<PAGE> 1
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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FREEMARKETS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7389 04-3265483
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
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22ND FLOOR, ONE OLIVER PLAZA
210 SIXTH AVENUE
PITTSBURGH, PENNSYLVANIA 15222
(412) 434-0500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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GLEN T. MEAKEM
CHIEF EXECUTIVE OFFICER
22ND FLOOR, ONE OLIVER PLAZA
210 SIXTH AVENUE
PITTSBURGH, PENNSYLVANIA 15222
(412) 434-0500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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COPIES TO:
<TABLE>
<S> <C>
MARLEE S. MYERS, ESQ. KEITH F. HIGGINS, ESQ.
DAVID A. GERSON, ESQ. ROPES & GRAY
ERIC D. KLINE, ESQ. ONE INTERNATIONAL PLACE
MORGAN, LEWIS & BOCKIUS LLP BOSTON, MA 02110
32ND FLOOR, ONE OXFORD CENTRE (617) 951-7000
PITTSBURGH, PA 15219-1417 FAX: (617) 951-7050
(412) 560-3300
FAX: (412) 560-3399
</TABLE>
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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 box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE
<S> <C> <C>
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Common Stock, $0.01 par value............................... $70,000,000 $25,000
</TABLE>
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(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(o) under the Securities Act.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
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 these securities nor does it seek an offer to
buy these securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION. DATED SEPTEMBER 8, 1999.
Shares
FreeMarkets, Inc. Logo
Common Stock
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This is an initial public offering of shares of common stock of
FreeMarkets, Inc. All of the shares of common stock are being
sold by FreeMarkets.
Prior to this offering, there has been no public market for our common
stock. We estimate that the initial public offering price will be between
$ and $ per share. We have applied to have our common stock approved
for quotation on the Nasdaq National Market under the symbol "FMKT".
See "Risk Factors" beginning on page 9 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 ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Initial public offering price............................... $ $
Underwriting discount....................................... $ $
Proceeds, before expenses, to FreeMarkets................... $ $
</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 FreeMarkets 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 , 1999.
------------------------
GOLDMAN, SACHS & CO. MORGAN STANLEY DEAN WITTER
DONALDSON, LUFKIN & JENRETTE WIT CAPITAL CORPORATION
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Prospectus dated , 1999.
<PAGE> 3
INSIDE FRONT COVER
The front of the gatefold includes a picture of a die cast metal piston
head with the following text above it: "At 8:01 am, this piston head cost $3.02.
At 8:39 am, it cost $1.95."
A pull-out text box appears at the upper left-hand corner of the inside
gatefold with the following text: "In November 1998, FreeMarkets conducted an
online auction for die cast parts, including this piston head."
The inside gatefold pages also include three pictures of computer screens,
each showing a graph generated by our BidWare software that illustrates prices
declining as a FreeMarkets online auction progresses.
The following text appears under the first picture of a bid graph generated
at the start of the auction: "At 8:00 am the online auction for all 17 lots, or
groups of parts, opened. The first bid for Lot 1, which included this piston
head and other parts, was above the previous price our client paid. One second
later, a new bid was 6% below the previous price paid." A pull-out text box
appears over the right-hand corner of the picture and indicates the time the bid
graph was generated and the market bid for the contract at that time. The text
that appears reads as follows: "8:01 am. 2 Bids Received for Lot 1."
The following text appears under the second picture of a bid graph
generated during the middle of the auction: "Sixteen minutes later, 30 bids had
been received for Lot 1, with the low bid at 20% below previous price paid." A
pull-out text box appears over the right-hand corner of the picture and
indicates the time the bid graph was generated and the market bid for the
contract at that time. The text that appears reads as follows: "8:16 am. 30 Bids
Received for Lot 1."
The following text appears under the third picture of a bid graph generated
at the end of the auction: "By the time the bidding for Lot 1 closed, less than
40 minutes after opening, the lowest bid price was 23% below the total previous
price paid for all of the parts in this lot." A pull out text box appears over
the right-hand corner of the picture and indicates the time the bid graph was
generated and the market bid for the contract at that time. The text that
appears reads as follows: "8:39 am. 41 Bids Received for Lot 1."
A paragraph appears in the lower left-hand corner of the inside gatefold
with the following text: "Before many people had even heard of the Internet,
FreeMarkets was conducting successful online auctions. Since 1995, we've created
online auctions for more than 30 clients from among the world's largest
industrial purchasing organizations, receiving bids from over 1800 suppliers.
Our auctions have covered more than 50 product categories, with almost $1
billion in auction volume in 1998 alone."
A table containing a bulleted list of some product categories for which we
have conducted auctions appears in the top right-hand corner of the inside
gatefold. The following text appears in this table: "Some of the product
categories for which we have conducted auctions: Chemicals, Coal, Commercial
Machinings, Corrugated Packaging, Die Castings, Fasteners, Injection Molded
Plastics, Metal Fabrications, Metal Stampings, Molded Rubber, Motor Freight,
Printed Circuit Boards, Service Center Metals, Transformers."
A pull-out text box appears at the lower right-hand corner of the inside
gatefold with the following text: "Total potential savings for this client that
day: $3.7 million."
Our logo, with the word "FreeMarkets" beside it, appears at the bottom of
the inside gatefold with the following tag-line text below it: "Redefining
purchasing power for the Global 1000."
The following text appears at the bottom left of the inside gatefold:
"FreeMarkets(R), BidWare(R) and BidServer(R) are registered trademarks and
SmartRFI(TM), SmartRFQ(TM) and CBE(TM) are trademarks of FreeMarkets, Inc. in
the United States. All other trademarks and service marks mentioned in this
prospectus are the property of their respective owners."
<PAGE> 4
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding FreeMarkets, Inc. and our consolidated financial
statements and the related notes appearing elsewhere in this prospectus. Unless
otherwise indicated, this prospectus assumes the automatic conversion of our
outstanding preferred stock and Series D warrants into 16,051,438 shares of
common stock, effective as of the closing of this offering. This prospectus also
assumes no exercise of the underwriters' over-allotment option.
FREEMARKETS, INC.
FreeMarkets creates customized business-to-business online auctions for the
world's largest buyers of industrial parts, raw materials and commodities. We
created online auctions covering approximately $1 billion worth of purchase
orders in 1998 and $630 million worth of purchase orders in the six months ended
June 30, 1999. We estimate that the resulting savings for our clients ranged
from approximately 2% to more than 25%. Since 1995, we have created online
auctions for more than 30 clients in over 50 product categories, including
injection molded plastic parts, commercial machinings, metal fabrications,
chemicals, printed circuit boards, corrugated packaging and coal. More than
1,800 suppliers from over 30 countries have participated in our auctions. Our
current clients include United Technologies Corporation, General Motors
Corporation, Quaker Oats, Emerson Electric, Allied Signal Corporation and the
Commonwealth of Pennsylvania. Two of our clients accounted for 65% of our
revenues during the first six months of 1999.
Based on industry research and government statistics, we estimate that
manufacturers worldwide purchase approximately $5 trillion each year of "direct
materials" -- the industrial parts and raw materials that they incorporate into
finished products. Because these direct materials are often custom-made to
buyers' specifications, there are no catalogs or price lists to enable buyers to
make price comparisons. The process of purchasing direct materials is further
complicated by the fragmentation of supply markets and the importance of product
quality in supplier selection. Because this complexity leads to market
inefficiencies, we think that buyers of direct materials often pay prices that
are too high.
The Internet offers an opportunity to create more efficient markets for
direct materials. As the number of Internet users has grown, large companies
have increasingly adopted electronic commerce as a way to do business. Forrester
Research estimates that United States business-to-business electronic commerce
will grow from $109 billion in 1999 to $1.3 trillion in 2003, accounting for 90%
of the dollar value of all electronic commerce by 2003. However, because of the
complexity of direct materials purchasing, we believe that Internet technology
alone cannot solve the problems faced by large industrial buyers. To solve these
problems, we think that Internet technology must be combined with services that
are customized to buyers' needs.
We combine our proprietary BidWare Internet technology with our in-depth
knowledge of supply markets to help large industrial buyers obtain lower prices
and make better purchasing decisions. In a FreeMarkets online auction, suppliers
from around the world can submit bids in a real-time, interactive competition.
Our auctions are "downward price" auctions in which suppliers continue to lower
their prices until the auction is closed. Before each auction, we work with our
client to identify and screen suppliers and assemble a request for quotation
that provides detailed, clear and consistent information for suppliers to use as
a basis for their competitive bids. Our service, which we call "market making",
creates a custom market for the direct materials or other goods or services that
our client purchases in a particular auction.
We seek to be the world's leading provider of business-to-business online
auctions. Our strategy is to extend our client base in our target market of
large purchasing organizations. We also intend to expand into additional product
categories where our online auctions can generate savings for buyers and to add
new functions and features to our BidWare technology to further automate
portions of our market making process.
5
<PAGE> 5
THE OFFERING
Shares offered by FreeMarkets...... shares
Shares to be outstanding after the
offering........................... shares
Use of Proceeds.................... For working capital and general corporate
purposes. See "Use of Proceeds".
Proposed Nasdaq National Market
Symbol............................. "FMKT"
The number of shares to be outstanding after this offering is based on our
shares of common stock outstanding as of June 30, 1999, and assumes that our
sale of Series D preferred stock and our issuance of Series D warrants occurred
on that date. This number excludes 8,975,100 shares issuable upon the exercise
of options and Series A and B warrants outstanding as of June 30, 1999.
6
<PAGE> 6
SUMMARY CONSOLIDATED FINANCIAL DATA
The following tables summarize the consolidated financial data for our
business. You should read this data along with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and our consolidated
financial statements and related notes. Common share equivalents have been
excluded from the shares used to compute earnings per share in each loss year
because their inclusion would be antidilutive. Pro forma earnings per share data
reflects the conversion of all outstanding preferred stock into common stock,
including our Series D preferred stock and Series D warrants, even if the effect
of the conversion is antidilutive. Pro forma consolidated balance sheet data
reflects the sale of our Series D preferred stock and the issuance of our Series
D warrants. Pro forma as adjusted data reflects our pro forma adjustments, plus:
- the exercise of our Series D warrants; and
- the issuance of shares in this offering, at an assumed initial public
offering price of $ per share and after deducting the underwriting
discount and the expenses of this offering.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
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1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues......................... $ 409 $ 1,783 $ 7,801 $ 2,396 $ 7,682
Gross (loss) profit.............. (97) 634 3,543 817 3,533
Operating costs:
Research and development....... 394 292 842 324 1,361
Sales and marketing............ 321 586 656 231 2,462
General and administrative..... 630 837 2,026 704 3,401
Operating (loss) income.......... (1,442) (1,081) 19 (442) (3,691)
Net (loss) income................ (1,431) (1,061) 234 (256) (3,757)
Earnings per share:
Basic.......................... (.14) (.10) .02 (.02) (.29)
Diluted........................ (.14) (.10) .01 (.02) (.29)
Shares used to compute earnings
per share:
Basic.......................... 10,316,599 10,618,481 11,191,670 10,985,954 13,028,751
Diluted........................ 10,316,599 10,618,481 26,776,611 10,985,954 13,028,751
Pro forma earnings per share:
Basic.......................... $ .01 $ (.14)
Diluted........................ .01 (.14)
Shares used to compute pro forma
earnings per share:
Basic.......................... 24,937,674 27,679,097
Diluted........................ 29,138,815 27,679,097
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1999
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
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<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 9,786 $40,141 $
Working capital............................................. 9,383 39,738
Total assets................................................ 18,464 48,819
Long-term debt, excluding current portion................... 1,497 1,497
Total stockholders' equity.................................. 12,415 42,770
</TABLE>
7
<PAGE> 7
AUCTION VOLUME DATA
The following data represent the aggregate volume of all direct materials,
commodities and services for which we have conducted an online auction in the
periods presented.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
-------------------- --------------
1996 1997 1998 1998 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Auction volume (in millions)..................... $124 $257 $979 $248 $632
</TABLE>
Please see "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Determination of Auction Volume and Achievable Savings"
for a discussion of how we calculate auction volume.
------------------------
Our executive offices are located at One Oliver Plaza, 22nd Floor, 210
Sixth Avenue, Pittsburgh, Pennsylvania 15222. Our telephone number is (412)
434-0500, our facsimile number is (412) 434-0508, and our Internet address is
www.freemarkets.com. The information on our website is not a part of this
prospectus.
8
<PAGE> 8
RISK FACTORS
You should carefully consider the risks and uncertainties described below
and the other information in this prospectus before deciding whether to invest
in shares of our common stock. The risks and uncertainties described below are
not the only ones we face. Additional risks and uncertainties not known to us or
that we now believe to be unimportant could also impair our business. If any of
the following risks actually occur, our business, financial condition or
operating results could be negatively affected. If this happens, the trading
price of our common stock could decline, and you may lose part or all of your
investment.
OUR LIMITED OPERATING HISTORY MAKES EVALUATING OUR BUSINESS AND FUTURE PROSPECTS
DIFFICULT
FreeMarkets has a very limited operating history. Our company was founded
in 1995 and did not generate a significant amount of revenues until 1998.
Because our operating history is so limited, it is very difficult to evaluate
our business and our future prospects. We will encounter risks and difficulties
frequently encountered by companies in an early stage of commercial development
in new and rapidly evolving markets. In order to overcome these risks and
difficulties, we must, among other things:
- execute our business and marketing strategy successfully;
- increase the number of industrial buyers that use our online auction
services;
- attract a sufficient number of suppliers to participate in our online
auctions to sustain competitive auctions;
- enter into long-term agreements with clients who have tried our service
under initial short-term agreements;
- upgrade our technology and information processing systems so that we can
create a wider variety and greater number of online auctions; and
- continue to attract, hire, motivate and retain qualified personnel.
Failure to achieve any of these objectives may negatively affect our
business, financial condition and results of operations.
WE USE SIGNIFICANTLY MORE CASH THAN WE GENERATE
Since our inception, our operating and investing activities have used more
cash than they have generated. Because we will continue to need substantial
amounts of working capital to fund the growth of our business, we expect to
continue to experience significant negative operating and investing cash flows
for the foreseeable future. We may need to raise additional capital in the
future to meet our 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
additional dilution to their equity ownership.
WE ANTICIPATE FUTURE LOSSES
We experienced losses for the partial year 1995 and in 1996 and 1997. We
achieved a modest profit in 1998, but are incurring losses in 1999 as a result
of our efforts to invest in the actual and anticipated growth of our business.
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.
9
<PAGE> 9
WE DEPEND PRIMARILY ON TWO CLIENTS; THE LOSS OF EITHER WOULD ADVERSELY AFFECT
OUR BUSINESS
We depend on two clients, United Technologies Corporation and General
Motors Corporation, for a substantial portion of our revenues. These two clients
represented 77% of our revenues in 1998 and 65% of our revenues in the six
months ended June 30, 1999. Our agreement with each of these clients expires on
December 31, 2000 and can be terminated by the client at any time. Although
United Technologies would be required to pay us a substantial fee if it
terminates its agreement, the fee would not make up for the resulting loss of
revenue. General Motors is not required to pay any fee if it terminates its
agreement.
We may not be able to keep either United Technologies or General Motors as
a client in the future. The loss or partial loss of either of these clients
would significantly diminish our revenues and operating results, forcing us to
curtail our growth plans and incur greater losses. Even if we keep one or both
of these clients, we may not be successful in growing and diversifying our
client base.
INDUSTRIAL PURCHASERS MAY NOT ADOPT OUR ONLINE AUCTION METHOD OF PURCHASING AT
LEVELS SUFFICIENT TO SUSTAIN OUR BUSINESS
Business-to-business online auction services are a novel method of
industrial purchasing, which potential clients may not adopt. If not enough
companies adopt our auction method of purchasing, then our business could be
harmed. In order to accept our method, buyers must adopt new purchasing
practices that are different from their traditional practices. Traditional
purchasing is often based on long-standing relationships between a buyer and a
few suppliers. Buyers and their suppliers often negotiate prices face-to-face,
with buyers frequently directing their business to chosen suppliers based on
factors in addition to price. Our services may be disruptive to existing,
long-standing supplier relationships because, in order to use our services, a
buyer must be willing to open the bidding process to multiple suppliers.
Moreover, buyers must be willing to rely less upon personal relationships in
making purchasing decisions. We cannot assure you that enough industrial
purchasers will choose to adopt our method or do so at sufficient levels to
sustain our business.
CLIENTS MAY NOT PURCHASE OUR SERVICES IF WE ARE UNABLE TO GENERATE SIGNIFICANT
SAVINGS
If our online auction services increase the efficiency of any particular
supply market, the future likelihood of significant savings to our clients in
that market may decrease. Factors beyond our control may limit our ability to
generate savings. If the magnitude of savings in particular product categories
decreases, we may have difficulty in the future selling our auction services to
buyers in those markets, or attracting willing suppliers in other markets,
either of which will harm our operating results.
OUR QUARTERLY OPERATING RESULTS ARE VOLATILE AND DIFFICULT TO PREDICT; IF WE
FAIL TO MEET THE EXPECTATIONS OF PUBLIC MARKET ANALYSTS OR INVESTORS, THE MARKET
PRICE OF OUR COMMON STOCK MAY DECLINE
Our quarterly operating results have varied significantly in the past and
will likely vary significantly in the future. We believe that period-to-period
comparisons of our results of operations are not meaningful and you should not
rely upon them as indicators of future performance. Our operating results will
likely fall below the expectations of securities analysts or investors in some
future quarter or quarters. Our failure to meet these expectations may result in
a decrease in the market price of our common stock.
Our quarterly revenues often fluctuate because we depend on a small number
of relatively large clients. We recognize a portion of our revenues from service
agreements on a monthly basis as we provide services; the remainder may be
contingent on successfully achieving agreed-upon volume and savings objectives.
As a result, our quarterly operating results may continue to fluctuate
significantly based on the size and timing of monthly fees and based on any
contingent compensation we earn.
10
<PAGE> 10
In addition, our quarterly operating results may vary depending on a number
of other factors, including:
- demand for our online auction services;
- our mix of monthly fees versus incentive-based fees;
- our success in maintaining and enhancing relationships with our existing
clients and developing relationships with new ones;
- our ability to expand our operations to support larger numbers of
clients, suppliers and online auctions;
- our ability to expand our sales and marketing efforts, including hiring
additional qualified personnel to fill positions in each of these areas;
- our ability to offer online auction services in new product categories;
- our ability to control costs;
- actions taken by our competitors, including new product and service
introductions and enhancements; and
- general industry and economic factors.
OUR SPENDING ON INCREASED CAPACITY PRECEDES OUR RECEIPT OF REVENUES; THIS COULD
CAUSE OUR GROSS MARGINS TO BE VOLATILE
We must hire personnel, acquire equipment and expand our facilities in
anticipation of receiving revenues in future periods. Because many of our
expenses for these activities are components of our cost of revenues, our gross
margins are likely to be volatile.
WE MAY NOT BE ABLE TO ADJUST OUR SPENDING QUICKLY; IF WE CANNOT, THEN OUR
RESULTS MAY SUFFER
We plan to increase expenditures for our sales and marketing efforts,
development of new technology, capital improvements to our facilities and
improvement of our operational and financial systems. The historical financial
data upon which we can base our planned operating costs and capital expenditures
is very limited and may not be meaningful. Our planned expense levels are
relatively fixed in the short term and are based on our anticipation of future
revenues. We may not be able to forecast revenues accurately due to our limited
operating history. If we fail to predict revenues accurately in relation to our
planned expense levels, then we may be unable to adjust our costs in a timely
manner in response to lower-than-expected revenues, and our operating results
will be negatively affected.
WE MAY NOT BE ABLE TO HIRE OR RETAIN QUALIFIED STAFF
If we cannot attract and retain enough qualified and skilled staff, the
growth of our business may be limited. Our ability to provide services to
clients 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. Competition for personnel with these skill sets is
intense. Some technical job categories are under conditions of severe shortage
in the United States. In addition, restrictive immigration quotas could prevent
us from recruiting skilled staff from outside the United States. We may not be
able to recruit or retain the caliber of staff required to carry out essential
functions at the pace necessary to sustain or grow our business.
11
<PAGE> 11
THE CAPACITY CONSTRAINTS OF OUR PERSONNEL AND TECHNOLOGY RESOURCES MAY LIMIT OUR
GROWTH
If we are unable to undertake new business due to a shortage of staff or
technology resources, our growth will be impeded. Our clients are typically
large companies. At times, these clients ask us to pursue large projects that
put a strain on our resources, both in terms of people and technology. At the
same time, penetration of new product categories often requires that we build up
a significant database of new information. This, too, often requires a large
amount of time from our market making staff. If our staff does not have the time
to find and assimilate this new information, we may not be able to extend our
services to new product categories. Therefore, there may be times when our
opportunities for revenue growth may be limited by the capacity of our internal
resources rather than by the absence of market demand.
FAILURE TO MANAGE OUR GROWTH COULD HARM US
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. We have recently experienced significant growth,
with our revenues for the six months ended June 30, 1999 increasing over 220%
compared to the same period in 1998. 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 harm our operating results.
WE MAY ACQUIRE OTHER BUSINESSES OR TECHNOLOGIES; IF WE DO, WE MAY BE UNABLE TO
INTEGRATE THEM WITH OUR BUSINESS, OR WE MAY IMPAIR OUR FINANCIAL PERFORMANCE
If appropriate opportunities present themselves, we may acquire businesses,
technologies, services or products that we believe are strategic. We do not
currently have any understandings, commitments or agreements with respect to any
acquisition, nor are we currently pursuing any acquisition. We may not be able
to identify, negotiate or finance any future acquisition successfully. Even if
we do succeed in acquiring a business, technology, service or product, the
process of integrating the acquisition into our business 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 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
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 or
harm our business.
OUR SALES CYCLE IS LONG AND UNCERTAIN AND MAY NOT RESULT IN REVENUES; FACTORS
OUTSIDE OF OUR CONTROL MAY AFFECT THE DECISION TO PURCHASE OUR SERVICES
Our sales cycle is long, and not every client that we solicit actually
purchases our services. Because we offer a new method of industrial purchasing,
we must educate potential customers on the use and benefits of our services. We
need to spend a significant amount of time with multiple decision makers in a
prospective client's organization to sell our services. Other factors that
contribute to the length and uncertainty of our sales cycle and that may reduce
the likelihood that clients will purchase our services include:
- budgeting constraints;
- incentive structures that do not reward decision makers for savings
achieved through cost-cutting;
- the strength of pre-existing supplier relationships; and
- an aversion to new purchasing methods.
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<PAGE> 12
If we are unable to enter into service agreements with clients on a
consistent basis, then our business may suffer from diminished revenues.
IF OUR SHORT-TERM SERVICE AGREEMENTS DO NOT LEAD TO LONG-TERM SERVICE
AGREEMENTS, OUR BUSINESS MAY NOT BE PROFITABLE
Frequently, we begin a relationship with a new client by entering into a
short-term service agreement that we hope will lead to a long-term service
agreement. Failure to move a sufficient number of clients from short-term to
long-term service agreements would hurt our operating results. Our initial
agreement with a client usually involves a period of trial and evaluation with
relatively small volume auctions. This initial period, in which we learn about
our client's business and its related product categories and educate our client
about the best use of our services for its organization, requires a very
significant expenditure of our time and resources. A subsequent longer-term
service agreement often involves more frequent and larger volume auctions.
Clients may decide not to enter into a long-term service agreement with us, or
may delay entering into such an agreement until a later time. Because we do not
achieve economies of scale early in a client relationship, our gross margins are
typically lower at the outset than the margins we may achieve later. Further, we
may be diverting personnel from higher-margin opportunities to develop a new
relationship, without any assurance that the new relationship will endure.
FACTORS OUTSIDE OUR CONTROL COULD RESULT IN DISAPPOINTING AUCTION RESULTS;
DISAPPOINTED CLIENTS MAY CANCEL OR FAIL TO RENEW THEIR AGREEMENTS WITH US
The actual savings achieved in any given auction vary widely and depend
upon many factors outside of our control. These factors include:
- the current state of supply and demand in the supply market for the
products being auctioned;
- the past performance of our client's purchasing organization in
negotiating favorable terms with suppliers;
- the willingness of a sufficient number of qualified suppliers to bid for
business using our auction services;
- reductions in the number of suppliers in particular markets due to
mergers, acquisitions or suppliers exiting from supply industries; and
- seasonal and cyclical trends that influence all industrial purchasing
decision making.
Because factors outside of our control affect a client's perception of the
value of our services, clients may cancel our service agreements or choose not
to renew them, even if we have performed well. Any non-renewal or cancellation
of service agreements may hurt our business.
FAILURES OF HARDWARE SYSTEMS OR SOFTWARE COULD UNDERMINE OUR CLIENTS' CONFIDENCE
IN OUR RELIABILITY
A significant disruption in our online auction service could seriously
undermine our clients' confidence in our business. Our clients hold us to a high
standard of reliability and performance. From time to time, we have experienced
service interruptions during online auctions, and this may occur in the future.
During these disruptions, participants may lose their online connection or we
may not receive their bids in a timely manner. Any interruptions in our service
may undermine actual and potential clients' confidence in the reliability of our
business.
Conducting an online auction requires the successful technical operation of
an entire chain of software, hardware and telecommunications equipment. This
chain includes our BidWare software, the personal computers and network
connections of bidders, our 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 auction.
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<PAGE> 13
Some of the elements set forth above are not within our control, such as
Internet connectivity and software, hardware and telecommunications equipment we
purchase from others. We frequently have auction participants from outside North
America who may use older or inferior technologies, which may not operate
properly. In addition, hardware and software are potentially vulnerable to
interruption from power failures, telecommunications outages, network service
outages and disruptions, natural disasters, and vandalism and other misconduct.
Our business interruption insurance would not compensate us fully for any losses
that may result from these disruptions.
THE LOSS OF OUR KEY EXECUTIVES WOULD HARM OUR BUSINESS
The loss of any member of our key management team would significantly harm
our business. We rely on the leadership and vision of key members of our senior
management team, including:
- Glen Meakem, our President, Chairman, Chief Executive Officer and a
co-founder;
- Sam Kinney, an Executive Vice President and our Secretary, Treasurer and
Acting Chief Financial Officer and a co-founder; and
- David Becker, an Executive Vice President and our Chief Operating
Officer.
Although we are a beneficiary under "key-man" life insurance policies on
each of Messrs. Meakem and Kinney, any payment received under these policies
would not compensate us adequately for the damage that the loss of either
executive's services would cause to our business.
IF WE FAIL TO CONTINUALLY IMPROVE OUR TECHNOLOGY, OUR BUSINESS WILL SUFFER
Our services and the business-to-business electronic commerce market are
characterized by rapidly changing technologies and frequent new product and
service introductions. We may fail to introduce new online auction technology on
a timely basis or at all. If we fail to introduce new technology or to improve
our existing technology in response to industry developments, we could
experience frustration from our clients that could lead to a loss of revenues.
Our online auction technology is complex, and accordingly may contain
undetected errors or defects that we may not be able to fix. In the past we have
discovered software errors in new versions of our BidWare software after their
release. Reduced market acceptance of our services due to errors or defects in
our technology would harm our business.
IF WE DO NOT ADEQUATELY MAINTAIN OUR CLIENTS' CONFIDENTIAL INFORMATION, OUR
REPUTATION COULD BE HARMED AND WE COULD INCUR LEGAL LIABILITY
Any breach of security relating to our clients' confidential information
could result in legal liability for us and a reduction in use or cancellation of
our online auction services, either of which could materially harm our business.
Our personnel receive highly confidential information from buyers and suppliers
that is stored in our files and on our computer systems. For example, we often
possess blueprints and product plans that could be valuable to our clients'
competitors if misappropriated. Similarly, we receive sensitive pricing
information that has historically been maintained as a matter of utmost
confidence within buyer and supplier organizations. We enter into standard
non-disclosure and confidentiality agreements with virtually all clients with
whom we deal.
We currently have practices and procedures in place to ensure the
confidentiality of our clients' 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
clients' confidential information, some of our clients could end their business
relationships with us and we could be subject to legal liability.
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<PAGE> 14
THE MARKET FOR BUSINESS-TO-BUSINESS ELECTRONIC COMMERCE PRODUCTS AND SERVICES IS
INTENSELY COMPETITIVE; IF WE CANNOT COMPETE SUCCESSFULLY, OUR BUSINESS WILL
SUFFER
As one of a number of companies providing services or products to the
market for business-to-business electronic commerce, we face the risk that
existing and potential clients may choose to purchase competitors' services.
Competition in this market is rapidly evolving and intense, and will likely
further intensify in the future. We currently or potentially will compete with a
number of other companies, including:
- well-financed entrepreneurial start-ups that offer similar services or
services perceived by a client to be similar to ours;
- electronic commerce technology providers extending their offerings to
include services or technology similar to ours;
- professional service and consulting firms offering services similar to
ours;
- providers of stand-alone software products that allow buyers to conduct
their own online auctions; and
- operators of websites that provide auction features to buyers.
Our online auction service is one of many alternative approaches to
purchasing that buyers may consider. Many of our current and potential
competitors are larger and more established than we are and have significantly
greater resources than we do. As a result, some of our current or potential
competitors may be able to commit more resources to marketing and promotional
campaigns, adopt more aggressive pricing policies and devote more resources to
technology development than we can. In order to respond to changes within this
competitive environment, we may from time to time make pricing, service,
marketing or other strategic decisions that could adversely affect our operating
results. In addition, competitors may introduce products or services that appear
to be the same as ours despite actual differences. In such an environment,
buyers may confuse our services with those of our competitors or choose the
services of a competitor with greater resources. Buyers may also attain poor
results with other products or services that dissuade them from trying our
services. We may not be able to keep our current clients and secure new ones in
this competitive environment.
OUR BUSINESS WILL SUFFER IF OUR PROSPECTIVE CLIENTS DO NOT ACCEPT ELECTRONIC
COMMERCE AND THE INTERNET AS A MEANS OF PURCHASING
Our online auction services depend on the increased acceptance and use of
the Internet as a medium of commerce. Our business will suffer if potential
clients do not accept electronic commerce and the Internet as a means of
purchasing. Business-to-business electronic commerce is a new and emerging
business practice that remains largely untested in the marketplace. Rapid growth
in the use of the Internet and electronic commerce is a recent phenomenon. As a
result, acceptance and use may not continue to develop at recent rates and a
sufficiently broad base of business customers may not adopt or continue to use
the Internet as a medium of commerce. Demand for and market acceptance of
services and products recently introduced over the Internet are subject to a
high level of uncertainty, and few proven services and products yet exist.
Electronic commerce may not prove to be a viable medium for
business-to-business purchasing for the following reasons, any of which could
seriously harm our business:
- the necessary infrastructure for Internet communications may not develop
adequately;
- buyer clients and suppliers may have security and confidentiality
concerns;
- complementary products, such as high-speed modems and high-speed
communication lines, may not be developed;
- alternative purchasing solutions may be implemented;
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<PAGE> 15
- buyers may dislike a reduction in the human contact that traditional
purchasing methods provide;
- use of the Internet and other online services may not continue to
increase or may increase more slowly than expected;
- the development or adoption of new standards and protocols may be
delayed; and
- new and burdensome governmental regulations may be imposed.
SECURITY RISKS AND CONCERNS MAY DETER THE USE OF THE INTERNET FOR CONDUCTING
COMMERCE
Concern about the security of the transmission of confidential information
over public networks is a significant barrier to electronic commerce and
communication. Advances in computer capabilities, new discoveries in the field
of cryptography or other events or developments could result in compromises or
breaches of Internet security systems that protect proprietary information. If
any well-publicized compromises of security were to occur, they could
substantially reduce the use of the Internet for commerce and communications.
Anyone who circumvents our security measures could misappropriate
proprietary information 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
clients or suppliers, which could disrupt our online auction technology or make
it inaccessible to our clients or suppliers. We may be required to expend
significant capital and other resources to protect against the threat of, or to
alleviate problems caused by, security breaches and the introduction of computer
viruses. Our security measures may be inadequate to prevent security breaches or
combat the introduction of computer viruses, either of which may result in loss
of data, increased operating costs, litigation and possible liability.
WE MAY NOT BE ABLE TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY RIGHTS
Our failure to adequately protect our intellectual property rights could
harm our business. We have applied for patents on certain aspects of our
technology and processes, but we do not know whether any patents will be issued.
In addition, even if some or all of these patents are issued, we cannot assure
you that they will not be successfully challenged by others or invalidated, that
they will adequately protect our technology and processes or that they will
result in commercial advantages for us. We have also trademarked some of our
brand names and copyrighted our marketing materials, 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 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 provide online auction services. We may, at
times, have to incur significant legal costs and spend time defending our
trademarks, copyrights and, if issued, our patents. Any defense efforts, whether
successful or not, would divert both time and resources from the operation and
growth of our business.
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<PAGE> 16
There is also significant uncertainty regarding the applicability to the
Internet of existing laws regarding matters such as property ownership,
copyrights and other intellectual property rights. Legislatures adopted the vast
majority of these laws prior to the advent of the Internet and, as a result,
these laws do not contemplate or address the unique issues of the Internet and
related technologies. We cannot be sure what laws and regulations may ultimately
affect our business or intellectual property rights.
OTHERS MAY ASSERT THAT OUR TECHNOLOGY INFRINGES THEIR INTELLECTUAL PROPERTY
RIGHTS
To date, no third parties have notified us that any of our technologies
infringes their proprietary rights, but they may claim infringement by us in the
future. The defense of any claims of infringement made against us by third
parties could involve significant legal costs and require our management to
divert time from our business operations. Either of these consequences of an
infringement claim could have a material adverse effect on our operating
results. If we are unsuccessful in defending any claims of infringement, we may
be forced to obtain licenses or to pay royalties to continue to use our
technology. We may not be able to obtain any necessary licenses on commercially
reasonable terms or at all. If we fail to obtain necessary licenses or other
rights, our operating results may suffer.
OTHERS MAY REFUSE TO LICENSE IMPORTANT TECHNOLOGY TO US OR MAY INCREASE THE FEES
THEY CHARGE US FOR THIS TECHNOLOGY
We rely on third parties to provide us with some software and hardware, for
which we pay fees. These third parties may increase their fees significantly or
refuse to license their software or provide their hardware to us. While other
vendors may provide the same or similar technology, we cannot be certain that we
can obtain the required technology on favorable terms, if at all. If we are
unable to obtain required technology, our growth prospects and operating results
may be harmed.
FUTURE GOVERNMENT REGULATION OF THE INTERNET AND ONLINE AUCTIONS MAY ADD TO OUR
OPERATING COSTS
Like many Internet-based businesses, we operate in an environment of
tremendous uncertainty as to potential government regulation. We are not
currently subject to direct regulation of online commerce, other than
regulations applicable to businesses generally. However, the Internet has
rapidly emerged as a commerce medium, and governmental agencies have not yet
been able to adapt existing regulations to the Internet environment. Laws and
regulations may be introduced that affect the Internet or other online services,
covering issues such as user pricing, content and quality of products and
services, advertising, intellectual property rights and information security.
The courts have not yet interpreted those laws that do reference the Internet,
such as the recently passed Digital Millennium Copyright Act, and the
applicability and reach of these laws are therefore uncertain. In addition,
because we offer our services worldwide and facilitate sales of goods to clients
globally, foreign jurisdictions may claim that we are required to comply with
their laws. Any future regulation may have a negative impact on our business.
As an Internet company, it is unclear in which jurisdictions we are
actually conducting business. Our failure to qualify to do business in a
jurisdiction that requires us to do so could subject us to fines or penalties
and could result in our inability to enforce contracts in that jurisdiction.
Numerous jurisdictions have laws and regulations regarding the conduct of
auctions and the liability of auctioneers. We do not believe that these laws and
regulations, which were enacted for consumer protection many years ago, apply to
our online auction services. However, one or more jurisdictions may attempt to
impose these laws and regulations on our operations in the future.
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<PAGE> 17
WE MAY BECOME SUBJECT TO CERTAIN SALES AND OTHER TAXES THAT COULD ADVERSELY
AFFECT OUR BUSINESS
The imposition of sales, value-added or similar taxes could diminish our
competitiveness and harm our business. We do not collect sales or other similar
taxes for goods purchased through our online auctions. Our clients are large
purchasing organizations that typically manage and pay their own sales and use
taxes. However, we may be subject to sales tax collection obligations in the
future.
WE MAY SUFFER SERVICE INTERRUPTIONS OR TECHNICAL FAILURES DUE TO THE YEAR 2000
COMPUTER PROBLEM ON OUR OWN SYSTEMS OR SYSTEMS OF THIRD PARTIES
Many computer systems are coded to accept only two-digit entries in date
code fields. These systems may be unable to distinguish whether "00" means 1900
or 2000, which may result in failures or the creation of erroneous results by,
at or beyond the year 2000. Many companies' computer and/or software systems may
need to be upgraded or replaced in order to process dates correctly beginning on
January 1, 2000 and to comply with the so-called "Year 2000" requirements.
We rely on our internally developed software as well as software, hardware
and other computer technology developed by third parties. The failure of any of
this software, hardware or computer technology could result in the interruption
of our auction services, delay or loss of revenues, diversion of development
resources, damage to our reputation and/or liability to our clients, any of
which could seriously harm our business.
OUR INTERNATIONAL OPERATIONS SUBJECT US TO RISKS AND UNCERTAINTIES
We face risks in doing business internationally. We provide our services to
international buyers and often have international suppliers participate in our
auctions. We have a subsidiary in Brussels, Belgium that serves our clients
based in Europe and the European operations of our multinational clients based
in the United States. We plan to establish similar branches or subsidiaries in
other parts of the world. Some of the risks characteristic of international
operations include:
- fluctuations in the value of the United States dollar, if we receive
payment or incur costs in foreign currencies;
- legal and regulatory requirements that vary from one country to another;
- difficulties in staffing and managing international operations;
- longer payment cycles for collection;
- different accounting practices;
- problems in collecting accounts receivable;
- business interruptions due to political uncertainty;
- higher costs of overhead, staffing and travel;
- higher costs to market and brand our online auction services; and
- recessions or other economic instability.
OUR MANAGEMENT HAS BROAD DISCRETION OVER HOW TO USE THE PROCEEDS OF THIS
OFFERING; WE MAY NOT USE THE PROCEEDS IN WAYS THAT HELP OUR BUSINESS SUCCEED
We estimate that our net proceeds from this offering will be $ million,
at an assumed initial public offering price of $ per share and after
deducting the underwriting discount and our estimated offering expenses. Our
primary purposes in making this offering are to increase our working capital,
create a public market for our common stock, facilitate our future access to the
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<PAGE> 18
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 financial results may suffer and our
business may be harmed.
ANOTHER COMPANY MAY HAVE DIFFICULTY ACQUIRING US, EVEN IF DOING SO WOULD BENEFIT
OUR STOCKHOLDERS, DUE TO PROVISIONS OF OUR CORPORATE CHARTER AND BY-LAWS AND
DELAWARE LAW
Provisions in our Certificate of Incorporation, in our Bylaws and under
Delaware law could make it more difficult for another company 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 for a
period of three years from the date such a person became an interested
stockholder, unless various conditions are met. This could have the effect of
delaying or preventing a change in control.
OUR STOCK PRICE MAY BE VOLATILE, WHICH COULD RESULT IN SUBSTANTIAL LOSSES FOR
STOCKHOLDERS
Prior to this offering, there has never been a public market for our common
stock. The market price for our common stock is likely to be highly volatile and
subject to wide fluctuations in response to factors that include the following,
some of which are beyond our control:
- actual or anticipated variations in our quarterly operating results;
- announcements of technology advancements or new products or services by
us or by our competitors;
- changes in financial estimates by securities analysts;
- conditions or trends in the Internet and/or electronic commerce
industries;
- changes in the economic performance and/or market valuations of other
Internet and/or electronic commerce companies;
- announcements by us or by our competitors of significant acquisitions,
strategic partnerships, joint ventures or capital commitments;
- additions or departures of key personnel;
- release of lock-up or other transfer restrictions on our outstanding
shares of common stock or sales of additional shares of common stock; and
- securities class action lawsuits or other litigation against us which
results in substantial costs and a diversion of management's attention
and resources.
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SUBSTANTIAL SALES OF OUR COMMON STOCK AFTER THE OFFERING COULD CAUSE OUR STOCK
PRICE TO FALL
All of our outstanding shares are currently restricted from resale, but
some may be sold into the market in the near future. Sales of these shares into
the market could cause the market price of our common stock to drop
significantly, even if our business is doing well.
Immediately following this offering, we will have outstanding
shares of common stock. This includes the shares
we are selling in this offering, which investors may resell in the public market
immediately. The remaining %, or 30,295,438 shares, of our total
outstanding shares will become available for resale in the public market as
shown in the chart below:
<TABLE>
<CAPTION>
NUMBER OF SHARES/
% OF TOTAL OUTSTANDING DATE OF AVAILABILITY FOR RESALE INTO PUBLIC MARKET
- ---------------------- -----------------------------------------------------------
<S> <C>
/ % Immediately
/ % 90 days after the date of this prospectus
/ % 180 days after the date of this prospectus due to an
agreement many of our stockholders have with the
underwriters. However, the underwriters can waive this
restriction and allow these stockholders to sell their
shares at any time.
</TABLE>
As restrictions on resale end, the market price of our stock could drop
significantly if the holders of these restricted shares sell them or the market
perceives that they intend to sell them. For a more detailed description, see
"Shares Eligible for Future Sale".
YOU WILL SUFFER IMMEDIATE AND SUBSTANTIAL DILUTION IN THE BOOK VALUE OF YOUR
INVESTMENT
The initial public offering price per share will significantly exceed our
net tangible book value per share. If we were to liquidate immediately after the
offering, investors purchasing shares in this offering would receive a per share
amount of tangible assets net of liabilities that would be less than the initial
public offering price per share. Investors purchasing shares in this offering
will suffer dilution of $ per share from their investment.
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<PAGE> 20
FORWARD-LOOKING STATEMENTS
Some of the statements under "Prospectus Summary", "Risk Factors",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", "Business", and elsewhere in this prospectus constitute
forward-looking statements. These statements involve known and unknown risks,
uncertainties, and other factors that may cause our or our industry's actual
results, levels of activity, performance or achievements to be materially
different than any expressed or implied by these forward-looking statements. In
some cases, you can identify forward-looking statements by terminology such as
"may", "will", "should", "expects", "plans", "anticipates", "believes",
"estimates", "predicts", "potential", "continue" or the negative of these terms
or other comparable terminology.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other person
assumes responsibility for the accuracy and completeness of these statements. We
are under no duty to update any of the forward-looking statements after the date
of this prospectus to conform these statements to actual results.
