a legend or legends to be
put on any such certificates to make appropriate reference to such restrictions.
9.6. Tax Withholding. Whenever shares of Stock are issued or to be issued
pursuant to Awards granted under the Plan, the Company shall have the right to
require the recipient to remit to the Company an amount sufficient to satisfy
federal, state, local or other withholding tax requirements if, when, and to the
extent required by law (whether so required to secure for the Company an
otherwise available tax deduction or otherwise) prior to the delivery of any
certificate or certificates for such shares.
The obligations of the Company under the Plan shall be conditional on
satisfaction of all such withholding obligations and the Company shall, to the
extent permitted by law, have the right to deduct any such taxes from any
payment of any kind otherwise due to the recipient of an Award.
10. Non-Transferability of Awards
Except as otherwise provided in this Section, Awards shall not be
transferable, and no Award or interest therein may be sold, transferred,
pledged, assigned, or otherwise alienated or hypothecated, other than by will or
by the laws of descent and distribution. All of a Participant's rights in any
Award may be exercised during the life of the Participant only by the
Participant or the Participant's legal representative. However, the Committee
may, at or after the grant of an Award of a Nonstatutory Option or shares of
Restricted Stock, provide that such Award may be transferred by the recipient to
an immediate family member; provided, however, that any such transfer is without
payment of any consideration whatsoever, that no transfer of an Option shall be
valid unless first approved by the Committee, acting in its sole discretion, and
that any Restricted Stock so transferred shall remain subject to any applicable
restriction on transfer and Risk of Forfeiture. For this purpose, "immediate
family member" means an
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individual's parents, siblings, spouse and issue, spouses of such issue and any
trust for the benefit of, or the legal representative of, any of the preceding
persons, or any partnership substantially all of the partners of which are one
or more of such persons or the Participant.
11. Reservation of Stock
The Company shall at all times during the term of the Plan and any
outstanding Options granted hereunder reserve or otherwise keep available such
number of shares of Stock as will be sufficient to satisfy the requirements of
the Plan (if then in effect) and such Options and shall pay all fees and
expenses necessarily incurred by the Company in connection therewith.
12. Limitation of Rights in Stock; No Special Service Rights
A Participant shall not be deemed for any purpose to be a stockholder of
the Company with respect to any of the shares of Stock issuable pursuant to an
Award, except to the extent that, in the case of an Option, the Option shall
have been exercised with respect thereto and, in addition, a certificate shall
have been issued therefor and delivered to the Participant or his agent. Any
Stock to be issued pursuant to Awards granted under the Plan shall be subject to
all restrictions upon the transfer thereof which may be now or hereafter imposed
by the Certificate of Incorporation and the By-laws of the Company. Nothing
contained in the Plan or in any Award Agreement shall confer upon any recipient
of an Award any right with respect to the continuation of his or her employment
or other association with the Company (or any Affiliate), or interfere in any
way with the right of the Company (or any Affiliate), subject to the terms of
any separate employment or consulting agreement or provision of law or corporate
articles or by-laws to the contrary, at any time to terminate such employment or
consulting agreement or to increase or decrease, or otherwise adjust, the other
terms and conditions of the recipient's employment or other association with the
Company and its Affiliates.
13. Nonexclusivity of the Plan
Neither the adoption of the Plan by the Board nor the submission of the
Plan to the shareholders of the Company shall be construed as creating any
limitations on the power of the Board to adopt such other incentive arrangements
as it may deem desirable, including without limitation, the granting of stock
options and restricted stock other than under the Plan, and such arrangements
may be either applicable generally or only in specific cases.
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14. Termination and Amendment of the Plan
The Board may at any time terminate the Plan or make such modifications of
the Plan as it shall deem advisable. No termination or amendment of the Plan
may, without the consent of any recipient of an Award granted hereunder,
adversely affect the rights of such recipient under such Award.
The Committee may amend the terms of any Award theretofore granted,
prospectively or retroactively, provided as amended such Award is consistent
with the terms of the Plan, but no such amendment shall impair the rights of the
recipient of such Award without his or her consent.
15. Notices and Other Communications
Any notice, demand, request or other communication hereunder to any party
shall be deemed to be sufficient if contained in a written instrument delivered
in person or duly sent by first class registered, certified or overnight mail,
postage prepaid, or telecopied with a confirmation copy by regular, certified or
overnight mail, addressed or telecopied, as the case may be, (i) if to the
recipient of an Award, at his or her residence address last filed with the
Company and (ii) if to the Company, at its principal place of business,
addressed to the attention of its Treasurer, or to such other address or
telecopier number, as the case may be, as the addressee may have designated by
notice to the addressor. All such notices, requests, demands and other
communications shall be deemed to have been received: (i) in the case of
personal delivery, on the date of such delivery; (ii) in the case of mailing,
when received by the addressee; and (iii) in the case of facsimile transmission,
when confirmed by facsimile machine report.
16. Governing Law
The Plan and all Award Agreements and actions taken thereunder shall be
governed, interpreted and enforced in accordance with the laws of the
Commonwealth of Massachusetts, without regard to the conflict of laws principles
thereof.
* * *
The following does not form part of this Plan but is included solely for
informational purposes:
Date of Board Approval: February 28, 2000
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-15-
Date of Shareholder Approval: February 28, 2000
<PAGE>
Exhibit 10.15(b)
PAPEREXCHANGE.COM, INC.
2000 EQUITY INCENTIVE PLAN
STOCK OPTION AGREEMENT
OPTION NO: _____
THIS AGREEMENT dated as of _________________ ___, 2000, between
PaperExchange.com, Inc., a corporation organized under the laws of the State of
Delaware (the "Company"), and the individual identified below, residing at the
address there set out (the "Optionee").
1. Grant of Option. Pursuant and subject to the Company's 2000 Equity
Incentive Plan as attached hereto (the "Plan"), the Company grants to the
Optionee an option (the "Option") to purchase from the Company all or any part
of a total of ________________ shares (the "Optioned Shares") of the common
stock, par value $.001 per share, in the Company (the "Stock"), at a price, of
$ ______________ per share. This Option is granted(1) as of _______________ ___,
20__ (the "Grant Date").
2. Character of Option. This Option ____________ (2) to be treated as an
"incentive stock option" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended.
3. Duration of Option. This Option shall expire at 5:00 p.m. on the
earlier of
(a) the seventh(3) anniversary of the Grant Date, and
(b) the applicable date below, determined based on the circumstances
in which the Optionee's employment or other association with the Company and its
Affiliates ends (the Optionee's "Termination of Service"):
(i) the date of the Optionee's Termination of Service, if by
the Company or an Affiliate for cause;
(ii) the first anniversary of the Optionee's Termination of
Service, if on account of death or, with the consent of the Company,
- ----------
(1) Replacement options will include the following text: "in replacement
of an option (the "Replaced Option") previously granted by PaperExchange.com,
LLC, the Company's predecessor, under the PaperExchange.com, LLC 1998 Equity
Option Plan (the "Prior Plan"),". The term "Grant Date" is used to establish the
initial exercise dates, and accordingly for replacement options the date entered
should be the Grant Date of the replaced option.
(2) Insert "is" or "is not". All replacement options will be "is not".
(3) Replacement options will expire on the fifth anniversary, rather than
seventh anniversary, to avoid any extension of the options they are intended to
replace. Such an extension may have adverse accounting effects.
<PAGE>
-2-
permanent and total disability (within the meaning of Section 22(e)(3) of
the Code); and
(iii) the 90th day after the Optionee's Termination of
Service, in any other circumstances.
4. Exercise of Option. Until its expiration and subject to the remainder
of this Section, this Option may be exercised, in the manner specified in
Section 7.1(f) of the Plan, in those installments of Optioned Shares identified
in the table below, in full or in part, from and after the initial exercise date
set opposite each such installment:
Number of
Shares in Installment Initial Exercise Date
--------------------- ---------------------
One-quarter of the First anniversary of Grant Date
Optioned Shares
1/36th of the remaining Cumulatively, on the first day of each
three-quarters of the month to begin after the first anniversary
Optioned Shares of the Grant Date
In the event of the Optionee's Termination of Service by the Company or an
Affiliate other than for cause within twelve (12) months after a change in
control, on such Termination and for the period thereafter the Option remains
exercisable, the Option shall be exercisable to the same extent as it would have
been exercisable had the Optionee remained employed by the Company and its
Affiliates until the first anniversary of the Optionee's Termination of Service
(that is, one additional year's vesting shall be allowed). For this purpose
"change of control" means any transaction, or the initial transaction in a
series of related transactions, occuring after the date hereof if immediately
after such transaction or series more than 50% of the Company's equity
securities have ceased to be owned, directly or indirectly, by persons which
beneficially owned the Company's equity securities, directly or indirectly,
immediately prior to such transaction or series.
Notwithstanding anything contained herein to the contrary, if this
Option does not otherwise terminate immediately upon the Optionee's Termination
of Service, after such Termination of Service this Option shall, until its
expiration, be exercisable only to the extent exercisable immediately prior to
such Termination. Futhermore, this Option shall in no event be exercisable for a
fractional share, with an fractional share being carried forward to future
installments until a whole share results. Finally, this Option may not be
exercised to any extent unless and until the Optionee has become a party to, and
then only while the Optionee remains bound by the provisions of, the
Stockholders' Agreement.
5. Transfer of Options. This Option may not be transferred except by will
or the laws of descent and distribution, and, during the lifetime of the
Optionee, may be exercised only by the Optionee.
<PAGE>
-3-
6. Incorporation of Plan Terms. This Option is granted subject to all of
the applicable terms and provisions of the Plan, including but not limited to
the limitations on the Company's obligation to deliver Optioned Shares upon
exercise set forth in Section 9 (Settlement of Awards).
7.(4) Relationship to Replaced Option; Optionee's Acknowledgement. The
Prior Plan provided that the Optionee would be entitled to exercise the Replaced
Option in full if the conversion of the Company from a limited liability company
into a corporation constituted a reorganization and the Company did not offer
the Optionee an option which substantially preserves the rights and benefits of
the Replaced Option. The Optionee acknowledges and agrees this Option does
substantially preserve the rights and benefits of the Replaced Option. The
Optionee accepts this Option in complete substitution and replacement for the
Replaced Option and all of his or her rights under the Replaced Option and the
Prior Plan, and further agrees upon request of the Company to surrender all
copies of the Replaced Option.
8. Miscellaneous. This Agreement shall be construed and enforced in
accordance with the laws of the Commonwealth of Massachusetts, without regard to
the conflict of laws principles thereof and shall be binding upon and inure to
the benefit of any successor or assign of the Company and any executor,
administrator, trustee, guardian, or other legal representative of the Optionee.
This Agreement may be executed in two or more counterparts, each of which shall
be an original, but all of which together shall constitute one and the same
instrument. Capitalized terms used but not defined herein shall have the meaning
assigned under the Plan.
REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK
- ----------
(4) Included only in replacement options.
<PAGE>
-4-
IN WITNESS WHEREOF, the parties have executed this Agreement as a sealed
instrument as of the date first above written.
PAPEREXCHANGE.COM, INC.
By: ___________________________ ___________________________________________
Title:___________________________ Signature of Optionee
___________________________________________
Name of Optionee
Optionee's Address:
___________________________________________
___________________________________________
___________________________________________
Telecopier:________________________________
<PAGE>
HEADCOUNTS AS OF 2/29/00:
- -------------------------
<TABLE>
<CAPTION>
DEPARTMENT Employee
- --------------------------------- ------------------------------
<S> <C> <C>
ADMIN Kent Dolby 1
ADMIN Andrea Wald 2
ADMIN Duane DeSisto 3
ADMIN Flannery Conlin 4
ADMIN Jon Levine 5
ADMIN Steve Korotsky 6
OPERATIONS Aimee Orkin 7
OPERATIONS Alexis Beckman 8
OPERATIONS Allison Hoyt 9
OPERATIONS Chris Todd 10
OPERATIONS Dominique Phanthachith 11
OPERATIONS Marcel Oesman 12
OPERATIONS Robert Lang 13
MARKETING Carol Fusaro 1
MARKETING Julie Decedue 2
MARKETING Kyla Heimert 3
MARKETING Miriam Menasha 4
MARKETING Nancy Tefft-Potter 5
MARKETING Paula Quate 6
MARKETING Ray Funderburk 7
MARKETING Steven Finder 8
MARKETING Wendy Ward 9
SALES Bob Lehmann 10
SALES Brock Richards 11
SALES Cash Cappel 12
SALES Cindy Bellefuile 13
SALES Colin Carroll 14
SALES Dale Nolden 15
SALES Dan Bormolini 16
SALES Jay Chiongbian 17
SALES Joe Derrico 18
SALES Kevin Preblud 19
SALES Mark Crowson 20
SALES Michael Gozon 21
SALES Mike Cannon 22
SALES Perry Galloway 23
SALES Richard Dow 24
SALES Rob Eskew 25
SALES Rob Harlow 26
SALES Robert Fuchs 27
SALES Steve Holloway 28
PRODDEV Robert Brenner 29
WEBDEV Alex Nadel 1
WEBDEV Alison Mcguire 2
WEBDEV Allison Awe 3
WEBDEV Amir Khan 4
WEBDEV Bob Brown 5
WEBDEV Carl Katzeff 6
WEBDEV Cedric Mollet 7
WEBDEV Chris Teague 8
WEBDEV Christina Luce 9
WEBDEV Dean Newport 10
WEBDEV Deanna Arrigo 11
WEBDEV Joanne Bartley 12
WEBDEV Joe Fitzgerald 13
WEBDEV John Rice 14
WEBDEV Laura Konet 15
WEBDEV M Currier 16
WEBDEV M Victor 17
WEBDEV Nicos Makrinitos 18
WEBDEV Howard Kaplan 19
WEBDEV Mark Rusch 20
WEBDEV Martin Rempel 21
WEBDEV Matt Gill 22
BUSSINESS DEV Kevin Ward 1
BUSSINESS DEV Lekshmi Venu 2
BUSSINESS DEV Rod Parsley 3
BUSSINESS DEV Ruby Kam 4
BUSSINESS DEV Seth Preus 5
NOT EMPLOYEES:
- --------------
BUSSINESS DEV Alex Shivananda
SALES Antony Thor
SALES Rodney Farkas
STARTED 3/6/00:
- ---------------
ADMIN Amanda Wu
WEBDEV Dante DeMichaelis
</TABLE>
<PAGE>
SCHEDULE OF OPTIONS GRANTED UNDER THE 2000 EQUITY INCENTIVE PLAN
<TABLE>
<CAPTION>
Employee Options Vesting Start
Granted Date
- ------------------------------------------------------------------
<S> <C> <C>
Carl Katzeff 225,000 5/1/98
Rod Parsley 900,000 5/1/98
Laura Konet 45,000 6/1/98
Rob Harlow 19,500 7/20/98
Pat Theut 31,500 8/12/98
Joe Derrico 36,000 9/1/98
Mark Crowson 126,000 9/1/98
Dale Nolden 126,000 10/16/98
Seth Preus 36,000 11/15/98
Alex Nadel 12,000 2/1/99
Allison Hoyt 3,750 2/1/99
Dominique Phanthachith 3,750 2/22/99
Ruby Kam 60,000 3/15/99
Chris Todd 60,000 3/22/99
Stacey Erikson 7,500 3/26/99
Christina Luce 18,000 4/12/99
Lekshmi Venu 36,000 4/19/99
Aimee Clark 0 4/27/99
Alexis Beckman 6,000 4/27/99
Carl Katzeff 75,000 5/1/99
Laura Konet 60,000 5/1/99
Ray Funderburk 66,000 5/1/99
Nancy Tefft-Potter 7,500 5/4/99
Paula Quate 3,750 5/4/99
Cindy Bellefuile 18,000 5/10/99
Dean Newport 60,000 5/10/99
Richard Dow 18,000 5/17/99
Bob Lehmann 18,000 6/1/99
Kyla Heimert 12,000 6/1/99
Dan Bormolini 18,000 6/14/99
Mike Cannon 18,000 6/14/99
Bob Brown 12,000 6/16/99
Marcel Oesman 3,000 6/21/99
Kevin Ward 60,000 7/15/99
Wendy Ward 60,000 7/15/99
Rob Harlow 4,500 7/20/99
Chris Teague 12,000 7/26/99
Colin Carroll 36,000 8/2/99
Steven Finder 7,500 8/5/99
Antony Thor 30,000 8/10/99
Flannery Conlin 1,500 9/7/99
Alex Shivananda 60,000 9/10/99
Amir Khan 12,000 9/15/99
Joe Fitzgerald 66,000 10/1/99
Jon Levine 10,000 10/4/99
Joanne Bartley 6,000 10/11/99
Cash Cappel 30,000 10/15/99
Michael Gozon 30,000 10/15/99
Robert Lang 15,000 10/15/99
Duane DeSisto 100,000 10/18/99
Colin Carroll 10,000 10/25/99
Cedric Mollet 10,000 11/1/99
Robert Fuchs 10,000 11/1/99
Brock Richards 10,000 11/8/99
Kevin Preblud 52,500 11/8/99
Rob Eskew 10,000 11/8/99
Perry Galloway 12,000 11/15/99
--------------------
Steve Holloway 10,000 11/29/99
Alexis Beckman 1,500 12/15/99
Cash Cappel 10,000 12/15/99
Dominique Phanthachith 1,250 12/15/99
Lekshmi Venu 3,000 12/15/99
Michael Gozon 16,000 12/15/99
M Currier 7,000 12/20/99
M Victor 25,000 12/20/99
--------------------
Duane Desisto 30,000 1/31/00
Seth Preus 2,000 11/15/99
Nicos Makrinitos 12,000 1/17/00
John Rice 7,000 2/7/00
Deanna Arrigo 8,000 1/10/00
Allison Awe 8,000 1/10/00
Bob Brenner 200,000 1/24/00
Miriam Menasha 3,000 1/5/00
Alison Mcguire 6,000 1/6/00
Julie Decedue 6,000 2/7/00
Aimee Orkin 3,000 2/8/00
Steve Korotsky 25,000 1/17/00
Stacey Eriickson 1/28/00
Rodney Farkas 6,000 2/1/00
Carol Fusaro 10,000 2/14/00
Matt Gill 7,000 2/22/00
Mark Rusch 10,000 2/22/00
Martin Rempel 35,000 2/28/00
Jay Chiongbian 10,000 2/28/00
Howard Kaplan 7,000 2/28/00
Andrea Wald 2,000 3/1/00
Ellen Viveiros 10,000 3/6/00
Dante DeMichaelis 25,000 3/6/00
Amanda Wu 3,000 3/6/00
Brijesh Anand 140,000 3/6/00
Jeffrey Barager 50,000 3/6/00
Scott Baxter 50,000 3/6/00
Chris Pixler 50,000 3/6/00
</TABLE>
<PAGE>
PAPER EXCHANGE.COM
APIC - DEFERRED COMP: CHEAP STOCK & OPTIONS
DECEMBER 31, 1999
<TABLE>
<CAPTION>
A B C (C-B) * A
Grant Strike Deferred
Date Employee Options Price FMV Comp.
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
06/01/99 Bob Lehmann 18,000 $0.20 $0.89 $12,360
06/01/99 Kyla Heimert 12,000 $0.20 $0.89 $8,240
06/14/99 Dan Bormolini 18,000 $0.20 $0.89 $12,360
06/14/99 Mike Cannon 18,000 $0.20 $0.89 $12,360
06/16/99 Bob Brown 12,000 $0.20 $0.89 $8,240
07/15/99 Kevin Ward 60,000 $0.20 $0.89 $41,200
07/15/99 Wendy Ward 60,000 $0.20 $0.89 $41,200
12/20/99 Kent Dolby 1,767,020 $2.38 $3.34 $ 1,696,339
--------------------------------------------------------------
Totals 1,965,020 $ 1,832,299
===============
Less: 1999 Amortization 15,793
-------------------
$ 1,816,506
===================
</TABLE>
<TABLE>
<CAPTION>
Amortization
1999 2000 2001 2002 2003 Balance
- --------------------------------------------------------------------------------------- ------------
<S> <C> <C> <C> <C> <C>
2,060 4,120 4,120 2,060 -
1,373 2,747 2,747 1,373 -
2,060 4,120 4,120 2,060 -
2,060 4,120 4,120 2,060 -
1,373 2,747 2,747 1,373 -
3,433 13,733 13,733 10,300 -
3,433 13,733 13,733 10,300 -
212,042 530,106 530,106 424,085 -
- -------------------------------------------------------------------------------
15,793 257,362 575,426 559,633 424,085
</TABLE>
<PAGE>
Exhibit 10.18
SUBLEASE AGREEMENT
AGREEMENT made this 13th day of July, 1999, by and between The Image Bank,
Inc, a New York corporation with its principal office at 2777 Stemmons Freeway,
Suite 600, Dallas, TX 75207 (hereinafter "TIB" or "Sublessor") and
PaperExchange.com, a Delaware limited liability company with its principal
office at 545 Boylston Street, 8th Floor, Boston, MA 02116 (hereinafter
"Sublessee").
WITNESSETH:
WHEREAS, by Agreement of Lease dated as of July 31, 1998, by and between
Net Realty Holding Trust, c/o Net Properties Management, Inc., as landlord
(hereinafter called the "Landlord of the Underlying Lease") and Sublessor as
tenant, (hereinafter called the "Underlying lease"), a copy of which is annexed
hereto, made a part hereof and marked Exhibit "A," the said landlord did lease
to the said tenant certain premises located at 545 Boylston Street, 2nd Floor,
Boston, Massachusetts, as those particularly described in the Underlying Lease
(referred to in the underlying Lease as the "Premises"), and
WHEREAS, Sublessor desires to sublease the Demised Premises (hereinafter
called the "Subleased Premises") to the Sublessee and the Sublessee is willing
to sublet the Subleased Premises from Sublessor on the conditions hereinafter
set forth,
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, it is hereby agreed by and between the parties hereto as
follows:
ARTICLE 1
Subleased Premises
Sublessor hereby subleases unto Sublessee, and Sublessee hereby takes and
hires from Sublessor, subject to the terms, conditions and provisions hereof,
the Subleased Premises which constitute all of the Premises described in said
Underlying Lease, together with any rights appurtenant to said Subleased
Premises granted to Sublessor in the Underlying Lease. Sublessee shall have all
the rights, privileges and benefits of the "Tenant" of such Underlying Lease
pertaining to the Subleased Premises except as herein specifically limited or
denied, and the same are hereby granted and conveyed to Sublessee from Sublessor
for the full term hereof.
<PAGE>
ARTICLE II
Term
The term of this Sublease shall commence on July 13th, 1999 and terminate
on October 31, 2003 (the "Term").
ARTICLE III
Rent, Taxes and Assessments
Sublessee covenants and agrees to pay the following to Sublessor, at such
place or places as Sublessor may by notice in writing to Sublessee from time to
time direct, at the following taxes and times:
(a) Base Rent. Base rent at the rate of Eight Thousand Seven Hundred
Seventy-Three and 33/100 Dollars ($8,773.33) payable each month in advance, on
the first day of each and every calendar month, commencing on August 1, 1999 and
prorated for the fraction of any month, without offset, deduction, notice or
demand.
(b) Additional Rent. Sublessee shall pay to Sublessor, as additional rent,
all real estate taxes which Sublessor may be obligated to pay pursuant to the
terms of Article 6 of the Underlying Lease except that, for purposes of this
Sublease, Section 6(A)(2) shall be modified to read, "Base Tax Year" shall mean
the Fiscal Year 2000; any increases in Operating Expenses which Sublessor may be
obligated to pay pursuant to the terms of Article 7 of the Underlying Lease,
except that, for purposes of this Sublease, Section 7(A)(1) shall be modified to
read, "the term "Fiscal Base Year" shall mean Calendar Year 1999; and any other
charges which Sublessor may be obligated to pay pursuant to the Underlying Lease
during the term of this Sublease. The amounts due hereunder pursuant to the
aforesaid provisions of the Underlying Lease shall be payable to Sublessor no
less than ten (10) days prior to the date that Sublessor may be obligated to pay
same pursuant to the terms of said Underlying Lease.
(c) All rent and additional rent shall be paid to Sublessor at the address
set forth above or such other address as Sublessor may designate in writing.
Sublessee shall forward its checks payable jointly to the Sublessor and the
Landlord of the Underlying Lease at least four business days prior to the due
date of any payments due herunder. Sublessor shall endorse and forward such
checks to the Landlord of the Underlying Lease promptly upon receipt.
2
<PAGE>
ARTICLE IV
Security Deposit
Sublessee shall provide as security an irrevocable standby Letter of Credit in
the amount of Thirty-five Thousand Ninety-three and 34/100 U.S. Dollars
($35,093.34) with BankBoston N.A., 150 Federal Street, Boston, MA 02110 or other
institution acceptable to Sublessor upon execution of this Sublease. In the
event that, for any reason, the Letter of Credit can not be maintained,
Sublessee shall immediately pay to Sublessor the above sum in U.S. dollars to
serve as a Security Deposit. Failure to make such Security Deposit with
Sublessor shall be considered a default as set out in Article X, Default,
Section (a). This Security Deposit is security for the faithful performance and
observation by Sublessee of the terms, provisions and conditions of this lease;
it is agreed that in the event Sublessee defaults in respect of any of the
terms, provisions and conditions of this Sublease, including, but not limited
to, the payment of rent and additional rent, Sublessor may use, apply or retain
the whole or any part of the security to the extent required for the payment of
any rent, additional rent or any other sum as to which Sublessee is in default
or for any sum which Sublessor may expend or may be required to expend by reason
of Sublessee's default in respect of any of the terms, covenants and conditions
of this Sublease, including but not limited to, any damages or deficiency in the
reletting of the premises, whether such damages or deficiency accrued before or
after summary proceedings or other re-entry by Sublessor. In the event that
Sublessee shall fully and faithfully comply with all of the terms, provisions,
covenants and conditions of this Sublease, the security shall be returned to
Sublessee after the date fixed as the end of the Sublease and after delivery of
entire possession of the demised premises to Sublessor.
ARTICLE V
Use
Sublessee shall have the right to use the Subleased Premises for the use
permitted by Article 9 of the Underlying Lease and for no other purpose.
ARTICLE VI
Condition of the Premises
Sublessee accepts the Subleased Premises in "as-is" condition.
Sublessor shall deliver possession of the Subleased Premises to Sublessee
on July 13, 1999, subject to delays beyond Sublessor's reasonable control, but
in no event prior to the execution of this Sublease and the delivery of the
rental required hereunder.
3
<PAGE>
ARTICLE VII
Assignment and Subletting
Sublessee shall not have the right to assign Sublessee's interest in the
Sublease or sublease the Subleased Premises in whole or in part during the term
hereof, by operation of law or otherwise.
ARTICLE VIII
Subordination of Sublease
It is understood that the Sublessor is not the free owner of the Subleased
Premises, but has acquired its interest therein solely through the Underlying
Lease. This Sublease is subject to the provisions of the Underlying Lease and
subordinate thereto. In the event that the Underlying Lease shall be cancelled
or terminated, the term of this Sublease shall automatically terminate as of the
date of such cancellation or termination of the Underlying Lease and the
Sublessor shall not be liable in any way or to any extent to the Sublessee for
such termination or cancellation or for any damages or losses incurred or
claimed to be incurred by Sublessee as a result thereof.
ARTICLE IX
Incorporation of Underlying Lease
(a) Except as otherwise herein provided, this Sublease is subject to all
of the terms, covenants and conditions of the Underlying Lease and said terms,
covenants and conditions are incorporated herein by reference and made a part of
this Sublease as if fully set forth herein except as otherwise stated in Article
VIII, Paragraph (b) below. The words "Landlord" and "Tenant," as utilized in the
provisions of the Underlying Lease incorporated herein shall be deemed to refer
for the purposes of this Sublease, to Sublessor and Sublessee respectively and
the words "this lease" shall mean this Sublease. With respect to the Subleased
Premises, and only as between Sublessor and Sublessee, Sublessor shall have the
rights and obligations of the Landlord of the Underlying Lease as set forth in
the Underlying Lease, and Sublessee shall have the rights and obligations of the
tenant of the Underlying Lease as set forth in the Underlying Lease, except
where such rights and obligations are deleted, modified or adhered herein.
(b) If any of the provisions of this Sublease are at variance or in
conflict with the provisions of the Underlying Lease due to a deletion,
modification or alteration of such provisions herein, the provisions of this
Sublease shall govern and control.
4
<PAGE>
(c) Sublessee covenants that it will not commit, or suffer to be
committed, any act or act of omission in violation of the terms and provisions
of the Underlying Lease so as to render the Sublessor in default in any of the
terms, covenants and conditions of the Underlying Lease.
(d) In the event of any default by the Landlord of the Underlying Lease
under the terms thereof, Sublessee shall give the Sublessor and the Landlord of
the Underlying Lease written notice thereof. Sublessor shall not be responsible
or liable for the failure by the Landlord of the Underlying Lease to furnish to
Sublessee any service or facility required under the Underlying Lease to be
furnished or provided and Sublessor will use its best efforts to compel the
Landlord of the Underlying Lease to cure any such default pursuant to the terms
of the Underlying Lease.
ARTICLE X
Default
(a) In the event that Sublessee shall default in the payment of base rent
herein reserved and/or any additional rental when due, Sublessor shall notify
Sublessee in writing of such default, and Sublessee shall have five (5) days
from the date of such notice to cure such default.
(b) In the event that Sublessee shall default in the performance of any
obligations hereunder when due, except the payment of base rent and/or
additional rent herein reserved, Sublessor shall notify Sublessee in writing of
such default, and Sublessee shall have twenty (20) days from the date of such
notice to cure such default.