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USE OF PROCEEDS
We estimate that the net proceeds to us from the sale of the shares being
offered will be $ million, at an assumed initial public offering price
of $ per share after deducting the underwriting discount and estimated
offering expenses payable by us. If the underwriters exercise their
over-allotment option in full, then we estimate that the net proceeds to us from
the sale of the shares being offering will be $ million.
The principal purposes of 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 general corporate purposes and working capital, and our use of these
proceeds will be in the discretion of our management. We may, for example, 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 deployment of the
net proceeds of this offering, we intend to invest the net proceeds in
interest-bearing, investment grade securities.
DIVIDEND POLICY
We have never declared or paid cash dividends on our capital stock. We do
not anticipate paying any cash dividends in the foreseeable future. We currently
intend to retain any future earnings to finance the expansion of our business.
Moreover, our bank credit facility restricts our ability to pay cash dividends.
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<PAGE> 22
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 1999 on an
actual, pro forma and pro forma as adjusted basis. The pro forma column reflects
our sale of 2,057,773 shares of Series D preferred stock at a price of $14.80
per share and our issuance of 304,431 Series D warrants with an exercise price
of $0.01 per share. The pro forma as adjusted column reflects our pro forma
capitalization plus:
- the filing of an amendment to our Certificate of Incorporation concurrent
with the closing of this offering to eliminate all existing classes of
preferred stock and to create 5,000,000 shares of undesignated preferred
stock;
- the automatic conversion of all shares of outstanding preferred stock,
including shares issued upon mandatory exercise of all outstanding Series
D warrants, into 16,051,438 shares of common stock immediately prior to
the closing of this offering; and
- our sale of shares of common stock at an assumed initial
public offering price of $ per share, after deducting the
underwriting discount and estimated offering expenses.
None of the columns reflects 15,450,000 shares of common stock reserved for
issuance under our Stock Incentive Plan as of June 30, 1999, of which 8,779,500
shares were subject to outstanding options, or 195,600 shares of common stock
issuable upon the exercise of our Series A and Series B warrants.
You should read the table below along with our consolidated balance sheet
as of June 30, 1999 and the related notes.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1999
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(IN THOUSANDS, EXCEPT SHARE AND
PER SHARE DATA)
<S> <C> <C> <C>
Cash and cash equivalents................................... $ 9,786 $ 40,141 $
======= ======== ========
Long-term debt, excluding current portion................... 1,497 1,497
------- -------- --------
Stockholders' equity:
Convertible preferred stock, 50,000,000 shares authorized,
actual and pro forma; no shares authorized, issued or
outstanding, pro forma as adjusted:
Series A; $.01 par value; 9,036,600 shares issued and
outstanding, actual and pro forma..................... 90 90 --
Series B; $.01 par value; 2,347,200 shares issued and
outstanding, actual and pro forma..................... 24 24 --
Series C; $.01 par value; 2,305,434 shares issued and
outstanding, actual and pro forma..................... 23 23 --
Series D; $.01 par value; no shares issued or
outstanding, actual; 2,057,773 shares issued and
outstanding, pro forma................................ -- 21 --
Preferred stock; $.01 par value, no shares authorized,
issued or outstanding, actual and pro forma; 5,000,000
shares authorized, no shares issued or outstanding, pro
forma as adjusted....................................... -- -- --
Common stock; $.01 par value, 200,000,000 shares
authorized; 14,244,000 shares issued and outstanding,
actual and pro forma; shares issued and
outstanding, pro forma as adjusted...................... 142 142
Additional capital.......................................... 19,770 50,104
Unearned stock-based compensation........................... (727) (727)
Stock purchase warrants..................................... 30 4,533
Accumulated deficit......................................... (6,937) (11,440)
------- -------- --------
Total stockholders' equity.............................. 12,415 42,770
------- -------- --------
Total capitalization............................... $13,912 $ 44,267 $
======= ======== ========
</TABLE>
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DILUTION
Our pro forma net tangible book value as of June 30, 1999 was $42.6
million, or $1.41 per share. Pro forma net tangible book value per share
represents the amount of our total tangible assets after giving effect to the
sale of our Series D preferred stock and issuance and exercise of our Series D
warrants, reduced by the amount of our total liabilities, and then divided by
the total number of shares of common stock outstanding after giving effect to
the automatic conversion of all shares of outstanding preferred stock, including
the Series D preferred stock and Series D warrants. Dilution in pro forma net
tangible book value per share represents the difference between the amount paid
per share by purchasers of shares of common stock in this offering and the pro
forma net tangible book value per share of common stock immediately after the
completion of this offering. After giving effect to the sale of the
shares of common stock offered by us at an initial public offering price of
$ per share, and after deducting the underwriting discount and estimated
offering expenses payable by us, our pro forma net tangible book value at June
30, 1999 would have been approximately $ million or $ per share of
common stock. This represents an immediate increase in pro forma net tangible
book value of $ per share to existing stockholders and an immediate
dilution of $ per share to new investors purchasing shares at the initial
offering price. The following table illustrates this dilution on a per share
basis:
<TABLE>
<S> <C> <C>
Initial public offering price per share..................... $
Pro forma net tangible book value per share before the
offering............................................... $ 1.41
Increase per share attributable to new investors..........
------
Pro forma net tangible book value per share after the
offering..................................................
------
Dilution per share to new investors......................... $
======
</TABLE>
The following table summarizes, on a pro forma basis as of June 30, 1999,
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 to us and the average price per share paid:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- --------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders................ 30,295,438 % $51,221,097 % $1.69
New investors........................
---------- ---- ----------- ----
Totals.......................... % $ %
========== ==== =========== ====
</TABLE>
The preceding tables assume no issuance of shares of common stock under our
stock plans after June 30, 1999. As of June 30, 1999, 8,779,500 shares were
subject to outstanding options at a weighted average exercise price of $1.67 per
share. This table also assumes no exercise of the 195,600 Series A or Series B
warrants outstanding as of June 30, 1999. To the extent any of these options or
warrants are exercised, new investors will suffer further dilution.
24
<PAGE> 24
SELECTED CONSOLIDATED FINANCIAL DATA
You should read the selected consolidated financial data set forth below
along with "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and our consolidated financial statements and the related
notes. We have derived the consolidated statement of operations data for 1996,
1997 and 1998 and the six months ended June 30, 1999, and the consolidated
balance sheet data as of December 31, 1997 and 1998 and June 30, 1999 from our
consolidated financial statements that have been audited by
PricewaterhouseCoopers LLP. We have derived all other data in this table from
financial statements not included in this prospectus. We believe the unaudited
results shown in the table below include all adjustments, consisting only of
normal recurring adjustments, that we consider necessary for a fair presentation
of such information. Operating results for the six months ended June 30, 1999
are not necessarily indicative of the results that may be expected for all of
1999. Common share equivalents have been excluded from the shares used to
compute earnings per share in each loss year because their inclusion would be
antidilutive. Pro forma earnings per share data reflects the conversion of all
outstanding preferred stock, including our Series D preferred stock and our
Series D warrants, into common stock, even if the effect of the conversion is
antidilutive.
<TABLE>
<CAPTION>
MARCH 13, 1995
(INCEPTION) SIX MONTHS ENDED
THROUGH YEAR ENDED DECEMBER 31, JUNE 30,
DECEMBER 31, --------------------------------------- -------------------------
1995 1996 1997 1998 1998 1999
-------------- ----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues........................ $ 17 $ 409 $ 1,783 $ 7,801 $ 2,396 $ 7,682
Cost of revenues................ 25 506 1,149 4,258 1,579 4,149
---------- ----------- ----------- ----------- ----------- -----------
Gross (loss) profit............. (8) (97) 634 3,543 817 3,533
Operating costs:
Research and development.... 333 394 292 842 324 1,361
Sales and marketing......... 59 321 586 656 231 2,462
General and
administrative............ 526 630 837 2,026 704 3,401
---------- ----------- ----------- ----------- ----------- -----------
Total operating costs........... 918 1,345 1,715 3,524 1,259 7,224
Operating (loss) income......... (926) (1,442) (1,081) 19 (442) (3,691)
Other income (expense), net..... 4 11 20 215 186 (66)
---------- ----------- ----------- ----------- ----------- -----------
Net (loss) income............... $ (922) $ (1,431) $ (1,061) $ 234 $ (256) $ (3,757)
========== =========== =========== =========== =========== ===========
Earnings per share:
Basic....................... $ (.13) $ (.14) $ (.10) $ .02 $ (.02) $ (.29)
Diluted..................... (.13) (.14) (.10) .01 (.02) (.29)
Shares used to compute earnings
per share:
Basic....................... 7,262,352 10,316,599 10,618,481 11,191,670 10,985,954 13,028,751
Diluted..................... 7,262,352 10,316,599 10,618,481 26,776,611 10,985,954 13,028,751
Pro forma earnings per share:
Basic....................... $ .01 $ (.14)
Diluted..................... .01 (.14)
Shares used to compute pro forma
earnings per share:
Basic....................... 24,937,674 27,679,097
Diluted..................... 29,138,815 27,679,097
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
------------------------------------ JUNE 30,
1995 1996 1997 1998 1999
----------- ---- ------ ------ --------
(UNAUDITED) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $106 $523 $1,999 $1,656 $ 9,786
Working capital............................................. (81) 505 2,783 3,814 9,383
Total assets................................................ 306 985 3,336 6,870 18,464
Long-term debt, excluding current portion................... -- 21 -- 413 1,497
Total stockholders' equity.................................. 104 792 3,052 4,592 12,415
</TABLE>
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<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with "Selected Consolidated
Financial Data" and our consolidated financial statements and related notes.
OVERVIEW
FreeMarkets creates customized business-to-business online auctions for the
world's largest buyers of industrial parts, raw materials and commodities. We
were founded in March 1995 and began offering our auction services in that year.
We currently offer our auction services primarily in the United States, and to a
lesser extent in Europe. We created online auctions covering approximately $1
billion worth of purchase orders in 1998 and $630 million worth of purchase
orders in the six months ended June 30, 1999. We estimate that the achievable
savings for our clients resulting from completed auctions ranged from
approximately 2% to more than 25%.
DETERMINATION OF AUCTION VOLUME AND ACHIEVABLE SAVINGS
We believe that one indicator of our market acceptance is the estimated
dollar volume of direct materials, commodities and services that we auction for
our clients. We measure this auction volume by multiplying the lowest bid price
per unit in each auction by the estimated number of units that our client
expects to purchase. When our clients specify multi-year purchases in a request
for quotation, we calculate auction volume for the entire term. For example,
where our client specifies in its request for quotation that it expects to
purchase 10,000 units each year for a three-year term, we would calculate volume
for the related auction based on 30,000 units multiplied by the lowest bid price
submitted in the auction.
The actual dollar volume of direct materials, commodities or services that
our clients purchase may differ from our estimated auction volume. Because
non-price factors such as quality and service may be important to our client's
purchasing decision, our client may not select the lowest bid price that we use
in our calculation, or the parties may adjust prices in the future. In addition,
the actual number of units purchased by our client often varies from the
original estimate on which we base our calculation.
Auction volume does not necessarily correlate with either our revenues or
our operating results in any particular period or over time. Further, auction
volume has varied in the past and we expect it to vary in the future. The
following table sets forth our auction volume for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
---------------------------- --------------
1995 1996 1997 1998 1998 1999
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Auction Volume (in millions)...................... $ 9 $124 $257 $979 $248 $632
</TABLE>
We believe that the percentage savings achievable by clients through our
auctions is an indicator of the effectiveness of our auction services. To
estimate these savings, we compare the last price paid by our client for the
auctioned items against the lowest bid price for those items in our auction.
Actual savings that our clients achieve may not equal these estimates because
our client may not select the lowest bid price, the parties may agree to change
price terms after our auction or our client may not actually buy all or any of
the auctioned items.
Savings vary from auction to auction, and many factors affecting savings
are outside of our control. We report savings in a range, reflecting our
experience. Factors affecting savings include supply and demand conditions in
the product category from which our client is purchasing and past performance of
our client's purchasing organization. In addition, the percentage savings that
can be achieved on commodities, such as chemicals and coal, is typically far
less than the savings that can be achieved on custom-made direct materials.
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<PAGE> 26
Some of our agreements with clients provide for incentive compensation
based on auction volumes and/or savings. These agreements may define auction
volumes or savings differently than the methods we use to calculate auction
volume and savings.
REVENUES
We generate revenues under service agreements with our clients. Our service
agreements typically provide us with revenues from fixed monthly fees, and may
also include performance incentive payments, based on volume or savings, and
sales commissions. The revenue structure in a particular service agreement may
vary, depending upon the needs of our client and the conventional practices in
the supply market where our client obtains its direct materials or commodities.
The monthly fees that we receive are for the use of our technology, information,
market operations staff, market making staff and facilities. Negotiated monthly
fees vary by client, and reflect both the anticipated auction volume and the
staffing, expertise and technology we anticipate committing to complete the
services requested by our clients. For the six months ended June 30, 1999, fixed
monthly fees constituted a majority of our revenues, and we expect that these
monthly fees will continue to constitute a majority of our revenues for at least
the next 12 months. Our agreements typically allow us to limit the personnel
resources that we must make available in performing these services. We recognize
revenues from our fixed monthly fees ratably as we provide services. Our
agreements range in length from a few months to as many as four years. At any
given time, we have agreements of varying lengths with staggered expirations.
Our service agreements generally permit early termination by our client without
penalty.
Some of our agreements include performance incentive payments that are
contingent upon our client achieving specific auction volume or savings
thresholds, as set forth in the respective agreements. We recognize these
revenues as these thresholds are achieved. Most agreements entered into since
January 1999 include incentive payment provisions. We expect that as our auction
volume grows, a greater percentage of revenues will be attributable to these
incentive payments.
Our agreements may also provide for sales commissions to be paid to us upon
shipment of the auctioned items from the winning supplier to our client. We
recognize these commission revenues when the supplier ships to our client, which
in many cases occurs several months after our auction. Either the winning
supplier or our client pays these commissions, depending upon the terms of the
agreement. The service agreements that we have signed since January 1999 do not
include significant supplier-paid commissions, although we continue to receive
supplier-paid commissions under some agreements.
COST OF REVENUES
Cost of revenues consists primarily of the expenses related to staffing our
market making service organization and our Market Operations Center. These costs
also include an allocation of general overhead items such as building rent,
equipment leasing costs, telecommunications charges and depreciation expense.
Our gross margins vary from quarter to quarter. We must often add personnel to
our market making and market operations organizations based on our forecast of
anticipated clients' needs. If we over-estimate our clients' needs, our gross
margins may decrease because we cannot reduce our staffing levels in the short
term. Conversely, our gross margins may increase in periods when we earn
performance incentive payments resulting from our efforts in prior periods. As a
result, we have experienced volatility in our gross margins in the past and
expect this to continue.
OPERATING COSTS
We classify our operating costs into three general categories, research and
development, sales and marketing and general and administrative, based on the
nature of the expenditures.
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<PAGE> 27
We also allocate the total costs for overhead and facilities, based on
headcount, to each of the functional areas that use these services. These
allocated charges include general overhead items such as building rent,
equipment leasing costs, telecommunications charges and depreciation expense.
RESEARCH AND DEVELOPMENT
Research and development expenses consist primarily of expenses related to
the development and upgrade of our proprietary BidWare software and other market
making technologies. These expenses include employee compensation for software
developers and quality assurance personnel and third-party contract development
costs. We expect to increase our research and development expenses in absolute
dollars in future periods to invest in new technology for future product and
service offerings and to adapt and add features to our existing technology.
SALES AND MARKETING
Sales and marketing expenses consist primarily of employee compensation for
direct sales and marketing personnel, travel, public relations, sales and other
promotional materials, trade shows, advertising and other sales and marketing
programs. We expect to continue to increase our sales and marketing expenses in
absolute dollars in future periods to promote our brand, to pursue our business
development strategy and to increase the size of our sales force.
GENERAL AND ADMINISTRATIVE
General and administrative expenses consist primarily of compensation for
personnel and fees for outside professional advisors. We expect that general and
administrative expenses will continue to increase in absolute dollars in future
periods as we continue to add staff and infrastructure to support our expected
business growth and bear the increased expense associated with being a public
company.
STOCK-BASED COMPENSATION
Employee stock-based compensation consists of expenses related to employee
stock option grants issued with exercise prices lower than the deemed fair value
of the underlying shares at the time of grant. We have recorded in stockholders'
equity $727,000 as unearned stock-based compensation related to employee stock
option grants as of June 30, 1999. We expect that total unearned stock-based
compensation for employee stock options granted through August 31, 1999 will be
$2.0 million, which will be amortized to expense on an accelerated method over
the vesting period of each individual award.
In September 1999, we issued warrants to a significant client to purchase
304,431 shares of Series D preferred stock at an exercise price of $.01 per
share, in exchange for the client's agreement to modify various provisions in
its contract with us. As a result, we recorded an expense of $4.5 million in
September 1999.
OTHER INCOME (EXPENSE), NET
Other income (expense), net consists primarily of interest income received
from the investment of proceeds from our financing activities, offset by
interest expense and other fees related to our bank borrowings. Other income
(expense), net also includes other items not related to our operations. In the
past, these items have included an economic development grant and gains or
losses on the disposal of fixed assets. We expect interest income to increase in
the short term as a result of our investing the proceeds from our sale of Series
D preferred stock and this offering. We also expect interest expense to grow in
future periods as we intend to borrow additional funds under our bank credit
facility.
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<PAGE> 28
INCOME TAXES
We incurred operating losses in 1996, 1997 and the six months ended June
30, 1998 and 1999, and therefore did not record a provision for income taxes in
those periods. In 1998, we offset our net taxable income through the use of net
operating loss carryforwards.
As of June 30, 1999, we had approximately $6.8 million of federal and $6.2
million of state net operating loss carryforwards for tax reporting purposes
available to offset future taxable income. We may use these operating loss
carryforwards to offset future federal and state income taxes through 2019 and
2009, respectively. Due to a change in our ownership structure during 1996,
however, future utilization of these net operating loss carryforwards that we
accumulated prior to that change in ownership will be subject to various
limitations or annual restrictions under the tax law. See note 6 to our
consolidated financial statements. We may generate additional net operating loss
carryforwards in the future.
LIMITED OPERATING HISTORY
Our limited operating history makes predicting future operating results
very difficult. We believe that you should not rely on the period-to-period
comparison of our operating results to predict our future performance. You must
consider our prospects in light of the risks, expenses and difficulties
encountered by companies in new and rapidly evolving markets. We may not be
successful in addressing these risks and difficulties. Although we have
experienced significant percentage growth in revenues in recent periods, we may
not be able to sustain our prior growth rates. Our prior growth may not be
indicative of future operating results.
CUSTOMER CONCENTRATION
We depend on two clients, United Technologies and General Motors, for a
substantial portion of our revenues. These two clients represented 77% of our
revenues in 1998 and 65% of our revenues in the six months ended June 30, 1999.
We anticipate that we will continue to diversify our base of clients by adding
new clients and increasing sales to other existing clients and that the
percentage of total revenues we derive from United Technologies and General
Motors will decrease. We cannot be certain, however, that this will occur.
RESULTS OF OPERATIONS
The following table sets forth consolidated statement of operations data as
a percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
------------------------ --------------
1996 1997 1998 1998 1999
------ ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues............................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues....................................... 123.7 64.4 54.6 65.9 54.0
------ ----- ----- ----- -----
Gross (loss) profit.................................... (23.7) 35.6 45.4 34.1 46.0
Operating costs:
Research and development............................. 96.4 16.4 10.8 13.5 17.7
Sales and marketing.................................. 78.5 32.9 8.4 9.7 32.0
General and administrative........................... 154.0 46.9 26.0 29.4 44.3
------ ----- ----- ----- -----
Operating (loss) income................................ (352.6) (60.6) 0.2 (18.5) (48.0)
Other income (expense), net............................ 2.7 1.1 2.8 7.8 (0.9)
------ ----- ----- ----- -----
Net (loss) income...................................... (349.9)% (59.5)% 3.0% (10.7)% (48.9)%
====== ===== ===== ===== =====
</TABLE>
29
<PAGE> 29
SIX MONTHS ENDED JUNE 30, 1998 AND 1999
REVENUES
Revenues increased 221% from $2.4 million for the six months ended June 30,
1998 to $7.7 million for the same period in 1999. The increase in revenues is
primarily attributable to an increased number of new clients for which we
conducted auctions, as well as increased use of our services by existing
clients. Revenues for both periods were substantially concentrated in two
clients, United Technologies and General Motors. For the six months ended June
30, 1998, these two clients together contributed revenues of $1.4 million, or
60% of our total revenues. For the same period in 1999, total revenues from
these two clients increased over 248% to $5.0 million, or 65% of our total
revenues.
COST OF REVENUES
Cost of revenues increased from $1.6 million for the six months ended June
30, 1998 to $4.1 million for the same period in 1999. As a percentage of
revenues, however, cost of revenues declined from 66% to 54%. The increase in
absolute dollar amounts from the six months ended June 30, 1998 to the same
period in 1999 reflects an increase in the number of market making staff and
relocation of our operations to a larger facility.
The decrease in cost of revenues as a percentage of revenues is primarily
the result of spreading some relatively fixed costs over a higher base of
revenues. In addition, this improvement in our gross margin was favorably
impacted by an increase in the proportion of revenues derived from long-term
agreements where we typically are able to forecast and therefore optimize our
capacity utilization. We have also increased staff productivity by becoming more
specialized in various market making activities. In the six months ended June
30, 1999, we had a lower incidence of deep price discounts which we had used in
earlier periods to attract clients. Finally, we attained some operating
efficiencies from our investments in information tools to automate portions of
our market making process, which positively impacted our gross margins.
OPERATING COSTS
RESEARCH AND DEVELOPMENT. Research and development costs increased from
$324,000, or 14% of revenues, for the six months ended June 30, 1998, to $1.4
million, or 18% of revenues, for the same period in 1999. The increase in both
absolute dollars and as a percentage of revenues relates primarily to an
increase in the number of research and development staff and associated costs
for the continued development of our BidWare software and other market making
technology.
SALES AND MARKETING. Sales and marketing expenses increased from $231,000,
or 10% of revenues, for the six months ended June 30, 1998, to $2.5 million, or
32% of revenues, for the same period in 1999. The increase in both absolute
dollars and as a percentage of revenues reflects a significant ramp up in sales
and marketing staff, public relations costs, trade shows and advertising as we
pursued our brand and business development strategy and accelerated our spending
on potential future growth. As a result, sales and marketing expenses for the
six months ended June 30, 1999 included certain costs not incurred in the same
period for 1998, such as those for advertising in professional trade magazines,
airport advertising and other promotions.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
from $704,000, or 29% of revenues, for the six months ended June 30, 1998, to
$3.4 million, or 44% of revenues, for the same period in 1999. The increase in
both absolute dollars and as a percentage of revenues is primarily attributable
to the addition of personnel to our general and administrative staff in the
areas of recruiting, finance and strategy and business development. The increase
in general and administrative expenses is also attributable to start-up costs
associated with our European subsidiary, which we established in late 1998.
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<PAGE> 30
OTHER INCOME (EXPENSE), NET
Other income (expense), net was $186,000 for the six months ended June 30,
1998 as compared to ($66,000) for the same period in 1999. The change was
primarily attributable to an economic development grant from the Commonwealth of
Pennsylvania for $150,000 during the six months ended June 30, 1998. The
increase in other expense in the same period of 1999 was also the result of a
write-off of property and equipment of $119,000 related to our move to our new
headquarters, offset by net interest income.
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
REVENUES
Total revenues increased 336% from $409,000 in 1996 to $1.8 million in 1997
and 338% to $7.8 million in 1998. The increase in revenues from 1996 to 1998 is
primarily attributable to an increased number of new clients for which we
conducted auctions, as well as revenues from the increased use of our services
by existing clients. During 1998, $1.6 million of our revenues was attributable
to a performance incentive bonus we earned from a client.
COST OF REVENUES
Cost of revenues increased in absolute dollars from $506,000 in 1996 to
$1.1 million in 1997 and to $4.3 million in 1998. The increase in absolute
dollar amounts from 1996 to 1998 was primarily attributable to the overall
growth in the size of our market making staff. Cost of revenues as a percentage
of revenues decreased from 124% in 1996 to 64% in 1997 and to 55% in 1998. The
decrease as a percentage of revenues over this period reflected operating
efficiencies as we spread certain relatively fixed costs over a larger base of
revenues and improved staff and operational productivity. The decrease in 1998
was affected specifically by the receipt of a $1.6 million performance incentive
bonus, which favorably impacted our gross margins. In addition, longer-term
agreements entered into with United Technologies, General Motors and other
clients in 1997 and 1998 allowed us to forecast our workforce needs better and
thereby hire and deploy market making personnel more efficiently.
OPERATING COSTS
RESEARCH AND DEVELOPMENT. Research and development expenses decreased from
$394,000, or 96% of revenues, in 1996, to $292,000, or 16% of revenues, in 1997,
and increased to $842,000, or 11% of revenues, in 1998. The decrease in research
and development expenses in absolute dollars from 1996 to 1997 was primarily
attributable to the costs associated with the introduction of the first
generation of our BidWare software in 1996 and subsequent decrease in our use of
outside software development staff for this project in 1997. The increase in
absolute dollars from 1997 to 1998 was primarily attributable to an increase in
the number of software developers and quality assurance personnel hired by us to
further develop our BidWare software, as well as other market making technology.
The decrease in research and development expenses as a percentage of revenues
from 1996 to 1998 was due to the significant increase in revenues during this
period.
SALES AND MARKETING. Sales and marketing expenses increased from $321,000
in 1996 to $586,000 in 1997 and to $656,000 in 1998. Sales and marketing expense
as a percentage of revenues decreased from 79% in 1996 to 33% in 1997 and to 8%
in 1998. The increase in absolute dollar amounts from 1996 to 1998 resulted
primarily from continued investment in sales and marketing activities as our
business developed. The decrease in sales and marketing expenses as a percentage
of revenues from 1996 to 1998 was due to the significant increase in revenues
over this period. Further, a substantial portion of our overall revenue growth
in 1998 came from increased services provided to existing clients, which
required relatively less sales and marketing expense per dollar of revenue than
from new clients.
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<PAGE> 31
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
from $630,000 in 1996 to $837,000 in 1997 and to $2.0 million in 1998. As a
percentage of revenues, however, general and administrative expenses decreased
from 154% in 1996 to 47% in 1997 and to 26% in 1998. The increase in absolute
dollars from 1996 to 1998 resulted primarily from the addition of finance, human
resources and executive and administrative personnel to support the growth of
our business during this period. In 1998, we also incurred significant legal and
administrative costs related to establishing our Belgian subsidiary. The
decrease in general and administrative expenses as a percentage of revenues from
1996 to 1998 was due to the significant increase in revenues over this period.
OTHER INCOME (EXPENSE), NET
Other income (expense), net increased from $11,000 in 1996 to $20,000 in
1997 and to $215,000 in 1998. The increases in all periods were a result of
interest earned on increased cash balances. The increase in 1998 was also a
result of the receipt of a $150,000 economic development grant from the
Commonwealth of Pennsylvania.
LIQUIDITY AND CAPITAL RESOURCES
We have historically satisfied our cash requirements primarily through a
combination of revenues from operations and private equity financing
transactions. Through June 30, 1999, we raised net proceeds of $19.4 million
through private equity offerings. As of June 30, 1999, we had cash and cash
equivalents of $9.8 million and working capital of $9.4 million. See note 7 to
our consolidated financial statements.
Net cash used in operating activities totaled $1.6 million in 1996, $1.8
million in 1997, $1.2 million in 1998 and $2.2 million in the six months ended
June 30, 1999. Our use of cash in 1996 and 1997 was primarily attributable to
operating losses, and in 1998 to an increase in working capital. The use of cash
for the six months ended June 30, 1999 related primarily to the operating loss
generated by our investment in the growth of our business, including an increase
in personnel from 105 at the end of 1998 to 239 at June 30, 1999. In addition,
in March 1999, we began leasing a significantly larger facility. The lease,
which runs through May 2004, currently requires an annual lease payment of $1.1
million. Our lease payment will grow as we take additional office space.
Net cash used in investing activities totaled $165,000 in 1996, $50,000 in
1997, $859,000 in 1998 and $2.8 million in the six months ended June 30, 1999.
Our use of cash in investing activities in 1996, 1997 and 1998 resulted
primarily from our continued additions to and upgrade of computing and
telecommunications equipment. At the end of 1998, we began purchasing equipment
using available funds under a previous credit facility and reduced our use of
leased equipment. During the six months ended June 30, 1999, we spent
approximately $2.7 million to furnish our new facility and purchase computing
and telecommunications equipment to accommodate our increase in personnel. See
note 3 to our consolidated financial statements.
Net cash provided by financing activities totaled $2.2 million in 1996,
$3.3 million in 1997, $1.7 million in 1998 and $13.2 million for the six months
ended June 30, 1999. These positive financing cash flows reflect primarily the
net proceeds from private equity offerings and bank borrowings. During the six
months ended June 30, 1999, we raised $10.3 million from the sale of convertible
preferred stock, received proceeds of $1.3 million from the exercise of
warrants, and had net borrowings of $1.6 million under our bank credit
facilities.
In September 1999, we completed our sale of 2,057,773 shares of Series D
preferred stock with net proceeds of approximately $30.4 million.
As of June 30, 1999, we had a $4.0 million bank credit facility, consisting
of a $2.0 million revolving line of credit, all of which was available as of
June 30, 1999, and a $2.0 million equipment loan, all of which was outstanding
as of June 30, 1999. This bank credit facility contains restrictive
32
<PAGE> 32
covenants, including a limitation on our incurring additional indebtedness and
paying dividends, as well as requirements that we satisfy various financial
conditions. The line of credit bears interest at a rate of prime plus 0.75% and
expires on February 5, 2000. The equipment loan bears interest at a rate of
prime plus 1.0% and is payable over a 36-month term ending August 5, 2002. See
note 4 to our consolidated financial statements. In September 1999 we amended
our bank credit facility to increase our line of credit availability from $2.0
million to $5.0 million, extended the expiration date to September 2000 and
modified various restrictive covenants. The amendment also provides for two
additional equipment loans which total $3.0 million, with interest payable
monthly at the lender's prime rate plus 1.0%. In April and October 2000, the
equipment loans will convert to term notes payable monthly over three years.
Capital expenditures were $776,000 in 1998 and $2.7 million in the six
months ended June 30, 1999. Capital expenditures over these periods were
primarily made to purchase computing and telecommunications equipment and for
furnishings in our new headquarters. We also expanded our network and server
capacity. We funded these capital expenditures through a combination of cash
from operations, sales of our equity securities and bank borrowings. We intend
to fund future capital expenditures, which we estimate at $3.8 million for the
second half of 1999, through a combination of proceeds from our recent sale of
Series D preferred stock and bank borrowings. We anticipate an increase in our
capital expenditures over future periods consistent with growth in our
operations, infrastructure and personnel.
We believe that the net proceeds from this offering, combined with current
cash and cash equivalents, will be sufficient to meet our anticipated liquidity
needs for working capital and capital expenditures for at least 12 months from
the date of this prospectus. Our future liquidity and capital requirements will
depend upon numerous factors. The rate of expansion of our operations in
response to potential growth opportunities and competitive pressures will affect
our capital requirements. Additionally, we may need additional capital to fund
acquisitions of complementary businesses and technologies; however, we currently
have no commitments or agreements and are not involved in any negotiations
involving any of these transactions. If we require additional capital resources,
we may seek to sell additional equity or debt securities or secure additional
loans under our existing bank line of credit and equipment line or from new
loans. We may also sell additional equity if we believe it is an advantageous
time to raise capital for our future growth. The sale of additional equity or
convertible debt securities could result in additional dilution to you. We
cannot assure you that any financing arrangements will be available in amounts
or on terms acceptable to us, if at all.
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QUARTERLY OPERATING RESULTS
The following table sets forth our unaudited quarterly results of
operations data for our 10 most recent quarters, as well as the percentage of
revenues represented by each item. You should read this table along with our
consolidated financial statements and related notes. We have prepared this
unaudited information on the same basis as our audited financial statements, and
it includes all adjustments, consisting only of normal recurring adjustments,
that we consider necessary for a fair presentation of our financial position and
operating results for the quarters presented.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------
MAR. 31, JUNE 30, SEP. 30, DEC. 31, MAR. 31, JUNE 30,
1997 1997 1997 1997 1998 1998
-------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
Revenues......................... $ 124 $ 248 $ 531 $ 880 $ 1,109 $ 1,287
Cost of revenues................. 186 232 264 467 608 971
------- ------- ------- ------- ------- -------
Gross (loss) profit.............. (62) 16 267 413 501 316
Operating costs:
Research and development........ 95 53 69 75 144 180
Sales and marketing............. 114 115 121 236 114 117
General and administrative...... 177 183 207 270 353 351
------- ------- ------- ------- ------- -------
Total operating costs............ 386 351 397 581 611 648
------- ------- ------- ------- ------- -------
Operating (loss) income.......... (448) (335) (130) (168) (110) (332)
Other income (expense), net...... 5 5 5 5 23 163
------- ------- ------- ------- ------- -------
Net (loss) income................ $ (443) $ (330) $ (125) $ (163) $ (87) $ (169)
======= ======= ======= ======= ======= =======
AS A PERCENTAGE OF REVENUES:
Revenues......................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues................. 150.0 93.5 49.7 53.1 54.8 75.4
------- ------- ------- ------- ------- -------
Gross (loss) profit.............. (50.0) 6.5 50.3 46.9 45.2 24.6
Operating costs:
Research and development........ 76.6 21.4 13.0 8.5 13.0 14.0
Sales and marketing............. 91.9 46.4 22.8 26.8 10.3 9.1
General and administrative...... 142.8 73.8 39.0 30.7 31.8 27.3
------- ------- ------- ------- ------- -------
Total operating costs............ 311.3 141.6 74.8 66.0 55.1 50.4
------- ------- ------- ------- ------- -------
Operating (loss) income.......... (361.3) (135.1) (24.5) (19.1) (9.9) (25.8)
Other income (expense), net...... 4.0 2.0 1.0 0.6 2.1 12.7
------- ------- ------- ------- ------- -------
Net (loss) income................ (357.3)% (133.1)% (23.5)% (18.5)% (7.8)% (13.1)%
======= ======= ======= ======= ======= =======
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------
SEP. 30, DEC. 31, MAR. 31, JUNE 30,
1998 1998 1999 1999
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C>
Revenues......................... $ 2,405 $ 3,000 $ 3,499 $ 4,183
Cost of revenues................. 1,250 1,429 1,566 2,583
------- ------- ------- -------
Gross (loss) profit.............. 1,155 1,571 1,933 1,600
Operating costs:
Research and development........ 239 279 555 806
Sales and marketing............. 156 269 593 1,869
General and administrative...... 425 897 1,243 2,158
------- ------- ------- -------
Total operating costs............ 820 1,445 2,391 4,833
------- ------- ------- -------
Operating (loss) income.......... 335 126 (458) (3,233)
Other income (expense), net...... 10 19 (34) (32)
------- ------- ------- -------
Net (loss) income................ $ 345 $ 145 $ (492) $(3,265)
======= ======= ======= =======
AS A PERCENTAGE OF REVENUES:
Revenues......................... 100.0% 100.0% 100.0% 100.0%
Cost of revenues................. 52.0 47.6 44.8 61.7
------- ------- ------- -------
Gross (loss) profit.............. 48.0 52.4 55.2 38.3
Operating costs:
Research and development........ 9.9 9.3 15.9 19.3
Sales and marketing............. 6.5 8.9 16.9 44.7
General and administrative...... 17.7 30.0 35.5 51.6
------- ------- ------- -------
Total operating costs............ 34.1 48.2 68.3 115.6
------- ------- ------- -------
Operating (loss) income.......... 13.9 4.2 (13.1) (77.3)
Other income (expense), net...... 0.4 0.6 (1.0) (0.8)
------- ------- ------- -------
Net (loss) income................ 14.3% 4.8% (14.1)% (78.1)%
======= ======= ======= =======
</TABLE>
YEAR 2000 ISSUES
Many computer systems are coded to accept only two-digit entries in date
code fields. These systems may be unable to distinguish whether "00" means 1900
or 2000, which may result in failures or the creation of erroneous results by,
at or beyond the year 2000. Many companies' computer and/or software systems may
need to be upgraded or replaced in order to process dates correctly beginning on
January 1, 2000 and to comply with the so-called "Year 2000" requirements.
We rely on our internally developed software as well as software, hardware
and other computer technology developed by third parties. The failure of any of
this software, hardware or computer technology could result in the interruption
of our auction services, result in delay or loss of revenues, diversion of
development resources, damage to our reputation and/or liability to our clients,
any of which could seriously harm our business.
We believe, based on internal assessments to date, that our internally
developed proprietary software, including our BidWare software, is Year 2000
compliant. We are not certain that this is the case, however, and it is possible
that our BidWare software will not function properly when used by auction
participants on systems that are not Year 2000 compliant. We generally do not
represent to our clients that our software and systems are Year 2000 compliant,
although we have been compelled to make this representation to some significant
clients. For these clients, our liability is limited to the actual damages
sustained by the client, subject to specific dollar limitations in each
agreement. We are not liable, however, for Year 2000 noncompliance resulting
from the
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<PAGE> 34
incompatibility of our clients' technology with ours, or from problems with
public or private networks over which we run our auctions.
We also believe, based on internal assessments to date and representations
made to us by third-party vendors, that the third-party software and hardware
that we operate in our business, including our basic operating systems, office
software, servers and databases, is either Year 2000 compliant or can be made
Year 2000 compliant without significant cost or effort. Our servers and some of
our personal computers are not currently Year 2000 compliant. However, we are in
the process of performing vendor-recommended upgrades necessary to make these
servers and personal computers Year 2000 compliant. We intend to complete these
upgrades prior to December 31, 1999 at a cost that we estimate to be no greater
than $170,000.
It is difficult for us to assess the Year 2000 compliance of the general
communications infrastructure on which we rely to conduct our online auctions.
Our online auctions depend on the successful technical operation of an entire
chain of software, hardware and telecommunications equipment. The failure of any
element in this chain to be Year 2000 compliant could result in a disruption of
our auction services. Many of the elements in this chain, such as
telecommunications equipment and Internet connectivity, are not within our
control. For example, most suppliers who participate in our online auctions use
our BidWare software by dialing into a network provided by a third party, from
whom we lease private network services. We have not been able to confirm that
this third party vendor's services are Year 2000 compliant.
We have limited information concerning the Year 2000 compliance of our
clients and of suppliers who participate in our online auctions. In addition,
many suppliers are located in foreign countries with inferior telecommunications
infrastructure. We expect that many auction participants will have to perform
vendor-recommended upgrades to their systems to become Year 2000 compliant. We
believe that we have the ability to bypass isolated failures of our clients'
systems through other means. However, a generalized failure of any of our
clients' systems or the failure of the systems of a significant number of
suppliers could prevent us from successfully conducting online auctions for
those clients or with those suppliers and could adversely affect our business.
We may incur extra costs from time to time in supporting clients and suppliers
who are not Year 2000 compliant.
We think that the most reasonably likely worst case Year 2000 scenario for
our business would be if there were a generalized failure of the
telecommunications equipment and Internet connectivity on which we rely to
conduct our online auctions. Such a failure would prevent us from conducting
online auctions until the providers of this equipment and connectivity restored
service. We do not have a formal contingency plan to address such a failure or
any other generalized failure of computer systems due to the Year 2000 issue.
MARKET RISK
All of our revenues recognized to date have been denominated in United
States dollars and are primarily from clients in the United States. We have a
Belgian subsidiary and intend to establish other foreign subsidiaries in the
future. Revenues from international clients to date have not been substantial,
and nearly all of these revenues have been denominated in United States dollars.
In the future, a portion of the revenues we derive from international operations
may be denominated in foreign currencies. We incur costs for our overseas
offices in the local currency of those offices, for staffing, rent,
telecommunications and other services. 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 U.S. 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 will continue to monitor our exposure to currency
fluctuations and when appropriate, use financial hedging techniques to minimize
the effect of these fluctuations in the future. We cannot assure you
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<PAGE> 35
that exchange rate fluctuations will not harm our business in the future. We do
not currently utilize any derivative financial instruments or derivative
commodity instruments.
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 instruments. Borrowings under our existing credit lines are also
interest rate sensitive, since the interest rate charged by our bank varies with
changes in the prime rate of lending. We believe, however, that we are currently
not subject to material interest rate risk.
RECENT ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133,
which is effective, as amended, for all quarters in fiscal years beginning after
June 15, 2000, establishes accounting and reporting standards for derivative
financial instruments and hedging activities related to those instruments, as
well as other hedging activities. As we do not currently engage in derivative or
hedging activities, we do not expect the adoption of this standard to have a
significant impact on our consolidated financial statements.
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<PAGE> 36
BUSINESS
THE COMPANY
FreeMarkets creates customized business-to-business online auctions for the
world's largest buyers of industrial parts, raw materials and commodities. We
combine our proprietary BidWare Internet technology with our in-depth knowledge
of supply markets to help our clients obtain lower prices, make better
purchasing decisions and achieve significant savings. We created online auctions
covering approximately $1 billion worth of purchase orders in 1998 and $630
million worth of purchase orders in the six months ended June 30, 1999. We
estimate that the resulting savings for our clients ranged from approximately 2%
to more than 25%. Since 1995, we have created online auctions for more than 30
clients in over 50 product categories, including injection molded plastic parts,
commercial machinings, metal fabrications, chemicals, printed circuit boards,
corrugated packaging and coal. More than 1,800 suppliers from over 30 countries
have participated in our auctions. Our clients are large purchasing
organizations, including United Technologies Corporation, General Motors
Corporation, Quaker Oats, Emerson Electric, Allied Signal Corporation and the
Commonwealth of Pennsylvania.