(c) Except in the event of a default, as provided in Subparagraphs (a) and
(b) set forth above:
(i) whenever a time period is specified in the Underlying Lease
within which the tenant therein must give notice or make a demand
following an event, or within which said tenant must respond to any
notice, request or demand previously given or made by the landlord, or
comply with any obligation thereunder on such tenant's part, such time
period is hereby changed (for purposes of this Sublease only) by
subtracting ten (10) days therefrom; and
(ii) whenever a time period is specified in the Underlying Lease
within which the landlord must give notice or make a demand following an
event or within which the landlord must respond to any notice, request or
demand previously given or made by the tenant thereunder, or comply with
any obligation thereunder on landlord's part, such time period is hereby
changed (for purposes of this Sublease only) by adding ten (10) days
thereto.
5
<PAGE>
It is the intent of this section to provide Sublessor with time within which to
transmit to the Landlord of the Underlying Lease any notices or demands received
by Sublessor from Sublessee, and to transmit to Sublessee any notices or demands
received by Sublessor from the Landlord of the Underlying Lease.
ARTICLE XI
General Provisions
(a) Any insurance required to be carried by Sublessee pursuant to the
provisions of the Underlying Lease as incorporated herein shall name the
Landlord of the Underlying Lease as well as Sublessor, as additional insured
parties and, if requested, any mortgage of the Underlying Landlord.
(b) The purpose and intent of this Sublease is that the rental provided
for in Article III hereof shall be absolutely net to the Sublessor except as
expressly provided to the contrary herein. In this connection, Sublessor shall
not have any obligation to construct, maintain, alter or repair the Subleased
Premises or any facilities or improvements thereon or appurtenant thereto or be
obligated to provide Sublessee with any service or facility, but shall be
obligated only to use its best efforts to compel the Landlord of the Underlying
Lease to perform such duties if said Landlord has covenanted to do under the
terms of the Underlying Lease.
(c) Sublessee shall, upon the request of Sublessor, subordinate this
Sublease to the lien of any present or future mortgage upon the Demised Premises
and/or the Subleased Premises irrespective of the time of execution or recording
of any such mortgage.
(d) Sublessee shall not have any of the tenant's rights specified in the
provisions of Article 11 (Preparation of the Premises), Article 12
(Alterations), or Article 40 (Broker) of the Underlying Lease.
(e) Any rights by the tenant to terminate the Underlying Lease provided
therein shall be exercised only by Sublessor when, in its sole opinion, those
conditions precedent required for a termination by tenant under the terms and
conditions of the Underlying Lease have occurred.
(f) Sublessee shall pay for electricity for lights and plugs only at the
rate of $274.17 monthly ($3,290.00 per year) each month with the Base Rent,
notwithstanding any requirements in the Underlying Lease to pay for utilities.
(g) Interior signage in the lobby directory and the floor directory for
Sublessee shall be provided at Sublessor's expense.
6
<PAGE>
ARTICLE XII
Brokers
Sublessee represents and warrants that there are no claims for brokerage
commissions or finder's fees, to the best of its knowledge and belief, in
connection with the execution of this Lease, and Sublessee agrees to indemnify
Sublessor and Landlord against and hold it harmless from all liabilities
including reasonable cost of counsel fees, arising out of discussions or
dealings of Sublessee with any broker. Sublessor shall pay the commission due to
its broker Peter Elliott, L.L.C., having an address at 260 Franklin Street,
Boston, Massachusetts 02110-3165, pursuant to a separate agreement between
Sublessor and its broker. Sublessee shall pay the commission due to its broker,
William J. Crean, having an address at One Financial Center, Boston,
Massachusetts 02111, pursuant to a separate agreement between Sublessee and its
broker.
ARTICLE XIII
Notices
All notices or communications authorized or required hereunder shall be in
writing and shall be given by mailing the same be certified or registered mail,
return receipt requested, postage prepaid, and any such notice or communication
shall be deemed to have been given when received by the party to whom such
notice or communication shall be addressed. If intended for Sublessor, same
shall be mailed c/o Larry Horner, The Image Bank, Inc., 2777 Stemmons Freeway,
Suite 600, Dallas, TX 75207 and a copy to Elizabeth Warren at The Image Bank,
Inc. 2777 Stemmons Freeway, Suite 600, Dallas, TX 75207, or at such other
address as Sublessor may hereafter designate by notice to Sublessee, and if
intended for Sublessee, the same shall be mailed to Sublessee at 545 Boylston
Street, 8th Floor, Boston, MA 02116, or at such other address as Sublessee may
designate by notice to Sublessor.
ARTICLE XIV
Merger Disclaimers
All understandings and agreements heretofore had between the parties
hereto are merged in this Sublease, which alone fully and completely express
this Sublease, Sublessee has not relied upon or been induced by any statements
or representations, other than those expressly set forth in this Sublease, of
any person in respect of the title to or the physical condition of the Subleased
Premises, or any other manner affecting the Subleased Premises or this
transaction which might be pertinent in considering the execution of this
Sublease, Sublessee expressly acknowledges that no such representations not
embodied herein have been made.
7
<PAGE>
ARTICLE XV
Entire Agreement and Benefit
This agreement contains the entire understanding between the parties. No
waiver, change, modification or discharge of any of the provisions of this
Sublease shall be valid unless effected by an agreement in writing signed by
both parties hereto. The waiver of any of the provisions of this Sublease shall
not be deemed to be a waiver of any subsequent breach or default of the
provisions hereof. This Sublease shall be binding upon and inure to the benefit
of Sublessor and Sublessee and their respective successors and assigns.
ARTICLE XVI
Severability
The illegality or invalidity of any provision of this Sublease, by reason
of any rule of law or public policy, shall not affect this Sublease or any other
provisions hereof, but this Sublease shall, nevertheless, remain in full force
and effect and shall be construed in all respects as if such invalid provision
were omitted.
8
<PAGE>
ARTICLE XVII
Construction
This Sublease and the performance thereof shall be construed, regulated
and governed by the laws of the State of Massachusetts, where it has been made
and entered into. The section headings have been inserted for convenience only
and shall not enter into the interpretation or construction of this Sublease.
Article XVIII
Condition to Effectiveness
This Sublease shall not become effective until the Sublessor has obtained the
Landlord of the Underlying Lease's written consent to this Sublease.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals as
of the date and year first above written.
Sublessee: Sublessor:
PaperExchange.com The Image Bank, Inc.
By: /s/ Jason Weiss By:
------------------------------- -------------------------------
Authorized signature Authorized signature
Printed Name: Jason Weiss Printed Name:
--------------------- ---------------------
Title: CEO Title:
---------------------------- ----------------------------
9
<PAGE>
Exhibit 10.19
THE LANDLORD
Mr & Mrs J Minshaw
THE TENANT
PaperExchange.com
THE PROPERTY
1, 54
Montagu Square
London
W1H 1TG
<PAGE>
1
TENANCY AGREEMENT
THIS TENANCY AGREEMENT is made on 2/1/00 between
1. The LANDLORD is Mr & Mrs J Minshaw
119 George Street
London
W1H 5TB
2. The TENANT is PaperExchange.com
545 Bolyston Street
8th Floor
Boston, MA 02116
USA
PROPERTY: The flat forming part of and situated at and known as 1, 54, Montagu
Square, London, W1H 1TG
Together with (1) the use of the entrance hall and lift (if any)
staircase outer door and vestibule of the Building in common with
other tenants and occupiers thereof and (2) the fixtures and fittings
and effects now in and upon the Property and more particularly
specified in the inventory thereof signed by the parties.
TERM: A turn certain of 1 year less 1 day from noon on the 04 February 2000
and expiring at noon on the 03 February 2001.
RENT: (pound)485.0O (four hundred and eighty five pounds) per week, for the
duration of the term certain subject to increase to be agreed on any
renewal specified.
DEPOSIT: (pound)2,910.00 (two thousand, nine hundred and ten pounds) to be paid
on the signing hereof. (See also clause 2, (29)).
PAYABLE: (pound)5,170.29 as per the initial invoice (being the first rental
instalment together with the Deposit), to be paid by cleared funds on
the signing hereof and thereafter (pound)2,101.67 (two thousand, one
hundred and one pounds, and sixty seven pence) payable on the 3rd day
of every month without any deductions whatsoever, on receipt of
Invoice to Foxtons Client Account No: 51224026, Midland Bank Plc,
Belgravia Branch, Sort Code: 40-01-13.
Signed: /s/ [ILLEGIBLE]
------------------------------------------------------------------------
<PAGE>
2
1. IT IS HEREBY AGREED THAT:
(1) The Landlord includes the persons for the time being entitled in
reversion expectant on the determination of the Tenancy.
(2) The Tenant includes whenever there is more than one tenant all tenants
and all covenants and obligations can be enforced against all of the
tenants jointly and against each individually.
(3) References to the Property include references to any part or parts of
the Property and to the fixtures and fittings and effects or any of
them.
(4) Agent means Foxtons Estate Agents.
(5) The Landlord shall let and the Tenant shall take the Property for the
term and at the rent set out herein.
2. TENANT'S OBLIGATIONS
The Tenant will:
(1a) Pay the rent at the time and in the manner specified.
(1b) Pay the Council Tax due in respect of individuals at the Property direct
to the said local rating authority and keep the Landlord indemnified
therefrom.
(1c) Transfer the council tax and water rates and gas electricity and
telephone accounts into the name of the Tenant residing in the Property
for the duration of the Tenancy.
(2a) Pay for all gas electric light power and water (whether metered or
rated) and for the telephone at the Property as billed by the relevant
authorities which shall be consumed or supplied to the Property during
the Tenancy.
(2b) The Tenant will not apply to British Telecom on the termination of this
agreement for the transfer of the telephone number to any other property
or for the disconnection of the service.
(2c) Pay the rental service maintenance and all call out charges in respect
of the burglar alarm if one is provided by the Landlord.
(3) Use the Property in a proper and tenant-like manner and in particular
ensure that the property is in a tidy and presentable state during the
last eight weeks of the agreement when the property is available to be
viewed by prospective tenants or purchasers.
(4) Keep the interior of the Property and all fixtures and fittings therein
in the condition and repair in which it is at the commencement of the
Tenancy (fair wear and tear and damage by accidental fire and other
insured risks only excepted) and immediately replace and pay for all
broken glass.
(5) Preserve the furniture and effects from being destroyed or damaged and
make good or repair or replace with articles of similar kind and of
equal value such of the furniture and effects as shall be destroyed lost
broken and damaged (fair wear and tear thereof and damage by accidental
fire and insured risks only excepted)
Signed: /s/ [ILLEGIBLE]
------------------------------------------------------------------------
<PAGE>
3
(6)(a) Deliver up to the Landlord the Property and all new fixtures and
additions thereto (except such as the Tenant shall be entitled by law to
remove) and the furniture and effects specified in the Inventory or the
articles substituted for the same at the expiration or sooner
determination of the Tenancy in such good condition as at the
commencement of the Tenancy (fair wear and tear excepted) and to be
responsible for the costs of the Landlord or Agent incurred in relation
to checking the said furniture end effects against those specified in
the inventory at the end of the Tenancy.
(b) Attend the inventory check-out and if unable to do so shall accept the
findings of the Inventory Clerk appointed by the Landlord or his Agent.
(7) Leave the furniture and effects at the expiration or sooner
determination of the Tenancy in the rooms or places in which they were
at the commencement of the Tenancy.
(8) Pay for the professional cleaning of the Property the washing (including
ironing or pressing) of all linen and for the washing and cleaning
(including ironing or pressing) of all counterpanes blankets carpets
soft furnishings and curtains which shall have been soiled during the
Tenancy.
(9) Permit the Landlord and the Superior Landlord or their respective agents
with or without workmen and others at all reasonable times during the
Tenancy with prior appointment except in the case of emergency to enter
the Property for the purpose of repairing and painting the outside
thereof or of carrying out and completing any structural or other
necessary or proper repairs to the Building or of examining the state
and condition of the Property.
(10) Permit the Landlord or the Agent so to enter for the further purpose of
examining the state and condition of the interior or the Property and of
the furniture and effects by prior appointment or with keys upon
reasonable notice.
(11) Permit the Landlord or the Agent to give the Tenant notice in writing of
all reasonable wants of repair cleansings amendments and restorations to
the interior of the Property then found and of all destruction loss
breakage or damage of or to the furniture and effects as the Tenant
shall be bound to make good then found and by such notice to require or
make good the same respectively within one month within which time the
Tenant shall repair cleanse amend and restore or make good the same
accordingly and if the tenant fails to carry out works within the said
period of one month then the Landlord shall be entitled to carry out
such works at the Tenants expense.
(12) During the last eight weeks of the Tenancy to permit any person
accompanied by the Landlord or agent to enter and view with prospective
Tenants or Purchasers the premises at reasonable hours upon the
arrangement of a convenient appointment or on reasonable notice where
access is gained either via the Tenant or by keys held by the Landlord's
Agent.
(13) Not to remove the furniture and effects specified In the inventory or
any part thereof or any substituted furniture and effects from the
Property without the Landlord's consent in writing.
Signed: /s/ [ILLEGIBLE]
------------------------------------------------------------------------
<PAGE>
4
(14)(a) Not to carry on or permit to be carried on upon the Property any
profession trade or business whatsoever or let apartments or receive
paying guests at the Property but use the same as a private residence
only in accordance with Clause 2 (14)(b) below.
(b) Not to assign underlet charge or part with or share possession of the
Property or any part thereof save to permit Colin Carroll and immediate
family only to occupy the Property rent free as Licencee only so long as
he/she is in the employ of the tenant or such other employee of the
Tenant as the Landlord may approve in writing, such approval not to be
unreasonably witheld and on such terms that no tenancy within the
meaning of the Housing Act shall be created nor the relationship of
Landlord or Tenant be created between the tenant and the Licencee.
(15) Not to do or suffer to be done in or on the Property any act or thing
which may be a nuisance damage or annoyance to the Landlord or the
Superior Landlord or the tenants or occupiers of the Building or to the
occupier of the adjoining premises or which may vitiate any insurance of
the Property or Building against fire and other insured risks or
otherwise increase the ordinary premium thereon.
(16)(a) Not damage or injure the Property or make any alterations in or addition
to it.
(b) Not to redecorate the Property or any part thereof without first
obtaining the Landlord's written approval of the type colour and design
of the decoration.
(17) Not hang or allow to be hung any clothes or other articles on the
outside of the Property.
(18) To use all reasonable endeavours to keep clean open and in good working
order and free from obstruction all baths sinks taps lavatory cisterns
drains waste serving the Property and to indemnify the Landlord from and
against all damage occasioned through any breach of this obligation or
through leakage or overflow from any of the pipes drains taps baths
sinks cisterns or lavatories provided that the Tenant shall not be
liable for any damage occasioned other than by its own or it's guests or
invitees negligence or default.
(19) Give to the Landlord or the Landlord's Agent immediate written notice of
any damage or destruction or loss happening to the Property or the
fixtures furniture and effects whether by fire or otherwise and to order
the execution of any repairs the cost of which the Tenant is not
prepared to discharge at the Tenant's own expense and should repairs
become necessary for which the Tenant does not accept liability
forthwith notify the Landlord or the Landlord's Agent thereof.
(20) To remove any goods belonging to the Tenant or its Licensees on the date
of expiration or sooner determination of the Tenancy.
(21) Whenever the Property is left unattended fasten securely all dead locks
or other locks and bolts fitted to doors and windows permitting access
to the Property activate the burglar alarm (if any) and during the
winter months and at any time as necessary take reasonable precautions
to avoid damage by freezing.
(22)(a) Not to change the locks to the front door of the apartment without the
written consent of the Landlord or his Agent and if the locks are
changed with the Landlords consent to supply a further set of keys to
the Landlord or his Agent.
Signed: /s/ [ILLEGIBLE]
------------------------------------------------------------------------
<PAGE>
5
(b) To return all keys at the termination of the Tenancy to the Landlord or
his Agent.
(23) Have all chimneys and flues (if any) belonging to the Property
thoroughly swept and cleansed as often as necessary.
(24) Clean all the windows and net curtains of the Property as often as is
necessary and all other curtains every twelve months.
(25) Not deposit any store of coal elsewhere than in the cellar or other
receptacle provided for the purpose nor keep any combustible or
offensive goods provisions or materials on the Property.
(26) Not permit any waste spoil or destruction to the Property or the
Building.
(27a) Not pull down alter add or in any way interfere with the construction or
arrangement of the Property.
(27b) Not to hang affix stick any objects to any walls of the Premises except
by using recognised commercially produced picture hooks properly affixed
otherwise the walls damaged as a result are to be redecorated at the
Tenant's expense provided always the Tenant be responsible for all
damage howsoever caused.
(28) Within seven days after receipt of any notice given or order made by any
competent authority in respect of the Property give full particulars
thereof to the Landlord and to take all reasonable steps to comply with
the same if the same is the responsibility of the Tenant and join with
the Landlord and at the Landlord's expense in taking such other
reasonable steps to comply with the same and join with the Landlord at
the Landlord's expense in taking such other reasonable action in
relation hereto as the Landlord may decide.
(29) To pay on the signing hereof a deposit of (pound)2,910.00 (two thousand,
nine hundred and ten pounds) to be held by Foxtons Property Management,
92 Park Lane, London, W1Y 4EJ as agents for the Landlord for the
duration of the Tenancy as security for the due payment by the Tenant of
the rent and all other charges payable by the Tenant hereunder in
respect of damage to the said premises fixtures fittings and furniture
and for any damage or loss which might be claimed by the Landlord by
reason of any breach or non performance by the Tenant of any of the
conditions and agreements contained herein and to be observed or
performed by the Tenant such deposit or balance thereof to be returned
to the Tenant within 28 days after the termination of the Tenancy
subject to any deductions in respect of the foregoing and in the event
that such deductions exceed the deposit held the Tenant shall pay the
excess sum due within 14 days of such demand being made.
(30) If the Tenant shall determine the Tenancy hereby created other than in
accordance with the terms of this agreement the Tenant shall on demand
pay to the Landlord a proportion of the legal costs and/or letting
agents fees incurred by the Landlord in connection with the creation of
the letting, such proportion to be a calculation based on the ratio that
the unexpired term of the Tenancy bears to the length of the period from
the commencement of the term to the date at which the notice of
determination takes effect.
Signed: /s/ [ILLEGIBLE]
------------------------------------------------------------------------
<PAGE>
6
(31) Not to play or permit to be played so as to be audible outside the
Property any musical instrument or equipment after eleven o'clock p.m.
or before ten o'clock a.m. or at any time to cause annoyance or nuisance
to neighbours or other occupants of the building of which the Property
forms part.
(32) Not to keep or permit to be kept any animal bird or reptile on the said
premises.
(33) To ensure at all times during the Tenancy hereby created that there is a
current valid television licence in force in respect of any television
set in the Property whether belonging to the Landlord or Tenant.
(34) The Tenant hereby covenants to pay interest to be calculated on a day to
day basis at the rate of 4% above the Base Rate of Midland Bank Plc from
time to time upon all rent and other payments due to the Landlord
pursuant to the terms hereof and unpaid for a period of seven days.
(35) The Tenant hereby agrees to perform and observe all regulations made by
the Superior Landlords from time to time relating to the Building as set
out in the Head Lease and to keep the Landlord fully and effectually
indemnified against any breach or non-performance thereof.
(36)(a) Pay all reasonable costs charges and expenses (including solicitors
costs and surveyors fees) incurred by the Landlord in respect of and
incidental to or in contemplation of the preparation and service of a
Notice under section 146 of The Law of Property Act 1925 and whether or
not such notice is actually served and notwithstanding that forfeiture
is avoided other than by relief granted by the Court.
(37) Pay all reasonable costs charges and expenses incurred by the Landlord's
Agent in respect of the recovery of rental and other payments due under
this Agreement.
(38) If the Property is unoccupied for longer than 21 days to notify the
Landlord in writing prior to departure.
(39) To keep the garden at the premises (if any) in good order and to keep
the grass cut and borders free from weeds and litter and not to damage
or remove any plants or shrubs and to ensure the regular watering of all
plants and shrubs.
3. PROVISO FOR RE-ENTRY
Provided as follows:
(1) If the rent or any instalment or part thereof shall be in arrears or
unpaid at least fourteen working days after the same shall have become
due (whether legally demanded or not) or
(2) In the event of the breach of any agreement on the part of the Tenant or
(3) If the Property shall (without notice having been given to the Landlord
or the Landlord's Agent) be left vacant or unoccupied for 28 days or
Signed: /s/ [ILLEGIBLE]
------------------------------------------------------------------------
<PAGE>
7
(4) If the Tenant being an individual shall become bankrupt or enter in any
composition with his creditors or being a company should either enter
into liquidation whether compulsory or voluntary or shall have a
receiver appointed of its undertakings or assets or in any case shall
suffer any execution to be levied on the Tenants goods,
The Landlord may re-enter the Property and immediately thereupon the
Tenancy shall absolutely determine without prejudice to the other
remedies of the Landlord.
4. LANDLORD'S OBLIGATIONS:
The Landlord agrees with the Tenant as follows:
(1) To pay and keep the Tenant indemnified against payment of all
assessments impositions and outgoings payable in respect of the Property
excluding any Council Tax which may become payable and any charges for
the supply of gas or electric current or the use of the telephone (if
any) to or on the Property or the telephone rental charge maintenance
and call out charges in respect of the burglar alarm during the Tenancy
which shall be paid by the Tenant as hereinbefore provided and to be
responsible for the costs incurred in relation to checking the furniture
and effects in the Property at the commencement of the Tenancy against
the furniture and effects specified in the inventory.
(2) That the Tenant paying the rent may quietly possess and enjoy the
Property during the Tenancy without any unlawful interruption from the
Landlord or any person claiming under or in trust for the Landlord.
(3) To return to the Tenant any rent payable for any period while the
Property is rendered uninhabitable or inaccessible by reason of fire
tempest flood or other inevitable accident or other insured risk the
amount in case of dispute to be settled by arbitration but provided
always that insurance cover in respect of such events has not been
vitiated by the Tenant.
(4) To keep all mechanical and electrical equipment in the property in good
repair and working order and that the Landlord will at his own expense
maintain the same in such condition during the term of the Tenancy
(except in the case of misuse by the Tenant his guests or invitees).
(5) To insure and keep insured during the period of the Tenancy the Property
and fixtures furniture and effects as itemised in the inventory with a
reputable Insurance Company against loss or damage by fire theft flood
and vandalism and other risks usually covered by a comprehensive policy
and the Tenant shall be responsible for insuring only those items which
he/she personally introduces into the Property during the period of the
Tenancy.
(6) Unless prevented by any cause not under the control of the Landlord to
keep the entrance hall staircase vestibule and lift (if any) clean and
properly lit.
5. THE LANDLORD WARRANTS:
(1) That he is sole owner of the leasehold interest in the Property and that
all consents necessary to enable him to enter into this agreement
(whether from Superior Lessors or Mortgagees or others) have been
obtained.
Signed: /s/ [ILLEGIBLE]
------------------------------------------------------------------------
<PAGE>
8
(2) That all gas appliances in the Property comply with The Gas Safety
(Installation and Use) Regulations 1994 and that all furniture in the
Property complies with the Fire and Furnishings (Fire) (Safety)
Regulations 1993 and the electrical appliances with the Electrical
Equipment (Safety) Regulations 1994 (if applicable).
6. GENERAL
(1) The Tenancy Agreement shall take effect subject to the provisions of
Section 11 of the Landlord and Tenant Act 1985 and as further amended by
S116 Housing Act 1988.
(2)(a) Any Notice required to be served upon the Tenant shall be sufficiently
served if it is left at the Property referred to in this agreement.
(b) The Landlords address for service for the purpose of S48 Landlord and
Tenant Act 1987 is Mr & Mrs J Minshaw 119 George Street London W1H 5TB
(3) Any dispute controversy or claim relating to or arising out of this
Agreement which can not be amicably settled shall at the request of
either party be referred to arbitration by a single Arbitrator agreed
between the parties. if the parties cannot agree on the appointment of
an Arbitrator within 21 days after any such request is made the
Arbitrator shall be appointed by the President of the Chartered
Institute of Arbitrators on the application of either party hereto in
writing. The arbitration shall be held in London. The Arbitrator shall
have full power to settle all questions of procedure about which the
parties may be in disagreement. Any award given by the Arbitrator shall
be final and binding on the parties and shall be in lieu of any other
remedy.
(4) It is hereby agreed and understood between the parties that the Tenant
shall have the right to terminate the tenancy by giving not less than 60
days advance written notice at any time, such notice, to be delivered to
the Landlord's agents Foxtons 92 Park Lane London W1Y 4EJ, by hand, fax
or registered mail and only expiring after the first six months of the
tenancy and upon the expiration of such notice the tenancy shall be
hereupon determined.
Signed: /s/ [ILLEGIBLE]
------------------------------------------------------------------------
<PAGE>
As witness the hands of the said parties the day and year first written above
SIGNED BY PaperExchange.com
/s/ [ILLEGIBLE]
WITNESS:
/s/ [ILLEGIBLE]
Name:
Address:
Occupation:
<PAGE>
Exhibit 10.20
PARK SQUARE BUILDING COMMERCIAL LEASE
THIS INSTRUMENT IS A LEASE, dated as of March 3, 2000, in which The LESSOR
and LESSEE are the parties hereinafter named, and which relates to space
in the building (the "Building") located at 31 Saint James Avenue, Boston,
Massachusetts 02116. The parties to this instrument hereby agree with each
other as follows:
1. BASIC LEASE
PROVISIONS: The following set forth basic data and, where appropriate,
constitute definitions of the terms hereinafter listed.
A. BASIC DATA.
LESSOR: OMV Associates Limited Partnership
LESSOR'S Address: c/o Capital Properties Management,
Inc., 31 Saint James Avenue, Boston, MA 02116
LESSEE: PaperExchange.com, LLC a Massachusetts limited
liability corporation
LESSEE'S Original Address: 545 Boylston Street, 8th
Floor, Boston, MA 02116
LESSEE'S Notice Address (Section 20): The Premises
Basic Rent: $1,082,002.50/year $42.75/psf
As the same may be adjusted and/or abated in
accordance with the terms of this lease.
Premises Rentable Area: Agreed to be 25,310 square feet
located on the fifth floor of the Building.
Permitted Uses: General office use.
Escalation Factor: 5.53%, as computed in accordance with
the Escalation Factor Computation.
Scheduled Completion Period: As defined in Section 26B.
Initial Term: Five years commencing on the Commencement
Date and expiring at the close of the day immediately
preceding the fifth anniversary of the Commencement Date,
except that if the Commencement Date shall be other than the
first day of a calendar month, the expiration of the Initial
Term shall be at the close of the day on the last day of the
calendar month on which such anniversary shall fall.
Temporary Tenancy: As described in Section 36.
Temporary Premises: Agreed to be 14,139 rentable
square feet located on the third floor of the building,
8,928 rentable square feet on the south side of the
corridor (Area A) and 5,211 rentable square feet on the
north side of the corridor (Area B) as shown on Exhibit
D attached hereto.
Temporary Premises Basic Rent:
<PAGE>
$300,453.75/yr $25,037.82/mo $21.25/sf
Temporary Premises Escalation Factor: None.
Security Deposit: $303,720 in cash or letter of credit,
as that amount may be adjusted in accordance with Section 5
below.
Base Operating Expenses: The actual Operating Expenses
for the calendar year commencing January 1, 2000 and ending
December 31, 2000.
Base Taxes: The actual Taxes for the Tax Year commencing
July 1, 2000 and ending June 30, 2001.
Electricity Cost: $1.50/sf per year payable to LESSOR.
Broker: CB Richard Ellis / Whittier Partners and
Insignia/ESG
B. ADDITIONAL DEFINITIONS.
Agent: Capital Properties Management, Inc., 31 St. James
Avenue, Boston, Massachusetts 02116.
Business Days: 8:00 a.m. - 6:00 p.m. Monday through
Friday and Saturday 9:00 a.m. through 1 p.m. except New Year's
Day, President's Day, Patriot's Day, Memorial Day,
Independence Day, Labor Day, Columbus Day, Veterans' Day,
Thanksgiving Day, Christmas Day (and the following Monday when
any such day occurs on Sunday). Unless specifically referred
to herein as Business Days, all references in this Lease to
"days" shall mean calendar days.
Commencement Date: Thirty (30) days after the later of
a) the Premises is available for LESSOR to commence LESSOR'S
Work, b) the issuance of a building permit and c) commencement
by LESSOR of LESSOR'S Work.
Escalation Factor Computation: Premises Rentable Area
divided by 100% of building rentable area (445,765 square
feet).
Initial Public Liability Insurance: $1,000,000.00 per
occurrence (combined single limit) for property damage,
personal injury or death.
LESSOR'S Work: As defined in Section 26.
LESSOR'S Contribution: $303,720
LESSEE'S Contribution: As defined in Section 26
Final Plans: As defined in Section 26.
Premises: A portion of the Building as shown on Exhibit
A attached hereto.
Extended Term: As defined in Section 35.
First Offer Space: As defined in Section 37.
2. PREMISES A portion of the building owned by LESSOR consisting of
approximately
2
<PAGE>
25,310 SQUARE FEET OF RENTABLE AREA ON THE FIFTH FLOOR OF THE
BUILDING AND SHOWN AS SUITE 500 on the plan attached hereto as
"Exhibit A" (the "Premises") together with the right to use in
common, with others entitled thereto, the hallways, stairways,
and elevators, necessary for access to said Premises, and
lavatories nearest thereto.
3. TERM The term of this lease shall be for five years commencing on
the Commencement Date, or earlier pursuant to Section 36 of
this lease and ending sixty months after the Commencement
Date.
4. BASIC RENT The LESSEE shall pay to the LESSOR rent at the rate described
in Section 1 of this Lease, payable in advance on the first
day of each month commencing on the Commencement Date or prior
in accordance with Section 36, without deduction or set off.