INDUSTRY BACKGROUND
GROWTH OF BUSINESS-TO-BUSINESS ELECTRONIC COMMERCE
The Internet is one of the fastest-growing means of communication, reaching
consumers and businesses globally. As the number of Internet users has grown,
businesses have increasingly recognized the power of the Internet to streamline
complex processes, lower costs and improve efficiency. Forrester Research
expects business-to-business electronic commerce to grow more rapidly than
business-to-consumer electronic commerce over the next several years. Forrester
Research estimates that business-to-business electronic commerce will grow from
$109 billion in 1999 to $1.3 trillion in 2003, accounting for 90% of the dollar
value of electronic commerce in the United States by 2003, and that total
electronic commerce worldwide may reach as high as $3.2 trillion by 2003.
Auctions targeted at consumers are a popular application of Internet
technology. Forrester Research projects that the value of goods sold through
Internet auctions will increase from $8.7 billion in 1998 to $52.6 billion in
2002. The popularity of consumer-oriented auction sites and the opportunity
presented by business-to-business electronic commerce have spurred the creation
of business-to-business Internet auction sites. However, we believe that these
auction sites have not adequately addressed the problems faced by manufacturers
who purchase "direct materials" -- the industrial parts and raw materials that
are incorporated into finished products.
INEFFICIENCIES OF SUPPLY MARKETS FOR DIRECT MATERIALS
Based on industry research and government statistics, we estimate that
manufacturers worldwide purchase approximately $5 trillion of direct materials
each year. Due to inefficiencies in the markets that supply these materials, we
think that buyers at times pay prices that are too high. We believe that these
inefficiencies result in part from the following factors:
- CUSTOM-MADE PRODUCTS HAVE NO STANDARD PRICES. Direct materials are often
custom-made or adapted to the buyer's specifications. Unlike maintenance,
repair and operating supplies, direct materials are often not
standardized and therefore cannot be ordered from catalogs at list
prices. Without catalogs or list prices, buyers cannot easily obtain
comparative price information.
- QUALITY CAN BE AS IMPORTANT AS PRICE. Because manufacturers use direct
materials as components in finished products, quality is critical. There
is often little standardized information on direct material quality. As a
result, when selecting suppliers, buyers often must spend significant
effort compiling their own information to compare quality as well as
price.
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<PAGE> 37
- SUPPLY MARKETS ARE FRAGMENTED. Supply markets for direct materials often
contain hundreds of potential suppliers. This fragmentation makes it
difficult for buyers to understand the entire supply market for the
products they are buying and to evaluate and select potential new
suppliers.
The need for customization, the importance of quality and the fragmentation
of supply markets complicate the process by which buyers purchase direct
materials. This complexity often leads buyers to rely on suppliers with whom
they have dealt in the past, making it difficult for new suppliers to compete
for business. Because competition among suppliers is limited by these factors,
buyers may pay higher prices or obtain lower quality than they would in a more
efficient market with better information and more readily available alternative
sources of supply.
LIMITATIONS OF CURRENT BUSINESS-TO-BUSINESS ELECTRONIC COMMERCE APPLICATIONS
The Internet offers an opportunity to make business-to-business commerce
more efficient by facilitating the communication and use of information.
Although several electronic commerce applications for business purchasing have
emerged, we believe that none has adequately addressed the problems presented by
direct materials purchasing. Several of these applications, and the primary
reasons why we believe that they fail to meet the needs of direct materials
buyers, are summarized below:
- SOFTWARE THAT FACILITATES THE PROCUREMENT OF STANDARDIZED PRODUCTS. These
software applications can reduce the paperwork needed to requisition
office supplies and other standardized products, but are not suitable for
the purchase of direct materials for which no catalogs or price lists
exist.
- WEBSITES DEDICATED TO PARTICULAR PRODUCT CATEGORIES. These so-called
"vertical market" sites are generally supported by supplier-paid
advertisements, and as a result may contain biased information. Moreover,
buyers of custom-made or tailored products often need to exchange
detailed, confidential information with suppliers and to follow specific
procedures when making purchases. These vertical market sites generally
do not support buyer-specific purchasing processes. Thus, they are of
limited benefit to many large industrial buyers.
- SELLER-ORIENTED BUSINESS-TO-BUSINESS AUCTION SITES. These sites enable
sellers to offer goods to multiple potential buyers. They are designed to
sell standard or excess items, such as used machinery, to the highest
bidder. As with websites dedicated to particular product categories,
these auction sites are not suitable for the purchase of items such as
direct materials that are custom-made to the buyer's specifications.
We believe that neither software nor Internet technology alone can provide
an adequate solution for buyers of direct materials. Rather, we think that the
creation of an efficient market for these materials requires a solution that
combines buyer-oriented Internet technology with services that are customized to
buyers' needs.
THE FREEMARKETS SOLUTION
We combine our proprietary BidWare Internet technology with our in-depth
knowledge of supply markets to help large industrial buyers obtain lower prices
and make better purchasing decisions. In a FreeMarkets online auction, multiple
suppliers from around the world can submit bids for a buyer's purchase order in
a real-time, interactive competition. Our auctions, in contrast to those
designed for sellers, are "downward price" auctions in which suppliers continue
to lower their prices until the auction is closed. For each auction, we work
with our client to identify and screen suppliers and to assemble a request for
quotation that provides detailed, clear and consistent information for suppliers
to use as a basis for their competitive bids. Our service, which we call "market
making", creates a
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<PAGE> 38
custom market for the goods or services being purchased by our client in a
particular auction. Our solution provides:
- SUBSTANTIAL SAVINGS. Our online auctions can deliver substantial savings
to our clients. Depending upon the nature of the direct materials or
services being bid, savings typically range from a few percentage points
on purchases of commodities to more than 25% on purchases of custom
industrial components, with even greater savings at times. Clients often
begin to save with the first auction we conduct.
- ROBUST INTERACTIVE TECHNOLOGY. Our BidWare Internet technology
facilitates dynamic competitive bidding by enabling suppliers to submit
bids in real time and to view competing bids within seconds after their
submission. Our technology is also flexible. We can easily configure our
BidWare software in many different formats to address the characteristics
of a particular supply market and to achieve the particular objectives of
each of our clients. In addition, we engage in a continuous process of
improving our technology by adding new functions and features that we
develop through our auction experience.
- TAILORED APPROACH TO CLIENTS' NEEDS. We tailor our services to meet the
needs of each client. Our clients are typically large corporations that
purchase a wide variety of industrial parts, raw materials and
commodities. Each client has its own unique organizational structure,
approach to purchasing and specific purchasing objectives. We work with
each client to identify the portions of their purchases that are best
suited for our market making approach and we design a program of services
that meets their needs.
- IN-DEPTH KNOWLEDGE OF SUPPLY MARKETS. We develop and manage specialized
information about many different product categories. Each time we conduct
an auction for a client, we add to the knowledge we can apply to our
business. We maintain a database of thousands of potential suppliers,
with information about their manufacturing processes, quality assurance
practices, market focus and facilities. This in-depth knowledge enables
us to provide our clients with market information that they cannot easily
generate themselves or obtain from other sources.
- MARKET INTEGRITY. We have designed our market making service to enable
our clients to evaluate competing suppliers on the basis of price,
quality and performance in a process that is intended to be fair to all
participating suppliers. The request for quotation that is sent to
potential suppliers provides detailed and clear specifications, so that
all suppliers who participate in a FreeMarkets online auction have
consistent information to use as a basis for their bids. Buyers and
suppliers who participate in our auctions agree in advance to a set of
auction rules which are designed to ensure the integrity of the markets
that we create. These rules give participating suppliers the confidence
to submit their best bids.
THE FREEMARKETS STRATEGY
We seek to be the world's leading provider of business-to-business online
auctions. The key elements of our strategy are:
- EXTEND OUR CLIENT BASE. We intend to extend our client base in our target
market of large purchasing organizations, particularly those whose
purchasing needs include custom-engineered industrial parts or other
customized goods or services obtained from fragmented supply markets. We
also successfully serve the Commonwealth of Pennsylvania, and believe
that our service can attract other governmental entities. In order to
become better known in our target markets, we plan to hire additional
sales and marketing personnel and increase our marketing and advertising
expenditures on brand development.
- EXPAND INTO ADDITIONAL PRODUCT CATEGORIES. We intend to expand into
additional product categories where our online auctions can continue to
generate savings for buyers. We plan to identify these markets by working
with our existing and prospective clients to determine
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<PAGE> 39
additional direct materials, services and commodities that would be
appropriate for our solution and by hiring personnel with expertise in a
variety of product categories. We believe that knowledge of additional
product categories will enable us to expand our relationships with our
existing clients, as well as to serve new clients.
- GROW INTERNATIONAL PRESENCE. We intend to expand our presence in Europe
and to create a presence in both Asia and Latin America to better serve
multinational enterprises. We have served buyers in the United States and
Europe, with over 1,800 suppliers from more than 30 countries
participating in our online auctions. We believe that we can assist
buyers in identifying potential suppliers worldwide and that our service
will be attractive to buyers based outside the United States.
- FOSTER A CULTURE OF EXCELLENCE AND CLIENT SERVICE. We intend to continue
to employ rigorous recruiting, training and evaluation practices to help
us attract and retain employees who dedicate themselves to delivering
outstanding results to our clients. Since our inception, we have
emphasized the creation of an environment of excellence and client
service. We believe that our commitment to excellent service has led and
will continue to lead to new client referrals from satisfied buyers who
have used our auctions.
- ADD BIDDING FEATURES AND AUTOMATION TOOLS. We intend to continue to add
functions and features to our BidWare technology and to develop new tools
that will automate portions of our market making process, enhancing the
value we can provide to clients. We believe that these new tools will
enable us to automate some repetitive tasks. This will reduce the amount
of staff time devoted to certain aspects of projects by us and by our
clients, thus improving the scalability of our business.
- INTRODUCE BUYER HUB WEBSITES. We intend to introduce websites, which we
call "buyer hubs", that will incorporate buyers' proprietary information
and tools that they may use to manage their direct materials purchasing.
We believe that these buyer hubs will position us to provide additional
services to our current clients, allowing us to participate in a greater
proportion of their purchasing decisions, and help us to attract new
clients. We currently operate prototype buyer hubs on behalf of two
clients. We intend to build additional buyer hubs that our clients can
use more widely throughout their own organizations to purchase from a
broader range of product categories.
THE FREEMARKETS MARKET MAKING PROCESS
We help our clients obtain lower prices and make better purchasing
decisions. Our process combines auction services and our proprietary BidWare
Internet technology. We call this process "market making" because we create a
custom market for the direct materials, commodities or services being purchased
in each FreeMarkets online auction. To make a custom market, we work with a
client, typically over a period that ranges from four to eight weeks, to
accomplish the following:
[Graphic depiction of five arrows, with the following text in each arrow:
in the first arrow, "Identify Potential Savings"; in the second arrow,
"Prepare Request for Quotation"; in the third arrow, "Select Suppliers and
Distribute Request for Quotation"; in the fourth arrow, "Conduct Online
Auction"; and in the fifth arrow, "Implement Results".]
IDENTIFY POTENTIAL SAVINGS. We work with our client to identify which of
its purchases seem best suited to our market making process. Although our online
auctions generate savings on many types of products, the potential savings are
particularly dramatic for direct materials that are custom-made to a buyer's
specifications and available from many different suppliers. Examples include
injection molded plastic components, metal fabrications, commercial machinings,
printed circuit boards, fasteners and corrugated packaging. Other types of
products, including commodities such as
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<PAGE> 40
chemicals and coal, can also be appropriate for our process because market
conditions are volatile and purchase prices may change with each transaction.
PREPARE REQUEST FOR QUOTATION. Once a suitable purchase has been
identified, we work with our client to prepare a request for quotation. The
request for quotation is our client's specification of the materials to be
auctioned. This specification is sent to selected suppliers to help them prepare
their bids. Because many direct materials must be custom-made to a buyer's
specifications, it is essential for the request for quotation to specify
precisely all of our client's requirements, including the applicable technical
characteristics, quality and logistics requirements and commercial terms. An
auction typically includes components with different characteristics or delivery
locations, so we group components into auction lots with the goal of creating
meaningful competition in each lot.
SELECT POTENTIAL SUPPLIERS AND DISTRIBUTE REQUEST FOR QUOTATION. While the
request for quotation is being prepared, the supplier selection process begins.
We start with a target list of suppliers that includes those known to our client
and others we identify from our supplier database or additional market research.
After a detailed screening process, our client selects a list of potential
suppliers. Because most industrial purchases are made from a select group of
potential suppliers, our online auctions are private, and only those suppliers
whom our client ultimately invites may participate. Privacy is important because
the information contained in the request for quotation is highly confidential
and our client will award a purchase order only to a qualified supplier. Once
our client has selected potential suppliers, we provide these suppliers with the
request for quotation to enable them to prepare for the auction. Before auction
day, we train suppliers in the use of our BidWare software.
CONDUCT ONLINE AUCTION. After potential suppliers have been selected and
trained, we conduct an online auction. During the auction, suppliers remain
anonymous to one another but can see competing price bids in real time, while
our client can see both the identity and current bid of each supplier. An
auction typically lasts from one to three hours. The activity is fast-paced,
with suppliers generally submitting bids every few minutes, and often more
frequently as the closing time for each lot nears. Our Market Operations Center
in Pittsburgh provides continuous support to our clients and the suppliers
involved in our auctions throughout the process. We monitor auction performance,
send real-time messages to participants, and strive to ensure that all bidders
can participate effectively. We believe that our active involvement during
auctions makes our process more reliable. We can support auction participants in
more than 20 different languages. We consider this to be a critical skill in
helping clients to buy from suppliers around the world.
IMPLEMENT RESULTS. After the online auction has been completed, we assist
our client in analyzing and implementing auction results so that our client can
award a purchase order to the supplier or suppliers providing the best overall
value. In some situations, our client can make an award decision and issue a
purchase order soon after an auction. In other situations, our client may
perform additional analysis and due diligence before making an award. Since
awards may be based not only on price, but also on non-price factors such as
quality and delivery capabilities, the low bidder does not always win a
FreeMarkets online auction. Our client ultimately makes the final award
decision.
CASE STUDIES
The examples that follow illustrate how the FreeMarkets market making
process helps clients achieve savings on their direct materials purchases.
UNITED TECHNOLOGIES CORPORATION
We have conducted over 45 auctions for United Technologies since 1996. The
case study presented below describes a single auction we conducted in 1997 for a
three-year contract to purchase injection molded plastic parts used in heating,
ventilating and air conditioning equipment. The auction resulted in projected
savings, estimated after final supplier selection, of $1.2 million per
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<PAGE> 41
year, or $3.6 million over the life of the contract. This represented a 12%
savings when compared to the previous prices paid by United Technologies for
these parts.
IDENTIFY POTENTIAL SAVINGS. We worked with United Technologies to identify
injection molded plastic parts purchased by four different plants as suitable
for an online auction. The package to be auctioned included 159 different parts,
all to be produced to United Technologies' specifications. These parts
represented a total of $29.1 million of purchases over the three-year life of
the contract to be bid, or $9.7 million annually, based on the previous prices
paid by United Technologies.
PREPARE REQUEST FOR QUOTATION. We worked with our client to write a request
for quotation describing the parts to be auctioned. The request for quotation
included blueprints and material specifications, as well as other technical
details needed by suppliers to prepare their bids. We grouped the 159 parts into
10 different lots, reflecting differences in part size, materials and special
treatments required for the finished parts.
SELECT POTENTIAL SUPPLIERS AND DISTRIBUTE REQUEST FOR QUOTATION. We helped
our client to select appropriate suppliers for each of the 10 lots. We
identified potential suppliers from among those used by United Technologies in
the past, from our database and from research that we performed during this
project. All suppliers completed surveys designed to profile their capabilities
as plastic molders and assess their quality assurance practices. Because the
parts varied from small, decorative items to large, functional items, it was
necessary to select and to distribute the request for quotation to a diverse
group of suppliers to ensure that we had a sufficiently competitive market for
each of the 10 lots. Ultimately, United Technologies selected 36 different
suppliers to participate in the auction and shipped a request for quotation to
each supplier.
CONDUCT ONLINE AUCTION. The auction began at 11:00 a.m. Eastern Time and
open bidding ensued on all 10 lots. Within eight minutes of the auction's
opening, 40 bids had been received, and the aggregate low bid for all 10 lots
stood at an amount that represented $27.5 million over the three-year life of
the contract. At this point, the projected savings equaled $1.6 million, or 5%,
below the amount that United Technologies would have paid over three years based
on the previous prices they had paid for these parts. The first lot closed at
12:07 p.m., with a total of 132 bids having been placed, 12 of which had been
received in the final 10 minutes of bidding. The remaining lots closed
sequentially over the next three hours, allowing bidders to concentrate on each
lot individually in the intense final minutes of bidding.
IMPLEMENT RESULTS. We worked with United Technologies to assess bidding
results. Because non-price factors were also important, we had informed
suppliers in advance that low bidders would not automatically win, just as low
bidders would not automatically win in more traditional bidding processes.
Ultimately, United Technologies received 382 bids on the 10 lots from 28
suppliers, and selected six suppliers. If United Technologies purchases the full
auctioned volume over the contract life, then it will pay an aggregate purchase
price of $25.5 million over the three-year period, saving $3.6 million, or 12%,
over the life of the contract.
OTHER EXAMPLES
Since 1995, we have created similar online auctions for more than 30
clients. The examples below illustrate the savings that we have helped our
clients to achieve on purchases in a variety of product categories.
PRINTED CIRCUIT BOARDS. In January 1998, we conducted an online auction for
multi-layered printed circuit boards on behalf of a Fortune 100 corporation,
which resulted in savings of $10.6 million per year, or $31.7 million over the
life of the three-year contract bid. This represented savings of 43% below the
prices previously paid for these components by our client. The package, on which
29 suppliers from Europe, Asia and North America bid, included 383 different
printed circuit board designs. Based on the low bid price achieved in our
auction, these components would represent $41.8 million of purchases over a
three-year period, or $13.9 million annually.
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<PAGE> 42
COMMERCIAL MACHININGS. In April 1999, we conducted an online auction for
commercial machinings on behalf of an electrical products company, which
resulted in savings of $2.1 million per year, or $6.3 million over the life of
the three-year contract bid. This represented savings of 24% below the prices
previously paid for these components by our client. The package included 813
different precision machined metal components, which previously were produced by
as many as 56 different suppliers. One of our client's objectives for this
auction was to reduce the number of suppliers. We expect that, as a result of
our auction, our client will ultimately purchase the components in this package
from approximately 15 suppliers. The bidders during this auction participated
simultaneously from Taiwan, India, Hong Kong, Malaysia, Mexico and the United
States. Based on the low bid price achieved in our auction, these components
would represent $19.8 million of purchases over a three-year period, or $6.6
million annually.
LABELS. In June 1999, we conducted an online auction for packaging labels
on behalf of a major consumer packaged goods company, which resulted in annual
savings of $1.5 million. This represented savings of 41% below the prices
previously paid for these labels by our client. The package, on which three
suppliers bid, included 76 different labels. Based on the low bid price achieved
in our auction, these labels would represent $2.1 million of purchases over the
one-year term of the contract bid.
ROCK SALT. In July 1999, we conducted an online auction for rock salt on
behalf of a government purchasing organization, which resulted in annual savings
of $2.5 million. This represented savings of 7% below the prices previously paid
for this material by our client. The package, on which nine suppliers bid,
included solar and mined rock salt used to melt ice on winter roads. Based on
the low bid price achieved in our auction, this material would represent a total
of $31.1 million of purchases over the one-year term of the contract bid.
PRODUCT CATEGORIES
We create online auctions for our clients in a wide variety of product
categories, ranging from commodities to custom-engineered components. The number
of product categories in which we have experience had grown to more than 50 as
of July 31, 1999. The following list includes some of the product categories in
which we have had the most experience:
<TABLE>
<S> <C> <C>
Chemicals Fasteners Motor freight
Coal Injection molded plastics Printed circuit boards
Commercial machinings Metal fabrications Service center metals
Corrugated packaging Metal stampings Transformers
Die castings Molded rubber
</TABLE>
Most industrial buyers purchase a range of product categories, so we
believe it is important that we address a comparable range. We typically conduct
auctions in a product category for multiple clients, so we gain knowledge and
improve productivity over time through repeated auctions.
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CLIENTS
Our clients are among the world's largest buyers of industrial parts, raw
materials and commodities. To date, we have created online auctions for more
than 30 clients. We have served the following clients in the eight months ended
August 31, 1999:
<TABLE>
<S> <C> <C>
Allegheny Ludlum Corporation Eaton Corporation The Quaker Oats Company
Allied Signal Corporation Emerson Electric Company Reliant Energy, Incorporated
Commonwealth of Pennsylvania FirstEnergy Corp. (formerly known as Houston
Conopco, Inc. General Motors Corp. Lighting & Power)
(which does business as Hillenbrand Industries, SmithKline Beecham plc
Unilever Home & Personal Inc. United Technologies Corporation
Care USA) Navistar International Welch Foods Inc.
Delphi Automotive Systems Owens Corning
Corporation Pepsico, Inc.
</TABLE>
We provide services to our clients under service agreements that range from
a few months to four years. These agreements are typically cancelable by our
clients on minimal notice and without substantial penalties. Our agreements
typically provide us with revenues from monthly fees. Some of our agreements
also include performance incentive payments that are contingent upon our client
achieving specific auction volume or savings thresholds. Our agreements may also
provide for sales commissions to be paid to us upon shipment of the auctioned
items from the winning supplier to our client. We never take title to or
possession of any of the products purchased through our auctions. We also do not
oversee delivery of or payment for these products.
SALES AND MARKETING
We sell our services through our direct sales organization. As of July 31,
1999, our direct sales force consisted of 12 sales professionals, organized
along buyer industry lines. We plan to expand our direct sales force and the
number of buyer industry sectors for which we have specialists on our staff.
We typically target our sales efforts at senior purchasing executives and
other senior executives within a buying organization. When a prospective client
is interested in working with us, we will analyze which portions of its direct
material purchases are best suited to our market making process. Throughout this
analysis, we work with the prospective client to negotiate terms of a service
agreement.
New clients often enter into short-term agreements with us in order to try
our service before making a longer-term commitment. Because our technology need
not be integrated with the client's existing information technology
infrastructure, short-term agreements can quickly result in savings for our
client. Our short-term agreements typically last four to six months, during
which time we prepare and conduct a range of auctions. Our goal through this
process is to demonstrate our capability to provide savings, and to obtain a
longer-term service agreement with the client.
Our marketing efforts focus on general communications and on obtaining
referrals from our existing clients. We participate in trade conferences and
purchasing industry forums, and advertise in major airports and business
publications. We intend to increase our advertising and marketing expenditures
in an effort to become better known in our target markets. These expenditures
will cover the addition of sales, marketing and business development personnel,
increased advertising in professional journals and general business and trade
media, increased media relations, increased presence at purchasing and
technology trade conferences, and continuing improvements to our website.
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TECHNOLOGY AND OPERATIONS
We have built our proprietary auction technology called BidWare to create
highly-interactive auctions tailored to the needs of industrial purchasers. Our
Internet-based BidWare software provides an easy-to-use graphical interface that
our clients use to watch their auctions progress and that suppliers use to
submit bids. Suppliers participate from their own offices, where key decision
makers submit bids. Our BidWare software provides nearly instantaneous response,
displaying these bids to all users within seconds of submission. A truly dynamic
auction results, as buyers watch prices decrease before their eyes.
We operate a Market Operations Center in our Pittsburgh headquarters to
ensure that each auction is actively managed and runs smoothly. We strive to
make our auctions extremely reliable, both through our operations methodology
and the quality of our BidWare software. The BidWare architecture contains many
features to monitor and control auctions so that our Market Operations Center
can quickly respond in the event of technical or other difficulties. In
addition, our Market Operations Center staff actively supports bidders before
and during auctions, helping to further ensure the reliability of our service.
Although we have taken extensive measures to ensure the reliability of our
actions, we cannot guarantee that we will not have technical interruptions or
failures in the future.
Our BidWare software incorporates a wide range of bidding features and
auction formats that we have developed to address specific needs of industrial
purchasers. Examples of the types of auctions we can run with our BidWare
software include:
- multi-parameter auctions, where submitted bids incorporate quality and
technical factors as well as prices;
- differential index auctions, where suppliers compete on price
differentials from a pre-specified index or reference price that may
fluctuate during the life of the contract;
- multi-currency auctions, where our client and suppliers can choose to
monitor the auction in the currency of their choice; and
- multi-period auctions, where suppliers can submit a series of price
quotes covering multiple future periods.
Because we can operate our BidWare software in many different formats and
set many different control parameters, we can create tailored auctions that
address particular industrial purchasing situations.
Our BidWare software is designed so that users can connect to our BidServer
technology, the server-side application that manages our auctions, through
either their own Internet connections or an Internet service provider from which
we lease private network services. We encourage bidders to use our leased
network service provider so that we can obtain a more reliable and uniform level
of performance that we believe is important for real-time interactive bidding.
We operate our BidServer technology from our Market Operations Center in
Pittsburgh, where we have redundant links to our Internet service provider and a
redundant router configuration that automatically reroutes traffic if a
connection fails.
We expended $842,000 on research and development in 1998 and $1.4 million
in the six months ended June 30, 1999. We plan to increase our research and
development expenditures to continue adding features to our technology and to
develop new Internet-based purchasing automation tools. We plan to continue to
develop tools to manage purchasing information customized for specific clients.
We believe that these tools may enable us to increase our employees'
productivity and allow us to serve more clients as we further automate our
services. We may also be able to derive additional revenues from operating these
tools for clients.
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<PAGE> 45
COMPETITION
A number of companies provide services or products to the market for
business-to-business electronic commerce, and existing and potential clients can
choose from a variety of current and potential competitors' services.
Competition in this market is rapidly evolving and intense, and we expect
competition to further intensify in the future. We currently or potentially will
compete with a number of other companies, including:
- well-financed entrepreneurial start-ups that offer similar services or
services perceived by a client to be similar;
- providers of electronic commerce technology extending their offerings to
include services or technology similar to ours;
- professional service and consulting firms offering services similar to
ours;
- providers of stand-alone software products that make available to buyers
technology for conducting online auctions; and
- operators of websites that provide auction features to buyers.
Our online auction service is one of many alternative approaches to
purchasing that buyers are considering. Many of our current and potential
competitors are larger, more established and have significantly greater
resources than we do. As a result, some of our current or potential competitors
may be able to commit more resources to marketing and promotional campaigns,
adopt more aggressive pricing policies and devote more resources to technology
development. In order to respond to changes within this competitive environment,
we may from time to time make pricing, service, marketing or other strategic
decisions that could adversely affect our operating results. In addition,
competitors may introduce products or services that appear to be the same as
ours despite actual differences. In such an environment, we face the risk that
buyers will confuse our services with those of our competitors or choose the
services of a competitor with greater resources. We also face the risk that
buyers may attain poor results with other products or services and lose interest
in trying our services. We may not be able to keep our current clients or secure
new ones in light of these issues.
INTELLECTUAL PROPERTY
We regard the protection of our intellectual property rights to be critical
to our success. We rely on a combination of patent, copyright, trademark,
service mark and trade secret restrictions and contractual provisions to protect
our intellectual property rights. We require employees and independent
contractors to enter into confidentiality and invention assignment agreements
and require certain employees to enter into non-competition agreements. We also
have non-disclosure agreements with our clients and with suppliers who
participate in our online auctions. We do not sell our BidWare software to our
clients or to suppliers, but rather license it for the limited purpose of
enabling buyers to view our online auctions and suppliers to submit bids. The
contractual provisions and the other steps we have taken to protect our
intellectual property may not prevent misappropriation of our technology or
deter third parties from developing similar or competing technologies.
BidWare, BidServer and FreeMarkets are registered trademarks of FreeMarkets
in the United States, and BidWare is a registered trademark of FreeMarkets in
the European Community. We have also applied for United States trademark
registration on SmartRFI, SmartRFQ and CBE. We have cleared the opposition
period in the European Community for our trademark application for FreeMarkets
and we have applied for trademarks in other jurisdictions.
We have filed patent applications in the United States with respect to
certain proprietary features of our technology. We cannot assure that these
patents will be issued, or that, even if
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<PAGE> 46
issued, these patents will adequately protect our technology or processes or
otherwise result in commercial advantages to us.
We cannot be certain that the steps we have taken to protect our
intellectual property will be adequate, that third parties will not infringe or
misappropriate our proprietary rights or that third parties will not
independently develop similar proprietary information. Any such infringement,
misappropriation or independent development could harm our future financial
results. Additionally, effective patent, trademark, copyright and trade secret
protection may not be available in every country where we provide online auction
services. We may, at times, have to incur significant legal costs and spend time
defending our trademarks, copyrights and, if issued, our patents. Any such
defense efforts, whether successful or not, would divert both time and resources
from the operation and growth of our business.
There is also significant uncertainty regarding the applicability to the
Internet of existing laws regarding matters such as property ownership,
copyrights and other intellectual property rights. The vast majority of these
laws were adopted prior to the advent of the Internet and, as a result, do not
contemplate or address the unique issues of the Internet and related
technologies.
GOVERNMENT REGULATION
As with many Internet-based businesses, we operate in an environment of
tremendous uncertainty as to potential government regulation. We do not believe
that we are currently subject to direct regulation applicable to online
commerce, other than regulations applicable to businesses generally. However,
the Internet has rapidly emerged as a commerce medium, and governmental agencies
have not yet been able to adapt existing regulations to its use. It is possible
that a number of laws and regulations may be introduced that affect the Internet
or other online services, covering issues such as user pricing, content and
quality of products and services, advertising, intellectual property rights and
information security. The courts have not yet interpreted those laws that do
reference the Internet, such as the recently passed Digital Millennium Copyright
Act, and their applicability and reach are therefore uncertain. In addition,
because our services are offered worldwide, and we facilitate sales of goods to
clients worldwide, foreign jurisdictions may claim that we are required to
comply with their laws. Any future regulation may have a negative impact on our
business.
Because we are an Internet company, it is unclear in which jurisdictions we
are actually conducting business. Our failure to qualify to do business in a
jurisdiction that requires us to do so could subject us to fines and penalties
and could result in our inability to enforce agreements in that jurisdiction.
Numerous states have laws and regulations regarding the conduct of auctions
and the liability of auctioneers. We do not believe that these laws and
regulations, which were enacted for consumer protection many years ago, apply to
our online auction services. However, one or more jurisdictions may attempt to
impose these laws and regulations on our operations in the future.
EMPLOYEES
As of July 31, 1999, we had 255 employees, 234 of which were located at our
Pittsburgh headquarters and 21 at our office in Brussels, Belgium. Of our
employees, 135 are engaged in market making, 21 in sales and marketing, 30 in
research and development, 24 in technical operations and 45 in administration,
human resources, strategy, legal and finance. None of our employees is
represented by a collective bargaining agreement, and we believe that we have
good relations with our employees.
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FACILITIES
Our headquarters in Pittsburgh, Pennsylvania occupies 54,000 square feet of
office space under a lease that expires in May 2004. We believe that our
existing facilities in Pittsburgh, coupled with options we have to lease
additional space, are adequate for our growth needs for the next two years. We
also lease an office of 2,400 square feet in Brussels, Belgium. We are planning
to expand to a total of 11,000 square feet of space in Brussels, Belgium to
accommodate the anticipated growth of our operations there, and we may add
additional offices in the United States and in other countries.
LEGAL PROCEEDINGS
We are not currently involved in any material legal proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth specific information regarding our executive
officers and directors as of July 31, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- --------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Glen T. Meakem..................................... 35 President, Chief Executive Officer, Chairman of the
Board and Director
Sam E. Kinney, Jr.................................. 35 Executive Vice President, Secretary, Treasurer,
Acting Chief Financial Officer and Director
David J. Becker.................................... 35 Executive Vice President and Chief Operating Officer
Thomas L. Dammer................................... 35 Vice President of Sales
Jane M. Kirkland................................... 39 Vice President and Chief Information Officer
John P. Levis, III................................. 37 Vice President of People Development
Thomas L. McLeod................................... 41 Vice President of Market Making
Dr. Eric C. Cooper................................. 40 Director
David A. Noble..................................... 40 Director
</TABLE>
GLEN T. MEAKEM co-founded FreeMarkets in 1995 and has served as our
President, Chief Executive Officer, Chairman of the Board and a director since
our inception. Prior to co-founding FreeMarkets, from May 1994 to February 1995,
Mr. Meakem was employed as a manager in the Corporate Business Development Group
of General Electric Co. From January 1992 to April 1994, Mr. Meakem was an
associate with McKinsey & Company, Inc., a management consulting firm, where he
focused on industrial sourcing and commodities trading for clients in the United
States and Mexico. From June 1986 to December 1991, Mr. Meakem was an officer in
the United States Army Reserve. During this period, Mr. Meakem served two
separate active duty tours in the Army; the first from July 1986 to December
1986, and the second from December 1990 to June 1991. During his second active
duty tour, Mr. Meakem volunteered for and served as a combat engineer platoon
leader in Operation Desert Storm. From January 1987 to July 1989, Mr. Meakem
held product marketing positions of increasing responsibility with Kraft-General
Foods Corporation. Mr. Meakem earned a B.A. in government from Harvard
University and an M.B.A. from Harvard Business School.
SAM E. KINNEY, JR. co-founded FreeMarkets in 1995 and has served as our
Secretary, Treasurer and a director since our inception. From April 1995 to May
1998, he was a Vice President of FreeMarkets, and since May 1998 he has been an
Executive Vice President. He has also served as Acting Chief Financial Officer
since June 1998. Prior to co-founding FreeMarkets, from March 1992 to April
1995, Mr. Kinney was employed as a consultant and engagement manager at McKinsey
& Company, Inc. From July 1990 to March 1992, Mr. Kinney worked as a special
projects and budget manager for Lucas Aerospace Power Equipment Corporation.
From July 1986 to June 1988, Mr. Kinney was employed as a consultant with
Booz-Allen & Hamilton, Inc., a management consulting firm. During his tenure as
a consultant with McKinsey & Company and Booz-Allen & Hamilton, Mr. Kinney
worked on issues of sourcing, industrial distribution and operations
effectiveness for industrial, healthcare and financial institution clients. Mr.
Kinney earned a B.A. in economics from Dartmouth College and an M.B.A. from the
Amos Tuck School of Business Administration at Dartmouth College.
DAVID J. BECKER has served as an Executive Vice President and our Chief
Operating Officer since March 1998. From October 1996 to February 1998, Mr.
Becker served as our Vice President of Market Making. Prior to joining
FreeMarkets, from March 1992 to September 1996, Mr. Becker was employed with
Dole Fresh Fruit International, Ltd., where he worked in key financial and
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<PAGE> 49
management positions at Dole's Latin and South American headquarters and
subsidiaries. Mr. Becker's most recent position with Dole was as Manager,
Worldwide Logistics Information Network. Mr. Becker earned a B.S. in chemical
and petroleum refining engineering from Colorado School of Mines, an M.S. in
chemical engineering from the West Virginia College of Graduate Studies and an
M.B.A. from Harvard Business School.
THOMAS L. DAMMER has served as our Vice President of Sales since September
1998. Prior to joining FreeMarkets, from January 1994 to September 1998, Mr.
Dammer was employed by SmithKline Beecham Consumer Healthcare, where he served
in several positions, including Associate Director, Worldwide Business
Development and National Account Manager, Managed Care. From September 1987 to
January 1994, Mr. Dammer held several sales, sales management and marketing
product management positions with The Upjohn Company. Mr. Dammer earned a B.S.
in chemistry from Hope College (Michigan) and an M.B.A. from Duquesne
University.
JANE M. KIRKLAND has served as a Vice President and our Chief Information
Officer since July 1999. Prior to Joining FreeMarkets, from June 1988 to July
1999, Ms. Kirkland was employed with McKinsey & Company, Inc., where she worked
in several positions, including Associate, Principal and Director of Knowledge
Management. During her tenure at McKinsey & Company, Ms. Kirkland focused on
serving clients in the financial services and electronics industries. Ms.
Kirkland holds a B.A. in English from Smith College, an M.A.T. in English from
Brown University, an M.S. in computer science from the University of
Massachusetts, Lowell and an M.B.A. from the Amos Tuck School of Business
Administration at Dartmouth College.
JOHN P. LEVIS, III has served as our Vice President of People Development
since September 1998. From January 1997 to September 1998, Mr. Levis served as
our Vice President of Client Development. Prior to joining FreeMarkets, from
August 1990 to December 1996, Mr. Levis was a consultant with McKinsey &
Company, Inc., where he served healthcare, financial services, energy, food
service and media clients on issues of marketing, channel strategy and cost
management. Mr. Levis earned a B.A. in history from Yale College and an M.B.A.
from the Amos Tuck School of Business Administration at Dartmouth College.
THOMAS L. MCLEOD has served as our Vice President of Market Making since
May 1998. Prior to joining FreeMarkets, from June 1996 to May 1998, Mr. McLeod
was a Principal with A.T. Kearney, a management consulting firm. From 1988 to
1996, Mr. McLeod was employed by Gemini Consulting, most recently in the
position of Vice President in the Federal Republic of Germany, where he led the
Analysis and Design practice. Mr. McLeod earned a B.A. in economics from the
University of Virginia and an M.B.A. from the College of William and Mary.
DR. ERIC C. COOPER has served as a director of FreeMarkets since June 1999.
Dr. Cooper was a co-founder of FORE Systems, Inc., a pioneer in the development
of ATM high speed networking equipment, which was acquired by GEC, p.l.c. in
June 1999. From FORE System's inception in April 1990 to June 1999, Dr. Cooper
served as Chairman of the Board, and he also served as Chief Executive Officer
from inception through January 1998. Prior to co-founding FORE Systems in 1990,
Dr. Cooper was on the faculty of Carnegie Mellon University. Dr. Cooper earned a
Ph.D. in computer science from the University of California at Berkeley, and a
B.S. in computer science from Harvard University.
DAVID A. NOBLE has served as a director of FreeMarkets since April 1999.
Mr. Noble is currently a general partner of Stolberg, Meehan & Scano, a private
equity investment fund focusing on business-to-business services in the
communications, utilities, information technology and electronic commerce
industries. From July 1985 to September 1997, Mr. Noble was employed with
McKinsey & Company, Inc., most recently as a Principal and head of the firm's
commodity risk management practice. Mr. Noble earned a B.S. in electrical
engineering from the Massachusetts Institute of Technology and an M.B.A. from
Harvard Business School.
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BOARD COMPOSITION
Our Board of Directors currently consists of four members. Currently, 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.
Messrs. Kinney and Meakem will serve as directors in the class having a term
first ending in 2002, Mr. Noble will serve as a director in the class having a
term first ending in 2000 and Dr. Cooper will serve as a director in the class
having a term first ending in 2001. See "Description of Capital
Stock -- Anti-Takeover Provisions".
BOARD COMMITTEES
Our Board of Directors established a compensation committee and an audit
committee in 1998. The compensation committee currently consists of Mr. Noble as
Chairman and Dr. Cooper. The compensation committee reviews and recommends to
the Board of Directors the compensation and benefits of our executive officers,
administers our stock option plans and establishes and reviews general policies
relating to compensation and benefits of our employees. The audit committee
currently consists of Dr. Cooper as Chairman and Mr. Noble. The audit committee
reviews our internal accounting procedures and consults with, and reviews the
services provided by, our independent accountants.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Neither of the members of our compensation committee has ever been an
officer or employee of FreeMarkets. 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.
DIRECTOR COMPENSATION
We do not currently compensate our directors for their services as members
of the Board of Directors, although we do reimburse them for travel and lodging
expenses in connection with attendance at Board and committee meetings. Our
directors are eligible to receive options under our Amended and Restated Stock
Incentive Plan. To date, we have not granted any options to our non-employee
directors under this plan.
EMPLOYMENT AND CHANGE IN CONTROL ARRANGEMENTS
All of our executive officers serve at the discretion of the Board of
Directors.
If we experience a change in control, some of the outstanding options held
by some of our executive officers, including Messrs. Meakem, Kinney, Becker,
Levis and McLeod, that were not previously vested will immediately vest either
50% or 100%. As of June 30, 1999, the minimum number of options held by Messrs.
Meakem, Kinney, Becker, Levis and McLeod that could vest under this provision is
as follows: Mr. Meakem -- 720,000; Mr. Kinney -- 480,000; Mr. Becker -- 240,000;
Mr. Levis -- 15,000; and Mr. McLeod -- 240,000. In addition, if the acquiror in
any change of control fails to provide substitute options to replace outstanding
options held by these executive officers, then all outstanding options not
previously vested would vest on the change of control.
Generally, a change in control would include:
- an acquisition of more than 50% of the combined voting power of all our
outstanding securities; or
- a merger where, following the transaction, our stockholders own 50% or
less of the voting securities of the surviving or resulting entity; or
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<PAGE> 51
- our liquidation or the sale of substantially all of our assets; or
- individuals who currently form a majority of our Board of Directors
ceasing to be a majority, unless the new directors are nominated for
election by our current Board of Directors or their nominated successors.
EXECUTIVE COMPENSATION
The following table sets forth the compensation received for services
rendered to FreeMarkets by our Chief Executive Officer and our four other most
highly compensated executive officers who earned more than $100,000 during 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION (OPTION AWARDS)
---------------------------------- ---------------------
OTHER ANNUAL NUMBER OF SECURITIES
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION UNDERLYING OPTIONS(#)
- --------------------------- -------- ------- ------------- ---------------------
<S> <C> <C> <C> <C>
Glen T. Meakem........................ $177,083 $50,000 -- 1,440,000
President, Chief Executive Officer
and Chairman of the Board
Sam E. Kinney, Jr..................... 140,000 30,000 -- 960,000
Executive Vice President and Acting
Chief Financial Officer
David J. Becker....................... 140,000 30,000 -- 480,000
Executive Vice President and Chief
Operating Officer
Thomas L. McLeod (1).................. 123,590 60,250 $50,000 480,000
Vice President of Market Making
John P. Levis, III.................... 115,000 15,000 -- 30,000
Vice President of People Development
</TABLE>
- ---------------
(1) Mr. McLeod became Vice President of Market Making in May 1998. His other
annual compensation for 1998 reflects a relocation allowance.
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<PAGE> 52
OPTION GRANTS
The following table provides summary information regarding stock options
granted to our Chief Executive Officer and our four other most highly
compensated executive officers during 1998. We granted these options at an
exercise price equal to the fair value of the common stock on the date of grant
as determined by the Board of Directors. Thirty percent of the options shown for
each executive officer will become exercisable immediately upon the closing of
this offering. The remaining options will become exercisable at the rate of 25%
per year beginning May 2001, unless we experience a change in control. In that
event, 50% of the options set forth in the table below which are not yet vested
would immediately vest, and the remaining options would vest ratably over the
periods set forth above.