5. SECURITY Upon the execution of this lease, the LESSEE shall pay to the
DEPOSIT LESSOR a security deposit in cash or a letter of credit in the
amount of $303,720.00. The Security Deposit shall be
maintained in said amount and held without interest as a
security for LESSEE'S performance as therein provided and
refunded to the LESSEE at the end of this Lease subject to the
LESSEE'S satisfactory compliance with the condition thereof.
If LESSEE is not in default during the first twelve months of
the term, the security deposit shall be reduced by one months
rent to $253,100.00. If LESSEE is not in default during the
first twenty four months of the term the security deposit
shall be reduced to $202,480.00. If LESSEE is not in default
during the first thirty six months of the term the security
deposit shall be reduced to $151,860.00 and this shall remain
as security deposit for the balance of the Term and for any
Extended Term.
6. ADDITIONAL A. TAX. If, in any tax year, the real estate taxes on the land
RENT and buildings, of which the Premises are a part, are in excess
of the amount of the Base Taxes, as finally abated
(hereinafter called the "Base Year"), LESSEE will pay to
LESSOR, as additional rent hereunder, when and as designated
by notice in writing by LESSOR, the amount of the excess
multiplied by the Escalation Factor. If the LESSOR obtains an
abatement of any such excess real estate tax, a proportionate
share of such abatement, less the reasonable fees and costs
incurred in obtaining the same, if any, shall be refunded to
the LESSEE.
B. OPERATING. If, in any calendar year, the Operating Expenses
for the Property of which the Premises are a part, are in
excess of the amount of the Base Operating Expenses, LESSEE
will pay to LESSOR, as additional rent hereunder, within
thirty (30) days of receiving notice in writing by LESSOR, the
amount of the excess multiplied by the Escalation Factor.
Operating Expenses are defined for the purposes of this
agreement as: The aggregate costs or expenses reasonably
incurred by LESSOR with respect to the operation,
administration, cleaning, repair, maintenance and management
of the premises including, without limitation, those items
enumerated in "Exhibit C" attached hereto and excluding those
items shown as exclusions on Exhibit C. Any such accounting by
LESSOR shall be binding and conclusive upon LESSEE unless
within thirty (30) days after that giving by LESSOR of such
accounting, LESSEE shall notify LESSOR that LESSEE disputes
the correctness of such accounting, specifying the particular
respects in which the accounting is claimed to be incorrect.
C. PAYMENT. At LESSOR'S option, payment of Additional Rent
shall be on a monthly basis based on LESSOR'S good faith
estimate of the Tax and Operating Expenses for the following
year.
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D. AUDIT. In the event LESSEE elects to audit LESSOR'S
statement of Operating Expenses or statement of Taxes in
accordance with this clause, such audit must be (i) conducted
by an independent nationally recognized accounting firm that
is not being compensated by LESSEE on a contingency fee basis,
and (ii) completed within sixty (60) days following LESSEE'S
notice disputing the correctness of the statement of Operating
Expenses or statement of Taxes. Furthermore, all of the
information obtained through the LESSEE'S audit with respect
to financial matters (including, without limitation, costs,
expenses, income) and any other matters pertaining to the
LESSOR and/or the Property as well as any compromise,
settlement, or adjustment reached between LESSOR and LESSEE
relative to the results of the audit shall be held in strict
confidence by LESSEE and its officers, agents, and employees;
and LESSEE shall cause its auditor and any of its officers,
agents, and employees to be similarly bound. As a condition
precedent to LESSEE'S exercise of its right to audit, LESSEE
must deliver to LESSOR a signed confidentiality agreement from
the auditor (in form reasonably acceptable to LESSOR) reached
between LESSOR and LESSEE shall be held in strict confidence
and shall not be revealed in any manner to any person except
upon the prior written consent of LESSOR. LESSEE understands
and agrees that this provision is of material importance to
the LESSOR and that any violation of the terms of this
provision shall result in immediate and irreparable harm to
the LESSOR. LESSOR shall have all rights allowed by law or
equity if LESSEE, its officers, agents, or employees and/or
the auditor violate the terms of this provision, including,
without limitation, the right to terminate LESSEE'S right to
audit.
7. UTILITIES The LESSEE shall pay, as they become due, all bills for
electricity and other utilities that are furnished to the
Premises and presently separately metered. The LESSOR agrees
to provide all other utility service and to furnish reasonably
hot and cold water and reasonable heat and air conditioning to
the Premises, the hallways, stairways, elevators, and
lavatories during normal building business hours on regular
business days of the heating and air conditioning seasons of
each year, to furnish elevator service and to light
passageways and stairways during business hours, and to
furnish such cleaning service as is customary in similar
buildings in Boston, Massachusetts, all subject to
interruption due to any accident, to the making of repairs,
alterations, or improvements, to labor difficulties, to
inability to obtain fuel, electricity, service, or supplies
from the sources from which they are usually obtained for said
building, or to any cause beyond the LESSOR'S control.
LESSOR shall have no obligation to provide utilities or
equipment other than the utilities and equipment within the
premises as of the Commencement Date of this lease. In the
event LESSEE requires additional utilities or equipment, the
installation and maintenance thereof shall be the LESSEE'S
sole obligation, provided that such installation shall be
subject to the written consent of the LESSOR, not to be
unreasonably withheld.
8. USE OF The LESSEE agrees to use the Premises in a manner consistent
LEASED with the nature of the building and consistent with the other
PREMISES LESSEES in the building. The LESSEE shall use the Premises
only for the purpose of listed in Section 1 of this Lease and
LESSOR represents that such use is a lawful one.
9. COMPLIANCE The LESSEE acknowledges that no trade or occupation shall be
WITH LAWS conducted in the Premises or use made thereof which will be
unlawful, improper, noisy or offensive, or contrary to any law
or any municipal by-law or ordinance in force in the city or
town in which the Premises are situated. LESSEE agrees to
comply with all such laws.
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LESSOR makes no representation that uses contemplated by the
LESSEE are permitted by law.
10. FIRE The LESSEE shall not permit any use of the Premises which will
INSURANCE make voidable any insurance on the property of which the
Premises are a part, or on the contents of said property or
which shall be contrary to any law or regulation from time to
time established by the New England Fire Insurance Rating
Association, or any similar body, succeeding to its powers.
Nor shall LESSEE cause or permit the storage, use, generation,
release or disposition of any hazardous materials in, on or
about the property by LESSEE, its agents, employees or
contractors, other than small amounts of cleaning products and
the like used in the ordinary course of business in compliance
with all applicable laws. LESSEE will not permit the Premises
to be used or operated in a manner that may cause the Premises
or the property (the "Property") as defined in Exhibit B
attached hereto to be contaminated by any hazardous materials
in violation of any hazardous materials laws. LESSEE will
immediately advise LESSOR in writing of (1) any and all
enforcement, cleanup, remedial, removal, or other governmental
or regulatory actions instituted, completed, or threatened
pursuant to any hazardous materials laws relating to any
hazardous materials affecting the Premises; and (2) all claims
made or threatened by any third party against LESSEE, LESSOR,
the Premises or the Property relating to damage, contribution,
cost recovery, compensation, loss or injury resulting from any
hazardous materials on or about the Premises. Without LESSOR'S
prior written consent, LESSEE will not take any remedial
action or enter into any agreement or settlements in response
to the presence of any hazardous materials in, on, or about
the Premises.
LESSEE will be solely responsible for and will defend,
indemnify and hold LESSOR, its agents, and employees harmless
from and against all claims, costs, expenses, damages, and
liabilities, including employees harmless from and against all
claims, costs expenses, damages and liabilities, including
attorneys' fees and costs, arising out of or in connection
with LESSEE'S breach of its obligations in this Section 10.
LESSEE will be solely responsible for and will defend,
indemnify, and hold LESSOR, its agents, and employees harmless
from and against any and all claims, costs, and liabilities,
including attorneys' fees and costs, arising out of or in
connection with the removal, cleanup and restoration work and
materials necessary to return the Premises and any other
property of whatever nature located on the Property to their
condition existing prior to the appearance of LESSEE'S
hazardous materials on the Premises. LESSEE'S obligations
under this Section 10 will survive the expiration or other
termination of this Lease.
The LESSEE shall not use the Premises in any way which will
cause an extra insurance premium. LESSOR confirms that
LESSEE'S use of the Premises as general office space shall not
cause an extra insurance premium. However, in the event that
LESSEE does so, the LESSEE shall, on demand, reimburse the
LESSOR, and all other lessees, all extra insurance premiums
caused by the LESSEE'S use of the Premises.
11. MAINTEN- The LESSEE agrees to maintain the Premises, in good condition,
ANCE OBLI- reasonable wear and tear and damage by fire and other casualty
GATIONS only excepted, and whenever necessary, to replace plate glass
and other glass therein.
A. LESSEE'S OBLIGATIONS. The Premises are now in good order
and the glass whole. The LESSEE shall not permit the Premises
to be overloaded, damaged, stripped, or defaced, nor suffer
any waste. LESSEE shall obtain written consent of LESSOR
before erecting any sign on the Premises, provided LESSEE
shall not need any further consent of LESSOR to erect the
signs listed on Exhibit F. The LESSEE
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shall keep and maintain the Premises in good order and repair
at its own expense. The LESSOR shall at LESSEE'S expense and
upon LESSEE'S request, furnish and install all replacement
lamps, lighting tubes, bulbs and ballast's which may be
required in the Premises during the terms hereof.
B. LESSOR'S OBLIGATIONS. The LESSOR agrees to maintain the
common areas and the structure and building systems of the
building in the same condition as it is at the commencement of
the Term or as it may be put in during the Term of this Lease,
reasonable wear and tear, damage by fire and other casualty
only excepted, unless such maintenance is required because of
the LESSEE or those for whose conduct the LESSEE is legally
responsible.
LESSOR shall never be liable for any failure to make repairs
in the Premises unless LESSEE has given notice to LESSOR of
the need to make such repairs and LESSOR has failed to
commence to make such repairs within a reasonable time after
receipt of such notice, or fails to proceed with reasonable
diligence to complete such repairs.
12. ADDITIONS & The LESSEE shall not make structural alterations or additions
ALTERATIONS to the Premises or the building's systems, but may make
non-structural alterations provided the LESSOR consents
thereto in writing, which consent shall not be unreasonably
withheld or delayed. LESSEE may make non-structural
alterations which cost less than $20,000 without LESSOR'S
consent, however, LESSEE must provide notice. All such allowed
alterations shall be at LESSEE'S expense and shall be in
quality at least equal to the present construction. LESSEE
shall not permit any mechanics' liens, or similar liens, to
remain upon the Premises for labor and material furnished to
LESSEE or claimed to have been furnished to LESSEE in
connection with work of any character performed or claimed to
have been performed at the direction of LESSEE and shall cause
any such lien to be released of record forthwith without cost
to LESSOR. If such lien is not discharged within ten (10) days
after notice to LESSEE of such filing of such lien, LESSEE
shall furnish LESSOR, within such ten (10) day period,
security satisfactory to LESSOR in the amount of 150% of the
claim plus estimated costs to discharge the lien. Any
alterations or improvements made by the LESSEE shall become
the property of the LESSOR at the termination of occupancy as
provided herein.
13. ASSIGNMENT The LESSEE shall not assign or sublet the whole or any part of
& SUBLEAS- the Premises without LESSOR'S prior written consent, such
ING consent shall not be unreasonably withheld or delayed and
shall be provided within thirty (30) days of LESSEE'S request.
Notwithstanding such consent, LESSEE shall remain liable to
LESSOR for the payment of all rent and for the full
performance of the covenants and conditions of this lease. If
SUBLESSEE or ASSIGNEE is paying rent at an amount greater than
in this agreement, fifty percent (50%) of the proceeds after
expenses shall be due to LESSOR. No assignment or sublease
shall release LESSEE from, and LESSEE shall remain fully
liable for, performance of LESSEE'S obligations under the
lease. LESSEE shall not sublease or assign to a current or
prospective tenant of the Building. Prospective tenants are
those tenants who have been introduced to the Property within
thirty (30) days of the sublease or assignment proposal or any
tenant in negotiation with LESSOR. LESSEE shall not sublease
below Fair Market Value, without LESSOR'S prior written
consent. LESSEE shall not sublease or assign to any tenant
whereby the sublessee or assignees use violates the exclusive
use of any tenant at the Property.
(a) Submission of Information. If LESSEE requests LESSOR'S
consent to a specific assignment or subletting, LESSEE will
submit in writing to LESSOR (a) the name and address of the
proposed assignee or subtenant; (b) the business terms of the
proposed
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assignment or sublease; (c) reasonably satisfactory
information as to the nature and character of the business of
the proposed assignee or subtenant, and as to the nature of
its proposed use of the space; (d) banking, financial, or
other credit information reasonably and character of the
proposed assignee or subtenant; (e) the proposed form of
assignment (including lease assumption provisions) or
sublease; and (f) any other information reasonably required by
Landlord.
(b) LESSOR'S Options. In the event of LESSEE'S request for an
assignment or sublease of this Lease or of all or any part of
the Premises by LESSEE, LESSOR in addition to any rights
contained herein, shall have the following options at its
discretion:
(i) to give LESSEE written notice of LESSOR'S
intention to terminate this Lease as to all or any
portion of the Premises on the date such notice is
given or on any later date specified therein,
whereupon, on the date specified in such notice,
LESSEE'S right to possession of the Premises or
such portion of the Premise shall cease and this
Lease shall thereupon be terminated, except as to
any incomplete obligations of LESSEE; or
(ii) to re-enter and take possession of the Premises or
the part thereof subject to such transfer, and to
enforce all rights of LESSEE, in accordance with
such sublet or assignment of the Premises, or any
part thereof, as if LESSOR was the sublessor or
assignor, and to do whatever LESSEE is permitted
to do pursuant to the terms of such sublease or
assignment.
If LESSOR so elects to exercise it's rights under this Section
13(b), LESSEE may, within three (3) days of notice from
LESSOR, withdraw its request to assignment or sublease and
LESSOR shall have no further rights under this Section in
regard to that specific request to assign or sublease.
(c) Permitted Transfer. LESSOR consents to an assignment of
this Lease or sublease of all or part of the Premises to a
wholly-owned subsidiary of LESSEE or the parent of LESSEE or
to any corporation into or with which LESSEE may be merged,
consolidated or purchases all of LESSEE'S assets; provided
that (a) LESSEE promptly provides LESSOR with a fully executed
copy of such assignment or sublease; (b) LESSEE is not
released from liability under this Lease and (c) the assignee
assumes in writing all of the obligations of LESSEE under this
Lease.
14. SUBORDINA- This Lease shall be subject and subordinate to any and all
TION mortgages, deeds of trust and other instruments in the nature
of a mortgage, now or at any time hereafter, a lien or liens
on the property of which the Premises are a part and the
LESSEE shall, when requested, promptly execute and deliver
such written instruments as shall be necessary to show the
subordination of this lease to said mortgages, deeds of trust
or other such instruments in the nature of a mortgage. In the
event that LESSEE fails or refuses to execute same, LESSOR may
do so as LESSEE'S Attorney-in-Fact. LESSOR shall secure a
so-called subordination and non-disturbance agreement from
LESSOR'S Mortgagee within forty-five (45) days of LESSOR's
execution of this Lease.