We calculated the potential realizable value of options in the table
assuming the exercise price on the date of grant appreciates at the indicated
rate for the entire term of the option and that the option holder exercises his
option on the last day of its term at the appreciated price. All options listed
have a term of 10 years. We assumed stock price appreciation of 5% and 10%
pursuant to the rules of the Securities and Exchange Commission. We cannot
assure you that the actual stock price will appreciate over the 10-year option
term at the assumed 5% and 10% levels or at any other rate.
OPTION GRANTS DURING 1998
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------- POTENTIAL REALIZABLE
PERCENTAGE VALUE AT ASSUMED
NUMBER OF OF TOTAL ANNUAL RATES OF
SECURITIES OPTIONS STOCK PRICE APPRECIATION
UNDERLYING GRANTED IN EXERCISE FOR OPTION TERM
OPTIONS 1998 TO PRICE PER EXPIRATION -------------------------
NAME GRANTED EMPLOYEES SHARE DATE 5% 10%
- ---- ---------- ------------- --------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Glen T. Meakem........... 1,440,000 23.4% $1.08 5/28/08 $981,076 $2,486,238
Sam E. Kinney, Jr........ 960,000 15.6 1.08 5/28/08 654,050 1,657,492
David J. Becker.......... 480,000 7.8 1.08 5/28/08 327,025 828,746
Thomas L. McLeod......... 480,000 7.8 1.08 5/28/08 327,025 828,746
John P. Levis, III....... 30,000 0.5 1.08 5/28/08 20,439 51,797
</TABLE>
RECENT OPTION GRANTS
In July 1999, we granted options to purchase 225,000 shares of common stock
to Jane M. Kirkland when she joined our company. These options are exercisable
at a price of $4.77 per share and vest ratably over a five-year term.
We made the following option grants to purchase shares of our common stock
to our executive officers in August and September 1999:
<TABLE>
<S> <C>
Glen T. Meakem............................................ 800,000
Sam E. Kinney, Jr......................................... 400,000
David J. Becker........................................... 200,000
Thomas L. Dammer.......................................... 20,000
John P. Levis, III........................................ 75,000
</TABLE>
These options are exercisable at a price of $14.80 per share and vest
ratably over a five-year term.
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<PAGE> 53
FISCAL YEAR END OPTION VALUES
The following table provides summary information concerning the shares of
common stock represented by outstanding stock options held by our Chief
Executive Officer and our four other most highly compensated executive officers
as of December 31, 1998. None of these executive officers exercised options
during 1998. We have calculated the value of in-the-money options based on the
estimated fair market value for our common stock of $1.67 per share on December
31, 1998.
FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT DECEMBER 31, 1998 DECEMBER 31, 1998
----------------------------------- ---------------------------
NAME EXERCISABLE (#) UNEXERCISABLE (#) EXERCISABLE UNEXERCISABLE
- ---- --------------- ----------------- ----------- -------------
<S> <C> <C> <C> <C>
Glen T. Meakem........................ -- 1,440,000 -- $840,000
Sam E. Kinney, Jr..................... -- 960,000 -- 560,000
David J. Becker....................... 78,000 597,000 $96,850 425,275
Thomas L. McLeod...................... -- 480,000 -- 280,000
John P. Levis, III.................... 39,000 186,000 43,875 193,000
</TABLE>
STOCK PLANS
STOCK INCENTIVE PLAN
The Board of Directors adopted and our stockholders approved our Amended
and Restated Stock Incentive Plan in June 1999. The Amended and Restated Stock
Incentive Plan amended and restated our 1998 Stock Option Plan. The Amended and
Restated Stock Incentive Plan became effective on June 30, 1999, and it will
terminate on March 1, 2008, unless the Board of Directors terminates it earlier.
We may grant the following types of awards under the Amended and Restated Stock
Incentive Plan:
- incentive stock options;
- nonqualified stock options; and
- restricted stock.
As of June 30, 1999, we had granted options to purchase 7,974,450 shares of
common stock under the Amended and Restated Stock Incentive Plan, of which
30,000 had been exercised and 129,750 had been forfeited. We had not granted any
shares of restricted stock under the Amended and Restated Stock Incentive Plan.
We may currently award a maximum of 15,450,000 shares of common stock under
the Amended and Restated Stock Incentive Plan, plus any shares of stock covered
by the unexercised portion of any terminated options granted under the 1996
Stock Incentive Plan, discussed below. In addition, the number of awardable
shares automatically increases on the first day of each year beginning in 2001
by an amount equal to the lesser of 1,500,000 shares or 3% of our total shares
outstanding on the last day of the immediately preceding year, unless the Board
of Directors determines to increase the amount by a lesser number of shares. Our
compensation committee administers the Amended and Restated Stock Incentive
Plan.
In the event of a change of control, as defined in the Amended and Restated
Stock Incentive Plan, in which the acquiror fails to assume or replace all
outstanding awards with equivalent awards of the acquiror, all outstanding
options that have not vested prior to the change of control will immediately
vest and the restrictions on any restricted stock that have not lapsed prior to
the change of control will immediately lapse. If, upon a change of control, an
acquiror agrees to assume or substitute for the outstanding awards, then 50% of
any unvested options that we have granted since
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<PAGE> 54
June 30, 1999, will immediately vest and the restrictions on 50% of any
restricted stock will immediately lapse.
1996 STOCK INCENTIVE PLAN
The Board of Directors adopted and our stockholders approved our 1996 Stock
Incentive Plan in January 1996. The 1996 Stock Incentive Plan will terminate in
January 2006, unless the Board of Directors terminates it earlier. In the event
of a change of control, as defined in the 1996 Stock Incentive Plan, all
unvested options held by grantees whom we have employed for at least three years
will immediately vest. We may not grant any further options under the 1996 Stock
Incentive Plan. Our compensation committee administers the 1996 Stock Incentive
Plan.
EMPLOYEE STOCK PURCHASE PLAN
The Board of Directors adopted and our stockholders approved our Employee
Stock Purchase Plan in September 1999. The Employee Stock Purchase Plan permits
eligible employees to purchase common stock, through payroll deductions, at a
discount from its fair market value. We have reserved a total of 500,000 shares
of common stock for issuance under the Employee Stock Purchase Plan, plus an
automatic annual increase on the first day of each year beginning in 2000 equal
to the total number of shares purchased under the Employee Stock Purchase Plan
during the immediately preceding fiscal year, up to a maximum of 2,000,000
shares that can be reserved for issuance under the plan. The Employee Stock
Purchase Plan becomes effective upon the effective date of the registration
statement filed in connection with this offering and, unless the Board of
Directors terminates it earlier, will continue in effect for a term of 20 years.
The Employee Stock Purchase Plan is intended to qualify under Section 423
of the Internal Revenue Code. The Employee Stock Purchase Plan consists of a
series of overlapping 24-month offering periods. Each offering period consists
of four six-month purchase periods. Participating employees will automatically
make stock purchases at the end of each purchase period. The initial offering
period and the initial purchase period will begin on the date of this
prospectus. The Board of Directors has the authority under the plan to set new
offering or purchase periods.
The Board of Directors or a committee appointed by the Board of Directors
will administer the Employee Stock Purchase Plan. The Employee Stock Purchase
Plan permits eligible employees to purchase common stock through payroll
deductions, which may not exceed 20% of an employee's compensation, unless the
Board decides to increase such amount. The purchase price is equal to the lower
of 85% of the fair market value of the common stock at the beginning of the
applicable offering period or 85% of the fair market value of the common stock
at the end of each corresponding purchase period. In circumstances specified in
the Employee Stock Purchase Plan, we may adjust the purchase price during an
offering period to avoid our incurring adverse accounting charges. Our
employees, including officers and employee directors, are eligible to
participate in the Employee Stock Purchase Plan if they are employed by us for
at least 20 hours per week and more than five months in the year. Employees may
withdraw from participation in the Employee Stock Purchase Plan at any time and
receive a refund of their payroll deductions made since the last purchase date,
in which case, they cannot resume participation until the beginning of the next
offering period. Participation ends automatically upon termination of
employment.
Each employee's purchase of common stock during any one purchase period is
subject to various limitations. In the event that another company acquires us,
the Employee Stock Purchase Plan generally provides that the acquiror shall
assume each right to purchase stock or shall substitute equivalent rights;
otherwise, each right to purchase common stock will accelerate and become
exercisable immediately prior to the change in control. The Board of Directors
has the power to amend or terminate the Employee Stock Purchase Plan.
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<PAGE> 55
LIMITATION OF LIABILITY OF DIRECTORS 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 a director derives 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 may indemnify our other officers and
employees and other agents, to the fullest extent permitted by law. We believe
that indemnification under our Bylaws covers at least negligence and gross
negligence on the part of indemnified parties. Our Bylaws also permit us to
secure insurance on behalf of any officer, director, employee or other agent for
any liability arising out of his or her actions in such capacity and certain
other capacities, such as serving as a director of another corporation at the
request of the Board, regardless of whether the Bylaws would permit
indemnification.
At present, we are not aware of any pending or threatened litigation or
proceeding involving a director, officer, employee or agent in which
indemnification would be required or permitted.
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<PAGE> 56
CERTAIN TRANSACTIONS
In May 1996, we sold 4,019,400 shares of Series A-1 preferred stock at a
price of $.43 per share. In this private placement, we sold 1,176,000 shares to
CSM Partners, 18,000 shares to Saturn Capital and 58,800 shares to Jane M.
Kirkland. As consideration for acting as placement agent, we also issued to
Saturn Capital warrants to purchase 810,000 shares of Series A-1 preferred stock
with an exercise price of $.54 per share.
In September 1996, we sold 219,600 shares of common stock at a price of
$.43 per share. In this private placement, we sold 58,800 shares to David J.
Becker.
In July 1997, we sold 2,347,200 shares of Series B preferred stock at a
price of $.54 per share. In this private placement, we sold 22,200 shares to
Jane M. Kirkland, 21,000 shares to John P. Levis, III and 46,200 shares to David
A. Noble. As consideration for acting as placement agent, we issued to Saturn
Capital warrants to purchase 571,800 shares of Series B preferred stock with an
exercise price of $.54 per share.
In October 1997, we sold 5,017,200 shares of Series A-2 preferred stock at
a price of $.54 per share. In this private placement, we sold 922,800 shares to
CSM Partners, 66,000 shares to David J. Becker, 76,200 shares to Jane M.
Kirkland, 115,800 shares to John P. Levis, III and 138,000 shares to David A.
Noble. As consideration for acting as placement agent, we issued to Saturn
Capital warrants to purchase 1,222,800 shares of Series A-2 stock with an
exercise price of $.54 per share.
In October 1997, we sold 531,000 shares of common stock at a price of $.54
per share. In this private placement, we sold 39,000 shares to John P. Levis,
III.
In October 1998, we sold 780,000 shares of common stock at a price of $1.67
per share. In this private placement, we sold 873 shares to Glen T. Meakem,
15,000 shares to Thomas L. Dammer, 18,000 shares to David J. Becker, 8,502
shares to John P. Levis, III and 60,000 shares to Thomas L. McLeod.
We also paid $600,000 to Saturn Capital in April 1999 in order to complete
the Series C offering.
In February 1999, Goldman Sachs & Co. committed to invest at least
$6,596,700 in an offering of FreeMarkets' equity securities. That private
placement was completed in April 1999, when we sold 1,382,955 shares of Series C
preferred stock to Goldman Sachs & Co. and two of its affiliated entities at a
price of $4.77 per share. Goldman Sachs & Co. is an underwriter in this
offering. In this private placement, we also sold 156,705 shares to CSM
Partners, 1,269 shares to Saturn Capital, 4,152 shares to David J. Becker,
11,700 shares to Jane M. Kirkland and 1,383 shares to John P. Levis, III.
In September 1999, we sold 1,414,552 shares of Series D preferred stock to
an affiliate of United Technologies at a price of $14.80 per share. We also
issued to an affiliate of United Technologies warrants to purchase 304,431
shares of Series D preferred stock in exchange for United Technologies'
agreement to modify various provisions in its contract with us. These warrants
are currently exercisable at a price of $.01 per share and will be automatically
exercised immediately prior to the completion of this offering, if still
outstanding at that time. United Technologies is our largest customer. In 1997,
we earned $585,000 in revenues from United Technologies, in 1998, we earned $4.5
million in revenues from United Technologies and in the six months ended June
30, 1999 we earned $3.6 million in revenues from United Technologies.
In each transaction set forth above where executive officers, directors,
five percent or greater stockholders or family members of any of these persons
purchased shares, these shares were purchased at the same price, and on the same
terms, as shares purchased by other investors at those times. Each share of our
preferred stock is convertible into one share of common stock. To date, warrants
to purchase 2,409,000 shares of our common stock have been exercised, at an
exercise price of $.54 per share.
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<PAGE> 57
PRINCIPAL STOCKHOLDERS
The following table sets forth information known to us with respect to the
beneficial ownership by the following persons of our common stock as of June 30,
1999, as adjusted to reflect the sale of common stock by us:
- our Chief Executive Officer and each of our four other most highly
compensated executive officers;
- each director;
- each stockholder known by us to own beneficially more than 5% of our
common stock; and
- all executive officers and directors as a group.
Percentage ownership in the following table is based on 27,933,234 shares
of common stock outstanding as of June 30, 1999 and does not give effect to the
subsequent Series D preferred stock issuance or the issuance or exercise of our
Series D warrants. Percentage ownership does assume conversion of all shares of
preferred stock outstanding as of June 30, 1999 into shares of common stock,
which will occur upon the closing of this offering.
We have determined beneficial ownership in the table in accordance with the
rules of the Securities and Exchange Commission. In computing the number of
shares beneficially owned by a person and the percentage ownership of that
person, we have deemed shares of common stock subject to options or warrants
held by that person that are currently exercisable or will become exercisable
within 60 days of June 30, 1999, assuming that this offering occurs in that
60-day period, to be outstanding, but we have not deemed these shares to be
outstanding for computing the percentage ownership of any 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 all shares of common stock shown as beneficially owned by such stockholder.
The address of CSM Partners is Two Gateway Center, Suite 1800, Pittsburgh,
Pennsylvania 15222. The address of Saturn Capital, Inc. is c/o Saturn Asset
Management, 75 Federal Street, Boston, Massachusetts. The address of each other
5% stockholder listed in the following table is c/o FreeMarkets, Inc., 22nd
Floor, One Oliver Plaza, 210 Sixth Avenue, Pittsburgh, Pennsylvania 15222.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
--------------------------------------------
PERCENT
--------------------------------
NUMBER BEFORE OFFERING AFTER OFFERING
--------- --------------- --------------
<S> <C> <C> <C>
Glen T. Meakem (1)................................... 3,582,000 12.6%
Sam E. Kinney, Jr. (2)............................... 2,145,600 7.6
David J. Becker (3).................................. 502,152 1.8
Thomas L. McLeod (4)................................. 204,000 *
John P. Levis, III (5)............................... 767,685 2.7
Dr. Eric C. Cooper (6)............................... -- *
David A. Noble....................................... 184,200 *
CSM Partners......................................... 2,255,505 8.1
Saturn Capital, Inc.................................. 2,623,869 9.3
All executive officers and directors as a group (9
persons) (7)....................................... 7,741,137 26.6%
</TABLE>
- ---------------
* Less than 1% of the outstanding shares of common stock.
(1) Includes 432,000 shares issuable upon the exercise of options that will be
exercisable within 60 days of June 30, 1999. Also includes 2,542,200 shares
held by a limited partnership controlled by Mr. Meakem.
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<PAGE> 58
(2) Includes 288,000 shares issuable upon the exercise of options that will be
exercisable within 60 days of June 30, 1999. Also includes 1,652,400 shares
held by various trusts for the benefit of Mr. Kinney's family and by a
limited partnership controlled by Mr. Kinney.
(3) Includes 222,000 shares issuable upon the exercise of options that will be
exercisable within 60 days of June 30, 1999.
(4) Includes 144,000 shares issuable upon the exercise of options that will be
exercisable within 60 days of June 30, 1999. Also includes 30,000 shares
owned by Mr. McLeod's wife. Mr. McLeod disclaims beneficial ownership of
these shares.
(5) Includes 87,000 shares issuable upon the exercise of options that will be
exercisable within 60 days of June 30, 1999. Also includes 120,000 shares
held by various trusts. Mr. Levis disclaims beneficial ownership of these
shares.
(6) On July 2, 1999, Dr. Cooper purchased 15,000 shares.
(7) Includes 1,191,000 shares issuable upon the exercise of options that will be
exercisable within 60 days of June 30, 1999.
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<PAGE> 59
DESCRIPTION OF CAPITAL STOCK
Upon the completion of this offering, we will be authorized to issue
200,000,000 shares of common stock, $0.01 par value, and 5,000,000 shares of
undesignated preferred stock, $0.01 par value. The following description of our
capital stock does not purport to be complete and is subject to, and qualified
in its entirety by, our Certificate of Incorporation and Bylaws, which we have
included as exhibits to the registration statement of which this prospectus
forms a part, and by the provisions of applicable Delaware law.
COMMON STOCK
As of June 30, 1999, there were 27,933,234 shares of common stock and
preferred stock outstanding, held of record by approximately 245 stockholders.
These amounts assume the conversion of all outstanding shares of preferred stock
into common stock, which is to occur upon completion of this offering. In
addition, as of June 30, 1999, there were 8,779,500 shares of common stock
subject to outstanding options. Upon completion of this offering, there will be
shares of common stock outstanding, assuming no additional
exercise of outstanding stock options.
Each share of common stock entitles its holder to one vote on all matters
to be voted upon by stockholders. Subject to preferences that may apply to any
outstanding preferred stock, holders of common stock may receive ratably any
dividends that the Board of Directors may declare out of funds legally available
for that purpose. In the event of our liquidation, dissolution or winding up,
the holders of common stock are entitled to share ratably in all assets
remaining after payment of liabilities and any liquidation preference of
preferred stock that may be outstanding. The common stock has no preemptive
rights, conversion rights or other subscription rights or redemption or sinking
fund provisions. All outstanding shares of common stock are fully paid and
non-assessable, and the shares of common stock that we will issue upon
completion of this offering will be fully paid and non-assessable.
PREFERRED STOCK
As of June 30, 1999, we had three series of convertible preferred stock:
Series A, Series B and Series C. As of June 30, 1999, the number of outstanding
shares for each series of our preferred stock was:
- 9,036,600 shares of Series A;
- 2,347,200 shares of Series B; and
- 2,305,434 shares of Series C.
In addition, in September 1999, we sold 2,057,773 shares of Series D
convertible preferred stock.
Upon the closing of this offering, all outstanding shares of our preferred
stock will be converted on a one-for-one basis into 16,051,438 shares of common
stock. Thereafter, the Board of Directors will have the authority, without
further action by the stockholders, to issue up to 5,000,000 shares of preferred
stock in one or more series and to designate the rights, preferences, privileges
and restrictions of each such series. The issuance of preferred stock could have
the effect of restricting dividends on the common stock, diluting the voting
power of the common stock, impairing the liquidation rights of the common stock
or delaying or preventing a change in control without further action by the
stockholders. We have no present plans to issue any shares of preferred stock
after the completion of this offering.
WARRANTS
As of June 30, 1999, there were warrants outstanding to purchase 134,400
shares of Series A preferred stock and 61,200 shares of Series B preferred
stock. After completion of this offering,
60
<PAGE> 60
these warrants will be exercisable for an equal number of shares of common
stock. The Series A warrants may be exercised until May 2003, and the Series B
warrants may be exercised until July 2004. In addition, an affiliate of United
Technologies Corporation holds outstanding warrants to purchase 304,431 shares
of Series D preferred stock. The Series D warrants are currently exercisable and
will be automatically exercised immediately prior to the completion of this
offering, if still outstanding at that time. See "Certain Transactions".
REGISTRATION RIGHTS
The holders of 20,754,607 shares of the common stock that will be
outstanding after this offering are entitled to require us to register the sales
of their shares under the Securities Act, under the terms of an agreement
between us and the holders of these securities. Subject to limitations specified
in this agreement, these registration rights include the following:
- an unlimited number of piggyback registration rights that require us to
register sales of a holder's shares when we undertake a public offering,
subject to the discretion of the managing underwriter of the offering to
decrease the amount that holders may register;
- two demand registration rights that holders may exercise no sooner than
180 days after our initial public offering, which require us to register
sales of a holder's shares, subject to the discretion of our Board of
Directors to delay the registration; and
- an unlimited number of rights to require us to register sales of shares
on Form S-3, a short form of registration statement permitted to be used
by some companies, which holders may exercise if they request
registration of the sale of more than $5.0 million of common stock
following the time we first qualify for the use of this form of
registration with the Securities and Exchange Commission.
We will bear all registration expenses if these registration rights are
exercised, other than underwriting discounts and commissions. These registration
rights terminate as to a holder's shares when that holder may sell those shares
under Rule 144(k) of the Securities Act, which for most parties means two years
after the acquisition of the shares from us.
ANTI-TAKEOVER PROVISIONS
DELAWARE LAW
We are subject to Section 203 of the Delaware General Corporation Law,
which regulates acquisitions of some Delaware corporations. In general, Section
203 prohibits a publicly held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years
following the date the person becomes an interested stockholder, unless:
- our Board of Directors approved the business combination or the
transaction in which the person became an interested stockholder prior to
the date the person attained this status;
- upon consummation of the transaction that resulted in the person becoming
an interested stockholder, the person owned at least 85% of the voting
stock of the corporation outstanding at the time the transaction
commenced, excluding shares owned by persons who are directors and also
officers; or
- at or subsequent to the date the person became an interested stockholder,
our Board of Directors approved the business combination and the
stockholders other than the interested stockholder authorized the
transaction at an annual or special meeting of stockholders.
A "business combination" generally includes a merger, asset or stock sale
or other transaction resulting in a financial benefit to the interested
stockholder. In general, an "interested stockholder" is a person who, together
with the person's affiliates and associates, owns, or within three years prior
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<PAGE> 61
to the determination of interested stockholder status did own, 15% or more of a
corporation's voting stock.
CERTIFICATE OF INCORPORATION AND BYLAW PROVISIONS
Our Certificate of Incorporation and Bylaws, to be effective upon the
closing of this offering, divide the Board into three classes as nearly equal in
size as possible, with each class serving a three-year term. The terms are
staggered, so that one-third of the Board is to be elected each year. The
classification of the Board could have the effect of making it more difficult
than otherwise for a third party to acquire control of us, because it would
typically take more than a year for a majority of the stockholders to elect a
majority of our Board. In addition, our Certificate of Incorporation and Bylaws
will provide that any action required or permitted to be taken by our
stockholders at an annual or special meeting may be taken only if it is properly
brought before the meeting, and may not be taken by written action in lieu of a
meeting. The Bylaws will also provide that special meetings of the stockholders
may be called only by the Board of Directors, the Chairman of the Board or the
Chief Executive Officer. Under our Bylaws, stockholders wishing to propose
business to be brought before a meeting of stockholders will be required to
comply with various advance notice requirements. Finally, our Certificate of
Incorporation and Bylaws, will not permit stockholders to take any action
without a meeting.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is American Stock
Transfer & Trust Co. The transfer agent's address is 40 Wall Street, New York,
New York 10005.
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<PAGE> 62
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 8,779,500 shares of
common stock and outstanding warrants to purchase 195,600 shares of common
stock, assuming no additional option or warrant grants or exercises after June
30, 1999. Of these shares, the shares sold in the offering, 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.
The remaining 30,295,438 shares outstanding and 8,975,100 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 the representatives of the underwriters of this offering. 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
agreements expire or are waived by the representatives of the underwriters of
this offering. Assuming that the representatives of the underwriters of this
offering do 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, 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(k), approximately
shares will be eligible for sale pursuant to Rule 144 and
shares will be eligible for sale under Rule 701.
63
<PAGE> 63
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; or
- 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 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 effectiveness without
complying with the holding period requirement and that non-affiliates may sell
such shares in reliance on Rule 144 ninety days after effectiveness 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 options or
rights exercised under the 1996 Stock Incentive Plan, the Amended and Restated
Stock Incentive 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 June
30, 1999, our Employee Stock Purchase Plan had not yet been adopted. As of that
date we had granted options to purchase 8,779,500 shares of common stock that
had not been exercised, of which, options to purchase 780,897 shares were
exercisable. See "Risk Factors -- Substantial Sales of Our Common Stock After
the Offering Could Cause our Stock Price to Fall", "Management -- Stock Plans"
and "Description of Capital Stock -- Registration Rights".
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for
FreeMarkets by Morgan, Lewis & Bockius LLP, Pittsburgh, Pennsylvania. Legal
matters will be passed on for the underwriters by Ropes & Gray, Boston,
Massachusetts. Attorneys of Morgan, Lewis & Bockius own 40,275 shares of common
stock of FreeMarkets.
64
<PAGE> 64
EXPERTS
The consolidated financial statements as of December 31, 1997 and 1998 and
June 30, 1999 and for each of the three years in the period ended December 31,
1998 and for the six-month period ended June 30, 1999 included in this
prospectus have been so included in reliance upon the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act concerning the common stock
offered in this offering. This prospectus does not contain all of the
information set forth in the registration statement or its exhibits and
schedules. For further information about FreeMarkets and our common stock, we
refer you to the registration statement and to its attached exhibits and
schedules. Statements made in this prospectus concerning the contents of any
document are not necessarily complete. With respect to each document filed as an
exhibit to the registration statement, we refer you to the exhibit for a more
complete description of the matter involved.
You may inspect our registration statement and the attached exhibits and
schedules without charge at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
regional offices of the Commission located at Seven World Trade Center, 13th
Floor, New York, NY 10048, and at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. You may obtain copies of all or any part of our registration
statement from the Commission upon payment of prescribed fees. You may also
inspect reports, proxy and information statements and other information that we
file electronically with the Commission without charge at the Commission's
Internet site, http://www.sec.gov.
We intend to furnish our stockholders with annual reports containing
financial statements audited by our independent auditors and to make available
to our stockholders quarterly reports containing unaudited financial data for
each of the first three quarters of each fiscal year.
65
<PAGE> 65
FREEMARKETS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants........................... F-2
Consolidated Balance Sheets as of December 31, 1997 and 1998
and June 30, 1999......................................... F-3
Consolidated Statements of Operations for each of the three
years in the period ended December 31, 1998 and for the
six-month periods ended June 30, 1998 (unaudited) and
1999...................................................... F-4
Consolidated Statements of Stockholders' Equity for each of
the three years in the period ended December 31, 1998 and
for the six-month period ended June 30, 1999.............. F-5
Consolidated Statements of Cash Flows for each of the three
years in the period ended December 31, 1998 and for the
six-month periods ended June 30, 1998 (unaudited) and
1999...................................................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 66
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of FreeMarkets, Inc. and Subsidiaries:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, stockholders' equity and cash flows
present fairly, in all material respects, the financial position of FreeMarkets,
Inc. and Subsidiaries (the Company) as of December 31, 1997 and 1998 and June
30, 1999, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1998 and for the six-month
period ended June 30, 1999, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits in accordance with
generally accepted auditing standards, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
Pittsburgh, Pennsylvania
July 30, 1999, except for Notes 2 and 9, as to
which the date is September 8, 1999
F-2
<PAGE> 67
FREEMARKETS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- JUNE 30,
1997 1998 1999
---------- ---------- -----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $1,998,884 $1,655,932 $ 9,785,982
Accounts receivable, net of allowance for doubtful
accounts of $20,000, $25,000 and $114,300 as of December
31, 1997, 1998 and June 30, 1999, respectively.......... 1,060,654 3,939,305 3,796,915
Other current assets...................................... 7,532 83,463 351,882
---------- ---------- -----------
Total current assets................................ 3,067,070 5,678,700 13,934,779
Property and equipment, net................................. 177,784 1,062,392 4,220,101
Other assets, net........................................... 91,149 128,456 308,740
---------- ---------- -----------
Total assets........................................ $3,336,003 $6,869,548 $18,463,620
========== ========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 170,808 $ 738,976 $ 2,831,415
Accrued incentive compensation............................ -- 489,995 419,000
Other current liabilities................................. 55,038 623,026 798,645
Current portion of long-term debt......................... 58,332 12,368 502,701
---------- ---------- -----------
Total current liabilities........................... 284,178 1,864,365 4,551,761
Long-term debt.............................................. -- 413,018 1,497,187
---------- ---------- -----------
Total liabilities................................... 284,178 2,277,383 6,048,948
---------- ---------- -----------
Commitments and contingencies
Stockholders' equity:
Convertible preferred stock, $.01 par value, 50,000,000
shares authorized; 11,383,800 shares issued and
outstanding as of December 31, 1997 and 1998 and
13,689,234 shares issued and outstanding as of June 30,
1999.................................................... 37,946 37,946 136,892
Common stock, $.01 par value, 200,000,000 shares
authorized; 10,970,400 and 11,805,000 shares issued and
outstanding as of December 31, 1997 and 1998,
respectively, and 14,244,000 shares issued and
outstanding as of June 30, 1999......................... 36,568 39,350 142,440
Additional capital........................................ 5,993,000 7,296,811 19,769,772
Unearned stock-based compensation......................... -- -- (727,396)
Stock purchase warrants................................... 398,000 398,000 30,000
Accumulated deficit....................................... (3,413,689) (3,179,942) (6,937,036)
---------- ---------- -----------
Total stockholders' equity.......................... 3,051,825 4,592,165 12,414,672
---------- ---------- -----------
Total liabilities and stockholders' equity.......... $3,336,003 $6,869,548 $18,463,620
========== ========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE> 68
FREEMARKETS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
-------------------------------------- -------------------------
1996 1997 1998 1998 1999
----------- ----------- ---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues................................. $ 408,820 $ 1,783,180 $7,801,250 $2,396,137 $ 7,681,999
Cost of revenues......................... 505,691 1,148,994 4,258,403 1,578,685 4,148,860
----------- ----------- ---------- ---------- -----------
Gross (loss) profit...................... (96,871) 634,186 3,542,847 817,452 3,533,139
----------- ----------- ---------- ---------- -----------
Operating costs:
Research and development............. 394,266 291,826 841,874 324,106 1,360,697
Sales and marketing.................. 320,935 585,511 656,183 231,310 2,462,461
General and administrative........... 629,620 837,357 2,025,899 704,306 3,400,736
----------- ----------- ---------- ---------- -----------
Total operating costs.................... 1,344,821 1,714,694 3,523,956 1,259,722 7,223,894
----------- ----------- ---------- ---------- -----------
Operating (loss) income.................. (1,441,692) (1,080,508) 18,891 (442,270) (3,690,755)
Other income (expense), net.............. 10,504 19,808 214,856 185,771 (66,339)
----------- ----------- ---------- ---------- -----------
Net (loss) income........................ $(1,431,188) $(1,060,700) $ 233,747 $ (256,499) $(3,757,094)
=========== =========== ========== ========== ===========
Earnings per share:
Basic................................ $ (.14) $ (.10) $ .02 $ (.02) $ (.29)
=========== =========== ========== ========== ===========
Diluted.............................. $ (.14) $ (.10) $ .01 $ (.02) $ (.29)
=========== =========== ========== ========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE> 69
FREEMARKETS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
UNEARNED STOCK
PREFERRED COMMON ADDITIONAL STOCK-BASED PURCHASE ACCUMULATED
STOCK STOCK CAPITAL COMPENSATION WARRANTS DEFICIT TOTAL
--------- -------- ----------- ------------ --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995....................... -- $ 171 $ 1,025,255 -- -- $ (921,801) $ 103,625
Employee common stock
purchases, net of
offering costs of $625... -- 4 92,701 -- -- -- 92,705
Issuance of Series A-1
convertible preferred
stock, net of offering
costs of $188,544........ $ 67 -- 1,511,389 -- -- -- 1,511,456
Issuance of Series A-1
stock purchase
warrants................. -- -- (614,000) -- $ 614,000 -- --
Issuance of Series B
convertible preferred
stock, net of offering
costs of $57,300......... 18 -- 515,235 -- -- -- 515,253
Issuance of Series B stock
purchase warrants........ -- -- (18,000) -- 18,000 -- --
Net loss................... -- -- -- -- -- (1,431,188) (1,431,188)
-------- -------- ----------- --------- --------- ----------- -----------
Balance at December 31,
1996....................... 85 175 2,512,580 -- 632,000 (2,352,989) 791,851
Employee common stock
purchases, net of
offering costs of $600... -- 9 265,482 -- -- -- 265,491
Options exercised.......... -- -- 5,934 -- -- -- 5,934
Issuance of Series B
convertible preferred
stock, net of offering
costs of $95,303......... 21 -- 602,190 -- -- -- 602,211
Issuance of Series B stock
purchase warrants........ -- -- (69,000) -- 69,000 -- --
Series A-1 stock purchase
warrants exercised, net
of offering costs of
$170,289................. 53 -- 2,029,808 -- (490,000) -- 1,539,861
Issuance of Series A-2
convertible preferred
stock, net of offering
costs of $100,323........ 31 -- 907,146 -- -- -- 907,177
Issuance of Series A-2
stock purchase
warrants................. -- -- (187,000) -- 187,000 -- --
200-for-1 stock split...... 37,756 36,384 (74,140) -- -- -- --
Net loss................... -- -- -- -- -- (1,060,700) (1,060,700)
-------- -------- ----------- --------- --------- ----------- -----------
Balance at December 31,
1997....................... 37,946 36,568 5,993,000 -- 398,000 (3,413,689) 3,051,825
Employee common stock
purchases, net of
offering costs of
$14,173.................. -- 2,600 1,283,227 -- -- -- 1,285,827
Options exercised.......... -- 182 20,584 -- -- -- 20,766
Net income................. -- -- -- -- -- 233,747 233,747
-------- -------- ----------- --------- --------- ----------- -----------
Balance at December 31,
1998....................... 37,946 39,350 7,296,811 -- 398,000 (3,179,942) 4,592,165
Stock purchase warrants
exercised................ -- 8,030 1,664,845 -- (368,000) -- 1,304,875
Options exercised.......... -- 100 16,150 -- -- -- 16,250
Issuance of Series C
preferred stock, net of
offering cost of
$738,450................. 7,684 -- 10,250,792 -- -- -- 10,258,476
Unearned stock-based
compensation............. -- -- 727,396 $(727,396) -- -- --
3-for-1 stock split........ 91,262 94,960 (186,222) -- -- -- --
Net loss................... -- -- -- -- -- (3,757,094) (3,757,094)
-------- -------- ----------- --------- --------- ----------- -----------
Balance at June 30, 1999..... $136,892 $142,440 $19,769,772 $(727,396) $ 30,000 $(6,937,036) $12,414,672
======== ======== =========== ========= ========= =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE> 70
FREEMARKETS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
--------------------------------------- -------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income........................ $(1,431,188) $(1,060,700) $ 233,747 $ (256,499) $(3,757,094)
Adjustments to reconcile net (loss)
income to net cash used in operating
activities:
Depreciation and amortization.......... 49,185 90,408 191,052 91,491 323,544
Provision for bad debts................ -- 20,000 5,000 -- 89,316
(Gain) loss on disposal of property and
equipment............................ -- -- (3,443) -- 118,797
Cash (used in) provided by changes in:
Accounts receivable.................... (141,209) (931,866) (2,883,651) (161,124) 53,074
Other assets........................... 535 (3,259) (78,516) (114,877) (354,612)
Accounts payable....................... (44,899) 30,595 320,437 (6,659) 1,215,166
Other liabilities...................... (5,591) 37,252 1,057,983 202,986 104,625
----------- ----------- ----------- ---------- -----------
Net cash used in operating
activities......................... (1,573,167) (1,817,570) (1,157,391) (244,682) (2,207,184)
----------- ----------- ----------- ---------- -----------
Cash flows from investing activities:
Acquisitions of property and equipment,
net.................................... (71,381) (85,200) (775,598) (360,187) (2,695,031)
Software development costs............... (58,714) -- -- -- --
Patent and trademark costs............... -- -- (83,610) (13,043) (121,838)
(Purchase) redemption of restricted cash
equivalent............................. (35,000) 35,000 -- -- --
----------- ----------- ----------- ---------- -----------
Net cash used in investing
activities......................... (165,095) (50,200) (859,208) (373,230) (2,816,869)
----------- ----------- ----------- ---------- -----------
Cash flows from financing activities:
Proceeds from debt....................... 42,000 58,332 444,000 444,000 3,530,197
Repayment of debt........................ (7,000) (35,000) (76,946) (6,100) (1,955,695)
Proceeds from issuance of preferred stock
and exercise of stock purchase
warrants............................... 2,026,709 3,049,249 -- -- 11,563,351
Proceeds from issuance of common stock... 92,705 271,425 1,285,827 -- --
Options exercised........................ -- -- 20,766 7,171 16,250
----------- ----------- ----------- ---------- -----------
Net cash provided by financing
activities......................... 2,154,414 3,344,006 1,673,647 445,071 13,154,103
----------- ----------- ----------- ---------- -----------
Net change in cash and cash
equivalents............................ 416,152 1,476,236 (342,952) (172,841) 8,130,050
Cash and cash equivalents at beginning of
period................................... 106,496 522,648 1,998,884 1,998,884 1,655,932
----------- ----------- ----------- ---------- -----------
Cash and cash equivalents at end of
period................................... $ 522,648 $ 1,998,884 $ 1,655,932 $1,826,043 $ 9,785,982
=========== =========== =========== ========== ===========
Supplemental disclosure:
Cash paid for interest................... $ 11,164 $ 2,190 $ 27,783 $ 13,109 $ 48,527
=========== =========== =========== ========== ===========
Supplemental non-cash disclosure:
Fixed asset additions included in
accounts payable....................... $ 5,840 $ -- $ 247,731 $ -- $ 877,273
=========== =========== =========== ========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE> 71
FREEMARKETS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. DESCRIPTION OF BUSINESS
FreeMarkets, Inc. (the "Company"), formerly FreeMarkets OnLine, Inc., was
formed in March 1995. The Company creates customized business-to-business online
auctions for the world's largest buyers of industrial parts, raw materials and
commodities.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries: FreeMarkets SA/NV, which is based in
Brussels, Belgium, and FreeMarkets Investment Company, Inc., which is based in
Wilmington, Delaware. All intercompany transactions have been eliminated in
consolidation.
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The unaudited consolidated statements of operations and cash flows for the
six-month period ended June 30, 1998, in the opinion of management, have been
prepared on the same basis as the audited consolidated financial statements and
include all adjustments necessary for the fair presentation of the results of
the interim period. All adjustments reflected in the consolidated financial
statements are of a normal recurring nature. The data disclosed in the notes to
the consolidated financial statements for this period is also unaudited.
CASH AND CASH EQUIVALENTS
The Company considers all unrestricted, highly liquid investments with a
maturity of three months or less at the time of purchase to be cash equivalents.
Interest income included in other income (expense) earned on these investments
for 1996, 1997 and 1998 was $16,200, $22,800 and $93,400, respectively, and for
the six-month periods ended June 30, 1998 and 1999 was $49,200 and $132,200,
respectively.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated on the
straight-line method over their estimated useful lives. Repairs and maintenance
expenditures, which are not considered improvements and do not extend the useful
life of the property and equipment, are expensed as incurred. The cost and
related accumulated depreciation applicable to property and equipment no longer
in service are eliminated from the accounts and any gain or loss is included in
operations.
OTHER ASSETS
Other assets consist principally of capitalized patent and trademark costs
and capitalized software development costs, both of which are being amortized
using the straight-line method over seventeen and three years, respectively.
Qualified internally developed software costs are capitalized subsequent to the
determination of technological feasibility; such capitalization continues until
the product becomes available for general release. The carrying value of patent
and trademark costs was $4,500, $86,600 and $204,400 at December 31, 1997 and
1998 and June 30, 1999, respectively. The carrying value of software development
costs was $71,100, $23,700 and $0 at December 31, 1997 and 1998 and June 30,
1999, respectively. Amortization expense on patent and trademark costs and
software development costs was approximately $24,000 in 1996, $47,700 in 1997,
$48,900 in 1998 and $27,700 in the six-month period ended June 30, 1999.
F-7
<PAGE> 72
FREEMARKETS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
IMPAIRMENT OF LONG-LIVED ASSETS
The carrying values of long-lived assets, which include property and
equipment and patent and trademark costs, are evaluated periodically in relation
to the operating performance and future undiscounted cash flows of the
underlying assets. Adjustments are made if the sum of expected future net cash
flows is less than carrying value.
REVENUE RECOGNITION
The Company recognizes revenue from fixed monthly fees for providing
services to clients ratably as those services are provided over the related
contract periods. In the case of contracts with performance incentive payments
based on auction volume and/or savings generated, as defined in the respective
contracts, revenue is recognized as those thresholds are achieved. Commission
revenue is recognized as the direct materials and commodities that are the
subject of the Company's auctions are shipped from the winning suppliers to the
buyers.
REVENUE CONCENTRATION
In 1998, 77% of revenues were concentrated with two clients. For the
six-month period ended June 30, 1999, 65% of revenues were concentrated with the
same two clients. The Company has long-term contracts with both clients, which
extend through December 2000 and contain additional renewal options available at
the clients' discretion. Both contracts can be canceled by the client upon
notice prior to December 2000.
COST OF REVENUES
Cost of revenues consists primarily of the expenses related to staffing and
operation of the Company's market making service organization and Market
Operations Center. Staffing costs include a proportional allocation of overhead
costs.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred, and include costs
to develop, enhance and manage the Company's proprietary technology.
STOCK-BASED COMPENSATION
The Company accounts for the grant of stock options to employees in
accordance with Statement of Financial Accounting Standard ("SFAS") No. 123,
"Accounting for Stock-Based Compensation". SFAS 123 gives companies the option
to adopt the fair value method for expense recognition of employee stock options
or to continue to account for stock options and stock-based awards using the
intrinsic value method, as outlined under Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees". The Company has
elected to continue to apply the intrinsic value method to account for employee
stock options and discloses the pro forma effect as if the fair value method had
been applied in Note 8. Expense associated with stock-based compensation is
amortized on an accelerated basis over the vesting period of each individual
award.
PENNSYLVANIA OPPORTUNITY GRANT
During 1998, the Company received a $150,000 Opportunity Grant (the "PA
Grant") from the Department of Community and Economic Development of the
Commonwealth of Pennsylvania. The
F-8
<PAGE> 73
FREEMARKETS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PA Grant provided for working capital funds to assist the Company during a
period of accelerated growth. The PA Grant is included in other income
(expense), net in the 1998 consolidated statement of operations.
INCOME TAXES
Deferred income taxes are recorded using the liability method. Under this
method, deferred tax assets and liabilities are determined based on the
differences between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be realized.
FOREIGN CURRENCY TRANSLATION
The local currency is the functional currency for the Company's operations
outside of the United States. Assets and liabilities are translated using the
exchange rate at the balance sheet date. Revenues, expenses, gains and losses
are translated at the exchange rate on the date those elements are recognized.
EARNINGS PER SHARE
The Company computes earnings per share in accordance with SFAS No. 128,
"Earnings per Share". Under the provisions of SFAS No. 128, basic earnings per
share is computed by dividing the net (loss) income for the period by the
weighted average number of common shares outstanding during the period. Diluted
earnings per share is computed by dividing the net (loss) income for the period
by the weighted average number of common and dilutive common share equivalents
outstanding during the period. Common share equivalents consist of the common
shares issuable upon the exercise of stock options and warrants (using the
treasury stock method) and upon the conversion of convertible preferred stock
(using the if-converted method). Common share equivalents are excluded from the
calculation if their effect is antidilutive.
The following table sets forth the computation of earnings per share:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
--------------------------------------- -------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Numerator:
Net (loss) income............... $(1,431,188) $(1,060,700) $ 233,747 $ (256,499) $(3,757,094)
=========== =========== =========== =========== ===========
Denominator:
Weighted average common shares.. 10,316,599 10,618,481 11,191,670 10,985,954 13,028,751
(Denominator for basic calculation)
Weighted average effect of
dilutive securities:
Convertible preferred stock... -- -- 11,383,800 -- --
Stock options and warrants.... -- -- 4,201,141 -- --
----------- ----------- ----------- ----------- -----------
Denominator for diluted
calculation................. 10,316,599 10,618,481 26,776,611 10,985,954 13,028,751
=========== =========== =========== =========== ===========
Earnings per share:
Basic........................... $ (.14) $ (.10) $ .02 $ (.02) $ (.29)
=========== =========== =========== =========== ===========
Diluted......................... $ (.14) $ (.10) $ .01 $ (.02) $ (.29)
=========== =========== =========== =========== ===========
</TABLE>
F-9
<PAGE> 74
FREEMARKETS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
For 1996 and 1997, 2,878,952 and 6,321,439 common share equivalents,
respectively, were excluded because their effect was antidilutive. For the
six-month periods ended June 30, 1998 and 1999, 13,085,364 and 20,259,394 common
share equivalents, respectively, were excluded because their effect was
antidilutive.
Pro forma earnings per share is computed using the weighted average number
of shares of common stock outstanding, including common share equivalents from
the convertible preferred stock (using the if-converted method), which will
automatically convert into common stock upon an initial public offering as if
converted at the original date of issuance, for both basic and diluted earnings
per share, even if inclusion is antidilutive. The Series D convertible preferred
stock and warrants discussed in Note 9 have also been included as if they were
outstanding at the beginning of each period.
The following table sets forth the computation of pro forma earnings per
share:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
1998 1999
------------ ----------------
<S> <C> <C>
Numerator:
Net (loss) income......................................... $ 233,747 $ (3,757,094)
=========== ==============
Denominator:
Weighted average common shares............................ 24,937,674 27,679,097
(Denominator for basic calculation)
Weighted average effect of dilutive securities:
Stock options and warrants.............................. 4,201,141 --
----------- --------------
Denominator for diluted calculation..................... 29,138,815 27,679,097
=========== ==============
Pro forma earnings per share:
Basic..................................................... $ .01 $ (.14)
=========== ==============
Diluted................................................... $ .01 $ (.14)
=========== ==============
</TABLE>
For the six-month period ended June 30, 1999, 7,971,252 common share
equivalents were excluded because their effect was antidilutive.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements, as well as the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
RECENT ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133,
which is effective, as amended, for all quarters in fiscal years beginning after
June 15, 2000, establishes accounting and reporting standards for derivative
financial instruments and hedging activities related to those instruments, as
well as other hedging activities. As the Company does not currently engage in
derivative or hedging activities, the adoption of this standard is not expected
to have a significant impact on the Company's consolidated financial statements.
F-10
<PAGE> 75
FREEMARKETS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
RECLASSIFICATIONS
Certain amounts in previously issued financial statements have been
reclassified to conform to the 1999 consolidated financial statement
presentation.
NOTE 3. PROPERTY AND EQUIPMENT
Property and equipment (and their related useful lives) consisted of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
1997 1998 1999
-------- ---------- ----------
<S> <C> <C> <C>
Computer and office equipment (3 to 5 years)................ $192,440 $ 884,920 $2,883,567
Furniture and fixtures (5 years)............................ 48,621 293,335 1,050,549
Leasehold improvements (5 years)............................ 16,290 95,982 655,074
-------- ---------- ----------
257,351 1,274,237 4,589,190
Less accumulated depreciation............................... 79,567 211,845 369,089
-------- ---------- ----------
$177,784 $1,062,392 $4,220,101
======== ========== ==========
</TABLE>
Depreciation expense was approximately $25,200 in 1996, $42,700 in 1997,
$142,200 in 1998 and $295,800 in the six-month period ended June 30, 1999. In
connection with the Company's relocation to new office space in 1999, property
and equipment with net book value of approximately $118,800 was disposed of
related to the old office facility.
NOTE 4. LONG-TERM DEBT
In February 1998, the Company entered into a Line of Credit Agreement (the
"Line of Credit"), which provided for borrowings of up to $750,000. The Line of
Credit originally expired in May 1999, with interest accruing at the lender's
prime rate plus 1.0%. A non-refundable commitment fee equal to 1.0% per annum of
the average daily unused portion of the Line of Credit was payable quarterly. As
of December 31, 1998, there was $300,000 outstanding under the Line of Credit,
which has been classified as long-term debt due to the February 1999 refinancing
under the new facility discussed below.
The Line of Credit contained restrictive covenants, including a limitation
on incurring additional indebtedness and a requirement that the Company maintain
a tangible net worth, as defined, of $500,000. The Company pledged substantially
all of its assets as collateral for the Line of Credit.
In February 1999, the Company settled all outstanding amounts under the
Line of Credit and terminated this agreement. At this time, the Company entered
into a Revolving Promissory Note (the "Revolver") and an Equipment Term Note
(the "Equipment Term Note"), both under the terms of a Loan and Security
Agreement (the "Loan and Security Agreement"). The Revolver provides for
borrowings of up to $2,000,000, bears interest at the lender's prime rate plus
0.75% (8.50% at June 30, 1999), and expires in February 2000. As of June 30,
1999, no amounts were outstanding under the Revolver.
The Equipment Term Note provides for total borrowings of up to $2,000,000
that may be drawn from February through August 1999. Monthly interest-only
payments are due and payable on any outstanding advances during that time
period. In September 1999, the advances under the Equipment Term Note
automatically convert to a note payable with 36 equal monthly principal and
interest installments, which are due and payable through August 2002. The
Equipment Term Note bears interest at the lender's prime rate plus 1.0%. As of
June 30, 1999, there was $2,000,000 outstanding under the Equipment Term Note.
F-11
<PAGE> 76
FREEMARKETS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Loan and Security Agreement contains restrictive covenants, including a
limitation on incurring additional indebtedness and paying dividends, as well as
a requirement that the Company satisfy various financial conditions. The Company
has pledged substantially all of its tangible assets as collateral for the Loan
and Security Agreement.
In March 1998, the Company entered into a $144,000 loan with the City of
Pittsburgh Urban Redevelopment Authority (the "URA Loan"), with interest
accruing at 6.8%. The URA Loan was to originally mature in March 2003. Proceeds
from the URA Loan were required to be used for local office space expansion. The
URA Loan was repaid in February 1999 with proceeds from the Equipment Term Note.
Interest expense for 1996, 1997 and 1998 was $11,200, $2,200 and $27,800,
respectively, and for the six-month periods ended June 30, 1998 and 1999 was
$13,100 and $63,300, respectively. The weighted average interest rate for 1996,
1997 and 1998 was 10.8%, 3.7% and 6.9%, respectively, and for the six-month
periods ended June 30, 1998 and 1999 was 8.5% and 8.0%, respectively. Based on
market rates currently available, the carrying value of the Company's long-term
debt as of June 30, 1999 approximates fair value.
NOTE 5. COMMITMENTS AND CONTINGENCIES
The Company leases office space and computer and office equipment under
operating leases expiring through 2004. In October 1998, the Company entered
into a new Office Lease Agreement (the "Lease"), as amended in March 1999, that
significantly expands the Company's office space within the city of Pittsburgh,
Pennsylvania. The Lease, which provides options for additional expansion within
the same building, expires in May 2004.
Operating lease rental expense amounted to approximately $105,000 in 1996,
$141,000 in 1997, $279,500 in 1998 and $297,300 in the six-month period ended
June 30, 1999. The following is a schedule of future minimum lease payments
under all operating leases through December 31 of each of the following years:
<TABLE>
<S> <C>
1999........................................................ $ 574,000
2000........................................................ 1,228,000
2001........................................................ 1,260,000
2002........................................................ 1,294,000
2003........................................................ 1,329,000
Thereafter.................................................. 537,000
----------
$6,222,000
==========
</TABLE>
NOTE 6. INCOME TAXES
The Company had no income tax provision in 1996, 1997 and the six-month
periods ended June 30, 1998 and 1999 since the Company had a net taxable loss in
each of those periods. For 1998, the Company's net taxable income was eliminated
through the use of net operating loss carryforwards of approximately $414,000.
The tax benefit resulting from the use of these net operating losses was
approximately $166,000.
F-12
<PAGE> 77
FREEMARKETS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred tax assets and liabilities consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- JUNE 30,
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Net operating losses........................................ $ 1,348,000 $ 1,182,000 $ 2,708,000
Research and experimentation credits........................ 42,000 111,000 185,000
Lease termination fee....................................... -- 90,000 --
Other....................................................... (54,000) (46,000) (37,000)
----------- ----------- -----------
Net deferred tax assets..................................... 1,336,000 1,337,000 2,856,000
Less valuation allowance.................................... (1,336,000) (1,337,000) (2,856,000)
----------- ----------- -----------
$ -- $ -- $ --
=========== =========== ===========
</TABLE>
In assessing the realizability of net deferred tax assets, management
considers whether it is more likely than not that some portion of the net
deferred tax assets will not be realized. The ultimate realization of net
deferred tax assets is dependent upon the generation of future taxable income
during the periods in which temporary differences representing net future
deductible amounts become deductible. Management has established a full
valuation allowance against the net deferred tax assets at December 31, 1997 and
1998 and at June 30, 1999, since the realization of these assets in future
periods is uncertain.
As of June 30, 1999, the Company had available federal net operating loss
carryforwards of approximately $6,771,000 and state net operating loss
carryforwards of approximately $6,206,000. These net operating loss
carryforwards may be used to offset future federal and state income taxes
through 2019 and 2009, respectively. As a result of the Series A-1 offering
discussed in Note 7 and concurrent ownership change, Section 382 of the Internal
Revenue Code limits the federal net operating losses incurred prior to May 1996,
which amounted to $1,298,000, available to the Company to approximately $247,000
per year. Any unused annual limitation may be carried forward to future years
for the balance of the federal net operating loss carryforward period. In
addition, the Company has research and experimentation credit carryforwards of
approximately $185,000 available to offset future federal tax liabilities
through 2019.
NOTE 7. STOCKHOLDERS' EQUITY
In June 1999, the Company amended its Certificate of Incorporation to
increase the preferred shares authorized for issuance from 20,000,000 to
50,000,000 and the common shares authorized for issuance from 20,000,000 to
200,000,000.
STOCK SPLITS
In January 1998, the Company's Board of Directors declared a 200-for-1
stock split in the form of a stock dividend on the then-outstanding shares of
preferred stock and common stock. The stock split was reflected in 1997 and
resulted in a $37,756 reclassification from additional capital to preferred
stock and a $36,384 reclassification from additional capital to common stock
representing the aggregate par value of the shares issued under the stock split.
In June 1999, the Company's Board of Directors declared a 3-for-1 stock
split in the form of a stock dividend on the then-outstanding shares of
preferred stock and common stock. The stock split resulted in a $91,262
reclassification from additional capital to preferred stock and a $94,960
reclassification from additional capital to common stock representing the
aggregate par value of the shares issued under the stock split.
F-13
<PAGE> 78
FREEMARKETS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
All references to the number of shares and per share amounts have been
restated to reflect both stock splits.
CONVERTIBLE PREFERRED STOCK
In May 1996, the Company completed an offering of 4,019,400 shares of
Series A-1 convertible preferred stock ("Series A-1") at $.43 per share, with
3,157,200 callable warrants to purchase shares of the Company's preferred stock
at an exercise price of $.54 per share. The proceeds from the offering totaled
$1,511,456, net of offering costs of $188,544.
In December 1996, the Company commenced an offering of 2,347,200 shares of
Series B convertible preferred stock ("Series B") at $.54 per share. Total
proceeds from the offering, which was completed in July 1997, were $1,117,464,
net of offering costs of $152,603.
In October 1997, the Company exercised its right to call the 3,157,200
warrants issued pursuant to the Series A-1 offering. In addition, the Company
commenced an offering to sell an additional 1,860,000 shares of Series A-2
convertible preferred stock ("Series A-2") at $.54 per share. The warrant call
and the offering were completed in December 1997, resulting in total proceeds of
$2,447,038, net of offering costs of $270,612.
In April 1999, the Company completed an offering of 2,305,434 shares of
Series C convertible preferred stock ("Series C") at $4.77 per share. Total
proceeds from the offering were $10,258,476, net of offering costs of $738,450.
The Company's Series A-1, Series A-2, Series B and Series C preferred stock
are convertible into common stock based upon an initial conversion ratio of
one-to-one, which is subject to adjustment as defined in the Company's
Certificate of Incorporation and the respective certificates of designations
that created the preferred stock. All series of preferred stock will be
converted automatically into an equal number of shares of common stock
immediately preceding the closing of an underwritten initial public offering
pursuant to an effective registration statement under the Securities Act of
1933, as amended. The holders of Series A-1 and A-2 preferred stock,
collectively as a group, have the right to elect one director, while the holders
of Series B and C preferred stock and all holders of common stock, voting as a
class, have the right to elect the remaining directors. The holders of preferred
stock also have a liquidation preference equal to the purchase price of the
preferred stock, the right to receive dividends prior to any junior preferred
stock or common stock, and certain antidilution protections, all as defined in
the Company's Certificate of Incorporation and the respective certificates of
designations that created the preferred stock.
The Company has granted preemptive rights to the holders of Series A-1, A-2
and B preferred stock, as well as to four holders of common stock. In the event
that the Company seeks to raise additional capital, these rights allow holders,
under certain circumstances, to maintain their percentage ownership of the
Company. All preemptive rights terminate upon an initial public offering of the
Company's common stock.
STOCK PURCHASE WARRANTS
In addition to the warrants issued in connection with the Series A-1
offering that were subsequently exercised in the Series A-2 offering, the
Company granted a total of 2,604,600 warrants at an exercise price of $.54 per
share to the placement agent as compensation for services rendered in connection
with the Series A-1, Series A-2 and Series B offerings. Those warrants issued to
the placement agent, which do not have a call feature, expire seven years from
the date of issuance.
F-14
<PAGE> 79
FREEMARKETS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The portion of the proceeds received from the Series A-1, Series A-2 and
Series B preferred stock offerings representing the value assigned to the
warrants are reflected as stock purchase warrants in the stockholders' equity
section of the accompanying balance sheets. At the time of exercise or
expiration, the Company will transfer the value assigned to the warrants to
additional capital.
In March 1999, the placement agent exercised 2,409,000 warrants, resulting
in total proceeds of $1,304,875 and a $368,000 transfer of stock purchase
warrants to additional capital.
COMMON STOCK
In 1996, the Board of Directors reserved 240,000 shares of common stock to
be issued pursuant to a qualified stock purchase plan (the "1996 Purchase Plan")
under which employees could purchase shares of common stock of the Company.
During 1996, employees purchased 219,600 shares of common stock at $.43 per
share resulting in total proceeds of $92,705, net of offering costs of $625.
In 1997, the Board of Directors reserved an additional 600,000 shares of
common stock to be issued pursuant to the 1996 Purchase Plan. During 1997,
employees purchased 531,000 shares of common stock at $.54 per share resulting
in total proceeds of $287,025, net of offering costs of $600. No further shares
may be purchased under the 1996 Purchase Plan.
In 1998, the Board of Directors reserved 780,000 shares of common stock,
which included the remaining unissued shares under the 1996 Purchase Plan, to be
issued pursuant to a qualified stock purchase plan (the "1998 Purchase Plan")
under which employees could purchase shares of common stock of the Company.
During 1998, employees purchased 780,000 shares of common stock at $1.67 per
share resulting in total proceeds of $1,285,827, net of offering costs of
$14,173. No further shares may be purchased under the 1998 Purchase Plan.
The following is a summary of share activity for all classes of stock:
<TABLE>
<CAPTION>
PREFERRED COMMON STOCK PURCHASE
STOCK STOCK WARRANTS
---------- ---------- --------------
<S> <C> <C> <C>
Outstanding at December 31, 1995............................ -- 10,243,800
Shares issued............................................. 5,077,200 219,600 --
Stock purchase warrants issued............................ -- -- 4,224,600
---------- ---------- ----------
Outstanding at December 31, 1996............................ 5,077,200 10,463,400 4,224,600
Shares issued, net........................................ 3,149,400 493,200 --
Stock purchase warrants issued............................ -- -- 1,537,200
Stock purchase warrants exercised......................... 3,157,200 -- (3,157,200)
Options exercised......................................... -- 13,800 --
---------- ---------- ----------
Outstanding at December 31, 1997............................ 11,383,800 10,970,400 2,604,600
Shares issued............................................. -- 780,000 --
Options exercised......................................... -- 54,600 --
---------- ---------- ----------
Outstanding at December 31, 1998............................ 11,383,800 11,805,000 2,604,600
Shares issued............................................. 2,305,434 -- --
Stock purchase warrants exercised......................... -- 2,409,000 (2,409,000)
Options exercised......................................... -- 30,000 --
---------- ---------- ----------
Outstanding at June 30, 1999................................ 13,689,234 14,244,000 195,600
========== ========== ==========
</TABLE>
F-15
<PAGE> 80
FREEMARKETS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8. EMPLOYEE BENEFIT PLANS
401(k) SAVINGS PLAN
In January 1999, the Company adopted a savings plan (the "Savings Plan")
that qualifies as a deferred salary arrangement under Section 401(k) of the
Internal Revenue Code. Under the Savings Plan, eligible employees may contribute
a certain percentage of their pre-tax earnings up to the annual limit set by the
Internal Revenue Service. The Company is not required to contribute to the
Savings Plan and has made no contributions since its inception.
STOCK OPTION PLANS
Prior to March 1998, the Company maintained a stock incentive plan (the
"1996 Option Plan"), which provided for the issuance of stock options and stock
appreciation rights to employees. Under the 1996 Option Plan, options were
granted at prices determined by the Board of Directors. The options granted are
exercisable in accordance with a vesting schedule, not to exceed 10 years. No
further stock options may be granted under the 1996 Option Plan.
In March 1998, the Company adopted the 1998 Stock Option Plan (the "1998
Option Plan"). All available options in the 1996 Option Plan were transferred
into the 1998 Option Plan. All options outstanding under the 1996 Option Plan as
of the termination date continue in effect under their original terms. The 1998
Option Plan provides for the issuance of stock options to employees, directors,
consultants and advisors, which are granted at prices determined by the Board of
Directors. The options granted are exercisable in accordance with a vesting
schedule, not to exceed 10 years. Certain executives hold options that contain
limited accelerated vesting, as defined, in the event of an initial public
offering or sale of the Company.
In June 1999, the Company adopted an Amended and Restated Stock Incentive
Plan (the "Stock Incentive Plan"). The Stock Incentive Plan amended the 1998
Option Plan to increase the amount of unissued shares reserved for the future
issuance of stock options, as well as add certain change-of-control provisions.
As of June 30, 1999, 15,450,000 stock options were authorized for issuance.
F-16
<PAGE> 81
FREEMARKETS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a summary of stock option activity:
<TABLE>
<CAPTION>
NUMBER EXERCISE
OF OPTIONS PRICE
---------- -------------
<S> <C> <C>
Outstanding at December 31, 1995.......................... -- --
Granted................................................. 867,000 $ .33 - $ .43
---------
Outstanding at December 31, 1996.......................... 867,000 .33 - .43
Granted................................................. 564,000 .54
Forfeited............................................... (354,600) .33 - .54
Exercised............................................... (13,800) .43
---------
Outstanding at December 31, 1997.......................... 1,062,600 .33 - .54
Granted................................................. 6,150,900 .54 - 1.67
Forfeited............................................... (44,700) .33 - 1.67
Exercised............................................... (54,600) .33 - .54
---------
Outstanding at December 31, 1998.......................... 7,114,200 .33 - 1.67
Granted................................................. 1,823,550 1.67 - 4.77
Forfeited............................................... (128,250) .54 - 4.77
Exercised............................................... (30,000) .54
---------
Outstanding at June 30, 1999.............................. 8,779,500 .33 - 4.77
=========
Exercisable at June 30, 1999.............................. 780,897 .33 - .54
Shares reserved for future options as of June 30, 1999.... 6,572,100 N/A
</TABLE>
The following is a summary of the options outstanding as of June 30, 1999:
<TABLE>
<CAPTION>
NUMBER EXERCISE
OF OPTIONS PRICE
---------- ------------
<S> <C> <C>
532,800 $.33 - $ .43
1,498,500 .54
4,038,000 1.08
1,155,000 1.67
42,000 2.50
1,513,200 4.77
---------
8,779,500
=========
</TABLE>
All options were granted at exercise prices determined by the Board of
Directors. The weighted average exercise price and the weighted average
remaining contractual life for options outstanding at June 30, 1999 was $1.67
and 8.9 years, respectively.
F-17
<PAGE> 82
FREEMARKETS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
If compensation costs had been recognized pursuant to SFAS No. 123, the
Company's net (loss) income and earnings per share would have been changed to
the pro forma amounts shown below:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------------------------- SIX MONTHS ENDED
1996 1997 1998 JUNE 30, 1999
----------- ------------ --------- ----------------
<S> <C> <C> <C> <C>
Net (loss) income:
As reported................................ $(1,431,188) $(1,060,700) $ 233,747 $(3,757,094)
Pro forma.................................. (1,466,066) (1,113,771) (208,581) (4,309,672)
Earnings per share:
Basic:
As reported.............................. $(.14) $(.10) $ .02 $(.29)
Pro forma................................ (.14) (.10) (.02) (.33)
Diluted:
As reported.............................. (.14) (.10) .01 (.29)
Pro forma................................ (.14) (.10) (.02) (.33)
</TABLE>
The weighted average fair value per option granted was $.10, $.14, $.23 and
$.94 for 1996, 1997 and 1998 and for the six-month period ended June 30, 1999,
respectively. The fair value of each option grant according to SFAS No. 123 is
estimated on the date of grant using the Black-Scholes pricing model with the
following assumptions:
<TABLE>
<S> <C>
Weighted average risk-free interest rate.................... 5-6%
Expected life (number of years)............................. 5
</TABLE>
NOTE 9. SUBSEQUENT EVENTS
INITIAL PUBLIC OFFERING
In September 1999, the Board of Directors authorized the filing of a
registration statement with the Securities and Exchange Commission that would
permit the Company to sell shares of common stock in connection with a proposed
initial public offering (the "IPO"). Immediately prior to consummation of the
IPO, all of the outstanding shares of convertible preferred stock, including the
Series D shares and Series D warrants discussed below, will automatically
convert into or be exercised for an equal number of shares of common stock. The
result of the conversion and exercise will be a reclassification of preferred
stock to common stock.
LONG-TERM DEBT
In September 1999, the Company amended and expanded the Loan and Security
Agreement (the "Amended Loan and Security Agreement"). The amendment increases
the available borrowings under the Revolver from $2,000,000 to $5,000,000 and
extends the expiration date to September 2000. Interest will remain at the
lenders prime rate plus 0.75%. The amendment also provides for two additional
equipment term notes in addition to the existing $2,000,000 original Equipment
Term Note. These notes provide for total borrowings of up to $3,000,000 that may
be drawn from September 1999 through October 2000. Monthly interest-only
payments are due and payable on any outstanding advances during that time
period. In April and October 2000, these notes automatically convert to notes
payable with 36 equal monthly principal and interest installments. These notes
bear interest at the lender's prime rate plus 1.0%.
The Amended Loan and Security Agreement modified the existing restrictive
covenants, but continued to include a limitation on incurring additional
indebtedness and paying dividends, as well
F-18
<PAGE> 83
FREEMARKETS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
as a requirement that the Company satisfy various financial conditions. The
Company has pledged substantially all of its tangible assets as collateral for
the Amended Loan and Security Agreement.
CONVERTIBLE PREFERRED STOCK
In September 1999, the Company completed an offering of 2,057,773 shares of
Series D convertible preferred stock ("Series D") at $14.80 per share, of which
1,414,552 shares were purchased by a significant client. Net proceeds from the
offering were $30,355,040. In addition, the Company granted 304,431 stock
purchase warrants (the "Series D warrants") at an exercise price of $.01 per
share to the same significant client in exchange for release of certain
contractual restrictions in their contract with the Company. The Series D
warrants must be exercised upon consummation of the IPO. In connection with this
grant, the Company recognized expense of $4,502,534 in September 1999, as
determined using the Black-Scholes pricing model.
EMPLOYEE STOCK PURCHASE PLAN
In September 1999, the Board of Directors adopted and submitted to the
stockholders for approval the Company's Employee Stock Purchase Plan (the "1999
Purchase Plan"), under which 500,000 shares have been reserved for issuance,
subject to increases as provided in the 1999 Purchase Plan. Under the 1999
Purchase Plan, eligible employees may purchase common stock each year in an
amount not to exceed 20% of the employee's annual cash compensation. The
purchase price per share will be 85% of the lowest fair value at certain dates
defined in the 1999 Purchase Plan. The 1999 Purchase Plan will become effective
upon the IPO.
F-19
<PAGE> 84
UNDERWRITING
FreeMarkets and the underwriters named below have entered into an
underwriting agreement with respect to the shares being offered. Subject to the
terms of the underwriting agreement, each underwriter has severally agreed to
purchase the number of shares indicated in the following table. Goldman, Sachs &
Co., Morgan Stanley & Co. Incorporated, Donaldson, Lufkin & Jenrette Securities
Corporation and Wit Capital Corporation are the representatives of the
underwriters.
<TABLE>
<CAPTION>
Number of
Underwriters Shares
------------ ---------
<S> <C>
Goldman, Sachs & Co. .......................................
Morgan Stanley & Co. Incorporated...........................
Donaldson, Lufkin & Jenrette Securities Corporation.........
Wit Capital Corporation.....................................
----------
Total.......................................................
==========
</TABLE>
If the underwriters sell more shares than the total number set forth in the
table above, the underwriters have an option to buy up to an additional
shares from FreeMarkets 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 FreeMarkets. Such amounts are
shown assuming both no exercise and full exercise of the underwriters' option to
purchase additional shares.
Paid by FreeMarkets
-----------------------
<TABLE>
<CAPTION>
No Full
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 of those
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.
FreeMarkets 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 will be negotiated
among FreeMarkets and the representatives of the underwriters. Among the factors
to be considered in determining the initial public offering price of the shares,
in addition to prevailing market conditions, are FreeMarkets' historical
performance, estimates of FreeMarkets' business potential and earnings
prospects, an assessment of FreeMarkets' management and the consideration of the
above factors in relation to the market valuation of companies in related
businesses.
U-1
<PAGE> 85
FreeMarkets has applied to have its common stock approved for quotation on
the Nasdaq National Market under the symbol "FMKT".
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 FreeMarkets, the underwriters have reserved for sale, at
the initial public offering price, up to shares of common stock
for directors and employees of FreeMarkets.
The number of shares available for sale to the general public will be
reduced by the number of reserved shares sold. Any reserved shares not so
purchased will be offered by the underwriters to the general public on the same
basis as other shares offered hereby.
FreeMarkets estimates that the total expenses of the offering, excluding
underwriting discounts and commissions, will be approximately $ .
FreeMarkets has agreed to indemnify the underwriters against various
liabilities, including liabilities under the Securities Act of 1933.
On February 5, 1999, Goldman, Sachs & Co. committed to invest at least
$6,596,700 in an offering of FreeMarkets' equity securities. That private
placement was completed with the sale of 1,382,955 shares of Series C preferred
stock to Goldman, Sachs & Co. and two affiliates on April 9, 1999, at a price of
$4.77 per share. These shares automatically convert into the same number of
shares of common stock immediately prior to the closing of this offering.
Wit Capital, a member of the National Association of Securities Dealers,
Inc., will participate in the offering as one of the representatives of the
underwriters. The National Association of Securities Dealers, Inc. approved the
membership of Wit Capital on September 4, 1997. Since that time, Wit Capital has
acted as an underwriter, e-Manager or selected dealer in over 125 public
offerings. Except for its participation as a representative in this offering,
Wit Capital has no relationship with FreeMarkets, or any of its founders or
significant stockholders.
U-2
<PAGE> 86
INSIDE BACK COVER
The inside of the back cover includes a picture of a printed circuit board
with the following text above it: "At 8:30 am, printed circuit boards for a
Global 1000 manufacturer cost $24 million. 1 day later, they cost $14 million."
A pull-out text box appears at the lower right-hand corner of the inside
back cover with the following text: "FreeMarkets recruited a global base of
suppliers whose bids fell 43% below previous prices. That's $10 million." Our
logo with the word "FreeMarkets" beside it, appears at the bottom of the inside
back cover with the following tag-line text below it: Redefining purchasing
power for the Global 1000.
<PAGE> 87
- -------------------------------------------------------
- -------------------------------------------------------
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.................... 5
Risk Factors.......................... 9
Use of Proceeds....................... 22
Dividend Policy....................... 22
Capitalization........................ 23
Dilution.............................. 24
Selected Consolidated Financial
Data................................ 25
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 26
Business.............................. 37
Management............................ 49
Certain Transactions.................. 57
Principal Stockholders................ 58
Description of Capital Stock.......... 60
Shares Eligible for Future Sale....... 63
Legal Matters......................... 64
Experts............................... 65
Additional Information................ 65
Index to Financial Statements......... F-1
Underwriting.......................... U-1
</TABLE>
------------------
Through and including , 1999 (the 25th 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
FREEMARKETS, INC.
Common Stock
------------------
FreeMarkets, Inc. Logo
------------------
GOLDMAN, SACHS & CO.
MORGAN STANLEY DEAN WITTER
DONALDSON, LUFKIN & JENRETTE
WIT CAPITAL CORPORATION
Representatives of the Underwriters
-------------------------------------------------------
-------------------------------------------------------
<PAGE> 88
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........................................ $ 25,000
NASD fee.................................................... 7,500
Nasdaq National Market listing fee.......................... *
Printing expenses........................................... *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Transfer agent and registrar fees........................... *
Miscellaneous............................................... *
----------
Total............................................. $ *
==========
</TABLE>
- ---------------
* To be filed by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 102(b)(7) of the Delaware General Corporation Law (the "DGCL")
permits a corporation, in its certificate of incorporation, to limit or
eliminate, subject to certain statutory limitations, the liability of directors
to the corporation or its stockholders for monetary damages for breaches of
fiduciary duty, except for liability (a) for any breach of the director's duty
of loyalty to the corporation or its stockholders, (b) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (c) under Section 174 of the DGCL, or (d) for any transaction from which
the director derived an improper personal benefit. Article VII of the
registrant's Amended and Restated Certificate of Incorporation, to be in effect
upon consummation of the offering of the securities to which this registration
statement relates, provides that the personal liability of directors of the
registrant is eliminated to the fullest extent permitted by Section 102(b)(7) of
the DGCL.
Under Section 145 of the DGCL, a corporation has the power to indemnify
directors and officers under certain prescribed circumstances and subject to
certain limitations against certain costs and expenses, including attorneys'
fees actually and reasonably incurred in connection with any action, suit or
proceeding, whether civil, criminal, administrative or investigative, to which
any of them is a party by reason of being a director or officer of the
corporation if it is determined that the director or officer acted in accordance
with the applicable standard of conduct set forth in such statutory provision.
Article VII of the registrant's Amended and Restated Bylaws, to be in effect
upon consummation of the offering of the securities to which this registration
statement relates, provides that the registrant will indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding by reason of the fact that he is or was
(or to the extent permitted under Delaware law, has agreed to be) a director,
officer, employee or agent of the registrant, or is or was serving (or, to the
extent permitted under Delaware law, has agreed to serve) at the request of the
registrant as a director, officer, employee or agent of another entity, against
certain liabilities, costs and expenses. Article VII further permits the
registrant to maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the registrant, or is or was serving at
the request of the registrant as a director, officer, employee or
II-1
<PAGE> 89
agent of another entity, against any liability asserted against such person and
incurred by such person in any such capacity or arising out of his status as
such, whether or not the registrant would have the power to indemnify such
person against such liability under the DGCL. The registrant expects to maintain
directors' and officers' liability insurance.
Under Section 8(b) of the Underwriting Agreement, the Underwriters will be
obligated, under certain circumstances, to indemnify directors and officers of
the registrant against certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). Reference is made to
the form of Underwriting Agreement filed as Exhibit 1.1 hereto.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since September 1996, the registrant has sold and issued the following
securities:
1. In September 1996, the registrant issued 219,600 shares of common stock
to 10 employees for an aggregate consideration of $93,330.
2. In July 1997, the registrant issued 2,347,200 shares of Series B
preferred stock and warrants to purchase 571,800 shares of Series B preferred
stock to 33 investors for an aggregate consideration of $1,270,067.
3. In October 1997, the registrant issued 531,000 shares of common stock to
24 employees for an aggregate consideration of $287,625.
4. In December 1997, the registrant issued 5,017,200 shares of Series A-2
preferred stock and warrants to purchase 1,222,800 shares of Series A-2
preferred stock to 60 investors for an aggregate consideration of $2,717,650.
5. In October 1998, the registrant issued 780,000 shares of common stock to
78 employees for an aggregate consideration of $1,300,000.
6. In April 1999, the registrant issued 2,305,434 shares of Series C
preferred stock to 78 investors for an aggregate consideration of $10,996,926.
7. In September 1999, the registrant issued 2,057,773 shares of Series D
preferred stock and warrants to purchase 304,431 shares of Series D preferred
stock to 44 investors for an aggregate consideration of $30,445,040.
8. Since inception, the registrant has granted options to purchase an
aggregate of 9,405,450 shares of common stock to a number of its employees,
directors and consultants. No consideration was received by the registrant upon
grant of any such options.
The issuances of the above securities were intended to be exempt from
registration under the Securities Act in reliance on Section 4(2) thereof as
transactions by an issuer not involving any public offering. In addition,
certain issuances to employees described in Items 1, 3, 5 and 8 were intended to
be exempt from registration under the Securities Act in reliance upon Rule 701
promulgated under the Securities Act. The recipients of 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
distribution thereof and appropriate legends were affixed to the share
certificates, warrants and options issued in such transactions. The registrant
believes that all recipients had adequate access, through their relationships
with the registrant, to information about the registrant.
II-2
<PAGE> 90
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS. The following exhibits are filed as part of this registration
statement:
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- -------- ------------------------------------------------------------
<S> <C>
1.1* Form of Underwriting Agreement.
3.1(a) Registrant's Amended and Restated 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 Amended and Restated 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 Amended and Restated Registration Rights Agreement dated
August 3, 1999.
5.1* Opinion of Morgan, Lewis & Bockius LLP as to the legality of
the securities being registered.
10.1* Transaction Agreement between General Motors Corporation and
the registrant dated July 17, 1998 and effective as of June
8, 1998.
10.2(a)+ Systems and Services Agreement between United Technologies
Corporation and the registrant dated January 14, 1999 and
effective as of January 1, 1999.
10.2(b)+ Side Letter Agreement between United Technologies
Corporation and the registrant dated July 30, 1999.
10.3(a) Lease Agreement between the registrant and One Oliver
Associates Limited Partnership dated October 21, 1998.
10.3(b) First Amendment to Lease between the registrant and One
Oliver Associates dated March 30, 1999.
10.4(a) Loan and Security Agreement between the registrant and
Silicon Valley Bank dated February 5, 1999.
10.4(b) First Amendment to Loan and Security Agreement between the
registrant and Silicon Valley Bank dated September 3, 1999.
10.5 Registrant's 1996 Stock Incentive Plan.
10.6 Registrant's Amended and Restated Stock Incentive Plan.
10.7 Registrant's Employee Stock Purchase Plan.
21.1 Subsidiaries of the registrant.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2* Consent of Morgan, Lewis & Bockius LLP (included in opinion
filed as Exhibit 5.1).
24.1 Power of Attorney (included on signature page of this
registration statement).
27.1 Financial Data Schedule for the year ended December 31,
1996.
27.2 Financial Data Schedule for the year ended December 31,
1997.
27.3 Financial Data Schedule for the year ended December 31,
1998.
27.4 Financial Data Schedule for the six months ended June 30,
1998.
27.5 Financial Data Schedule for the six months ended June 30,
1999.
</TABLE>
- ---------------
* To be filed by amendment.
+ Confidential treatment requested as to certain portions of this Exhibit.
II-3
<PAGE> 91
(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 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-4
<PAGE> 92
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Pittsburgh, Commonwealth
of Pennsylvania, on September 8, 1999.
FREEMARKETS, INC.
By: /s/ GLEN T. MEAKEM
------------------------------------
Glen T. Meakem
President, Chief Executive Officer
and Chairman of the Board
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints, Glen T. Meakem and Sam E. Kinney,
Jr., and each of them, as his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to sign any and all amendments to this
registration statement (including post-effective amendments) and any and all
additional registration statements pursuant to Rule 462(b) under the Securities
Act of 1933, as amended, in connection with or related to the offering
contemplated by this registration statement and its amendments, if any, and to
file the same, with all exhibits thereto and all other 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 in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or either of them, or their or his substitutes or
substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<S> <C> <C>
/s/ GLEN T. MEAKEM President, Chief Executive September 8, 1999
- ------------------------------ Officer and Chairman of the
Glen T. Meakem Board
(Principal Executive Officer)
/s/ SAM E. KINNEY, JR. Executive Vice President and September 8, 1999
- ------------------------------ Acting Chief Financial Officer
Sam E. Kinney, Jr. (Principal Financial and
Accounting Officer)
/s/ ERIC C. COOPER Director September 8, 1999
- ------------------------------
Eric C. Cooper
/s/ DAVID A. NOBLE Director September 8, 1999
- ------------------------------
David A. Noble
</TABLE>
II-5
<PAGE> 93
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Stockholders
of FreeMarkets, Inc. and Subsidiaries:
Our audits of the consolidated financial statements referred to in our report
dated July 30, 1999, except for Notes 2 and 9 as to which the date is September
8, 1999, appearing in this Registration Statement also included an audit of the
financial statement schedule listed in Item 16 of this Form S-1. In our opinion,
this financial statement schedule presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
Pittsburgh, Pennsylvania
July 30, 1999, except for Notes 2 and 9, as to
which the date is September 8, 1999
<PAGE> 94
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
- ------------------------------------ ---------- ---------- ---------- ---------- ----------
ADDITIONS
-----------------------
BALANCE AT CHARGED TO BALANCE AT
BEGINNING CHARGED TO OTHER END OF
OF PERIOD EXPENSE ACCOUNTS DEDUCTIONS PERIOD
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1996...... -- -- -- -- --
Year ended December 31, 1997...... -- 20,000 -- -- 20,000
Year ended December 31, 1998...... 20,000 5,000 -- -- 25,000
Six months ended June 30, 1999.... 25,000 93,750 -- (4,434) 114,316
Allowance for deferred tax assets:
Year ended December 31, 1996...... 393,000 -- 767,000 -- 1,160,000
Year ended December 31, 1997...... 1,160,000 -- 176,000 -- 1,336,000
Year ended December 31, 1998...... 1,336,000 -- 1,000 -- 1,337,000
Six months ended June 30, 1999.... 1,337,000 -- 1,519,000 -- 2,856,000
</TABLE>
<PAGE> 95
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- -------- ------------------------------------------------------------
<S> <C>
1.1* Form of Underwriting Agreement.
3.1(a) Registrant's Amended and Restated 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 Amended and Restated 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 Amended and Restated Registration Rights Agreement dated
August 3, 1999.
5.1* Opinion of Morgan, Lewis & Bockius LLP as to the legality of
the securities being registered.
10.1* Transaction Agreement between General Motors Corporation and
the registrant dated July 17, 1998 and effective as of June
8, 1998.
10.2(a)+ Systems and Services Agreement between United Technologies
Corporation and the registrant dated January 14, 1999 and
effective as of January 1, 1999.
10.2(b)+ Side Letter Agreement between United Technologies
Corporation and the registrant dated July 30, 1999.
10.3(a) Lease Agreement between the registrant and One Oliver
Associates Limited Partnership dated October 21, 1998.
10.3(b) First Amendment to Lease between the registrant and One
Oliver Associates dated March 30, 1999.
10.4(a) Loan and Security Agreement between the registrant and
Silicon Valley Bank dated February 5, 1999.
10.4(b) First Amendment to Loan and Security Agreement between the
registrant and Silicon Valley Bank dated September 3, 1999.
10.5 Registrant's 1996 Stock Incentive Plan.
10.6 Registrant's Amended and Restated Stock Incentive Plan.
10.7 Registrant's Employee Stock Purchase Plan.
21.1 Subsidiaries of the registrant.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2* Consent of Morgan, Lewis & Bockius LLP (included in opinion
filed as Exhibit 5.1).
24.1 Power of Attorney (included on signature page of this
registration statement).
27.1 Financial Data Schedule for the year ended December 31,
1996.
27.2 Financial Data Schedule for the year ended December 31,
1997.
27.3 Financial Data Schedule for the year ended December 31,
1998.
27.4 Financial Data Schedule for the six months ended June 30,
1998.
27.5 Financial Data Schedule for the six months ended June 30,
1999.
</TABLE>
- ---------------
* To be filed by amendment.