15. LESSOR'S The LESSOR or agents of the LESSOR may, at reasonable times
ACCESS and with reasonable notice, enter to inspect the Premises;
exhibit the Premises to prospective purchasers, lenders or
tenants; determine LESSEE'S compliance with the Lease; remove
placards and signs not approved and affixed as herein
provided, and make repairs and alterations to the Premises and
Property as LESSOR should elect to do. LESSOR shall
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use reasonable efforts to minimize interference with
operations of LESSEE'S business at the Premises.
16. INDEMNIFI- LESSEE shall save LESSOR harmless, and shall exonerate and
CATION AND indemnify LESSOR, from and against any and all claims,
LIABILITY liabilities or penalties asserted by or on behalf of any
person, firm, corporation or public authority:
(i) on account of or based upon any injury to person, or
loss of or damage to property sustained or occurring or
emanating from the Premises on account of or based upon
the act, omission, fault, negligence or misconduct of
any person except LESSOR, its agents officers or
employees;
(ii) on account of or based upon any injury to person, or
loss of or damage to property, sustained on or occurring
elsewhere (other than on the Premises) in or about the
Property (and, in particular, without limitation, the
elevators, stairways, public corridors, sidewalks,
parking areas, concourses, arcades, approaches,
areaways, roof, or other appurtenances and facilities
used in connection with the Property or the Premises)
arising out of the use or occupancy of the Property or
Premises by the LESSEE or by any person claiming by,
through or under LESSEE, except where such injury, loss
or damage was caused by the negligence, fault or
misconduct of LESSOR, its agents, officers or employees;
and in addition to and not in limitation of either of
the foregoing subdivisions (i) and (ii);
(iii) on account of or based upon (including moneys due on
account of) any work or thing whatsoever done (other
than by LESSOR or its contractors, or agents or
employees or either) on the Premises; and, in respect of
any of the foregoing, from and against all costs,
expenses (including reasonable attorneys' fees), and
liabilities incurred in or in connection with any such
claim, or any action or proceeding brought thereon; and
in case any action or proceeding be brought against
LESSOR by reason of any such claim. LESSEE upon notice
from LESSOR shall at LESSEE'S expense resist or defend
such action or proceeding and employ counsel therefore
reasonably satisfactory to LESSOR, it being agreed that
such counsel as may act for insurance underwriters of
LESSEE engaged in such defense shall be deemed
satisfactory.
17. LIABILITY A. LESSEE'S Liability Insurance. The LESSEE shall maintain
INSURANCE with respect to the Premises and the Property of which the
Premises are a part commercial general liability insurance in
the amount of $1,000,000 with property damage insurance in
limits of $100,000 and Workers Compensation insurance insuring
against and satisfying LESSEE'S obligations and liabilities
under the Workers Compensation Laws of Massachusetts, in
responsible companies qualified to do business in
Massachusetts and in good standing therein insuring the LESSOR
as well as LESSEE against injury to persons or damage to
property as provided. LESSEE agrees to increase limits as
LESSOR'S mortgagee reasonably requires. The LESSEE shall
deposit with the LESSOR certificates for such insurance at or
prior to the commencement of the Term, and thereafter within
thirty (30) days prior to the expiration of any such policies.
All such insurance certificates shall provide that such
policies shall not be canceled without at least ten (10) days
prior written notice to each assured named therein.
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B. LESSOR'S Liability Insurance. LESSOR covenants that it
shall maintain throughout the Term of this lease(i)
comprehensive general liability insurance against all claims
and demands for any injury to person or property which may be
claimed to have occurred on the Property in such amounts as
are commercially reasonable in the greater Boston,
Massachusetts area; and (ii) all risk property insurance.
18. FIRE, Should a substantial portion of the Premises, or of the
CASUALTY, property of which they are a part, be substantially damaged by
EMINENT fire or other casualty, or be taken by eminent domain, the
DOMAIN LESSOR may elect to terminate this lease. When such fire,
casualty, or taking renders the Premises substantially
unsuitable for its intended use, a just and proportionate
abatement of rent shall be made, and the LESSEE may elect to
terminate this lease if:
(a) The LESSOR fails to give written notice within thirty
(30) days of the event of its intention to restore
Premises, or
(b) The LESSOR fails to restore the Premises to a condition
substantially suitable for their intended use within
ninety (90) days of said fire, casualty or taking, as
such date may be extended ninety (90) days if LESSOR is
diligently working to restore the Premises and extended
an additional ninety (90) days for force majeure. LESSOR
reserves, and the LESSEE grants the LESSOR, all rights
which the LESSEE may have for damages or injury to the
Premises for any taking by eminent domain, except for
damage to the LESSEE'S fixtures, property, or equipment.
19. DEFAULT A) In the event that:
AND
BANKRUPTCY (i) The LESSEE shall default in the payment of any
installment of rent or other sum herein specified
and such default shall continue for five (5) days
after written notice thereof; or
(ii) The LESSEE shall default in the observance or
performance of any other of the LESSEE'S
covenants, agreements, or obligations hereunder
and such default shall not be corrected within
fifteen (15) days after written notice thereof, as
extended if LESSEE is working diligently and
continuously to cure; or
(iii) The LESSEE or any guarantor of LESSEE'S
obligations under the lease, files or is filed
against in any bankruptcy, insolvency or
reorganization petition; or
(iv) The LESSEE shall be declared bankrupt or insolvent
according to law, or, if any assignment shall be
made of LESSEE'S property for the benefit of
creditors, or
(v) Any attachment is made of the leasehold interest
outlined in this lease which is not removed within
sixty (60) days; or
(vi) A receiver is appointed to conduct LESSEE'S
business (whether or not LESSOR has re-entered the
premises) then the LESSOR shall have the right
thereafter, while such default continues, to
re-enter and take complete possession of the
Premises, to terminate this lease, and remove the
LESSEE'S effects without prejudice to any remedies
which might be otherwise used for arrears of rent
or other default. The LESSEE shall indemnify the
LESSOR against all loss of rent and additional
rent and other payments which the LESSOR may incur
by reason of such termination during the residue
of the
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term. If the LESSEE shall default, after
reasonable notice thereof; in the observance or
performance of any conditions or covenants on
LESSEE'S part to be observed or performed under or
by virtue of any of the provisions in any article
of this lease, the LESSOR, without being under any
obligation to do so and without thereby waiving
such default, may remedy such default for the
account and at the expense of the LESSEE. If the
LESSOR makes any expenditures or incurs any
obligations for the payment of money in connection
therewith, including but not limited to,
reasonable attorney's fees in instituting,
prosecuting or defending any action or proceeding,
such sums paid or obligations incurred, with
interest at the rate of 18 per cent per annum and
costs, shall be paid to the LESSOR by the LESSEE
as additional rent. Any sums not paid when due
shall bear interest at 18 per cent per annum until
paid. LESSEE shall pay an administrative fee if a
check does not clear.
B) LESSOR'S REMEDIES. If any one or more events of default
set forth above occurs, LESSOR may, at its election:
(i) Give LESSEE written notice of LESSOR'S intention
to terminate this Lease on the earliest date
permitted by law or on any later date specified in
such notice, in which case LESSEE'S right to
possession of the Premises will cease and this
Lease will be terminated, except as to LESSEE'S
liability, as if the expiration of the term fixed
in such notice were the end of the Term;
(ii) Without further demand or notice, and without
terminating this Lease, reenter and take
possession of the Premises or any part of the
Premises, repossess the same, expel LESSEE and
those claiming through or under LESSEE and remove
the effects of both or either, using such force
for such purposes as may be necessary, without
being liable for prosecution, without being deemed
guilty of any matter of trespass, and without
prejudice to any remedies for arrears of Monthly
Rent or other amounts payable under this Lease or
as a result of any preceding breach of covenants
or conditions; or
(iii) Without further demand or notice to cure any event
of default and charge LESSEE for the cost of
effecting such cure, including without limitation
reasonable attorneys' fees and interest on the
amount of 18 percent per annum, provided that
LESSOR will have no obligation to cure any such
event of default of LESSEE.
If LESSOR elects to reenter as provided in subsection (ii) or
if LESSOR takes possession pursuant to legal proceedings or
pursuant to any notice provided by law, LESSOR may, from time
to time, without terminating this Lease, relet the Premises or
any part of the Premises in LESSOR'S or LESSEE'S name, but for
the account of LESSEE, for such term or terms (which may be
greater or less than the period which would otherwise have
constituted the balance of the Term) and on such conditions
and upon such other terms (which may include concessions of
free rent and alteration and repair of the Premises) as
LESSOR, in its reasonable discretion, may determine, and
LESSOR may collect and receive the rents from such reletting.
LESSOR will in no way be responsible or liable for any failure
to relet the Premises, or any part of the Premises, or for any
failure to collect any rent due upon such reletting. No such
reentry or taking possession of the Premises by LESSOR will be
construed as an election on LESSOR'S part to terminate this
Lease unless a written notice of such intention is given to
LESSEE. No written notice from LESSOR under this Section or
under a forcible or unlawful entry and detainer statute or
similar law will constitute an election by LESSOR to terminate
this Lease unless such notice specifically so states. LESSOR
reserves the right following any such reentry or reletting to
exercise its right
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to terminate this Lease by giving LESSEE such written notice,
in which event this Lease will terminate as specified in such
notice. LESSOR shall use reasonable efforts to relet the
Premises.
20. NOTICE Any Notice from the LESSOR to the LESSEE relating to the
Premises or to the occupancy thereof, shall be in writing and
be deemed duly served, if mailed to the Notice Address in
Section 1 of this Lease, or other such address as LESSEE may,
from time to time, advise in writing, registered or certified
mail, return receipt requested, postage prepaid or by
overnight carrier, addressed to the LESSEE. Any Notice from
the LESSEE to the LESSOR relating to the Premises or to the
occupancy thereof, shall be deemed duly served, if mailed to
the LESSOR by registered or certified mail, return receipt
requested, postage prepaid or by overnight carrier, addressed
to the LESSOR at the address in Section 1 of this Lease or
such other address as the LESSOR may from time to time advise
in writing. All rent notices shall be paid and sent to the
LESSOR at its notice address or such other address as may be
designated by LESSOR. All notices shall be effective when
received or refused.
21. SURRENDER The LESSEE shall at the expiration or other termination of
this Lease remove all LESSEE'S goods and effects from the
Premises, (including, without hereby limiting the generality
of the foregoing, all signs and lettering affixed or painted
by the LESSEE, either inside or outside the Premises). LESSEE
shall deliver to the LESSOR the Premises and all keys, locks
thereto, and other fixtures connected therewith and all
alterations and additions made to or upon the Premises, in
good condition, reasonable wear and tear and, damage by fire
or other casualty only excepted. In the event of the LESSEE'S
failure to remove any of LESSEE'S property from the Premises,
LESSOR is hereby authorized, without liability to LESSEE for
loss or damage thereto, and at the sole risk of LESSEE, to
remove and store any of the property at LESSEE'S expense, or
to retain same under LESSOR'S control or to sell at public or
private sale, without notice any or all of the property not so
removed and to apply the net proceeds of such sale to the
payment of any sum due hereunder, or to destroy such property.
The LESSEE shall restore all damage to the Premises which may
have occurred during the use of Premises or while vacating the
Premises. Any items which the LESSEE installs, which replace
items on the Premises when LESSEE took occupancy are deemed to
be LESSOR'S property.
22. BROKERAGE LESSEE warrants and represents that LESSEE has dealt with no
broker other than the broker listed in Section 1 of this lease
in connection with the consummation of this Lease and, in the
event of any brokerage claims against LESSOR predicated upon
prior dealings with LESSEE, LESSEE agrees to defend the same
and indemnify LESSOR against any such claim.
23. LESSOR'S The LESSOR is not personally liable under this
LIABILITY Lease. (a) LESSEE specifically agrees to look solely to the
LESSOR'S then equity in the property of which the Premises are
a part (and to proceeds thereof) for recovery of any judgment
from LESSOR it being specifically agreed that LESSOR (original
or successor) shall never be personally liable for any such
judgment or for the payment of any monetary obligation to
LESSEE. The provisions contained in the foregoing sentence are
not intended to, and shall not, limit any right the LESSEE
might otherwise have to obtain injunctive relief against
LESSOR or to take any action not involving the liability of
LESSOR to respond in monetary damages from LESSOR'S assets
other than from such property.
24. WAIVER Failure on the part of the LESSOR or LESSEE to complain of any
action or non-action on the part of the other, no matter how
long the same may continue, shall never be a waiver by LESSOR
or LESSEE, respectively, of its rights hereunder. Further, no
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waiver at any time of the provisions hereof, by LESSOR or
LESSEE shall be construed as a waiver of any of the other
provisions hereof, and a waiver at any time of any of the
provisions hereof shall not be construed as a waiver at any
subsequent time of the same provisions. The consent or
approval of LESSOR or LESSEE to, or of any action by the other
requiring such consent or approval, shall not be construed to
waive or render unnecessary LESSOR'S or LESSEE'S consent or
approval to or of any subsequent similar act by the other.
25. STATUS Recognizing that both parties may find it necessary to
REPORT establish to third parties, from time to time, the then
current status of performance hereunder, either party will,
within ten (10) days after receipt of a request therefor,
furnish a reasonable statement of the status of this Lease,
including without limitation, acknowledgments that (or the
extent to which) each party is in compliance with its
obligations under the terms of the Lease.
26. BUILDOUT Except as specifically provided herein, LESSEE shall accept
possession of Premises in "As Is" condition. Except as
specifically provided below, LESSOR has no obligation and has
made no promise to alter, remodel, improve, repair, decorate
or paint the Premises or any part of the Premises, or to pay
for such work, and LESSOR has not made any representations to
LESSEE with respect to the condition of the Premises.
A. PLANS LESSEE shall cause its architect (the "Architect") to
prepare (consistent with the building specifications
or standards) and submit to LESSOR for its approval
complete architectural plans, drawings and
specifications for all LESSOR'S Work (defined below),
including, without limitation, complete engineered
mechanical and electrical working drawings for the
premises, showing the subdivision, layout, finish and
decoration work desired by LESSEE therefore, and any
internal or external communications or special
utility facilities which will require installation of
conduits or other improvements within common areas,
all in such form and in such detail as my be required
by LESSOR. Such complete plans, drawings and
specifications are referred to herein as "Final
Plans". LESSEE shall submit the Final Plans for the
approval of LESSOR, and such final plan shall be
delivered to LESSOR no later than April 21, 2000.