+ Confidential treatment requested as to certain portions of this Exhibit.
<PAGE> 1
Exhibit 3.1(a)
CERTIFICATE OF AMENDMENT AND RESTATEMENT
OF CERTIFICATION OF INCORPORATION
OF
FREEMARKETS ONLINE, INC.
FREEMARKETS ONLINE, INC. (the "Corporation"), a corporation organized
and existing under and by virtue of the General Corporation Law of the State of
Delaware, which was originally incorporated as Online Markets Corporation, on
3/13/95, Does Hereby CERTIFY:
FIRST: That the Board of Directors of the Corporation, at a
meeting duly held, adopted a resolution proposing and declaring advisable the
following amendment and restatement to the Certificate of Incorporation of the
Corporation:
RESOLVED, that the Certificate of Incorporation of the
Corporation be amended and restated so that said Certificate of
Incorporation shall be and read as follows:
I. NAME. The name of the Corporation is FreeMarkets OnLine, Inc.
II. REGISTERED OFFICE AND AGENT. The address of the registered office
of the Corporation in the State of Delaware is 1209 Orange Street, City
of Wilmington, County of New Castle, Delaware 19801, and the name of
its registered agent at such address is The Corporation Trust Company.
III. PURPOSE. The purpose of the Corporation is to engage in any lawful
act or activity for which corporations may be organized under the GCL.
IV. STOCK.
A. Classes of Stock. The total number of shares of stock which
the Corporation shall have the authority to issue is 200,000; of such
shares, the number of common shares which the Corporation shall have
the authority to issue is 100,000, par value $.01 per share ("Common
Stock"), and the number of preferred shares which the Corporation shall
have the authority to issue is 100,000, par value $.01 per share
("Preferred Stock").
B. Common Stock. Subject to the provisions of any series of
Preferred Stock which may at the time be outstanding, the holders of
shares of Common Stock shall be entitled to receive, when and as
declared by the Board of Directors of the Corporation (the "Board of
Directors") out of any funds legally available for the purpose, such
dividends as may be declared from time to time by the Board of
Directors. In the event of the liquidation of the Corporation, or upon
distribution of its assets, after the payment in full or the setting
apart for payment of such preferential amounts, if any, as the holders
of shares of Preferred Stock at the time outstanding shall be entitled,
the remaining assets of the Corporation available for payment and
distribution to shareholders shall, subject to any participating or
similar rights of shares of Preferred Stock at the time outstanding, be
distributed ratably among the holders of shares of Common Stock at the
time outstanding.
<PAGE> 2
All shares of Common Stock shall have equal voting rights, and shall
have no preference, conversion, exchange, preemptive (except as
otherwise provided in any agreement between holders of shares of the
Common Stock and the Corporation) or redemption rights.
C. Series A Convertible Preferred Stock.
1. Designation and Amount.
(a) 17,000 shares of the Preferred Stock are hereby
constituted as a series of the Preferred Stock designated as "Series A
Convertible Preferred Stock" (the "Series A Preferred Stock"); shares
of the Series A Preferred Stock shall rank prior to the Common Stock,
upon liquidation and otherwise as specified herein.
(b) 7,000 shares of the Series A Preferred Stock are
hereby constituted as "Series A-1 Convertible Preferred Stock" (the
"Series A-1 Preferred Stock") and 10,000 shares of the Series A
Preferred Stock are hereby constituted as "Series A-2 Convertible
Preferred Stock" (the "Series A-2 Preferred Stock"). Except as set
forth in Section IVC3 and 4 below, the Series A-1 Preferred Stock and
the Series A-2 Preferred Stock shall be considered as one class of
Stock and shall have all of the same rights, preferences and
limitations.
2. Dividends
(a) Dividends on Other Stock. The Series A Holders
shall be entitled to receive such dividends as may be declared by the
Board of Directors. So long as any of the Series A Preferred Stock is
outstanding, (i) no dividends shall be declared or paid on Common Stock
or other Preferred Stock ranking on a parity as to dividends with the
Series A Preferred Stock unless an identical dividend (as adjusted
pursuant to Section IVC3(d) is paid on the Series A Preferred Stock and
(ii) no dividends (other than dividends payable in stock junior to the
Series A Preferred Stock) shall be declared or paid on any Preferred
Stock ranking junior to the Series A Preferred Stock;
(b) Dividends Not Paid in Full. When dividends are
not paid in full upon shares of Series A Preferred Stock and any other
Preferred Stock or Common Stock ranking on a parity as to dividends
with the Series A Preferred Stock, all dividends paid upon shares of
Series A Preferred Stock, such other Preferred Stock and Common Stock
shall be paid pro rata so that the amount of dividends paid per share
on the Series A Preferred Stock, such other Preferred Stock and Common
Stock shall in all cases bear to each other the same ratio that accrued
dividends per share on the shares of Series A Preferred Stock, such
other Preferred Stock and Common Stock bear to each other.
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3. Conversion Rights. The Series A Holders shall have
conversion rights as follows:
(a) Optional Conversion. Each share of Series A
Preferred Stock shall be convertible, without the payment of any
additional consideration by the holder thereof and at the option of the
holder thereof, at any time after the date of issuance of such share
(subject to compliance with Section C3(c) of this Article), into such
number of fully paid and nonassessable shares of Common Stock as is
determined by dividing the Initial Conversion Price for such share (as
hereinafter defined) by the Conversion Price (as hereinafter defined)
in effect at the time of conversion. The "Initial Conversion Price" for
each share of Series A Preferred Stock shall be either (i) $255 for
each share of Series A- 1 Preferred Stock, or (ii) the actual purchase
price paid for each share of Series A-2 Preferred Stock initially
acquired by the original holder thereof. The "Conversion Price" for
each share shall initially be the Initial Conversion Price, subject to
adjustment in the manner provided in Section C3(d) of this Article.
(b) Automatic Conversion. Each share of Series A
Preferred Stock shall automatically be converted into shares of Common
Stock at the then effective Conversion Price immediately prior to the
closing of an underwritten public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended,
covering the offer and sale to the public of Common Stock for an
aggregate consideration of at least $10,000,000 (a "Qualified Public
Offering"). Each Series A Holder immediately prior to such automatic
conversion shall be entitled to all dividends which have accrued
pursuant to Section C2 of this Article on the Series A Preferred Stock
up to the time of the automatic conversion. Such dividends shall be
paid to all such holders by the issuance of Common Stock at the then
effective Conversion Price on the date of automatic conversion.
(c) Mechanics of Conversion.
(i) No fractional shares of Common Stock
shall be issued upon conversion of the Series A Preferred Stock. In
calculating the number of Common Shares that a Series A Holder shall be
entitled to receive upon conversion, the Corporation shall round any
fractional number determined by such calculation upwards or downwards
to the nearest whole number.
(ii) Before any Series A Holder shall be
entitled to convert the same into shares of Common Stock pursuant to
Section C3(a) of this Article, he shall (a) give prior written notice
to the Corporation, at the office of the Corporation, that he elects to
convert the same and shall state therein the number of shares to be
converted and the name(s) (with address(es)) in which he wishes the
certificate(s) for shares of Common Stock (and any Series A Preferred
Stock which is not being converted) to be issued, and (b) surrender to
the Corporation, at the office of the Corporation, the Series A
Preferred Stock certificate(s), duly endorsed. As soon as practicable
thereafter, the Corporation shall issue and deliver at such office to
such Series A Holder, or to his nominee(s), a certificate(s) for the
number of shares of Common Stock (together with a certificate(s) for
any Series A Preferred Stock which was not converted) to which he shall
be entitled upon such conversion. Such conversion shall be deemed to
have become effective
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immediately prior to the close of business on the date of such
surrender of the shares of Series A Preferred Stock to be converted,
the Conversion Price shall be determined as of such date and the
person(s) entitled to receive the shares of Common Stock issuable upon
conversion shall be treated for all purposes as the record holder(s) of
such shares of Common Stock as of such date or, if the stock transfer
books of the Corporation are closed on such date, as of the next
succeeding date on which such books are open.
(iii) Promptly after the closing of a
Qualified Public Offering, the Corporation shall give each Series A
Holder a written notice specifying the date of such closing and the
applicable Conversion Price and calling upon such holder to surrender
to the Corporation, in the manner and at the place specified therein,
the certificate(s) representing his share of Series A Preferred Stock.
From and after receipt of such notice each Series A Holder shall have
the right to have a certificate(s) for the number of shares of Common
Stock to which he is entitled upon such conversion issued to him or to
his nominee(s) upon surrender of his certificate(s) for Series A
Preferred Stock at the place and in the manner specified in such notice
(and, in the case of a certificate(s) to be issued to his nominee(s),
upon written notice to the Corporation of the name(s) and address(es)
of such nominee(s)). Such conversion shall be deemed to have become
effective immediately prior to the closing of such Qualified Public
Offering, the Conversion Price shall be determined as of such date and
time and the person(s) entitled to receive the shares of Common Stock
issuable upon conversion shall be treated for all purposes as the
record holder(s) of such shares of Common Stock as of such date and
time or, if the stock transfer books of the Corporation are closed on
such date, as of the next succeeding date on which such books are open.
(d) Adjustment to Conversion Price.
(i) Adjustment Upon Stock Dividends, Splits,
Etc. If the Corporation shall at any time (A) pay a dividend, or make a
distribution, in shares of its Common Stock or securities convertible
into or exchangeable or exercisable for shares of its Common Stock, (B)
subdivide its outstanding shares of Common Stock into a greater number
of shares by means of a stock split or otherwise or (C) combine its
outstanding shares of Common Stock into a smaller number of shares, the
applicable Conversion Price with respect to the Series A-1 Preferred
Stock and/or the Series A-2 Preferred Stock, as the case may be, in
effect immediately prior thereto shall be adjusted so that the holder
of a share of Series A-1 Preferred Stock and/or Series A-2 Preferred
Stock surrendered for conversion after the record date fixing
shareholders to be affected by such event shall be entitled to receive
upon conversion the number of such shares of Common Stock which such
holder would have been entitled to receive after the happening of such
event had such share of Series A-1 Preferred Stock and/or Series A-2
Preferred Stock been converted immediately prior to such record date.
(ii) Adjustment Upon Issuance of Common
Stock. If the Corporation shall at any time issue or sell (or pursuant
to clause (iii) below, be deemed to have issued or sold) any shares of
its Common Stock for a consideration per share less
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than the applicable Conversion Price with respect to the Series A-1
Preferred Stock and/or the Series A-2 Preferred Stock, as the case may
be, in effect immediately prior to such issuance or sale, then upon
such issuance or sale, the applicable Conversion Price with respect to
the Series A-1 Preferred Stock and/or the Series A-2 Preferred Stock,
as the case may be, shall be reduced to the price (calculated to the
nearest one-hundredth of a cent) determined by dividing (A) an amount
equal to the sum of (1) the product of the number of shares of Common
Stock outstanding immediately prior to such issuance or sale multiplied
by the applicable Conversion Price with respect to the Series A-1
Preferred Stock and/or the Series A-2 Preferred Stock, as the case may
be, in effect immediately prior to such issuance or sale plus (2) the
aggregate consideration received by the Corporation upon such issuance
or sale by (B) the number of shares of Common Stock outstanding
immediately after such issuance or sale.
(iii) Treatment of Convertible Securities.
If the Corporation shall grant, issue (whether directly or by
assumption in a merger or otherwise) or sell any security, obligation,
option, warrant or other right which directly or indirectly may be
converted into, exchanged or exercised for or satisfied in shares of
Common Stock (such securities and other rights being hereinafter
referred to as "Convertible Securities", and any such conversion,
exchange, exercise or satisfaction being hereinafter referred to as a
"conversion"), whether or not the right to effect a conversion
thereunder is immediately exercisable, and the price per share for
which Common Stock is issuable upon such conversion (determined by
dividing (A) the total amount received or receivable by the Corporation
as consideration for the issuance or sale of such Convertible
Securities, plus the minimum aggregate amount of additional
consideration payable to the Corporation upon conversion thereof, by
(B) the total maximum number of shares of Common Stock issuable upon
the conversion of all such Convertible Securities) shall be less than
the applicable Conversion Price with respect to the Series A-1
Preferred Stock and/or the Series A-2 Preferred Stock, as the case may
be, in effect immediately prior to such grant, issuance or sale, then
for purposes of making the calculation in clause (ii) above, the total
maximum number of shares of Common Stock issuable upon conversion of
all such Convertible Securities shall (as of the date of the grant,
issuance or sale of such Convertible Securities) be deemed to be
outstanding and to have been issued for such price per share. No
further adjustments of the applicable Conversion Price shall be made
upon the issuance of such Common Stock upon conversion of such
Convertible Securities.
(iv) Adjustments Required by Adjustments to
Convertible Securities. If the purchase price provided for in any
Convertible Securities, the additional consideration payable upon
conversion of any Convertible Securities or the rate at which any
Convertible Securities are convertible into Common Stock shall change
at any time (other than pursuant to anti-dilution provisions), then the
applicable Conversion Price with respect to the Series A-1 Preferred
Stock and/or the Series A-2 Preferred Stock, as the case may be, in
effect on the date of such change shall be readjusted to the applicable
Conversion Price which would have been in effect at such time had such
Convertible Securities still outstanding provided for such changed
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<PAGE> 6
purchase price, additional consideration or conversion rate, as the
case may be, at the time initially granted, issued or sold.
(v) Treatment of Expired or Unexercised
Convertible Securities. If and to the extent that rights of conversion
of Convertible Securities shall expire or terminate without exercise,
the applicable Conversion Price with respect to the Series A-1
Preferred Stock and/or the Series A-2 Preferred Stock, as the case may
be, in effect on the date of such expiration or termination shall be
readjusted to the applicable Conversion Price that would have been in
effect at such time had such rights never existed, and the Common Stock
theretofore issuable upon conversion of such expired or terminated
rights shall no longer be deemed to be outstanding.
(vi) Calculation of Consideration. In case
of a grant, issuance or sale of Common Stock or Convertible Securities
for cash, for the purpose of any computation under clauses (ii), (iii)
or (iv) above the value of the consideration received or receivable by
the Corporation shall be deemed to be the amount of cash received or
receivable by the Corporation therefor. In the case of any grant,
issuance or sale of Common Stock or Convertible Securities for a
consideration other than cash or a consideration, part of which shall
be other than cash, for the purpose of any computation under clauses
(ii), (iii) or (iv) above the value of the consideration other than
cash received or receivable by the Corporation shall be deemed to be
the fair market value of such consideration as determined in good faith
by the Board of Directors.
(vii) Determination of Outstanding Shares.
For the purpose of any computations under clauses (ii), (iii) or (iv)
above the number of shares of Common Stock outstanding at any given
time shall include the number of shares of Common Stock actually
outstanding at such time plus all shares of Common Stock which are
deemed to be outstanding pursuant to clause (iii) above but shall not
include shares owned or held by or for the account of the Corporation.
(viii) Exceptions. The provisions of clauses
(i) and (ii) above shall not apply to (A) up to 2600 shares of Common
Stock issued or issuable upon the exercise of stock options or purchase
rights granted by the Corporation from time to time to any of the
Corporation's directors, officers or employees in their capacities as
such, (B) the reissuance of securities previously purchased by the
Corporation from any of its employees to any successor or replacement
employee, or (C) securities of the Corporation issued or sold to the
public pursuant to an offering registered under the Securities Act of
1933, as amended.
(ix) Adjustment Upon Merger, Etc.. In the
event of (A) any reclassification or change of outstanding shares of
Common Stock issuable upon conversion of the Series A Preferred Stock,
(B) any consolidation, merger or similar combination to which the
Corporation is a party (other than a consolidation or merger in which
the Corporation is the surviving corporation and which does not result
in any reclassification of, or other change in, outstanding shares of
Series A Preferred Stock or
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<PAGE> 7
Common Stock), (C) any conveyance or leasing of all or substantially
all of the assets of the Corporation to another entity, or (D) any
recapitalization or reorganization of the Corporation (items (A)
through (D) being hereinafter referred to as a "Change in Control"),
each Series A Holder shall have the right to receive the same kind and
amount of shares of stock and other securities or property (including
cash) receivable upon such event by a holder of the number of shares of
Common Stock issuable upon conversion of such Series A Preferred Stock
immediately prior to such event. If any Series A Preferred Stock is to
remain outstanding after any such event, or if, as a result of such
event, the Series A Holders are to become the holders of securities
which are convertible into Common Stock of the Corporation or any other
corporation, then effective provisions shall be made in the instrument
effecting or providing for such event such that the holders of such
Series A Preferred shares or such other securities shall have the
benefit of anti-dilution protection which is substantially similar to
that granted by this Section C4(d).
(x) Notice of Adjustment. Whenever any
Conversion Price shall be adjusted as provided in this Section C4(d),
the Corporation shall promptly prepare a statement stating the adjusted
Conversion Price(s) determined as provided herein. Such statement shall
show in detail the facts requiring such adjustment and the manner of
determining such adjustment, including, if applicable, the method of
determining the fair market value of assets. Such statement shall
promptly be delivered to each Series A Holder who shall request the
same in writing.
4. Liquidation Rights.
(a) In the event of any voluntary or involuntary
liquidation, dissolution or winding-up (collectively, a "Liquidation")
of the Corporation, the Series A holders shall be entitled to be paid,
in preference to holders of junior Preferred Stock and the Common Stock
and out of the assets of the Corporation legally available for
distribution to its stockholders, the following price per share in
cash: (x) $255 for each share of Series A-1 Preferred Stock, and (y)
the Initial Conversion Price for each share of Series A-2 Preferred
Stock (such amounts being referred to as the "Liquidation Preference").
If the assets of the Corporation are not sufficient to pay in full the
Liquidation Preference, the Series A holders shall share ratably in
such distribution.
(b) No distribution in Liquidation shall be made to
the holders of any shares of Common Stock or junior Preferred Stock
unless, prior thereto, Series A Holders receive their full Liquidation
Preference in accordance with the terms of Section C4(a) of this
Article. Following the payment of the full amount of the Liquidation
Preference to the Series A Holders no additional distributions shall be
made to such holders.
(c) A merger or consolidation of the Corporation with
or into any other corporation (other than a consolidation of merger in
which the Corporation is the surviving corporation and which does not
result in any reclassification of, or other change in, outstanding
shares of Series A Preferred Stock), or a share exchange or the sale or
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conveyance of substantially all of the assets of the Corporation, shall
be deemed to be a Liquidation of the Corporation within the meaning of
this Section C4.
5. Voting Rights.
(a) Except as provided below, Holders of Series A
Preferred Stock shall be entitled to vote on all matters on which
Holders of the Common Stock are entitled to vote and, except as
otherwise provided in this Certificate of Incorporation or as required
by law, the Common Stock and the Series A Preferred Stock shall vote
together as one class. Each share of Series A Preferred Stock shall
entitle the holder thereof to such number of votes per share on all
matters on which they are entitled to vote equal to the number of
shares of Common Stock (including fractional shares) into which each
share of Series A Preferred Stock is then convertible;
(b) The Series A Holders shall be entitled to vote as
a separate class to elect one (1) director to the Board of Directors.
Except as provided in this subpart (b), the Series A Holders shall not
otherwise be entitled to vote to elect members of the Board of
Directors.
6. No Sinking Fund. The shares of Series A Preferred
Stock shall not be subject to the benefit of a purchase, retirement or
sinking fund.
7. No Implied Limitations. Except as otherwise
provided by express provisions of this Certificate of Incorporation,
nothing herein shall limit, by inference or otherwise, the
discretionary rights of the Board of Directors to issue Preferred Stock
which is pari passu with, or junior to, the Series A Preferred Stock in
right of dividend and liquidation preference, but in no event may the
Board of Directors cause to be issued Preferred Stock which has rights
senior to such rights of the Series A Preferred Stock.
8. Amendments and Waivers. The consent of the holders
of a majority of the shares of Series A Preferred Stock at the time
outstanding shall be necessary for:
(a) the creation or authorization of the creation of
any additional class or series of shares of stock unless the same ranks
junior to the Series A Preferred Stock as to the distribution of assets
on the liquidation, dissolution or winding up of the Corporation, or
the increase of the authorized amount of the Series A Preferred Stock
or the increase of the authorization amount of any additional class or
series of shares of stock unless the same ranks junior to the Series A
Preferred Stock as to the distribution of assets on the liquidation,
dissolution or winding up of the Corporation, or the creation or
authorization of any obligation or security convertible into shares of
Series A Preferred Stock or into shares of any other class or series of
stock unless the same ranks junior to the Series A Preferred Stock as
to the distribution of assets on the liquidation, dissolution or
winding up of the Corporation, whether any such creation, authorization
or increase shall be by means of amendment to the Certificate of
Incorporation or by merger, consolidation or otherwise.
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(b) any Liquidation, dissolution or winding up of the
Corporation or any Change in Control for a price per share of Common
Stock which is less than the then current Conversion Price for the
Series A-2 Preferred Stock (as the same is adjusted in the manner
provided in Section IVC3(d).
(c) the amendment, alteration or repeal of the
Company's Certificate of Incorporation or amendment, alteration or
repeal of its By-laws, if such amendment, alteration or repeal,
directly and adversely affects any rights and preferences of the
holders of the Series A Preferred Stock.
(d) the purchase or set aside of any sums for the
purchase of, or payment of, any dividend or the making of any
distribution on, any shares of Stock other than the Series A Preferred
Stock, except for dividends or other distributions payable on the
Common Stock solely in the form of additional shares of Common Stock
and except for the purchase of shares of Common Stock from former
employees of the Corporation if each such purchase is made pursuant to
contractual rights held by the Corporation relating to the termination
of employment of such former employee.
(e) the Series A Holders to waive the benefit of any
right or privilege granted to Series A Holders hereunder.
D. Additional Series of Stock. Subject to the rights of the
Series A Preferred Stock set forth in Section C8 of this Article, the
Board of Directors is hereby expressly authorized at any time, and from
time to time, to provide for the issuance of shares of Preferred Stock
in one (1) or more additional series, with such designations,
preferences and relative, participating, optional or other rights, and
subject to such qualifications, limitations or restrictions, as shall
be stated in the resolution(s) providing for the issue thereof adopted
by the Board of Directors and the certificate of designations filed
under the GCL setting forth such resolution(s).
V. COMPROMISE OR ARRANGEMENT. Whenever a compromise or arrangement is
proposed between the Corporation and its creditors or any class of them
and/or between the Corporation and its creditors or any class of them
and/or between the Corporation and its shareholders or any class of
them, any court of equitable jurisdiction within the State of Delaware
may, on the application in a summary way of the Corporation or of any
creditor or shareholder thereof, or on the application of any receiver
or receivers appointed for the Corporation under the provisions of
Section 291 of the GCL, or on the application of trustees in
dissolution or of any receiver or receivers appointed for the
Corporation under the provisions of Section 279 of the GCL, order a
meeting of the creditors or class of creditors, and/or of the
shareholders or class of shareholders of the 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 in value of the creditors
or class of creditors, and/or of the shareholders or class of
shareholders of the Corporation, as the case may be, agree to any
compromise or arrangement and to any reorganization of the Corporation
as consequence of such compromise or arrangement, the said
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compromise or arrangement of the said reorganization shall, if
sanctioned by the court to which the said application has been made, be
binding on all of the creditors or class of creditors, and/or on all
the shareholders or class of shareholders of the Corporation, as the
case may be, and also on the Corporation.
VI. LIABILITY OF DIRECTORS. The personal liability of the directors of
the Corporation is hereby eliminated to the fullest extent permitted by
the GCL as the same exists or may hereafter be amended.
VII. INDEMNIFICATION. The Corporation shall, to the fullest extent
permitted by the GCL as the same exists or may hereafter be amended,
indemnify any and all persons whom it shall have power to indemnify
under the GCL from and against any and all expenses, liabilities or
other matters with respect to which such indemnification is permitted
under the GCL, and the indemnification provided for herein shall not be
deemed exclusive of any other rights to which those indemnified may be
entitled under any Bylaw, agreement, vote of shareholders or directors
or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, and shall
continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
VIII. AMENDMENT. 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
shareholders of the Corporation by this Certificate of Incorporation
are granted subject to the provisions of this Article.
IX. ELECTION OF DIRECTORS. Unless otherwise provided in the By-laws of
the Corporation, election of directors need not be by written ballot.
X. AMENDMENT OF BYLAWS. The Board of Directors shall have the power to
make, amend, alter or repeal by By-laws of the Corporation, in whole or
in part.
SECOND: That in lieu of a meeting and vote of stockholders,
the stockholders have given written consent to said amendment and
restatement in accordance with the provisions of Section 228 of the
GCL.
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THIRD: That the aforesaid amendment and restatement was duly
adopted in accordance with the applicable provisions of Sections 242 and 245 of
the General Corporation Law of the State of Delaware.
WITNESS the due execution hereof this 28th day of March, 1996.
ATTEST: FREEMARKETS ONLINE, INC.
By: /s/ Sam E. Kinney Jr. By: /s/ Glenn T. Meakem
------------------------- -----------------------------
Title: Exec. VP Title: President and CEO
---------------------- --------------------------
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CERTIFICATE OF DESIGNATION, RIGHTS AND PREFERENCES
OF THE SERIES B CONVERTIBLE PREFERRED STOCK
OF FREEMARKETS ONLINE, INC.
--------------------------------------
Pursuant to Section 151
of the Delaware General Corporation Law
--------------------------------------
The undersigned, President and Secretary, respectively, of FreeMarkets
OnLine, Inc., a Delaware corporation (the "Company"), certify that pursuant to
authority granted to and vested in the Board of Directors (the "Board of
Directors") of the Company by the provisions of the Amended and Restated
Certificate of Incorporation of the Company, on November 25, 1996 the Board of
Directors has adopted the following resolution creating a series of Preferred
Stock of the Company designated as the Series B Convertible Preferred Stock and
such resolution has not been modified and is in full force and effect on the
date hereof:
RESOLVED, that pursuant to authority expressly granted to and vested in
the Board of Directors by the provisions of the Amended and Restated Certificate
of Incorporation of the Company, the Board of Directors hereby creates a series
of Convertible Preferred Stock, par value $.01 per share, designated as Series
B, consisting of shares of Preferred Stock, and authorizes the issuance thereof,
and hereby fixes the designation and amount thereof and the voting powers,
preferences and relative, participating, optional and other special rights of
the shares of such series, and the qualifications, limitations or restrictions
thereon as follows:
Series B Convertible Preferred Stock
1. Designation and Amount. 6,000 shares of the Preferred Stock, par
value $.01 per share, are hereby constituted as a series of the Preferred Stock
designated as "Series B Convertible Preferred Stock" (the "Series B Preferred
Stock"); shares of the Series B Preferred Stock shall rank prior to the
Company's common stock, par value $.01 per share ("Common Stock"), with respect
to the payment of dividends and upon liquidation and otherwise as specified
herein.
<PAGE> 13
2. Dividends.
(a) Dividends on Other Stock. The Series B Holders shall be
entitled to receive such dividends as may be declared by the Board of Directors;
provided, however, that to the extent the Board of Directors declares cash
dividends with respect to shares of the Series A Preferred Stock of the Company,
it shall also declare cash dividends with respect to the Series B Preferred
Stock in an amount per share equal to the dividends per share declared
simultaneously on the Series A Preferred Stock. The consent of a majority of the
Series A Preferred Stock shall be necessary for the payment of any dividends on
any shares of Series B Preferred Stock. Except as provided in the preceding
sentence, so long as any of the Series B Preferred Stock is outstanding, (i) no
dividends shall be declared or paid on Common Stock or other Preferred Stock
ranking on a parity as to dividends with the Series B Preferred Stock unless an
identical dividend (as adjusted pursuant to Section 3(d)) is paid on the Series
B Preferred Stock and (ii) no dividends (other than dividends payable in stock
junior (with respect to dividends) to the Series B Preferred Stock) shall be
declared or paid on any Preferred Stock ranking junior (with respect to
dividends) to the Series B Preferred Stock;
(b) Dividends Not Paid in Full. When dividends are not paid in
full upon shares of Series B Preferred Stock and any other Preferred Stock or
Common Stock ranking on a parity as to dividends with the Series B Preferred
Stock, all dividends paid upon shares of Series B Preferred Stock, such other
Preferred Stock and Common Stock shall be paid pro rata so that the amount of
dividends paid per share on the Series B Preferred Stock, such other Preferred
Stock and Common Stock shall in all cases bear to each other the same ratio that
accrued dividends per share on the shares of Series B Preferred Stock, such
other Preferred Stock and Common Stock bear to each other.
3. Conversion Rights. The Series B Holders shall have conversion
rights as follows:
(a) Optional Conversion. Each share of Series B Preferred
Stock shall be convertible, without the payment of any additional consideration
by the holder thereof and at the option of the holder thereof, at any time after
the date of issuance of such share (subject to compliance with Section 3(c) of
this Article), into such number of fully paid and non assessable shares of
Common Stock as is determined by multiplying each share of Series B Preferred
Stock to be converted by the quotient obtained by dividing the Initial
Conversion Price for such share (as hereinafter defined) by the Conversion Price
(as hereinafter defined) in effect at the time of conversion. The "Initial
Conversion Price" for each share of Series B Preferred Stock shall be $325 for
each share of Series B Preferred Stock. The "Conversion Price" for each share
shall initially be the Initial Conversion Price, subject to adjustment in the
manner provided in Section 3(d) of this Article.
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(b) Automatic Conversion. Each share of Series B Preferred
Stock shall automatically be converted into shares of Common Stock in the manner
set forth in Section 3(a) at the then effective Conversion Price immediately
prior to the closing of an underwritten public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended, covering
the offer and sale to the public of Common Stock for an aggregate consideration
of at least $10,000,000 (a "Qualified Public Offering"). Each Series B Holder
immediately prior to such automatic conversion shall be entitled to all
dividends which have accrued pursuant to Section 2 of this Article on the Series
B Preferred Stock up to the time of the automatic conversion. Such dividends
shall be paid to all such holders by the issuance of Common Stock at the then
effective Conversion Price on the date of automatic conversion.
(c) Mechanics of Conversion.
(i) No fractional shares of Common Stock shall be
issued upon conversion of the Series B Preferred Stock. In calculating the
number of Common Shares that a Series B Holder shall be entitled to receive upon
conversion, the Corporation shall round any fractional number determined by such
calculation upwards or downwards to the nearest whole number.
(ii) Before any Series B Holder shall be entitled to
convert the same into shares of Common Stock pursuant to Section 3(a) of this
Article, he shall (a) give prior written notice to the Corporation, at the
office of the Corporation, that he elects to convert the same and shall state
therein the number of shares to be converted and the name(s) (with address(es))
in which he wishes the certificate(s) for shares of Common Stock (and any Series
B Preferred Stock which is not being converted) to be issued and (b) surrender
to the Corporation, at the office of the Corporation, the Series B Preferred
Stock certificate(s), duly endorsed. As soon as practicable thereafter, the
Corporation shall issue and deliver at such office to such Series B Holder, or
to his nominee(s), a certificate(s) for the number of shares of Common Stock
(together with a certificate(s) for any Series B Preferred Stock which was not
converted) to which he shall be entitled upon such conversion. Such conversion
shall be deemed to have become effective immediately prior to the close of
business on the date of such surrender of the shares of Series B Preferred Stock
to be converted, the Conversion Price shall be determined as of such date and
the person(s) entitled to receive the shares of Common Stock issuable upon
conversion shall be treated for all purposes as the record holder(s) of such
shares of Common Stock as of such date or, if the stock transfer books of the
Corporation are closed on such date, as of the next succeeding date on which
such books are open.
(iii) Promptly after the closing of a Qualified
Public Offering, the Corporation shall give each Series B Holder a written
notice specifying the date of such closing and the Conversion Price and calling
upon such holder to surrender to the Corporation, in the manner and at the place
specified therein, the certificate(s) representing his shares of Series B
Preferred Stock. From and after receipt of such notice each Series B Holder
shall have the right
3
<PAGE> 15
to have a certificate(s) for the number of shares of Common Stock to which he is
entitled upon such conversion issued to him or to his nominee(s) upon surrender
of his certificate(s) for Series B Preferred Stock at the place and in the
manner specified in such notice (and, in the case of a certificate(s) to be
issued to his nominee(s), upon written notice to the Corporation of the name(s)
and address(es) of such nominee(s)). Such conversion shall be deemed to have
become effective immediately prior to closing of such Qualified Public Offering,
the Conversion Price shall be determined as of such date and time and the
person(s) entitled to receive the shares of Common Stock issuable upon
conversion shall be treated for all purposes as the record holder(s) of such
shares of Common Stock as of such date and time or, if the stock transfer books
of the Corporation are closed on such date, as of the next succeeding date on
which such books are open.
(d) Adjustment to Conversion Price.
(i) Adjustment Upon Stock Dividends, Splits, Etc. If
the Corporation shall at any time (A) pay a dividend, or make a distribution, in
shares of its Common Stock or securities convertible into or exchangeable or
exercisable for shares of its Common Stock, (B) subdivide its outstanding shares
of Common Stock into a greater number of shares by means of a stock split or
otherwise or (C) combine its outstanding shares of Common Stock into a smaller
number of shares, the Conversion Price in effect immediately prior thereto shall
be adjusted so that the holder of a share of Series B Preferred Stock
surrendered for conversion after the record date fixing shareholders to be
affected by such event shall be entitled to receive upon conversion the number
of such shares of Common Stock which such holder would have been entitled to
receive after the happening of such event had such share of Series B Preferred
Stock been converted immediately prior to such record date.
(ii) Adjustment Upon Issuance of Common Stock. If the
Corporation shall at any time issue or sell (or pursuant to clause (iii) below,
be deemed to have issued or sold) any shares of its Common Stock for a
consideration per share less than the Conversion Price in effect immediately
prior to such issuance or sale, then upon such issuance or sale, the Conversion
Price shall be reduced to the price (calculated to the nearest one-hundredth of
a cent) determined by dividing (A) an amount equal to the sum of (1) the product
of the number of shares of Common Stock outstanding immediately prior to such
issuance or sale multiplied by the Conversion Price in effect immediately prior
to such issuance or sale plus (2) the aggregate consideration received by the
Corporation upon such issuance or sale by (B) the number of shares of Common
Stock outstanding immediately after such issuance or sale.
(iii) Treatment of Convertible Securities. If the
Corporation shall grant, issue (whether directly or by assumption in a merger or
otherwise) or sell any security, obligation, option, warrant or other right
which directly or indirectly may be converted into, exchanged or exercised for
or satisfied in shares of Common Stock (such securities and other rights being
hereinafter referred to as "Convertible Securities", and any such conversion,
4
<PAGE> 16
exchange, exercise or satisfaction being hereinafter referred to as a
"conversion"), whether or not the right to effect a conversion thereunder is
immediately exercisable, and the price per share for which Common Stock is
issuable upon such conversion (determined by dividing (A) the total amount
received or receivable by the Corporation as consideration for the issuance or
sale of such Convertible Securities, plus the minimum aggregate amount of
additional consideration payable to the Corporation upon the conversion thereof,
by (B) the total maximum number of shares of Common Stock issuable upon the
conversion of all such Convertible Securities) shall be less than the Conversion
Price in effect immediately prior to such grant, issuance or sale, then for
purposes of making the calculation in clause (ii) above, the total maximum
number of shares of Common Stock issuable upon conversion of all such
Convertible Securities shall (as of the date of the grant, issuance or sale of
such Convertible Securities) be deemed to be outstanding and to have been issued
for such price per share. No further adjustments of the Conversion Price shall
be made upon the issuance of such Common Stock upon conversion of such
Convertible Securities.
(iv) Adjustments Required by Adjustments to
Convertible Securities. If the purchase price provided for in any Convertible
Securities, the additional consideration payable upon conversion of any
Convertible Securities or the rate at which any Convertible Securities are
convertible into Common Stock shall change at any time (other than pursuant to
anti-dilution provisions), then the Conversion Price in effect on the date of
such change shall be readjusted to the Conversion Price which would have been in
effect at such time had such Convertible Securities still outstanding provided
for such changed purchase price, additional consideration or conversion rate, as
the case may be, at the time initially granted, issued or sold.
(v) Treatment of Expired or Unexercised Convertible
Securities. If and to the extent that rights of conversion of Convertible
Securities shall expire or terminate without exercise, the Conversion Price in
effect on the date of such expiration or termination shall be readjusted to the
Conversion Price that would have been in effect at such time had such rights
never existed, and the Common Stock theretofore issuable upon conversion of such
expired or terminated rights shall no longer be deemed to be outstanding.
(vi) Calculation of Consideration. In case of a
grant, issuance or sale of Common Stock or Convertible Securities for cash, for
the purpose of any computation under clauses (ii), (iii) or (iv) above, the
value of the consideration received or receivable by the Corporation shall be
deemed to be the amount of cash received or receivable by the Corporation
therefor. In the case of any grant, issuance or sale of Common Stock or
Convertible Securities for a consideration other than cash or a consideration
part of which shall be other than cash, for the purpose of any computation under
clauses (ii), (iii) or (iv) above the value of the consideration other than cash
received or receivable by the Corporation shall be deemed to be the fair market
value of such consideration as determined in good faith by the Board of
Directors.
5
<PAGE> 17
(vii) Determination of Outstanding Shares. For the
purpose of any computations under clauses (ii), (iii) or (iv) above, the number
of shares of Common Stock outstanding at any given time shall include the number
of shares of Common Stock actually outstanding at such time plus all shares of
Common Stock which are deemed to be outstanding pursuant to clause (iii) above,
but shall not include shares owned or held by or for the account of the
Corporation.
(viii) Exceptions. The provisions of clauses (i) and
(ii) above shall not apply to (A) up to 2600 shares of Common Stock issued or
issuable upon the exercise of stock options or purchase rights granted by the
Corporation from time to time to any of the Corporation's directors, officers or
employees in their capacities as such, (B) the reissuance of securities
previously purchased by the Corporation from any of its employees to any
successor or replacement employee, or (C) securities of the Corporation issued
or sold to the public pursuant to an offering registered under the Securities
Act of 1933, as amended.
(ix) Adjustment Upon Merger, Etc. In the event of (A)
any reclassification or change of outstanding shares of Common Stock issuable
upon conversion of the Series B Preferred Stock, (B) any consolidation, merger
or similar combination to which the Corporation is a party (other than a
consolidation or merger in which the Corporation is the surviving corporation
and which does not result in any reclassification of, or other change in,
outstanding shares of Series B Preferred Stock or Common Stock), (C) any
conveyance or leasing of all or substantially all of the assets of the
Corporation to another entity or (D) any recapitalization or reorganization of
the Corporation (items (A) through (D) being hereinafter referred to as a
"Change in Control"), each Series B Holder shall have the right to receive the
same kind and amount of shares of stock and other securities or property
(including cash) receivable upon such event by a holder of the number of shares
of Common Stock issuable upon conversion of such Series B Preferred Stock
immediately prior to such event. If any Series B Preferred Stock is to remain
outstanding after any such event, or if, as a result of such event, the Series B
Holders are to become the holders of securities which are convertible into
common stock of the Corporation or any other corporation, then effective
provision shall be made in the instrument effecting or providing for such event
such that the holders of such Series B Preferred Shares or such other securities
shall have the benefit of anti-dilution protection which is substantially
similar to that granted by this Section 4(d).
(x) Notice of Adjustment. Whenever any Conversion
Price shall be adjusted as provided in this Section 4(d), the Corporation shall
promptly prepare a statement stating the adjusted Conversion Price(s) determined
as provided herein. Such statement shall show in detail the facts requiring such
adjustment and the manner of determining such adjustment, including, if
applicable, the method of determining the fair market value of assets. Such
statement shall promptly be delivered to each Series B Holder who shall request
the same in writing.
6
<PAGE> 18
4. Liquidation Rights.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up (collectively, a "Liquidation") of the Corporation,
the Series B Holders shall be entitled to be paid, after distribution is made to
the Series A Preferred Stock, but in preference to holders of junior Preferred
Stock and the Common Stock, out of the assets of the Corporation legally
available for distribution to its stockholders, an amount equal to $325 for each
share of Series B Preferred Stock (such amounts being referred to as the
"Liquidation Preference"). If the assets of the Corporation are not sufficient
to pay in full the Liquidation Preference, the Series B Holders shall share
ratably in such distribution.
(b) No distribution in Liquidation shall be made to the
holders of any shares of Common Stock or junior Preferred Stock unless, prior
thereto, Series B Holders receive their full Liquidation Preference in
accordance with the terms of Section 4(a) of this Article. Following the payment
of the full amount of the Liquidation Preference to the Series B Holders no
additional distributions shall be made to such holders.
(c) A merger or consolidation of the Corporation with or into
any other Corporation (other than a consolidation or merger in which the
Corporation is the surviving corporation and which does not result in any
reclassification of, or other change in, outstanding Shares of Series B
Preferred Stock), or a share exchange or the sale or conveyance of substantially
all of the assets of the Corporation, shall be deemed to be a Liquidation of the
Corporation within the meaning of this Section 4.
5. Voting Rights. Except as otherwise provided in this Certificate of
Designation, the Certificate of Incorporation or as required by law, the Common
Stock and the Series B Preferred Stock shall vote together as one class. The
holders of the Series B Preferred Stock shall be entitled to that number of
votes equal to the number of shares of Common Stock issuable upon conversion of
the Series B Preferred Stock.
6. No Sinking Fund. The shares of Series B Preferred Stock shall not be
subject to the benefit of a purchase, retirement or sinking fund.
7. No Implied Limitations. Except as otherwise provided by express
provisions of this Certificate of Designation or the Certificate of
Incorporation, nothing herein shall limit, by inference or otherwise, the
discretionary rights of the Board of Directors to issue Preferred Stock which is
pari passu with, or junior to, the Series B Preferred Stock in right of dividend
and liquidation preference, but in no event may the Board of Directors cause to
be issued Preferred Stock which has rights senior to such rights of the Series B
Preferred Stock.
8. Amendments and Waivers. The consent of the holders of a majority of
the shares of Series B Preferred Stock at the time outstanding shall be
necessary for (a) the Company to amend
7
<PAGE> 19
this Certificate of Designation or the Certificate of Incorporation in a manner
that would materially and adversely affect in the aggregate the rights of the
Series B Holders or (b) the Series B Holders to waive the benefit of any right
or privilege granted to Series B Holders hereunder.
9. General Provisions. In addition to the above provisions with respect
to the Series B Preferred Stock, such Series B Preferred Stock shall be subject
to and be entitled to the benefit of the provisions set forth in the Company's
Certificate of Incorporation with respect to Preferred Stock generally.
8
<PAGE> 20
WITNESS the due execution hereof this 30th day of December, 1996.
FREEMARKETS ONLINE, INC.
By: /S/ Sam E. Kinney, Jr. By /S/ Glen T. Meakem
-------------------------- --------------------------
Title: Secretary Title: President
9
<PAGE> 21
CERTIFICATE OF AMENDMENT
TO
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
FREEMARKETS ONLINE, INC.
Pursuant to Section 242 of the Delaware
General Corporation Law
FreeMarkets Online, Inc., a Delaware corporation (the
"Corporation"), hereby certifies as follows:
FIRST: The Certificate of Incorporation of the Corporation was
filed in the Office of the Secretary of State of Delaware on March 13, 1995 and
a certified copy was recorded in the Office of the Recorder of New Castle
County, Delaware. The Certificate of Incorporation was amended on March 22,
1995, and was Amended and Restated on March 29, 1996.
SECOND: The Amended and Restated Certificate of Incorporation
is hereby further amended as follows:
A: By striking paragraph IV.A of the Amended and Restated
Certificate of Incorporation in its entirety and inserting the following new
paragraph IV.A as follows:
Classes of Stock. The total number of shares of stock which
the Corporation shall have the authority to issue is 40,000,000; of such shares,
the number of common shares which the Corporation shall have the authority to
issue is 20,000,000, par value $.01 per share ("Common Stock"), and the number
of preferred shares which the Corporation shall have the authority to issue is
20,000,000, par value $.01 per share ("Preferred Stock").
<PAGE> 22
B: By striking paragraph IV.C(1) of the Amended and Restated
Certificate of Incorporation in its entirety and inserting the following new
paragraph IV.C(1) as follows:
Designation and Amount:
(a) 3,400,000 shares of the Preferred Stock are
hereby constituted as a series of the Preferred Stock designated as "Series A
Convertible Preferred Stock" (the "Series A Preferred Stock"); shares of the
Series A Preferred Stock shall rank prior the Common Stock, upon liquidation and
otherwise as specified herein;
(b) 1,400,000 shares of the Preferred Stock are
hereby constituted as "Series A-1 Convertible Preferred Stock" ("Series A-1
Preferred Stock") and 2,000,000 shares of the Series A Preferred Stock are
hereby constituted as "Series A-2 Convertible Preferred Stock" (the "Series A-2
Preferred Stock"). Except as set forth in Section IVC3 and 4 below, the Series
A-1 Preferred Stock and Series A-2 Preferred Stock shall be considered as one
class of Stock and shall have all the same rights, preferences and limitations.
THIRD: This amendment to the Amended and Restated Certificate of
Incorporation was duly adopted by the required majority vote of the Board of
Directors and by the written consent of (i) a majority of the outstanding shares
of all classes of stock of the Corporation voting as one class, and (ii) a
majority of the outstanding shares of the Series A Preferred Stock voting as one
class, in accordance with Sections 228 and 242 of the Delaware General
Corporation Law.
<PAGE> 23
IN WITNESS WHEREOF, the Corporation has caused this
Certificate of Amendment to its Amended and Restated Certificate of
Incorporation to be executed by its Vice President and Secretary this 24 day of
FEB, 1998.
FREEMARKETS ONLINE, INC.
By: /s/ Sam E. Kinney Jr.
----------------------------------------
Name: Sam E. Kinney, Jr.
Title: Executive Vice President & Secretary
<PAGE> 24
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF DESIGNATION
OF
FREEMARKETS ONLINE, INC.
Pursuant to Section 242 of the Delaware
General Corporation Law
FreeMarkets Online, Inc., a Delaware corporation (the
"Corporation"), hereby certifies as follows:
FIRST: The Certificate of Designation, Rights and Preferences
of the Series B Convertible Preferred Stock of the Corporation ("Series B
Preferred Stock Designation") was filed in the Office of the Secretary of State
of Delaware on December 13, 1996 and a certified copy was recorded in the Office
of the Recorder of New Castle County, Delaware. There have been no prior
amendments to the Series B Preferred Stock Designation.
SECOND: The Series B Preferred Stock Designation is hereby
amended as follows:
A: By striking paragraph 1 in its entirety and inserting the
following new paragraph 1 as follows:
Designation and Amount. 1,200,000 shares of the Preferred
Stock, par value $.01 per share, are hereby constituted as a series of the
Preferred Stock designated as "Series B Convertible Preferred Stock" (the
"Series B Preferred Stock"); shares of the Series B Preferred Stock shall rank
prior to the Company's common stock, par value $.01 per share ("Common Stock")
with respect to the payment of dividends and upon liquidation and otherwise as
specified herein.
<PAGE> 25
THIRD: This amendment to the Series B Preferred Stock
Designation was duly adopted by the required majority vote of the Board of
Directors and by the written consent of (i) a majority of the outstanding shares
of all classes of stock of the Corporation voting as one class, and (ii) a
majority of the outstanding shares of the Series B Preferred Stock voting as one
class, in accordance with Sections 228 and 242 of the Delaware General
Corporation Law.
IN WITNESS WHEREOF, the Corporation has caused this
Certificate of Amendment to its Series B Preferred Stock Designation to be
executed by its Vice President and Secretary this 24 day of FEB, 1998.
FREEMARKETS ONLINE, INC.
By: /s/ Sam E. Kinney, Jr.
-------------------------------------------
Name: Sam E. Kinney Jr.
Title: Executive Vice President & Secretary
<PAGE> 26
CERTIFICATE OF DESIGNATION, RIGHTS AND PREFERENCES
OF THE SERIES C CONVERTIBLE PREFERRED STOCK
OF FREEMARKETS ONLINE, INC.
--------------------------------------
Pursuant to Section 151
of the Delaware General Corporation Law
--------------------------------------
The undersigned, Secretary and President, respectively, of FreeMarkets
OnLine, Inc., a Delaware corporation (the "Corporation"), certify that pursuant
to authority granted to and vested in the Board of Directors (the "Board of
Directors") of the Corporation by the provisions of the Amended and Restated
Certificate of Incorporation of the Corporation, as amended (the "Certificate of
Incorporation"), on February 26, 1999 the Board of Directors adopted the
following resolution creating a series of Preferred Stock of the Corporation
designated as the Series C Convertible Preferred Stock and such resolution has
not been modified and is in full force and effect on the date hereof:
RESOLVED, that pursuant to authority expressly granted to and vested in
the Board of Directors by the provisions of the Amended and Restated Certificate
of Incorporation of the Corporation, as amended, the Board of Directors hereby
creates a series of Convertible Preferred Stock, par value $.01 per share,
designated as Series C, consisting of shares of Preferred Stock, and authorizes
the issuance thereof, and hereby fixes the designation and amount thereof and
the voting powers, preferences and relative, participating, optional and other
special rights of the shares of such series, and the qualifications, limitations
or restrictions thereon as follows:
Series C Convertible Preferred Stock
1. Designation and Amount. 768,693 shares of the Preferred Stock, par
value $.01 per share, are hereby constituted as a series of the Preferred Stock
designated as "Series C Convertible Preferred Stock" (the "Series C Preferred
Stock"); shares of the Series C Preferred Stock shall rank prior to the
Corporation's common stock, par value $.01 per share ("Common Stock") and the
Corporation's Series B Convertible Preferred Stock, par value $.01 per share
("Series B Preferred Stock"), and shall rank on parity with the shares of the
Corporation's Series A Convertible Preferred Stock, par value $.01 per share
("Series A Preferred Stock"), with respect to the payment of dividends and upon
liquidation and otherwise as specified herein.
2. Dividends.
(a) Dividends on Other Stock. The holders of Series C Preferred Stock
(the "Series C Holders") shall be entitled to receive such dividends as may be
declared by the Board of
<PAGE> 27
Directors. So long as any of the Series C Preferred Stock is outstanding, (i) no
dividends shall be declared or paid on any other preferred stock now existing or
hereafter created ("Preferred Stock") ranking on a parity as to dividends with
Series C Preferred Stock unless an identical dividend (as adjusted pursuant to
Section 3(d)) is paid on the Series C Preferred Stock and (ii) no dividends
shall be declared or paid on any Preferred Stock ranking junior to the Series C
Preferred Stock (including, without limitation, the Corporation's Series B
Preferred Stock) or on any Common Stock unless an identical or greater dividend
is declared and paid on the Series C Preferred Stock outstanding. Any dividend
declared on the Series C Preferred Stock shall be non-cumulative.
(b) Dividends Not Paid in Full. When dividends are not paid in full
upon shares of Series C Preferred Stock and any other Preferred Stock ranking on
a parity as to dividends with the Series C Preferred Stock, all dividends paid
upon shares of Series C Preferred Stock and such other Preferred Stock shall be
paid pro rata so that the amount of dividends paid per share on the Series C
Preferred Stock and such other Preferred Stock shall in all cases bear to each
other the same ratio that accrued dividends per share on the shares of Series C
Preferred Stock and such other Preferred Stock bear to each other.
3. Conversion Rights. The Series C Holders shall have conversion
rights as follows:
(a) Optional Conversion. Each share of Series C Preferred Stock shall
be convertible, without the payment of any additional consideration by the
holder thereof and at the option of the holder thereof, at any time after the
date of issuance of such share (subject to compliance with Section 3(c) of this
Article), into such number of fully paid and nonassessable shares of Common
Stock as is determined by dividing the Initial Conversion Price for such share
(as hereinafter defined) by the Conversion Price (as hereinafter defined) in
effect at the time of conversion. The "Initial Conversion Price" for each share
of Series C Preferred Stock shall be $14.31. The "Conversion Price" for each
share shall initially be the Initial Conversion Price, subject to adjustment in
the manner provided in Section 3(d) of this Article.
(b) Automatic Conversion. Each share of Series C Preferred Stock shall
automatically be converted into shares of Common Stock at the then effective
Conversion Price upon the earlier of (i) immediately prior to the closing of an
underwritten public offering (a "Qualified Public Offering") pursuant to an
effective registration statement under the Securities Act of 1933, as amended,
covering the offer and sale to the public of Common Stock for an aggregate
consideration of at least $30,000,000 and a per share price to the public of at
least two times the per share price (on an as-converted basis calculated as of
the closing of the Qualified Public Offering) paid for each share of the Series
C Preferred Stock upon the issuance thereof or (ii) the date specified by vote
or written consent or agreement of the holders of at least a majority of the
outstanding shares of Series C Preferred Stock (a "Qualified Election"). Each
Series C Holder immediately prior to such automatic conversion shall be entitled
to all dividends which
2
<PAGE> 28
have accrued pursuant to Section 2 of this Article on the Series C Preferred
Stock up to the time of the automatic conversion. Such dividends shall be paid
to all such holders by the issuance of Common Stock at the then effective
Conversion Price on the date of automatic conversion.
(c) Mechanics of Conversion.
(i) No fractional shares of Common Stock shall be issued upon
conversion of the Series C Preferred Stock. In calculating the number of shares
of Common Stock that a Series C Holder shall be entitled to receive upon
conversion, the Corporation shall round any fractional number determined by such
calculation upwards or downwards to the nearest whole number.
(ii) Before any Series C Holder shall be entitled to convert
the same into shares of Common Stock pursuant to Section 3(a) of this Article,
he shall (a) give prior written notice to the Corporation, at the office of the
Corporation, that he elects to convert the same and shall state therein the
number of shares to be converted and the name(s) (with addresses)) in which he
wishes the certificate(s) for shares of Common Stock (and any Series C Preferred
Stock which is not being converted) to be issued and (b) surrender to the
Corporation, at the office of the Corporation, the Series C Preferred Stock
certificate(s), duly endorsed. As soon as practicable thereafter, the
Corporation shall issue and deliver at such office to such Series C Holder, or
to his nominee(s), a certificate(s) for the number of shares of Common Stock
(together with a certificate(s) for any Series C Preferred Stock which was not
converted) to which he shall be entitled upon such conversion. Such conversion
shall be deemed to have become effective immediately prior to the close of
business on the date of such surrender of the shares of Series C Preferred Stock
to be converted, the Conversion Price shall be determined as of such date and
the person(s) entitled to receive the shares of Common Stock issuable upon
conversion shall be treated for all purposes as the record holder(s) of such
shares of Common Stock as of such date or, if the stock transfer books of the
Corporation are closed on such date, as of the next succeeding date on which
such books are open.
(iii) Promptly after a Qualified Election or the closing of a
Qualified Public Offering, the Corporation shall give each Series C Holder a
written notice specifying the date of such Qualified Election or closing of a
Qualified Public Offering and the applicable Conversion Price and calling upon
such holder to surrender to the Corporation, in the manner and at the place
specified therein, the certificate(s) representing his shares of Series C
Preferred Stock. From and after receipt of such notice, each Series C Holder
shall have the right to have a certificate(s) for the number of shares of Common
Stock to which he is entitled upon such conversion issued to
him or to his nominee(s) upon surrender of his certificate(s) for Series C
Preferred Stock at the place and in the manner specified in such notice (and, in
the case of a certificate(s) to be issued to his nominee(s), upon written notice
to the Corporation of the name(s) and address(es) of such nominee(s)). Such
conversion shall be deemed to have become effective immediately prior to the
date of the Qualified Election or the closing of such Qualified Public Offering,
the Conversion Price shall be determined as of such date and time and the
person(s) entitled to
2
<PAGE> 29
receive the shares of Common Stock issuable upon conversion shall be treated for
all purposes as the record holder(s) of such shares of Common Stock as of such
date and time or, if the stock transfer books of the Corporation are closed on
such date, as of the next succeeding date on which such books are open.
(d) Adjustment to Conversion Price.
(i) Adjustment Upon Stock Dividends, Splits, Etc. If the
Corporation shall at any time (A) pay a dividend, or make a distribution, in
shares of its Common Stock or securities convertible into or exchangeable or
exercisable for shares of its Common Stock, (B) subdivide its outstanding shares
of Common Stock into a greater number of shares by means of a stock split or
otherwise or (C) combine its outstanding shares of Common Stock into a smaller
number of shares, the applicable Conversion Price in effect immediately prior
thereto shall be adjusted so that the holder of a share of Series C Preferred
Stock surrendered for conversion after the record date fixing shareholders to be
affected by such event shall be entitled to receive upon conversion the number
of such shares of Common Stock which such holder would have been entitled to
receive after the happening of such event had such share of Series C Preferred
Stock been converted immediately prior to such record date.
(ii) Adjustment Upon Issuance of Common Stock. If the
Corporation shall at any time issue or sell (or pursuant to clause (iii) below,
be deemed to have issued or sold) any shares of its Common Stock in a private
placement for a consideration per share less than the Conversion Price in effect
immediately prior to such issuance or sale, then upon such issuance or sale, the
Conversion Price shall be reduced to the price (calculated to the nearest
one-hundredth of a cent) determined by dividing (A) the aggregate consideration
received by the Corporation upon such issuance or sale by (B) the number of
additional shares of Common Stock so issued or sold.
(iii) Treatment of Convertible Securities. If the Corporation
shall grant, issue (whether directly or by assumption in a merger or otherwise)
or sell any security, obligation, option, warrant or other right which directly
or indirectly may be converted into, exchanged or exercised for or satisfied in
shares of Common Stock (such securities and other rights being hereinafter
referred to as "Convertible Securities," and any such conversion, exchange,
exercise or satisfaction being hereinafter referred to as a "conversion"),
whether or not the right to effect a
conversion thereunder is immediately exercisable, and the price per share for
which Common Stock is issuable upon such conversion (determined by dividing (A)
the total amount received or receivable by the Corporation as consideration for
the issuance or sale of such Convertible Securities, plus the minimum aggregate
amount of additional consideration payable to the Corporation upon the
conversion thereof, by (B) the total maximum number of shares of Common Stock
issuable upon the conversion of all such Convertible Securities) shall be less
than the Conversion Price in effect immediately prior to such grant, issuance or
sale, then for purposes of making the calculation in clause (ii) above, the
total maximum number of shares of
4
<PAGE> 30
Common Stock issuable upon conversion of all such Convertible Securities shall
(as of the date of the grant, issuance or sale of such Convertible Securities)
be deemed to be outstanding and to have been issued for such price per share. No
further adjustments of the Conversion Price shall be made upon the issuance of
such Common Stock upon conversion of such Convertible Securities.
(iv) Adjustment Required by Adjustments to Convertible Securities. If
the purchase price provided for in any Convertible Securities, the additional
consideration payable upon conversion of any Convertible Securities or the rate
at which any Convertible Securities are convertible into Common Stock shall
change at any time (other than pursuant to anti-dilution provisions), then the
Conversion Price in effect on the date of such change shall be readjusted to the
Conversion Price which would have been in effect at such time had such
Convertible Securities still outstanding provided for such changed purchase
price, additional consideration or conversion rate, as the case may be, at the
time initially granted, issued or sold.
(v) Treatment of Expired or Unexercised Convertible Securities. If and
to the extent that rights of conversion of Convertible Securities shall expire
or terminate without exercise, the Conversion Price in effect on the date of
such expiration or termination shall be readjusted to the Conversion Price that
would have been in effect at such time had such rights never existed, and the
Common Stock theretofore issuable upon conversion of such expired or terminated
rights shall no longer be deemed to be outstanding.
(vi) Calculation of Consideration. In case of a grant, issuance or sale
of Common Stock or Convertible Securities solely for cash, for the purpose of
any computation under clauses (ii), (iii) or (iv) above, the value of the
consideration received or receivable by the Corporation shall be deemed to be
the amount of cash received or receivable by the Corporation therefor. In the
case of any grant, issuance or sale of Common Stock or Convertible Securities
for a consideration other than cash or a consideration part of which shall be
other than cash, for the purpose of any computation under clauses (ii), (iii) or
(iv) above the value of the consideration other than cash received or receivable
by the Corporation shall be deemed to be the fair market value of such
consideration as determined in good faith by the Board of Directors.
(vii) Determination of Outstanding Shares. For the purpose of any
computations under clauses (ii), (iii) or (iv) above, the number of shares of
Common Stock outstanding at any given time shall include the number of shares of
Common Stock actually outstanding at such time plus all shares of Common Stock
which are deemed to be outstanding pursuant to clause (iii) above, but shall not
include shares owned or held by or for the account of the Corporation.
(viii) Exceptions. The provisions of clauses (i), (ii) and (iii) above
shall not apply to (A) shares of Common Stock issued or issuable upon the
exercise of stock options or purchase rights or warrants granted by the
Corporation from time to time to any of the Corporation's directors, officers,
employees or consultants in plans approved by the Board of Directors, (B) the
5
<PAGE> 31
reissuance of securities previously purchased by the Corporation from any of its
employees to any successor, replacement or other employee, or (C) securities of
the Corporation issued or sold to the public pursuant to an offering registered
under the Securities Act of 1933, as amended.
(ix) Adjustment Upon Merger, Etc. In the event of (A) any
reclassification or change of outstanding shares of Common Stock issuable upon
conversion of the Series C Preferred Stock, (B) any consolidation, merger or
similar combination to which the Corporation is a party (other than a
consolidation or merger in which the Corporation is the surviving corporation
and which does not result in any reclassification of, or other change in,
outstanding shares of Series C Preferred Stock or Common Stock), (C) any
conveyance or leasing of all or substantially all of the assets of the
Corporation to another entity or (D) any recapitalization or reorganization of
the Corporation (items (A) through (D) being hereinafter referred to as a
"Change in Control"), each Series C Holder shall have the right to receive the
same kind and amount of shares of stock and other securities or property
(including cash) receivable upon such event by a holder of the number of shares
of Common Stock issuable upon conversion of such Series C Preferred Stock
immediately prior to such event. If any Series C Preferred Stock is to remain
outstanding after any such event, or if, as a result of such event, the Series C
Holders are to become the holders of securities which are convertible into
common stock of the Corporation or any other corporation, then effective
provision shall be made in the instrument effecting or providing for such event
such that the holders of such Series C Preferred shares or such other securities
shall have the benefit of anti-dilution protection which is substantially
similar to that granted by this Section 3(d).
(x) Notice of Adjustment. Whenever any Conversion Price shall be
adjusted as provided in this Section 3(d), the Corporation shall promptly
prepare a statement stating the adjusted Conversion Price(s) determined as
provided herein. Such statement shall show in detail the facts requiring such
adjustment and the manner of determining such adjustment, including, if
applicable, the method of determining the fair market value of assets. Such
statement shall promptly be delivered to each Series C Holder who shall request
the same in writing.
4. Liquidation Rights.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up (collectively, a "Liquidation") of the Corporation,
the Series C Holders shall be entitled to be paid in preference to holders of
the Common Stock, the Series B Preferred Stock or other Preferred Stock junior
to the Series C Preferred Stock, out of the assets of the Corporation legally
available for distribution to its stockholders, an amount equal to $14.31 (plus
any accrued but unpaid dividends, if any) for each share of Series C Preferred
Stock (such amounts being referred to as the "Liquidation Preference"). If the
assets of the Corporation are not sufficient to pay in full the Liquidation
Preference, the Series C Holders shall share ratably in such distribution
together with holders of Series A Preferred Stock.
6
<PAGE> 32
(b) No distribution in Liquidation shall be made to the
holders of any shares of Common Stock, Series B Preferred Stock or other
Preferred Stock junior to the Series C Preferred Stock unless, prior thereto,
Series C Holders receive their full Liquidation Preference in accordance with
the terms of Section 4(a) of this Article. Following the payment of the full
amount of the Liquidation Preference to the Series C Holders no additional
distributions shall be made to such holders.
(c) A merger or consolidation of the Corporation with or into
any other corporation (other than a consolidation or merger in which the
Corporation is the surviving corporation and which does not result in any
reclassification of, or other change in, outstanding Shares of Series C
Preferred Stock), or a share exchange or the sale or conveyance of substantially
all of the assets of the Corporation, shall be deemed to be a Liquidation of the
Corporation within the meaning of this Section 4.
5. Voting Rights. Series C Holders shall be entitled to vote on all
matters on which Holders of the Common Stock are entitled to vote and, except as
otherwise provided in this Certificate of Incorporation or as required by law,
the Common Stock and the Series C Preferred Stock shall vote together as one
class. Each share of Series C Preferred Stock shall entitle the holder thereof
to such number of votes per share on all matters on which they are entitled to
vote equal to the number of shares of Common Stock (including fractional shares)
into which each share of Series C Preferred Stock is then convertible.
6. No Sinking Fund. The shares of Series C Preferred Stock shall not be
subject to the benefit of a purchase, retirement or sinking fund.
7. No Implied Limitations. Except as otherwise provided by express
provisions of this Certificate of Designation or the Certificate of
Incorporation, nothing herein shall limit, by inference or otherwise, the
discretionary rights of the Board of Directors to issue Preferred Stock which is
pari passu with, or junior to, the Series C Preferred Stock in right of dividend
and liquidation preference, but in no event may the Board of Directors cause to
be issued Preferred Stock which has rights senior to such rights of the Series C
Preferred Stock.
8. General Provisions. In addition to the above provisions with respect
to the Series C Preferred Stock, such Series C Preferred Stock shall be subject
to and be entitled to the benefit of the provisions set forth in the
Corporation's Certificate of Incorporation with respect to Preferred Stock
generally.
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7
<PAGE> 33
WITNESS the due execution hereof this 8th day of April, 1999.
FREEMARKETS ONLINE, INC.
By: /s/ Sam E. Kinney, Jr. By: /s/ Glen T. Meakem
---------------------------- ------------------------
Sam E. Kinney, Jr. Glen T. Meakem
Title: Secretary Title: President
8
<PAGE> 34
CERTIFICATE OF AMENDMENT
TO
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION, AS AMENDED
OF
FREEMARKETS ONLINE, INC.
Pursuant to Section 242 of the Delaware
General Corporation Law
FreeMarkets OnLine, Inc., a Delaware corporation (the
"Corporation"), hereby certifies as follows:
FIRST: The Certificate of Incorporation of the Corporation was
filed in the Office of the Secretary of State of Delaware on March 13, 1995, and
a certified copy was recorded in the Office of the Recorder of New Castle
County, Delaware. The Certificate of Incorporation was amended on March 22,
1995, was Amended and Restated on March 29, 1996 and was further amended on
February 26, 1998.
SECOND: The Amended and Restated Certificate of Incorporation,
as amended, is hereby further amended as follows:
A: By striking paragraph IV.A of the Amended and Restated
Certificate of Incorporation, as amended, in its entirety and inserting the
following new paragraph IV.A as follows:
Classes of Stock. The total number of shares of stock which
the Corporation shall have the authority to issue is 250,000,000; of such
shares, the number of common shares which the Corporation shall have the
authority to issue is 200,000,000, par value $.01 per share ("Common Stock"),
and the number of preferred shares which the Corporation shall have the
authority to issue is 50,000,000, par value $.01 per share ("Preferred Stock").
<PAGE> 35
B: By striking paragraph IV.C(1) of the Amended and Restated
Certificate of Incorporation, as amended, in its entirety and inserting the
following new paragraph IV.C(1) as follows:
Designation and Amount.
(a) 13,600,000 shares of the Preferred Stock are hereby
constituted as a series of the Preferred Stock designated as "Series A
Convertible Preferred Stock" (the "Series A Preferred Stock"); shares of the
Series A Preferred Stock shall rank prior the Common Stock, upon liquidation and
otherwise as specified herein;
(b) 5,600,000 shares of the Preferred Stock are hereby
constituted as "Series A-1 Convertible Preferred Stock" (the "Series A-1
Preferred Stock"), and 8,000,000 shares of the Series A Preferred Stock are
hereby constituted as "Series A-2 Convertible Preferred Stock" (the "Series A-2
Preferred Stock"). Except as set forth in Section IV.C.3 and IV.C.4 below, the
Series A-1 Preferred Stock and Series A-2 Preferred Stock shall be considered as
one class of Stock and shall have all the same rights, preferences and
limitations.
THIRD: This amendment to the Amended and Restated Certificate
of Incorporation was duly adopted by the required majority vote of the Board of
Directors and by the vote of (i) a majority of the outstanding shares of all
classes of stock of the Corporation voting as one class, and (ii) a majority of
the outstanding shares of the Series A Preferred Stock voting as one class, in
accordance with Section 242 of the Delaware General Corporation Law.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 36
IN WITNESS WHEREOF, the Corporation has caused this
Certificate of Amendment to its Amended and Restated Certificate of
Incorporation, as amended, to be executed by its President this 30th day of
June, 1999.
FREEMARKETS ONLINE, INC.
By: /s/ Glen T. Meakem
-----------------------------
Name: Glen T. Meakem
Title: President
<PAGE> 37
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF DESIGNATION OF
SERIES B CONVERTIBLE PREFERRED STOCK, AS AMENDED
OF
FREEMARKETS ONLINE, INC.
Pursuant to Section 242 of the Delaware
General Corporation Law
FreeMarkets OnLine, Inc., a Delaware corporation (the
"Corporation"), hereby certifies as follows:
FIRST: The Certificate of Designation, Rights and Preferences
of the Series B Convertible Preferred Stock of the Corporation ("Series B
Preferred Stock Designation") was filed in the Office of the Secretary of State
of Delaware on December 30, 1996, and a certified copy was recorded in the
Office of the Recorder of New Castle County, Delaware. The Series B Preferred
Stock Designation was amended on February 26, 1998.
SECOND: The Series B Preferred Stock Designation, as amended,
is hereby further amended as follows:
A: By striking paragraph 1 in its entirety and inserting the
following new paragraph 1 as follows:
Designation and Amount. 4,800,000 shares of the Preferred
Stock, par value $.01 per share, are hereby constituted as a series of the
Preferred Stock designated as "Series B Convertible Preferred Stock" (the
"Series B Preferred Stock"); shares of the Series B Preferred Stock shall rank
<PAGE> 38
prior to the Company's common stock, par value $.01 per share ("Common Stock"),
with respect to the payment of dividends and upon liquidation and otherwise as
specified herein.
THIRD: This amendment to the Series B Preferred Stock
Designation was duly adopted by the required majority vote of the Board of
Directors and by the vote of (i) a majority of the outstanding shares of all
classes of stock of the Corporation voting as one class, and (ii) a majority of
the outstanding shares of the Series B Preferred Stock voting as one class, in
accordance with Section 242 of the Delaware General Corporation Law.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 39
IN WITNESS WHEREOF, the Corporation has caused this
Certificate of Amendment to its Series B Preferred Stock Designation, as
amended, to be executed by its President this 30th day of June, 1999.
FREEMARKETS ONLINE, INC.
By: /s/ Glen T. Meakem
---------------------------
Name: Glen T. Meakem
Title: President
<PAGE> 40
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF DESIGNATION OF
SERIES C CONVERTIBLE PREFERRED STOCK
OF
FREEMARKETS ONLINE, INC.
Pursuant to Section 242 of the Delaware
General Corporation Law
FreeMarkets OnLine, Inc., a Delaware corporation (the
"Corporation"), hereby certifies as follows:
FIRST: The Certificate of Designation, Rights and Preferences
of the Series C Convertible Preferred Stock of the Corporation ("Series C
Preferred Stock Designation") was filed in the Office of the Secretary of State
of Delaware on April 9, 1999, and a certified copy was recorded in the Office of
the Recorder of New Castle County, Delaware. The Series C Preferred Stock
Designation has never been amended.
SECOND: The Series C Preferred Stock Designation is hereby
amended as follows:
A: By striking paragraph 1 in its entirety and inserting the
following new paragraph 1 as follows:
Designation and Amount. 3,074,772 shares of the Preferred
Stock, par value $.01 per share, are hereby constituted as a series of the
Preferred Stock designated as "Series C Convertible Preferred Stock" (the
"Series C Preferred Stock"); shares of the Series C Preferred Stock shall rank
prior to the Corporation's common stock, par value $.01 per share ("Common
Stock"), and the Corporation's Series B Preferred Stock, par value $.01 per
share ("Series B Preferred Stock"), and
<PAGE> 41
shall rank on parity with the shares of the Corporation's Series A Convertible
Preferred Stock, par value $.01 per share ("Series A Preferred Stock"), with
respect to the payment of dividends and upon liquidation and otherwise as
specified herein.
THIRD: This amendment to the Series C Preferred Stock
Designation was duly adopted by the required majority vote of the Board of
Directors and by the vote of (i) a majority of the outstanding shares of all
classes of stock of the Corporation voting as one class, and (ii) a majority of
the outstanding shares of the Series C Preferred Stock voting as one class, in
accordance with Section 242 of the Delaware General Corporation Law.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 42
IN WITNESS WHEREOF, the Corporation has caused this
Certificate of Amendment to its Series C Preferred Stock Designation to be
executed by its President this 30th day of June, 1999.
FREEMARKETS ONLINE, INC.
By: /s/ Glen T. Meakem
--------------------------
Name: Glen T. Meakem
Title: President
<PAGE> 43
CERTIFICATE OF AMENDMENT
TO
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION, AS AMENDED
OF
FREEMARKETS ONLINE, INC.
Pursuant to Section 242 of the Delaware
General Corporation Law
FreeMarkets OnLine, Inc., a Delaware corporation (the "Corporation"),
hereby certifies as follows:
FIRST: The Certificate of Incorporation of the Corporation was filed in
the Office of the Secretary of State of Delaware on March 13, 1995, and a
certified copy was recorded in the Office of the Recorder of New Castle County,
Delaware. The Certificate of Incorporation was amended on March 22, 1995, was
amended and restated on March 29, 1996, was amended on February 26, 1998, and
was further amended on June 30, 1999 (as so amended, the "Certificate of
Incorporation").
SECOND: The Certificate of Incorporation is hereby further amended by
deleting Paragraph I thereof in its entirety and inserting in its place the
following new Paragraph I:
"I. NAME: The name of the Corporation is FreeMarkets, Inc."
THIRD: This amendment to the Certificate of Incorporation was duly
adopted by the unanimous written consent of the Board of Directors and by the
written consent of a majority of the outstanding shares of all classes of stock
of the Corporation voting together as one class in accordance with Sections
141(f), 228 and 242 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to its Amended and Restated Certificate of Incorporation, As Amended,
to be executed by its President this 26th day of August, 1999.
FREEMARKETS ONLINE, INC.
By: /s/ Glen T. Meakem
-------------------------------
Name: Glen T. Meakem
Title: President
<PAGE> 44
CERTIFICATE OF AMENDMENT
TO
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION, AS AMENDED
OF
FREEMARKETS, INC.
Pursuant to Section 242 of the Delaware
General Corporation Law
FreeMarkets, Inc., a Delaware corporation formerly known as
FreeMarkets OnLine, Inc. (the "Corporation"), hereby certifies as follows:
FIRST: The Certificate of Incorporation of the Corporation was
filed in the Office of the Secretary of State of Delaware on March 13, 1995, and
a certified copy was recorded in the Office of the Recorder of New Castle
County, Delaware. The Certificate of Incorporation was amended on March 22,
1995, was amended and restated on March 29, 1996, was amended on February 26,
1998, was amended on June 30, 1999, and was further amended on August 30, 1999
(as amended, the "Amended and Restated Certificate of Incorporation").
SECOND: The Amended and Restated Certificate of Incorporation
is hereby further amended by deleting Paragraph IV.C.3(d)(i) thereof in its
entirety and inserting in its place the following new Paragraph IV.C.3(d)(i):
"(i) Adjustment Upon Stock Dividends, Splits, Etc. If the
Corporation shall at any time (A) pay a dividend on its Common
Stock in shares of its Common Stock or securities convertible
into or exchangeable or exercisable for shares of its Common
Stock without a corresponding dividend on the Series A
Preferred Stock, (B) subdivide its outstanding shares of
Common Stock into a greater number of shares by means of a
stock split or otherwise without a corresponding subdivision
of its outstanding shares of Series A Preferred Stock or (C)
combine its outstanding shares of Common Stock into a smaller
number of shares without a corresponding combination of its
1
<PAGE> 45
outstanding shares of Series A Preferred Stock, the applicable
Conversion Price with respect to the Series A-1 Preferred
Stock and/or the Series A-2 Preferred Stock, as the case may
be, in effect immediately prior thereto shall be adjusted so
that the holder of a share of Series A-1 Preferred Stock
and/or Series A-2 Preferred Stock surrendered for conversion
after the record date fixing shareholders to be affected by
such event shall be entitled to receive upon conversion the
number of such shares of Common Stock which such holder would
have been entitled to receive after the happening of such
event had such share of Series A-1 Preferred Stock and/or
Series A-2 Preferred Stock been converted immediately prior to
such record date."
THIRD: The Amended and Restated Certificate of Incorporation
is hereby further amended by adding a new subsection (D) to the end of Paragraph
IV.C.3.(d)(viii) as follows:
"or (D) warrants for up to 304,431 shares of Series D
Convertible Preferred Stock issued to United Technologies
Corporation or any direct or indirect wholly owned subsidiary
thereof, or Convertible Securities or Common Stock issued or
issuable pursuant to the exercise of such warrants or the
conversion of any Convertible Securities issuable thereunder."
FOURTH: The Amended and Restated Certificate of Incorporation
is hereby further amended by deleting Paragraph IV.C.4(a) thereof in its
entirety and inserting in its place the following new Paragraph IV.C.4(a):
"(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding-up (collectively, a "Liquidation") of
the Corporation, the Series A holders shall be entitled to be
paid, in preference to holders of junior Preferred Stock and
the Common Stock and out of the assets of the Corporation
legally available for distribution to its stockholders, the
following price per share in cash: (x) $255 for each share of
Series A-1 Preferred Stock, and (y) the Initial Conversion
Price for each share of Series A-2 Preferred Stock, as
adjusted in each case to reflect any dividends, subdivisions
or combinations as to such shares (such amounts being referred
to as the "Liquidation Preference"). If the assets of the
Corporation are not sufficient to pay in full the Liquidation
Preference, the Series A holders shall share ratably in such
distribution together with holders of Series C Preferred Stock
and holders of Series D Preferred Stock."
FIFTH: These amendments to the Amended and Restated
Certificate of Incorporation were duly adopted by the Board of Directors and by
the written consent of (i) a
2
<PAGE> 46
majority of the outstanding shares of all classes of stock of the Corporation
voting as one class, and (ii) a majority of the outstanding shares of the Series
A Preferred Stock voting as one class, in accordance with Sections 228 and 242
of the Delaware General Corporation Law.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
3
<PAGE> 47
IN WITNESS WHEREOF, the Corporation has caused this
Certificate of Amendment to Amended and Restated Certificate of Incorporation,
As Amended, to be executed by its President this 2nd day of September, 1999.
FREEMARKETS, INC.
By: /s/ Glen T. Meakem
-------------------------------
Name: Glen T. Meakem
Title: President
4
<PAGE> 48
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF DESIGNATION OF
SERIES B CONVERTIBLE PREFERRED STOCK, AS AMENDED
OF
FREEMARKETS, INC.
Pursuant to Section 242 of the Delaware
General Corporation Law
FreeMarkets, Inc., a Delaware corporation formerly known as
FreeMarkets OnLine, Inc. (the "Corporation"), hereby certifies as follows:
FIRST: The Certificate of Designation, Rights and Preferences
of the Series B Convertible Preferred Stock of the Corporation ("Series B
Preferred Stock Designation") was filed in the Office of the Secretary of State
of Delaware on December 30, 1996, and a certified copy was recorded in the
Office of the Recorder of New Castle County, Delaware. The Series B Preferred
Stock Designation was amended on February 26, 1998 and was further amended on
June 30, 1999.
SECOND: The Series B Preferred Stock Designation, as amended,
is hereby further amended by deleting Paragraph 3(d)(i) thereof in its entirety
and inserting in its place the following new Paragraph 3(d)(i):
"(i) Adjustment Upon Stock Dividends, Splits, Etc. If the
Corporation shall at any time (A) pay a dividend on its Common
Stock in shares of its Common Stock or securities convertible
into or exchangeable or exercisable for shares of its Common
Stock without a corresponding dividend on the Series B
Preferred Stock, (B) subdivide its outstanding shares of
Common Stock into a greater number of shares by means of a
stock split or otherwise without a corresponding subdivision
of its outstanding shares of Series B Preferred Stock, or (C)
combine its outstanding shares of Common Stock into a smaller
number of shares without
<PAGE> 49
a corresponding combination of its outstanding shares of
Series B Preferred Stock, the Conversion Price in effect
immediately prior thereto shall be adjusted so that the holder
of a share of Series B Preferred Stock surrendered for
conversion after the record date fixing shareholders to be
affected by such event shall be entitled to receive upon
conversion the number of such shares of Common Stock which
such holder would have been entitled to receive after the
happening of such event had such share of Series B Preferred
Stock been converted immediately prior to such record date."
THIRD: The Series B Preferred Stock Designation, as amended,
is hereby further amended by adding a new subsection (D) to the end of Paragraph
3(d)(viii) as follows:
"or (D) warrants for up to 304,431 shares of Series D
Convertible Preferred Stock issued to United Technologies
Corporation or any direct or indirect wholly owned subsidiary
thereof, or Convertible Securities or Common Stock issued or
issuable pursuant to the exercise of such warrants or the
conversion of any Convertible Securities issuable thereunder."
FOURTH: The Series B Preferred Stock Designation, as amended,
is hereby further amended by deleting Paragraph 4(a) thereof in its entirety and
inserting in its place the following new Paragraph 4(a):
"(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up (collectively, a "Liquidation") of
the Corporation, the Series B Holders shall be entitled to be
paid, after distribution is made to the Series A Preferred
Stock, the Series C Preferred Stock and the Series D Preferred
Stock, but in preference to holders of junior Preferred Stock
and the Common Stock, out of the assets of the Corporation
legally available for distribution to its stockholders, an
amount equal to $325 for each share of Series B Preferred
Stock, as adjusted to reflect any dividends, subdivisions or
combinations as to such shares (such amounts being referred to
as the "Liquidation Preference"). If the assets of the
Corporation are not sufficient to pay in full the Liquidation
Preference, the Series B Holders shall share ratably in such
distribution."
FIFTH: The Series B Preferred Stock Designation, as amended,
is hereby further amended by adding the following words to the end of Paragraph
7 as follows:
"other than the Series C Convertible Preferred Stock of the
Corporation and the Series D Convertible Preferred Stock of
the Corporation."
2
<PAGE> 50
SIXTH: These amendments to the Series B Preferred Stock
Designation, as amended, were duly adopted by the Board of Directors and by the
written consent of (i) a majority of the outstanding shares of all classes of
stock of the Corporation voting as one class, and (ii) a majority of the
outstanding shares of the Series B Preferred Stock voting as one class, in
accordance with Sections 228 and 242 of the Delaware General Corporation Law.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
3
<PAGE> 51
IN WITNESS WHEREOF, the Corporation has caused this
Certificate of Amendment to Certificate of Designation of Series B Convertible
Preferred Stock, As Amended, to be executed by its President this 2nd day of
September, 1999.
FREEMARKETS, INC.
By: /s/ Glen T. Meakem
--------------------------
Name: Glen T. Meakem
Title: President
4
<PAGE> 52
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF DESIGNATION OF
SERIES C CONVERTIBLE PREFERRED STOCK, AS AMENDED
OF
FREEMARKETS, INC.
Pursuant to Section 242 of the Delaware
General Corporation Law
FreeMarkets, Inc., a Delaware corporation formerly known as
FreeMarkets OnLine, Inc. (the "Corporation"), hereby certifies as follows:
FIRST: The Certificate of Designation, Rights and Preferences
of the Series C Convertible Preferred Stock of the Corporation ("Series C
Preferred Stock Designation") was filed in the Office of the Secretary of State
of Delaware on April 9, 1999, and a certified copy was recorded in the Office of
the Recorder of New Castle County, Delaware. The Series C Preferred Stock
Designation was amended on June 30, 1999.
SECOND: The Series C Preferred Stock Designation, as amended,
is hereby further amended by deleting Paragraph 3(b) thereof in its entirety and
inserting in its place the following new Paragraph 3(b):
"(b) Automatic Conversion. Each share of Series C Preferred
Stock shall automatically be converted into shares of Common
Stock at the then effective Conversion Price upon the earlier
of (i) immediately prior to the closing of an underwritten
public offering (a "Qualified Public Offering") pursuant to an
effective registration statement under the Securities Act of
1933, as amended, covering the offer and sale to the public of
Common Stock for an aggregate consideration of at least
$30,000,000 and a per share price to the public equal to at
least two times the per share price of $14.31 (as adjusted for
any stock split, stock dividend, combination or similar
recapitalization change), or (ii) the date specified by vote
or written
<PAGE> 53
consent or agreement of the holders of at least a majority of
the outstanding shares of Series C Preferred Stock (a
"Qualified Election"). Each Series C Holder immediately prior
to such automatic conversion shall be entitled to all
dividends which have accrued pursuant to Section 2 of this
Article on the Series C Preferred Stock up to the time of the
automatic conversion. Such dividends shall be paid to all such
holders by the issuance of Common Stock at the then effective
Conversion Price on the date of automatic conversion."