Within five (5) business days after LESSOR receives
the Final Plans for approval, LESSOR shall give its
written approval of the Final Plans, or provide
LESSEE with specific written objections to the Final
Plans. If LESSOR does not respond within such five
(5) business day period, LESSOR shall be deemed to
have approved the Final Plans on the fifth business
day of such period. If LESSOR objects to the Final
Plans LESSEE and LESSOR shall meet within three (3)
business days after said objection to resolve the
objections and to deliver to Architect such
information as may be necessary to enable Architect
to cause the Final Plans to be revised consistent
with LESSOR'S objections. The day on which LESSOR
approves, or is deemed to have approved, the Final
Plans, shall be hereinafter referred to as the
"Approval Date".
B. SCHEDULE Based on the Final Plans and on or before the
Approval Date, the Architect and LESSOR'S
representatives shall reasonably agree on the number
of days within which the LESSEE Improvement Work
should be substantially complete if pursued with
commercially reasonable diligence (the "Scheduled
Completion Period").
C. WORK LESSOR shall construct the tenant improvements
("LESSOR'S Work") LESSOR shall pay an amount not to
exceed Three Hundred Three Thousand Seven Hundred
Twenty and No/100 Dollars ($303,720.00), which sum
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of completing the space planning, working drawings,
engineering, permits, architect's fees and other fees
and LESSOR'S Work (the "LESSOR'S Contribution"), and
LESSEE shall pay for all costs of completing the
LESSOR'S Work in excess of LESSOR'S Contribution
("LESSEE'S Contribution"). LESSEE'S Contribution
shall be paid to LESSOR prior to the Commencement of
LESSOR'S Work. And, LESSEE shall provide payment for
any change orders at the time of LESSEE'S approval of
each change order.
D. LESSEE To the extent LESSEE delays in delivering the Final
DELAY Plans to LESSOR as set forth in Section A above, the
Commencement Date shall be moved up one day for each
such day of delay by LESSEE.
i) Any change by LESSEE in any of the Final Plans
after LESSEE'S approval thereof:
ii) Any other act or omission of LESSEE or its
officers, agents, servants or contractors:
iii) Any reasonably necessary displacement of any of
LESSOR'S Work from its place in LESSOR'S construction
schedule resulting from any of the causes for delay
referred to in clauses (i), (ii), or this paragraph
and the fitting of such Work back into such schedule;
then LESSEE shall, from time to time and within ten
(10) business days after demand therefor, pay to
LESSOR for each day of such delay the amount of Basic
Rent, Escalation Charges and other charges that would
have been payable hereunder and the LESSEE'S
obligation to pay Basic Rent commenced immediately
prior to such delay.
E. LESSOR If the LESSOR'S Work is not complete by the Scheduled
DELAY Completion Date, the LESSEE shall be allowed to
remain in the Temporary Premises and pay rent on only
the Temporary Premises until such time as the
Premises are substantially complete. Substantial
completion shall be deemed to have occurred when the
Architect and LESSOR'S representative reasonably
agree that the only remaining LESSOR'S Work to be
completed are minor, so-called punch list items.
LESSEE shall have the right to remain in the
Temporary Premises until seven (7) days after
substantial completion of the LESSOR'S Work.
The delays referred to above are herein referred to
collectively and individually as "LESSEE'S Delay."
F. CONCLUSIVE-
NESS OF
PERFORM- Except to the extent to which LESSEE shall have given
ANCE LESSOR notice, not later than the end of the second
full calendar month beginning after substantial
completion of the LESSOR'S Work, of any respects in
which LESSOR has not performed LESSOR'S Work, LESSOR
shall be deemed to have completed the LESSOR'S Work
as of such substantial completion date.
27. LESSOR'S LESSOR warrants and represents that it is the owner of record
WARRANTY of the Premises and that it has authority to grant the
leasehold interest conveyed hereby.
28. SEVERABIL- To the extent any term or provision of this Lease, or the
ITY application thereof to any person or circumstance shall be
invalid or unenforceable, the remainder of this Lease,
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or the application of such term or provision to persons or
circumstances other than those as to which it is held invalid
or unenforceable, shall not be affected thereby, and each term
and provision of this Lease shall be valid and be enforced to
the fullest extent permitted by law.
29. RECORDING LESSEE agrees not to record this Lease, but, if the Term of
this Lease (including any extended term) is seven (7) years or
longer, each party hereto agrees, on the request of the other,
to execute a so-called Notice of Lease in recordable form and
complying with applicable law and reasonably satisfactory to
LESSOR'S and LESSEE'S attorneys. Such document shall expressly
state that it is executed pursuant to the provisions contained
in this Lease, and is not intended to vary the terms and
conditions of this Lease.
30. HOLDING Any Holding Over by LESSEE after the expiration of the Term of
OVER this Lease shall be treated as a tenancy at sufferance at a
rate equal to one and one-half times the Basic Rent then in
effect plus Additional Rent and other charges herein provided.
LESSEE shall also pay to LESSOR all direct damages sustained
by reason of any such holding over. Otherwise, such Holding
Over shall be on the terms and conditions set forth in this
Lease as far as applicable.
31. GOVERNING This Lease shall be governed exclusively by the provisions
LAW hereof and by the laws of the Commonwealth of Massachusetts,
as the same may from time to time exist. No amendment,
alteration, modification of, or addition to the Lease will be
valid or binding unless expressed in writing and signed by
LESSOR and LESSEE. LESSEE agrees to make any modifications of
the terms and provisions of this Lease required and requested
by any lending institution providing financing for the
Building, or Project, as the case may be, provided that no
such modifications will materially adversely affect LESSEE'S
rights and obligations under this Lease.
32. RELOCATION Deleted.
33. ENTIRE This Lease and the Exhibits made a part hereof contain the
AGREEMENT entire and only agreement between the parties and any and all
statements and representations, written and oral, including
previous correspondence and agreements between the parties
hereto, are merged herein. LESSEE acknowledges that all
representations and statements upon which it relied in
executing this Lease are contained herein and that the LESSEE
in no way relied upon any other statements or representations,
written or oral. Any executory agreement hereafter made shall
be ineffective to change, modify, discharge or effect an
abandonment of this Lease in whole or in part unless such
executory agreement is in writing and signed by the party
against whom enforcement of the change, modification,
discharge or abandonment is sought.
34. RULES &
REGULATIONS
LESSEE, its employees, agents, licensees, and visitors will at
all times, observe faithfully, and comply strictly with, the
Rules and Regulations set forth in Exhibit E. LESSOR may from
time to time reasonably amend, delete, or modify existing
Rules and Regulations, or adopt reasonable new Rules and
Regulations for the use, safety, cleanliness, and care of the
Premises and the Property, and the comfort, quiet, and
convenience of occupants of the Property. Modifications or
additions to the Rules and Regulations will be effective upon
thirty (30) days' prior written notice to LESSEE from LESSOR.
In the event of any breach of any Rules or Regulations or any
amendments or additions to such Rules and Regulations, LESSOR
will have all remedies that this Lease provides for default by
LESSOR, and will in addition have
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any remedies available at law or in equity, including the
right to enjoin any breach of such Rules and Regulations.
LESSOR will not be liable to LESSEE for violation of such
Rules and Regulations by any other tenant, its employees,
agents, visitors, or licensees or any other person. In the
event of any conflict between the provisions of this Lease and
the Rules and Regulations, the provisions of this Lease will
govern.
35. OPTION TO Provided that at the time of such exercise (i) there then
EXTEND exists no Default of LESSEE, (ii) this Lease is then in full
force and effect, and (iii) LESSEE is in actual occupancy of
all or substantially all of the Premises, LESSEE shall have
the right and option to extend the term of this Lease for one
(1) extended term of five years (the "Extended Term"). The
Extended Term shall commence on the day immediately succeeding
the expiration date of the Initial Term, and shall end on the
day immediately preceding the fifth anniversary of the first
day of such Extended Term. LESSEE shall exercise such option
to extend by giving written notice to LESSOR of its desire to
do so not earlier than twelve (12) months and not later than
nine (9) months prior to the expiration date of the Initial
Term. Provided the conditions of clauses (i), (ii) and (iii)
of this section shall have been satisfied, the giving of such
notice by LESSEE shall automatically extend the Term of this
Lease for the Extended Term, and no instrument of renewal need
be executed. In the event that LESSEE fails to give such
notice to LESSOR, this Lease shall automatically terminate at
the end of the Initial Term, and LESSEE shall have no further
option to extend the Term of this Lease. It is agreed that
time is of the essence with respect to the giving of such
notice. The Extended Term shall be on all the terms and
conditions of this Lease, except that (I) option to extend
that Term of this Lease shall be deleted, and (II) the Basic
Rent for the Extended Term shall be at Fair Market Value, not
less than the sum of the rent and all additional rent being
paid by LESSEE during the final year of the Initial Term.
LESSOR shall designate Fair Market Value, (the "Fair Market
Value") by written notice to LESSEE within sixty (60) days of
receipt of notice from LESSEE. If LESSEE disagrees with such
designation, (the "Designation"), LESSEE shall by written
notice within thirty (30) days after receipt of LESSOR'S
figure, advise LESSOR of such disagreement; otherwise LESSEE
shall conclusively be deemed to have agreed to such
Designation.
In the event that the Parties are unable to agree, each Party
shall appoint an appraiser. Each appraiser so appointed shall
be instructed to determine independently the Fair Market Value
and then confer. If the two appraisers are unable to determine
a Designation acceptable to both parties, they shall appoint a
third appraiser. The Designation of this appraiser shall be
considered final.
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36. TEMPORARY LESSEE may occupy the Temporary Premises (the "Temporary
TENANCY Tenancy") under the same terms and conditions as the Premises
from March 6, 2000 until substantial completion of the
Premises except that the Basic Rent shall be $25,037.82 per
month, pro-rated for any partial month and there shall be no
Additional Rent due for the Temporary Tenancy and the Term
shall be extended for the Temporary Tenancy.
37. RIGHT OF
FIRST If at any time during the Term of this Lease of this Lease,
OFFER LESSOR shall desire to Lease Suite 550 consisting of 7,272
rentable square feet on the fifth floor of the Building or
Suite 530 consisting of 3,364 rentable square feet on the
fifth floor of the Building as described in Exhibit G1
attached hereto or LESSOR shall desire to lease Suite 1000
consisting of 22,664 rentable square feet on the tenth floor
of the Building as described in Exhibit G2, attached hereto,
(the "First Offer Space"), LESSOR shall notify LESSEE and set
forth the terms and conditions on which LESSOR is willing to
lease the First Offer Space, including, without limitation,
rent, build-out allowance and other incentives or inducements
to lease, if any. LESSEE acknowledges that LESSOR has granted
this Right of First Offer for Suite 1000 to the Yankee Group
prior to the Execution of this Lease. Provided that the time
of such exercise (i) there then exists no Default of LESSEE,
(ii) this Lease is then if full force and effect, and (iii)
LESSEE is in actual occupancy of the entire Premises demised
thereunder, LESSEE may, by giving notice in writing to LESSOR
within three (3) Business Days after receipt of LESSOR'S
notice, elect to lease the First Offer Space on the terms so
offered by LESSOR. If LESSEE shall so elect to lease the First
Offer Space, it shall within seven (7) days after such
election enter into an amendment to this Lease incorporating
the terms and contained in LESSOR'S notice. If LESSEE shall
not elect to lease the First Offer Space within such three (3)
Business Day period, or shall fail to enter into such
amendment to this Lease within such seven-day period, LESSEE
shall have no further rights under this section with respect
to the First Offer Space and LESSOR shall be free to lease any
or all of such space to other parties.
IN WITNESS WHEREOF, the said parties hereunto set their hands and seals as of
the date above.
LESSEE: PaperExchange.com, LLC LESSOR: OMV Associates Limited Partnership
BY: Park Square Corporation - its General
Partner
BY: Richard D. Cohen - its President
BY:_________________________
____________________________ _________________________________
Hereunto Duly Authorized
<PAGE>
Premises
Not to Scale Capital Properties
February, 1998
[GRAPHIC OMITTED]
Fifth Floor Stacking Plan
The Park Square Building
Winter Street Architects, Inc.
<PAGE>
EXHIBIT B
Legal Description of the Land
All that certain lot, piece or parcel of land situated, lying and being in the
City of Boston, Suffolk County, Massachusetts. with the buildings thereon,
bounded and described as follows:
NORTHERLY: by Providence Street, six hundred seven and 40/100 (607.40) feet.
EASTERLY: by Arlington Street, seventy-five and 06/100 (75.06) feet,
SOUTHERLY: by St. James Avenue, six hundred four and 31/100 (604.31) feet and
WESTERLY: by Berkeley Street, seventy-five (75) feet
containing 45,439 square feet, more or less and being the same premises conveyed
by deed dated April 30, 1981 and recorded with Suffolk County Registry of Deeds,
Book 9741, Page 184.
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EXHIBIT C
ITEMS INCLUDED IN OPERATING EXPENSES
Without limitation, Operating Expenses shall include:
1. All expenses incurred by Lessor or Lessor's agents which shall be directly
related to employment of personnel for the Property, including amounts
incurred for wages, salaries and other compensation for services, payroll,
social security, unemployment and similar taxes, workmen's compensation
insurance, disability benefits, pensions, hospitalization, retirement
plans and group insurance, uniforms and working clothes and the cleaning
thereof, and expenses imposed on Lessor or Lessor's agents pursuant to any
collective bargaining agreement for the services of employees of Lessor or
Lessor's agents in connection with the operation, repair, maintenance,
cleaning, management and protection of the Property, and its mechanical
systems including, without limitation, day and night supervisors, property
manager, accountants, bookkeepers, janitors, carpenters, engineers,
mechanics, electricians and plumbers and personnel engaged in supervision
of any of the persons mentioned above; provided that, if any such employee
is also employed for other property of Lessor, such compensation shall be
suitably prorated among the Property and such other properties.
2. The cost of services, utilities, materials and supplies furnished or used
in the operation, repair, maintenance, including without limitation fees,
if any, imposed upon Lessor, or charged to the Property, by the state or
municipality in which the Property is located on account of the need of
the Property for increased or augmented public safety services.
3. The cost of replacements for tools and other similar equipment used in the
repair, maintenance, cleaning and protection of the Property, provided
that, in the case of any such equipment used jointly on other properties,
such costs shall be suitably prorated among the Property and such other
properties.
4. Where the Property is managed by Lessor or an affiliate of Lessor, a sum
equal to the amounts customarily charged by management firms in the
Boston/Brookline area for similar properties, but in no event more than
five (5%) percent of gross annual income, whether or not actually paid, or
where managed by other than Lessor or an affiliate thereof, the amounts
charged for management, together with, in either case, reasonable amounts
charged for legal and other professional fees relating to the Property,
but excluding such fees and commissions paid in connection with services
rendered for securing, terminating or renewing leases and administration
and operation of the Premises.
5. Reasonable premiums for insurance against damage or loss to the Property
from such hazards as shall from time to time be required by mortgagees.
6. If, during the Term of this Lease, Lessor shall make a capital
expenditure, the total cost of which is not properly includable in
Operating Expenses for the Operating Year in which it was made, there
shall nevertheless be included in such Operating Expenses for the
Operating Year in which it was made and in Operating Expenses for each
succeeding Operating Year the annual charge-off of such capital
expenditure; and the useful life shall be determined reasonably by Lessor
in accordance with generally accepted accounting principles and practices
in effect at the time of making such expenditure.
7. Costs for electricity, water and sewer use charges, and other utilities
supplied to the Property and not paid for directly by Lessees.
8. Betterment assessments provided the same are apportioned equally over the
longest period permitted by law, and any other governmental charges or
taxes not included in Taxes, including linkage payments, if any.
9. Amounts paid to independent contractors for services, materials, and
supplies furnished for the operation, repair. maintenance, cleaning and
protection of the Property.
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10. The following items shall be excluded from the Operating Expenses:
o Electricity which is billed directly to LESSEE or any Tenant
in the Building.
o Mortgage Charges
o Brokerage commissions
o Cost of work done by LESSOR for a particular tenant for which
LESSOR has the right to be reimbursed by such tenant.
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Exhibit D
Temporary Premises
Not to Scale Capital Properties
February, 1998
[GRAPHIC OMITTED]
Third Floor Stacking Plan
The Park Square Building
Winter Street Architects, Inc.
<PAGE>
EXHIBIT E
Rules & Regulations
1. LESSOR may from time to time adopt appropriate systems and procedures
for the security or safety of the Building, any persons occupying, using or
entering the Building, or any equipment, finishings, or contents of the
Building, and LESSEE will comply with LESSOR'S requirements relative to such
systems and procedures, provided the foregoing shall not impair LESSEE'S right
to have access to the Premises twenty-four hours per day, seven days per week,
fifty-two weeks per year.
2. The sidewalks, halls, passages, exits, entrances, elevators, and
stairways of the Building will not be obstructed by any tenant or used for any
purpose other than for ingress to and egress from the Building. The halls,
passages, exits, entrances, elevators, escalators, and stairways are not for the
general public, and LESSOR will in all cases retain the right to control and
prevent access to such halls, passages, exits, entrances, elevators, and
stairways of all persons whose presence in the judgment of LESSOR would be
prejudicial to the safety, character, reputation, and interests of the Building
and its tenants, provided that nothing contained in these rules and regulations
will be construed to prevent such access to persons with whom any tenant
normally deals in the ordinary course of its business, unless such persons are
engaged in illegal activities. No lessee and no employee or invitee of any
tenant will go upon the roof of the Building except such roof or portion of such
roof as may be contiguous to a Premises of a particular tenant and may be
designated in writing by LESSOR as a roof deck or roof garden area. No tenant
will be permitted to place or install any object (including without limitation
radio and television antennas, loudspeakers, sound amplifiers, microwave dishes,
solar devices, or similar devices) on the exterior of the Building or on the
roof of the Building.
3. No sign, placard, picture, name advertisement, or written notice
visible from the exterior of LESSEE'S Premises will be inscribed, painted,
affixed, or otherwise displayed by LESSEE on any part of the Building or the
Premises without the prior written consent of LESSOR, other than signs approved
per this Lease. LESSOR will adopt and furnish to LESSEE general guidelines
relating to signs inside the Building on the office floors. LESSEE agrees to
conform to such guidelines. All approved signs or lettering on doors will be
printed, painted, affixed, or inscribed at the expense of the LESSEE by a person
approved by LESSOR. Other than window treatments expressly permitted by LESSOR
and building standard window treatments, material visible from outside the
Building will not be permitted. In the event of the violation of this rule by
LESSEE, LESSOR may remove the violating items without any liability, and may
charge the expenses incurred by such removal to the tenants or tenants violating
this rules.
4. No cooking will be done or permitted by any LESSEE on the Premises,
except in areas of the Premises which are specially constructed for cooking and
except that use by LESSEE of microwave ovens and Underwriters' Laboratory
approved equipment for brewing coffee, tea, hot chocolate, and similar beverages
will be permitted, provided that such use is in accordance with all applicable
federal, state and city laws, codes, ordinances, rules and regulations.
5. No LESSEE will employ any person or persons other than the cleaning
service of LESSOR for the purpose of cleaning the Premises, unless otherwise
agreed to by LESSOR in writing. Except with the written consent of LESSOR, no
person or persons other than those approved by LESSOR will be permitted to enter
the Building for the purpose of cleaning it. No LESSEE will cause any
unnecessary labor by reason of such LESSEE'S carelessness or indifference in the
preservation of good order and cleanliness. Should LESSEE'S actions result in
any increased expenses for any required cleaning, LESSOR reserves the right to
assess LESSEE for such expenses.
6. The toilet rooms, toilets, urinals, wash bowls and other plumbing
fixtures will not be used for any purposes other than those for which they were
constructed, and no sweepings, rubbish, rags, or other foreign substances will
be thrown in such plumbing fixtures. All damages resulting from any misuse of
the fixtures will be borne by the tenant who, or whose servants, employees,
agents, visitors, or licensees, caused the same.
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7. No LESSEE, or LESSEE'S invitees or licensees, will in any way deface
any part of the Premises or the Building of which they form a part. in those
portions of the Premises where carpet has been provided directly or indirectly
by LESSOR, LESSEE will at its own expense install and maintain pads to protect
the carpet under all furniture having casters other than carpet casters.
8. No LESSEE will alter, change, replace, or rekey any lock or install a
new lock or a knocker on any door of the Premises. LESSOR, its agents, or
employees will retain a pass (master) key to all door locks on the Premises. Any
new door locks required by LESSEE or any change in keying of existing locks will
be installed or changed by LESSOR following tenant's written request to LESSOR
and will be at LESSEE'S expense. all new locks and rekeyed locks will remain
operable by LESSOR'S pass (master) key. LESSOR will furnish each tenant, free of
charge, with two (2) keys to each suite entry door lock on the Premises. LESSOR
will have the right to collect a reasonable charge for additional keys and cards
requested by any tenant. Each tenant, upon termination of its tenancy, will
deliver to LESSOR all keys and access cards for the Premises and Building that
have been furnished to such tenant.
9. The elevator designated for freight by LESSOR will be available for use
by all tenants in the Building during the hours and pursuant to such procedures
as LESSOR may determine from time to time. The persons employed to move LESSEE'S
equipment, material, furniture, or other property in or out of the Building must
be acceptable to LESSOR. The moving company must be a locally recognized
professional mover, whose primary business is performing of relocation services,
and must be bonded and fully insured. A certificate or other verification of
such insurance must be received and approved by LESSOR prior to the start of any
moving operations. Insurance must be sufficient, in LESSOR'S sole opinion, to
cover all personal liability, theft or damage to the Project, including but not
limited to floor coverings, doors, walls, elevators, stairs, foliage, and
landscaping. Special care must be taken to prevent damage to foliage and
landscaping during adverse weather. All moving operations will be conducted at
such times and in such a manner as LESSOR will direct, and all moving will take
place during non-Business Hours unless LESSOR agrees in writing otherwise.
LESSEE will be responsible for the provision of building security during all
moving operations, and will be liable for all losses and damages sustained by
any party as a result of the failure to supply adequate security. LESSOR will
have the right to prescribe the weight, size, and position of all equipment,
materials, furniture, or other property brought into the Building. Heavy objects
will, if considered necessary by LESSOR, stand on wood strips of such thickness
as is necessary to property distribute the weight. LESSOR will not be
responsible for loss of or damage to any such property from any cause, and all
damage done to the building by moving or maintaining such property will be
repaired at the expense of LESSEE. LESSOR reserves the right to inspect all such
property to be brought into the building and to exclude from the Building all
such property which violates any of these rules and regulations or the Lease of
which these rules and regulations are a part. Supplies, goods, materials,
packages, furniture, and all other items of every kind delivered to or taken
from the Premises will be delivered or removed through the entrance and route
designated by LESSOR, and LESSOR will not be responsible for the loss or damage
of any such property.
10. No lessee will use or keep in the Premises or the building any
kerosene, gasoline, or inflammable or combustible or explosive fluid or material
or chemical substance other than limited quantities of such materials or
substances reasonably necessary for the operation or maintenance of office
equipment or limited quantities of cleaning fluids and solvents required in
lessee's normal operations in the Premises, which shall be stored in accordance
with applicable law. Without LESSOR'S prior written approval, no lessee will use
any method of heating or air conditioning other than that supplied by LESSOR. No
lessee will use or keep or permit to be used or kept any foul or noxious gas or
substance in the Premises.
11. Lessees shall not , prior to or during the Term, either directly or
indirectly, employ or permit the employment of any contractor, mover, mechanic
or laborer, or permit any materials in the Premises, if the use of such
contractor, mover, mechanic or laborer or such materials would, in LESSOR'S
opinion, create any difficulty, strike or jurisdictional dispute with other
contractors, movers, mechanics or laborers engaged by LESSOR, lessee, or others,
or would in any way disturb the construction, maintenance, cleaning, repair,
management, security or operation of the Building, Project or any part thereof.
Any lessee, upon demand by LESSOR, shall cause all contractors, movers,
mechanics, laborers or materials causing such interference, difficulty or
conflict to leave or be removed from the Project immediately.
23
<PAGE>
12. LESSOR will have the right to prohibit any advertising by LESSEE
mentioning the Building, that in LESSOR'S reasonable opinion, tends to impair
the reputation of the Building or its desirability as a building for offices,
and upon written notice from LESSOR, LESSEE will refrain from or discontinue
such advertising.
13. LESSEE will not bring any animals (except "Seeing Eye" dogs) or birds
into the building, and will not permit bicycles or other vehicles inside or on
the sidewalks outside the Building except in areas designated from time to time
by LESSOR for such purposes.
14. All persons entering or leaving the building between the hours of 6
p.m. and 8 a.m. Monday through Friday, and at all hours on Saturdays, Sundays,
and holidays will comply with such off-hour regulations as LESSOR may establish
and modify from time to time. LESSOR reserves the right to limit reasonably or
restrict access to the Building during such time periods.
15. Each lessee will store all its trash and garbage within its Premises.
No material will be placed in the trash boxes or receptacles if such material is
of such nature that it may not be disposed of in the ordinary and customary
manner of removing and disposing of trash and garbage without being in violation
of any law or ordinance governing such disposal. All garbage and refuse disposal
will be made only through entryways and elevators provided for such purposes and
at such times as LESSOR designates. Removal of any furniture or furnishings,
large equipment, packing crates, packing materials, and boxes will be the
responsibility of each lessee and such items may not be disposed of in the
Buildings trash receptacles nor will they be removed by the Building's
janitorial service, except at LESSOR'S sole option and at the lessee's expense.
No furniture, appliances, equipment, or flammable products of any type may be
disposed of in the Building trash receptacles.
16. Canvassing, peddling, soliciting, and distributing handbills or any
other written materials in the Building are prohibited, and each lessee will
cooperate to prevent the same.
17. The requirements of the lessee's will be attended to only upon
application by written, personal, or telephone notice at the office of the
Building. Employees of LESSOR or LESSOR'S agent will not perform any work or do
anything outside of their regular duties unless under special instructions from
LESSOR.
18. A directory of the Building will be provided for the display of the
name and location of tenants only. all entries on the Building directory display
will conform to standards and style set by LESSOR in its sole discretion. Space
on any exterior signage will be provided in LESSOR'S sole discretion. No lessee
will have any right to the use of any exterior sign.
19. LESSEE will see that the doors of the Premises are closed and locked
and that all water faucets, water apparatus, and utilities are shut off before
LESSEE or LESSEE'S employees leave the Premises, so as to prevent waste or
damage, and for any failure to comply or carelessness in this regard LESSEE will
make good all injuries sustained by other tenants or occupants of the Building
or LESSOR. On multiple-tenancy floors, all lessee's will keep the doors to the
Building corridors closed at all times except for ingress or egress.
20. LESSEE will not conduct itself in any manner that is inconsistent with
the character of the building as a first quality building or that will impair
the comfort and convenience of other tenants in the Building.
21. No act or thing done or omitted to be done by LESSOR or LESSOR'S agent
during the term of the Lease in connection with the enforcement of these rules
and regulations will constitute an eviction by LESSOR of any lessee nor will it
be deemed an acceptance of surrender of the Premises by any lessee, and no
agreement to accept such termination or surrender will be valid unless in a
writing signed by LESSOR. The delivery of keys to any employee or agent of
LESSOR will not operate as a termination of the Lease or a surrender of the
Premises unless such delivery of keys is done in connection with a written
instrument executed by LESSOR approving the termination or surrender.
22. In these rules and regulations, the term "lessee" includes the
employees, agents, invitees, and licensees of LESSEE and others permitted by
LESSEE to use or occupy the Premises.
24
<PAGE>
23. LESSOR may waive any one or more of these rules and regulations for
the benefit of any particular lessee or lessees, but no such waiver by LESSOR
will be construed as a waiver of such rules and regulations in favor of any
other lessee or lessees, nor prevent LESSOR from enforcing any such rules and
regulations against any or all of the lessees of the Building after such waiver.
24. These rules and regulations are in addition to, and will not be
construed to modify or amend, in whole or in part, the terms, covenants,
agreements, and conditions of the Lease.
25
<PAGE>
Exhibit F
Signage
None.
26
<PAGE>
Exhibit G1
First Offer Space
Not to Scale Capital Properties
February, 1998
[GRAPHIC OMITTED]
Fifth Floor Stacking Plan
The Park Square Building
<PAGE>
Exhibit G2
First Offer Space
Not to Scale Capital Properties
February, 1998
[GRAPHIC OMITTED]
Tenth Floor Stacking Plan
The Park Square Building
<PAGE>
Exhibit 21
List of Subsidiaries
PaperExchange.com Ltd.
<PAGE>
Exhibit No. 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Experts" and
"Selected Financial Data" and to the use of our report dated February 11, 2000
(except notes 5 and 8 as to which the date is March 9, 2000) in the Registration
Statement (Form S-1) and related Prospectus of PaperExchange.com, Inc. dated
March 10, 2000.
Our audits also included the financial statement schedule of PaperExchange.com
LLC listed in Item 16 (b). 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.
/s/ Ernst & Young LLP
Ernst & Young LLP
Boston, Massachusetts
March 9, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM S-1
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR OTHER
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 APR-10-1998
<PERIOD-END> DEC-31-1999 DEC-31-1998
<CASH> 16,278,777 492,842
<SECURITIES> 0 0
<RECEIVABLES> 86,167 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 16,445,314 496,842
<PP&E> 1,939,971 351,675
<DEPRECIATION> 228,454 31,942
<TOTAL-ASSETS> 18,485,903 817,538
<CURRENT-LIABILITIES> 3,304,398 52,374
<BONDS> 8,467,650 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 6,713,855 765,164
<TOTAL-LIABILITY-AND-EQUITY> 18,485,903 817,538
<SALES> 114,191 1,500
<TOTAL-REVENUES> 114,191 1,500
<CGS> 91,766 0
<TOTAL-COSTS> 8,805,085 889,239
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 334,423 0
<INCOME-PRETAX> 0 0
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (9,051,310) (859,836)
<EPS-BASIC> (.26) (.03)
<EPS-DILUTED> (.26) (.03)
</TABLE>