THIRD: The Series C Preferred Stock Designation, as amended,
is hereby further amended by deleting Paragraph 3(d)(i) thereof in its entirety
and inserting in its place the following new Paragraph 3(d)(i):
"(i) Adjustment Upon Stock Dividends, Splits, Etc. If the
Corporation shall at any time (A) pay a dividend on its Common
Stock in shares of its Common Stock or securities convertible
into or exchangeable or exercisable for shares of its Common
Stock without a corresponding dividend on the Series C
Preferred Stock, (B) subdivide its outstanding shares of
Common Stock into a greater number of shares by means of a
stock split or otherwise without a corresponding subdivision
of its outstanding shares of Series C Preferred Stock, or (C)
combine its outstanding shares of Common Stock into a smaller
number of shares without a corresponding combination of its
outstanding shares of Series C Preferred Stock, the applicable
Conversion Price in effect immediately prior thereto shall be
adjusted so that the holder of a share of Series C Preferred
Stock surrendered for conversion after the record date fixing
shareholders to be affected by such event shall be entitled to
receive upon conversion the number of such shares of Common
Stock which such holder would have been entitled to receive
after the happening of such event had such share of Series C
Preferred Stock been converted immediately prior to such
record date."
FOURTH: The Series C Preferred Stock Designation, as amended,
is hereby further amended by adding a new subsection (D) to the end of Paragraph
3(d)(viii) as follows:
"or (D) warrants for up to 304,431 shares of Series D
Convertible Preferred Stock issued to United Technologies
Corporation or any direct or indirect wholly owned subsidiary
thereof, or Convertible Securities or Common Stock issued or
issuable pursuant to the exercise of such warrants or the
conversion of any Convertible Securities issuable thereunder."
2
<PAGE> 54
FIFTH: The Series C Preferred Stock Designation, as amended,
is hereby further amended by deleting Paragraph 4(a) thereof in its entirety and
inserting in its place the following new Paragraph 4(a):
"(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up (collectively, a "Liquidation") of
the Corporation, the Series C Holders shall be entitled to be
paid in preference to holders of the Common Stock, the Series
B Preferred Stock or other Preferred Stock junior to the
Series C Preferred Stock, out of the assets of the Corporation
legally available for distribution to its stockholders, an
amount equal to $14.31 (plus any accrued but unpaid dividends,
if any) for each share of Series C Preferred Stock, as
adjusted to reflect any dividends, subdivisions or
combinations as to such shares (such amounts being referred to
as the "Liquidation Preference"). If the assets of the
Corporation are not sufficient to pay in full the Liquidation
Preference, the Series C Holders shall share ratably in such
distribution together with holders of Series A Preferred Stock
and holders of Series D Preferred Stock."
SIXTH: These amendments to the Series C Preferred Stock
Designation were duly adopted by the Board of Directors and by the written
consent of (i) a majority of the outstanding shares of all classes of stock of
the Corporation voting as one class, and (ii) a majority of the outstanding
shares of the Series C Preferred Stock voting as one class, in accordance with
Sections 228 and 242 of the Delaware General Corporation Law.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 55
IN WITNESS WHEREOF, the Corporation has caused this
Certificate of Amendment to Certificate of Designation of Series C Convertible
Preferred Stock, As Amended to be executed by its President this 2nd day of
September, 1999.
FREEMARKETS, INC.
By: /s/ Glen T. Meakem
--------------------------
Name: Glen T. Meakem
Title: President
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CERTIFICATE OF DESIGNATION, RIGHTS AND PREFERENCES
OF THE SERIES D CONVERTIBLE PREFERRED STOCK
OF FREEMARKETS, INC.
--------------------------------------
Pursuant to Section 151
of the Delaware General Corporation Law
--------------------------------------
The undersigned, Secretary and President, respectively, of FreeMarkets,
Inc., a Delaware corporation formerly known as FreeMarkets OnLine, Inc. (the
"Corporation"), certify that pursuant to authority granted to and vested in the
Board of Directors (the "Board of Directors") of the Corporation by the
provisions of the Amended and Restated Certificate of Incorporation of the
Corporation, as amended (the "Certificate of Incorporation"), on July 22, 1999
the Board of Directors adopted the following resolution creating a series of
Preferred Stock of the Corporation designated as the Series D Convertible
Preferred Stock and such resolution has not been modified and is in full force
and effect on the date hereof:
RESOLVED, that pursuant to authority expressly granted to and vested in
the Board of Directors by the provisions of the Amended and Restated Certificate
of Incorporation of the Corporation, as amended, the Board of Directors hereby
creates a series of Convertible Preferred Stock, par value $.01 per share,
designated as Series D, consisting of shares of Preferred Stock, and authorizes
the issuance thereof, and hereby fixes the designation and amount thereof and
the voting powers, preferences and relative, participating, optional and other
special rights of the shares of such series, and the qualifications, limitations
or restrictions thereon as follows:
Series D Convertible Preferred Stock
1. Designation and Amount. 2,362,204 shares of the Preferred Stock, par
value $.01 per share, are hereby constituted as a series of the Preferred Stock
designated as "Series D Convertible Preferred Stock" (the "Series D Preferred
Stock"); shares of the Series D Preferred Stock shall rank prior to the
Corporation's common stock, par value $.01 per share ("Common Stock") and the
Corporation's Series B Convertible Preferred Stock, par value $.01 per share
("Series B Preferred Stock"), and shall rank on parity with the shares of the
Corporation's Series A Convertible Preferred Stock, par value $.01 per share
("Series A Preferred Stock") and Series C Convertible Preferred Stock, par value
$.01 per share ("Series C Preferred Stock"), with respect to the payment of
dividends and upon liquidation and otherwise as specified herein.
<PAGE> 57
2. Dividends.
(a) Dividends on Other Stock. The holders of Series D Preferred Stock
(the "Series D Holders") shall be entitled to receive such dividends as may be
declared by the Board of Directors. So long as any of the Series D Preferred
Stock is outstanding, (i) no dividends shall be declared or paid on any other
preferred stock now existing or hereafter created ("Preferred Stock") ranking on
a parity as to dividends with Series D Preferred Stock unless an identical
dividend (as adjusted pursuant to Section 3(d)) is paid on the Series D
Preferred Stock and (ii) no dividends shall be declared or paid on any Preferred
Stock ranking junior to the Series D Preferred Stock (including, without
limitation, the Corporation's Series B Preferred Stock) or on any Common Stock
unless an identical or greater dividend is declared and paid on the Series D
Preferred Stock outstanding. Any dividend declared on the Series D Preferred
Stock shall be non-cumulative.
(b) Dividends Not Paid in Full. When dividends are not paid in full
upon shares of Series D Preferred Stock and any other Preferred Stock ranking on
a parity as to dividends with the Series D Preferred Stock, all dividends paid
upon shares of Series D Preferred Stock and such other Preferred Stock shall be
paid pro rata so that the amount of dividends paid per share on the Series D
Preferred Stock and such other Preferred Stock shall in all cases bear to each
other the same ratio that accrued dividends per share on the shares of Series D
Preferred Stock and such other Preferred Stock bear to each other.
3. Conversion Rights. The Series D Holders shall have conversion
rights as follows:
(a) Optional Conversion. Each share of Series D Preferred Stock shall
be convertible, without the payment of any additional consideration by the
holder thereof and at the option of the holder thereof, at any time after the
date of issuance of such share (subject to compliance with Section 3(c) of this
Article), into such number of fully paid and nonassessable shares of Common
Stock as is determined by dividing the Initial Conversion Price for such share
(as hereinafter defined) by the Conversion Price (as hereinafter defined) in
effect at the time of conversion. The "Initial Conversion Price" for each share
of Series D Preferred Stock shall be $14.80. The "Conversion Price" for each
share shall initially be the Initial Conversion Price, subject to adjustment in
the manner provided in Section 3(d) of this Article.
(b) Automatic Conversion. Each share of Series D Preferred Stock shall
automatically be converted into shares of Common Stock at the then effective
Conversion Price upon the earlier of (i) immediately prior to the closing of an
underwritten public offering (a "Qualified Public Offering") pursuant to an
effective registration statement under the Securities Act of 1933, as amended,
covering the offer and sale to the public of Common Stock for an aggregate
consideration of at least $30,000,000 and a per share price to the public equal
to a per share price of $14.80 (as adjusted for any stock split, stock dividend,
combination or similar
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<PAGE> 58
recapitalization change), or (ii) the date specified by vote or written consent
or agreement of the holders of at least a majority of the outstanding shares of
Series D Preferred Stock (a "Qualified Election"). Each Series D Holder
immediately prior to such automatic conversion shall be entitled to all
dividends which have accrued pursuant to Section 2 of this Article on the Series
D Preferred Stock up to the time of the automatic conversion. Such dividends
shall be paid to all such holders by the issuance of Common Stock at the then
effective Conversion Price on the date of automatic conversion.
(c) Mechanics of Conversion.
(i) No fractional shares of Common Stock shall be issued upon
conversion of the Series D Preferred Stock. In calculating the number of shares
of Common Stock that a Series D Holder shall be entitled to receive upon
conversion, the Corporation shall round any fractional number determined by such
calculation upwards or downwards to the nearest whole number.
(ii) Before any Series D Holder shall be entitled to convert
the same into shares of Common Stock pursuant to Section 3(a) of this Article,
he shall (a) give prior written notice to the Corporation, at the office of the
Corporation, that he elects to convert the same and shall state therein the
number of shares to be converted and the name(s) (with addresses)) in which he
wishes the certificate(s) for shares of Common Stock (and any Series D Preferred
Stock which is not being converted) to be issued and (b) surrender to the
Corporation, at the office of the Corporation, the Series D Preferred Stock
certificate(s), duly endorsed. As soon as practicable thereafter, the
Corporation shall issue and deliver at such office to such Series D Holder, or
to his nominee(s), a certificate(s) for the number of shares of Common Stock
(together with a certificate(s) for any Series D Preferred Stock which was not
converted) to which he shall be entitled upon such conversion. Such conversion
shall be deemed to have become effective immediately prior to the close of
business on the date of such surrender of the shares of Series D Preferred Stock
to be converted, the Conversion Price shall be determined as of such date and
the person(s) entitled to receive the shares of Common Stock issuable upon
conversion shall be treated for all purposes as the record holder(s) of such
shares of Common Stock as of such date or, if the stock transfer books of the
Corporation are closed on such date, as of the next succeeding date on which
such books are open.
(iii) Promptly after a Qualified Election or the closing of a
Qualified Public Offering, the Corporation shall give each Series D Holder a
written notice specifying the date of such Qualified Election or closing of a
Qualified Public Offering and the applicable Conversion Price and calling upon
such holder to surrender to the Corporation, in the manner and at the place
specified therein, the certificate(s) representing his shares of Series D
Preferred Stock. From and after receipt of such notice, each Series D Holder
shall have the right to have a certificate(s) for the number of shares of Common
Stock to which he is entitled upon such conversion issued to him or to his
nominee(s) upon surrender of his certificate(s) for Series D Preferred Stock at
the place and in the manner specified in such notice (and, in the case of a
certificate(s) to be issued to
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<PAGE> 59
his nominee(s), upon written notice to the Corporation of the name(s) and
address(es) of such nominee(s)). Such conversion shall be deemed to have become
effective immediately prior to the date of the Qualified Election or the closing
of such Qualified Public Offering, the Conversion Price shall be determined as
of such date and time and the person(s) entitled to receive the shares of Common
Stock issuable upon conversion shall be treated for all purposes as the record
holder(s) of such shares of Common Stock as of such date and time or, if the
stock transfer books of the Corporation are closed on such date, as of the next
succeeding date on which such books are open.
(d) Adjustment to Conversion Price.
(i) Adjustment Upon Stock Dividends, Splits, Etc. If the
Corporation shall at any time (A) pay a dividend, or make a distribution, in
shares of its Common Stock or securities convertible into or exchangeable or
exercisable for shares of its Common Stock, (B) subdivide its outstanding shares
of Common Stock into a greater number of shares by means of a stock split or
otherwise or (C) combine its outstanding shares of Common Stock into a smaller
number of shares, the applicable Conversion Price in effect immediately prior
thereto shall be adjusted so that the holder of a share of Series D Preferred
Stock surrendered for conversion after the record date fixing shareholders to be
affected by such event shall be entitled to receive upon conversion the number
of such shares of Common Stock which such holder would have been entitled to
receive after the happening of such event had such share of Series D Preferred
Stock been converted immediately prior to such record date.
(ii) Adjustment Upon Issuance of Common Stock. If the
Corporation shall at any time issue or sell (or pursuant to clause (iii) below,
be deemed to have issued or sold) any shares of its Common Stock in a private
placement for a consideration per share less than the Conversion Price in effect
immediately prior to such issuance or sale, then upon such issuance or sale, the
Conversion Price shall be reduced to the price (calculated to the nearest
one-hundredth of a cent) determined by dividing (A) the aggregate consideration
received by the Corporation upon such issuance or sale by (B) the number of
additional shares of Common Stock so issued or sold.
(iii) Treatment of Convertible Securities. If the Corporation
shall grant, issue (whether directly or by assumption in a merger or otherwise)
or sell any security, obligation, option, warrant or other right which directly
or indirectly may be converted into, exchanged or exercised for or satisfied in
shares of Common Stock (such securities and other rights being hereinafter
referred to as "Convertible Securities," and any such conversion, exchange,
exercise or satisfaction being hereinafter referred to as a "conversion"),
whether or not the right to effect a conversion thereunder is immediately
exercisable, and the price per share for which Common Stock is issuable upon
such conversion (determined by dividing (A) the total amount received or
receivable by the Corporation as consideration for the issuance or sale of such
Convertible Securities, plus the minimum aggregate amount of additional
consideration payable to the
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<PAGE> 60
Corporation upon the conversion thereof, by (B) the total maximum number of
shares of Common Stock issuable upon the conversion of all such Convertible
Securities) shall be less than the Conversion Price in effect immediately prior
to such grant, issuance or sale, then for purposes of making the calculation in
clause (ii) above, the total maximum number of shares of Common Stock issuable
upon conversion of all such Convertible Securities shall (as of the date of the
grant, issuance or sale of such Convertible Securities) be deemed to be
outstanding and to have been issued for such price per share. No further
adjustments of the Conversion Price shall be made upon the issuance of such
Common Stock upon conversion of such Convertible Securities.
(iv) Adjustment Required by Adjustments to Convertible Securities. If
the purchase price provided for in any Convertible Securities, the additional
consideration payable upon conversion of any Convertible Securities or the rate
at which any Convertible Securities are convertible into Common Stock shall
change at any time (other than pursuant to anti-dilution provisions), then the
Conversion Price in effect on the date of such change shall be readjusted to the
Conversion Price which would have been in effect at such time had such
Convertible Securities still outstanding provided for such changed purchase
price, additional consideration or conversion rate, as the case may be, at the
time initially granted, issued or sold.
(v) Treatment of Expired or Unexercised Convertible Securities. If and
to the extent that rights of conversion of Convertible Securities shall expire
or terminate without exercise, the Conversion Price in effect on the date of
such expiration or termination shall be readjusted to the Conversion Price that
would have been in effect at such time had such rights never existed, and the
Common Stock theretofore issuable upon conversion of such expired or terminated
rights shall no longer be deemed to be outstanding.
(vi) Calculation of Consideration. In case of a grant, issuance or sale
of Common Stock or Convertible Securities solely for cash, for the purpose of
any computation under clauses (ii), (iii) or (iv) above, the value of the
consideration received or receivable by the Corporation shall be deemed to be
the amount of cash received or receivable by the Corporation therefor. In the
case of any grant, issuance or sale of Common Stock or Convertible Securities
for a consideration other than cash or a consideration part of which shall be
other than cash, for the purpose of any computation under clauses (ii), (iii) or
(iv) above the value of the consideration other than cash received or receivable
by the Corporation shall be deemed to be the fair market value of such
consideration as determined in good faith by the Board of Directors.
(vii) Determination of Outstanding Shares. For the purpose of any
computations under clauses (ii), (iii) or (iv) above, the number of shares of
Common Stock outstanding at any given time shall include the number of shares of
Common Stock actually outstanding at such time plus all shares of Common Stock
which are deemed to be outstanding pursuant to clause (iii) above, but shall not
include shares owned or held by or for the account of the Corporation.
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(viii) Exceptions. The provisions of clauses (i), (ii) and
(iii) above shall not apply to (A) shares of Common Stock issued or issuable
upon the exercise of stock options or purchase rights or warrants granted by the
Corporation from time to time to any of the Corporation's directors, officers,
employees, consultants or advisors in plans approved by the Board of Directors,
(B) the reissuance of securities previously purchased by the Corporation from
any of its employees to any successor, replacement or other employee, (C)
securities of the Corporation issued or sold to the public pursuant to an
offering registered under the Securities Act of 1933, as amended, or (D)
warrants for up to 304,431 shares of Series D Preferred Stock issued to United
Technologies Corporation or any direct or indirect wholly owned subsidiary
thereof, or Convertible Securities or Common Stock issued or issuable pursuant
to the exercise of such warrants or the conversion of any Convertible Securities
issuable thereunder.
(ix) Adjustment Upon Merger, Etc. In the event of (A) any
reclassification or change of outstanding shares of Common Stock issuable upon
conversion of the Series D Preferred Stock, (B) any consolidation, merger or
similar combination to which the Corporation is a party (other than a
consolidation or merger in which the Corporation is the surviving corporation
and which does not result in any reclassification of, or other change in,
outstanding shares of Series D Preferred Stock or Common Stock), (C) any
conveyance or leasing of all or substantially all of the assets of the
Corporation to another entity or (D) any recapitalization or reorganization of
the Corporation (items (A) through (D) being hereinafter referred to as a
"Change in Control"), each Series D Holder shall have the right to receive the
same kind and amount of shares of stock and other securities or property
(including cash) receivable upon such event by a holder of the number of shares
of Common Stock issuable upon conversion of such Series D Preferred Stock
immediately prior to such event. If any Series D Preferred Stock is to remain
outstanding after any such event, or if, as a result of such event, the Series D
Holders are to become the holders of securities which are convertible into
common stock of the Corporation or any other corporation, then effective
provision shall be made in the instrument effecting or providing for such event
such that the holders of such Series D Preferred Stock or such other securities
shall have the benefit of anti-dilution protection which is substantially
similar to that granted by this Section 3(d).
(x) Notice of Adjustment. Whenever any Conversion Price shall be
adjusted as provided in this Section 3(d), the Corporation shall promptly
prepare a statement stating the adjusted Conversion Price(s) determined as
provided herein. Such statement shall show in detail the facts requiring such
adjustment and the manner of determining such adjustment, including, if
applicable, the method of determining the fair market value of assets. Such
statement shall promptly be delivered to each Series D Holder who shall request
the same in writing.
4. Liquidation Rights.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up (collectively, a "Liquidation") of the Corporation,
the Series D Holders shall be
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<PAGE> 62
entitled to be paid in preference to holders of the Common Stock, the Series B
Preferred Stock or other Preferred Stock junior to the Series D Preferred Stock,
out of the assets of the Corporation legally available for distribution to its
stockholders, an amount equal to $14.80 (plus any accrued but unpaid dividends,
if any) for each share of Series D Preferred Stock (such amounts being referred
to as the "Liquidation Preference"). If the assets of the Corporation are not
sufficient to pay in full the Liquidation Preference, the Series D Holders shall
share ratably in such distribution together with holders of Series A Preferred
Stock and Series C Preferred Stock.
(b) No distribution in Liquidation shall be made to the
holders of any shares of Common Stock, Series B Preferred Stock or other
Preferred Stock junior to the Series D Preferred Stock unless, prior thereto,
Series D Holders receive their full Liquidation Preference in accordance with
the terms of Section 4(a) of this Article. Following the payment of the full
amount of the Liquidation Preference to the Series D Holders no additional
distributions shall be made to such holders.
(c) A merger or consolidation of the Corporation with or into
any other corporation (other than a consolidation or merger in which the
Corporation is the surviving corporation and which does not result in any
reclassification of, or other change in, outstanding Shares of Series D
Preferred Stock), or a share exchange or the sale or conveyance of substantially
all of the assets of the Corporation, shall be deemed to be a Liquidation of the
Corporation within the meaning of this Section 4.
5. Voting Rights. Series D Holders shall be entitled to vote on all
matters on which Holders of the Common Stock are entitled to vote and, except as
otherwise provided in this Certificate of Incorporation or as required by law,
the Common Stock and the Series D Preferred Stock shall vote together as one
class. Each share of Series D Preferred Stock shall entitle the holder thereof
to such number of votes per share on all matters on which they are entitled to
vote equal to the number of shares of Common Stock (including fractional shares)
into which each share of Series D Preferred Stock is then convertible.
6. No Sinking Fund. The shares of Series D Preferred Stock shall not be
subject to the benefit of a purchase, retirement or sinking fund.
7. No Implied Limitations. Except as otherwise provided by express
provisions of this Certificate of Designation or the Certificate of
Incorporation, nothing herein shall limit, by inference or otherwise, the
discretionary rights of the Board of Directors to issue Preferred Stock which is
pari passu with, or junior to, the Series D Preferred Stock in right of dividend
and liquidation preference, but in no event may the Board of Directors cause to
be issued Preferred Stock which has rights senior to such rights of the Series D
Preferred Stock.
8. General Provisions. In addition to the above provisions with respect
to the Series D Preferred Stock, such Series D Preferred Stock shall be subject
to and be entitled to the benefit
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of the provisions set forth in the Corporation's Certificate of Incorporation
with respect to Preferred Stock generally.
WITNESS the due execution hereof this 2nd day of September, 1999.
FREEMARKETS, INC.
By: /s/ Glen T. Meakem
------------------------
Glen T. Meakem
Title: President
8
<PAGE> 1
Exhibit 3.1(b)
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
FREEMARKETS, INC.
----------
1. (a) The name of the corporation is FreeMarkets, Inc. The original
name of the corporation was Online Markets Corporation, which name was
subsequently changed to FreeMarkets OnLine, Inc.
(b) The original Certificate of Incorporation of the corporation
was filed with the Secretary of State of the State of Delaware on March 13,
1995.
2. Pursuant to Sections 228, 242 and 245 of the General Corporation Law
of the State of Delaware, this Amended and Restated Certificate of Incorporation
restates and further amends the provisions of the Amended and Restated
Certificate of Incorporation of the corporation as heretofore amended and
supplemented.
3. The text of the Amended and Restated Certificate of Incorporation as
heretofore amended and supplemented is hereby amended and restated in its
entirety to read as follows:
----------
ARTICLE I
NAME
The name of the corporation is FreeMarkets, Inc.
ARTICLE II
REGISTERED AGENT
The address of the registered office of the corporation in the State of
Delaware is 1209 Orange Street, City of Wilmington 19801, County of New Castle.
The name of the corporation's registered agent at that address is CT
Corporation.
ARTICLE III
PURPOSE
The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
<PAGE> 2
ARTICLE IV
CAPITAL STOCK
The total number of shares of stock which the corporation shall have
authority to issue is Two Hundred Five Million (205,000,000) shares, which shall
be divided into two classes as follows:
A. Two Hundred Million (200,000,000) shares of Common Stock, the par
value of each of which shares is One Cent ($0.01), amounting in the aggregate to
Two Million Dollars ($2,000,000); and
B. Five Million (5,000,000) shares of Preferred Stock, the par value of
each of which shares is One Cent ($0.01), amounting in the aggregate to Fifty
Thousand Dollars ($50,000). The corporation's board of directors is hereby
expressly authorized to provide by resolution or resolutions from time to time
for the issue of the Preferred Stock in one or more series, the shares of each
of which series may have such voting powers, full or limited, or no voting
powers, and such designations, preferences and relative, participating, optional
or other special rights, and qualifications, limitations or restrictions
thereof, as shall be permitted under the General Corporation Law of the State of
Delaware and as shall be stated in the resolution or resolutions providing for
the issue of such stock adopted by the board of directors pursuant to the
authority expressly vested in the board of directors hereby.
ARTICLE V
DIRECTORS
A. The business and affairs of the corporation shall be managed by or
under the direction of a board of directors consisting of such total number of
authorized directors as shall be fixed by, or in the manner provided in, the
bylaws. The board of directors shall be divided into three classes, designated
Class I, Class II and Class III. Each class shall consist, as nearly as may be
possible, of one-third of the total number of authorized directors. Class I
directors shall serve for a term ending upon the annual meeting of stockholders
held in 2000, Class II directors shall serve for a term ending upon the annual
meeting of stockholders held in 2001 and Class III directors shall serve for a
term ending upon the annual meeting of stockholders held in 2002. At each
succeeding annual meeting of stockholders beginning with the annual meeting of
stockholders held in 2000, successors to the class of directors whose term
expires at such annual meeting shall be elected for a three-year term. If the
number of directors is changed, any increase or decrease shall be apportioned
among the classes so as to maintain the number of directors in each class as
nearly equal as possible, and any additional director of any class elected to
fill a vacancy resulting from an increase in such class shall hold office for a
term that shall coincide with the remaining term of that class, but in no case
will a decrease in the number of directors shorten the term of any incumbent
directors. A director shall hold office until the annual meeting for the year in
which his or her term expires and until his or her successor shall
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<PAGE> 3
be elected and shall qualify, subject, however, to prior death, resignation,
incapacitation or removal from office, and except as otherwise required by law.
B. Except as otherwise required by law, vacancies and newly created
directorships resulting from any increase in the total number of authorized
directors may be filled by a majority of the directors then in office, although
less than a quorum, or by a sole remaining director. Any director elected to
fill a vacancy not resulting from an increase in the number of directors shall
have the same remaining term as that of his or her predecessor. A director may
be removed by the stockholders only for cause.
C. Notwithstanding the foregoing, whenever the holders of any one or
more classes or series of stock issued by the corporation shall have the right,
voting separately by class or series, to elect directors at an annual or special
meeting of stockholders, the election, term of office, filling of vacancies and
other features of such directorships shall be governed by the term of this
certificate of incorporation applicable thereto and such directors so elected
shall not be divided into classes pursuant to this Article V, in each case
unless expressly provided by such terms.
ARTICLE VI
BYLAWS
In furtherance and not in limitation of the powers conferred by the
laws of the State of Delaware:
A. The board of directors of the corporation is expressly authorized to
adopt, amend or repeal the bylaws of the corporation.
B. Elections of directors need not be by written ballot unless the
bylaws of the corporation shall so provide.
C. The books of the corporation may be kept at such place within or
without the State of Delaware as the bylaws of the corporation may provide or as
may be designated from time to time by the board of directors of the
corporation.
ARTICLE VII
LIMITATION OF LIABILITY
No director shall be personally liable to the corporation or the
holders of shares of capital stock for monetary damages for breach of fiduciary
duty as a director, except (i) for any breach of the duty of loyalty of such
director to the corporation or such holders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the General Corporation Law of Delaware, or (iv)
for any transaction from which such director derives an improper personal
benefit. No amendment to or repeal of this
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<PAGE> 4
Article VII shall apply to or have any effect on the liability or alleged
liability of any director for or with respect to any acts or omissions of such
director occurring prior to such amendment or repeal. If the laws of the State
of Delaware are hereafter amended 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 then permitted. No repeal or modification of this Article VII shall
adversely affect any right of or protection afforded to a director of the
corporation existing immediately prior to such repeal or modification.
ARTICLE VIII
INDEMNIFICATION
The corporation shall indemnify and may advance expenses to its
officers and directors to the fullest extent permitted by law from time to time
in effect. Without limiting the generality of the foregoing, the bylaws of the
corporation may provide for indemnification and advancement of expenses to the
corporation's officers, directors, employees and agents on such terms and
conditions as the board of directors may from time to time deem appropriate or
advisable.
ARTICLE IX
ACTION BY STOCKHOLDERS
Effective immediately upon the corporation becoming subject to the
periodic reporting requirements of Section 13 of the Securities Exchange Act of
1934, as amended, with respect to any class of its capital stock:
A. No action required to be taken or which may be taken at any annual
or special meeting of stockholders of the corporation may be taken without a
meeting; and
B. The power of the stockholders to consent in writing, without a
meeting, to the taking of any action is specifically denied.
C. Special meetings of the stockholders of the corporation may be
called only by the board of directors pursuant to a resolution adopted by a
majority of the total number of authorized directors (whether or not there exist
any vacancies in previously authorized directorships at the time any such
resolution is presented to the Board of Directors for adoption), the chairman of
the board of directors, or the chief executive officer.
ARTICLE X
AMENDMENTS
Except as provided herein, from time to time any of the provisions of
this Amended and Restated 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
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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 Amended and Restated
Certificate of Incorporation are granted subject to the provisions of this
Article X.
* * *
IN WITNESS WHEREOF, this Amended and Restated Certificate of
Incorporation has been signed on the ___ day of __________, 1999, by the
undersigned officer thereunto duly authorized.
-------------------------------
Glen T. Meakem
President
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Exhibit 3.2(a)
AMENDED AND RESTATED
BY-LAWS
OF
FREEMARKETS ONLINE INC.
A DELAWARE CORPORATION
ARTICLE I
STOCKHOLDERS
1. Place of Meetings. All meetings of stockholders shall be held at the
principal office of the Corporation unless a different place (anywhere in the
United States) is fixed by the Directors or the President and stated in the
notice of the meeting.
2. Annual Meetings. An annual meeting of the stockholders entitled to
vote shall be held on the Third Tuesday in April at 11:00 o'clock A.M. If it
shall not have been held on the date fixed or by adjournment therefrom, a
meeting in lieu of the annual meeting shall be held within six (6) months after
the end of the fiscal year.
3. Business at Annual Meetings. In addition to the election of
directors, other proper business may be transacted at an annual meeting of
stockholders, provided that such business is properly brought before such
meeting. After the completion of a Public Offering, as defined in Article 1,
Section 4, to be properly brought before an annual meeting, business must be (a)
brought by or at the direction of the Board or (b) brought before the meeting by
a stockholder pursuant to written notice thereof, in accordance with Section 5
hereof, and received by the Secretary not fewer than sixty (60) nor more than
ninety (90) days prior to the date specified in Article 1, Section 2 hereof for
such annual meeting. Any such stockholder notice shall set forth (i) the name
and address of the stockholder proposing such business; (ii) a representation
that the stockholder is entitled to vote at such meeting and a statement of the
number of shares of the Corporation which are beneficially owned by the
stockholder, (iii) a representation that the stockholder intends to appear in
person or by proxy at the meeting to propose such business; and (iv) as to each
matter the stockholder proposes to bring before the meeting, a brief description
of the business desired to be brought before the meeting, the reasons for
conducting such business at the meeting, the language of the proposal (if
appropriate), and any material interest of the stockholder in such business. No
business shall be conducted at any annual meeting of stockholders except in
accordance with this section. If the facts warrant, the Board, or the chairman
of an annual meeting of stockholders, may determine and declare that (a) a
proposal does not constitute proper business to be transacted at the meeting or
(b) business was not properly brought before the meeting in accordance with the
provisions of this section, and, if, in either case, it is so determined, any
such business shall not be transacted. The procedures set forth in this section
for business to be properly brought before an annual meeting by a stockholder
are in addition to, and not in lieu of, the requirements
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set forth in Rule 14a-8 promulgated under Section 14 of the Securities Exchange
Act of 1934, as amended, or any successor provision.
4. Public Offering. For purposes of these By-Laws a "Public Offering"
means a primary, public offering of equity securities by this Corporation
pursuant to a registration statement filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended.
5. Special Meetings. Special meetings of the stockholders entitled to
vote may be called by the Chairman of the Board of Directors, the President, or
by a majority of the Directors, and shall be called by the Secretary, or in case
of the death, absence, incapacity or refusal of the Secretary, by any other
officer, on written application of one or more stockholders who are entitled to
vote and who hold at least ten percent (10%) interest of the capital stock
entitled to vote, stating the date, time, place and purpose of the meeting.
6. Notice of Meetings. A written notice of every meeting of
stockholders, stating the date, time, place and purpose for which the meeting is
called shall be given by the Secretary or other person calling the meeting not
less than ten nor more than sixty (60) days before the meeting, to each
stockholder entitled to vote thereat and to each stockholder who, by the
Certificate of Incorporation or By-Laws, is entitled to such notice, by leaving
such notice with him or at his residence or usual place of business, or by
mailing it postage prepaid and addressed to him at his address as it appears on
the books of the Corporation. No notice of any regular or special meeting of the
stockholders need be given to any stockholder if a written waiver of notice
executed before or after the meeting by the stockholder, or his attorney
thereunto authorized, is filed with the records of the meeting.
7. Adjournments. Any meeting of the stockholders may be adjourned to
any other time and to any other place in the United States by the stockholders
present or represented at the meeting, although less than a quorum, or by any
officer entitled to preside or to act as Secretary of such meeting if no
stockholder is present. It shall not be necessary to notify any stockholder of
any adjournment. Any business that could have been transacted at any meeting of
the stockholders as originally called may be transacted at any adjournment
thereof.
8. Quorum of Stockholders. At any meeting of the stockholders, more
than percent (50%) in interest of the capital stock issued and outstanding and
entitled to vote shall constitute a quorum.
9. Votes and Proxies. Each stockholder shall have one (1) vote for each
share of stock having voting power owned by him. Stockholders may vote in person
or by proxy. No proxy shall be valid after three years from the date of its
execution unless a longer time is expressly provided therein. Proxies shall be
filed with the Secretary of the meeting, or of any adjournment thereof, before
being voted. A proxy with respect to
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stock held in the name of two (2) or more persons shall be valid if executed by
one (1) of them unless at or prior to exercise of the proxy the Corporation
receives a specific written notice to the contrary from any one (1) of them. A
proxy purporting to be executed by or on behalf of a stockholder shall be deemed
valid unless challenged at or prior to its exercise.
10. Action at Meeting. When a quorum is present, the holders of a
majority of the stock present or represented and voting on a matter (or if there
are two (2) or more classes of stock entitled to vote as separate classes then,
in the case of each such class, the holders of a majority of the stock of that
class present or represented and voting on a matter) shall decide any matter to
be voted on by the stockholders, except where a larger vote is required by law,
the Certificate of Incorporation or these By-Laws. Any election by stockholders
shall be determined by a plurality of the votes cast by the stockholders
entitled to vote at the election. No ballot shall be required for any such
election unless requested by a stockholder present or represented at the meeting
and entitled to vote in the election. The Corporation shall not-directly or
indirectly vote any share of its stock.
11. Action without Meeting. Any action to be taken by the stockholders
at a meeting may be taken without a meeting, without prior notice and without a
vote, if a written consent(s), 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
stockholder meetings are recorded. Delivery made to the Corporation's registered
office shall be by hand or by certified or registered mail, return receipt
requested.
ARTICLE II
BOARD OF DIRECTORS
1. Powers. The business of the Corporation shall be managed by a Board
of Directors which may exercise all the powers of the Corporation except as
otherwise provided by law, the Certificate of Incorporation or these By-Laws. In
the event of a vacancy in the Board of Directors, the remaining Directors,
except as otherwise provided by law, may exercise the powers of the full Board
until the vacancy is filled.
2. Election. Subject to the terms of the Voting Agreement among the
Corporation, American Express Travel Related Services Company, Inc. and certain
holders of the Corporation's Common Stock and the Voting Agreement among the
Corporation and certain holders of the Corporation's Series A-1 Convertible
Preferred Stock (collectively, the "Voting Agreements"), a Board of Directors
consisting of such number not less than one (1) as shall be fixed by the
Directors shall be elected by the stockholders at each annual meeting. A
Director need not be a stockholder.
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3. Nomination. Following the completion of a Public Offering, only
persons who are nominated in accordance with the following procedures shall be
eligible for election as Directors, subject to the terms of the Voting
Agreements, to the extent that such terms remain in effect following a Public
Offering. Nominations for the election of Directors may be made (a) by or at the
direction of the Board or (b) by any stockholder of record entitled to vote for
the election of Directors at such meeting; provided, however, that a stockholder
may nominate persons for election as Directors only if written notice (in
accordance with Article 1, Section 5 hereof of such stockholder's intention to
make such nominations is received by the Secretary (i) with respect to an
election to be held at an annual meeting of the stockholders, not fewer than 60
nor more than 90 days prior to the date specified in Article 1, Section 2 hereof
for such annual meeting and (ii) with respect to an election to be held at a
special meeting of the stockholders for the election of Directors, not later
than the close of business on the seventh business day following the date on
which notice of such meeting is first given to stockholders. Any such
stockholder's notice shall set forth (a) the name and address of the stockholder
who intends to make a nomination; (b) a representation that the stockholder is
entitled to vote at such meeting and a statement of the number of shares of the
Corporation which are beneficially owned by the stockholder; (c) a
representation that the stockholder intends to appear in person or by proxy at
the meeting to nominate the person or persons specified in the notice; (d) as to
each person the stockholder proposes to nominate for election or reelection as a
Director, the name and address of such person and such other information
regarding such nominee as would be required in a proxy statement filed pursuant
to the proxy rules of the Securities and Exchange Commission had such nominee
been nominated by the Board, and a description of any arrangements or
understandings between the stockholder and such nominee and any other persons
(including their names), pursuant to which the nomination is to be made; and (e)
the consent of each such nominee to serve as a Director if elected. If the facts
warrant, the Board, or the chairman of a stockholders' meeting at which
Directors are to be elected, shall determine and declare that a nomination was
not made in accordance with the foregoing procedure and, if it is so determined,
the defective nomination shall be disregarded. The right of stockholders to make
nominations pursuant to the foregoing procedure is subject to the rights of the
holders of any class or series of stock having a preference over the Common
Stock as to dividends or upon liquidation. The procedures set forth in this
Section for nomination for the election of Directors by stockholders are in
addition to, and not in limitation of, any procedures now in effect or hereafter
adopted by or at the direction of the Board or any committee thereof.
4. Tenure. The Directors shall hold office until the next annual
meeting of stockholders and thereafter until their successors are chosen and
qualified, except as otherwise provided in these By-Laws or the Voting
Agreements. Any Director may resign by giving written notice of his resignation
to the Corporation at its principal office or to the President, Secretary or
Directors, and such resignation shall become effective upon receipt unless
another time is specified therein.
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5. Removal. A Director may be removed from office with or without cause
at any meeting of the stockholders by vote of the stockholders holding more than
fifty percent (50%) in interest of the capital stock issued and outstanding and
entitled to vote in the election of Directors, or for cause by vote of a
majority of the Directors then in office. A Director may be removed for cause
only after reasonable notice and opportunity to be heard before the body
proposing to remove him. The foregoing notwithstanding, the removal of any
Director (with or without cause) shall be subject to the terms and restrictions
set forth in the Voting Agreements.
After the completion of a Public Offering, subject to the terms of the
Voting Agreements, to the extent that such terms remain in effect following a
Public Offering, any Director or the entire Board may be removed only for cause
by the holders of not less than two-thirds of the shares entitled to elect the
Director or Directors whose removal is sought. Such action may only be taken at
a special meeting of the stockholders called expressly for that purpose,
provided that notice of the proposed removal, which shall include a statement of
the charges alleged against the Director, shall have been duly given to the
stockholders together with or as a part of the notice of the meeting.
Where a question of the removal of a Director for cause is to be
presented for stockholder consideration, an opportunity must be provided to such
Director to present his or her defense to the stockholders by a statement which
must accompany or precede the notice of the special meeting of stockholders or,
if provided to stockholders prior to the notice of the special meeting, the
initial solicitation of proxies seeking authority to vote for the removal of
such Director for cause. If not provided, then such proxies may not be voted for
removal. The Director involved shall be served with notice of the meeting at
which such action is proposed to be taken together with a statement of the
specific charges and shall be given an opportunity to be present and to be heard
at the meeting at which his or her removal is considered.
Unless otherwise provided in the Voting Agreements, the vacancy created
by the removal of a Director under this Section shall be filled only by a vote
of the holders of two-thirds of the shares then entitled to elect the Director
removed. Such vote may be taken at the same meeting at which the removal of such
Director was accomplished, or at such later meeting, annual or special, as the
stockholders may decide.
6. Meetings. Regular meetings of the Directors may be held without
notice at such places and at such times as the Directors may from time to time
determine, provided that any Director who is absent when such determination is
made shall be given notice of the determination. A regular meeting of the
Directors shall be held without notice at the same place as the annual meeting
of stockholders, or the special meeting held in lieu thereof, following such
meeting of stockholders. Special meetings of the Directors may be called by the
Chairman of the Board of Directors, the President or two (2) or more Directors.
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7. Notice of Meetings. Notice of the date, time, place and purpose of
every special meeting of the Directors shall be given to each Director by the
Secretary, or in case of the death, absence, incapacity or refusal of the
Secretary, by the officer or one of the Directors calling the meeting. Notice
shall be given to each Director in person or by telephone or by telegram sent to
his business or home address at least twenty-four (24) hours in advance of the
meeting, or by written notice mailed to his business or home address at least
forty-eight (48) hours in advance of the meeting. Notice need not be given to
any Director if a written waiver of notice executed by him before or after the
meeting is filed with the records of the meeting, or to any Director who attends
the meeting without objecting to the lack of notice prior to the meeting or at
the commencement thereof. A waiver of notice of a Directors' meeting need not
specify the purposes of the meeting.
8. Ouorum of Directors. At any meeting of the Directors, a majority of
the Directors at the time in office shall constitute a quorum, but a less number
may adjourn any meeting from time to time without further notice. Unless
otherwise provided by law or these By-Laws, business may be transacted by vote
of a majority of those in attendance at any meeting at which a quorum is
present.
9. Vacancies and Newly Created Directorships. Unless otherwise provided
in the Certificate of Incorporation or the Voting Agreements, vacancies and
newly created directorships resulting from any increase in the authorized number
of Directors elected by all of the stockholders having the right to vote as a
single class may be filled by a majority of the Directors then in office,
although less than a quorum, or by a sole remaining Director.
10. Chairman of the Board of Directors. The Board of Directors may
elect a Chairman of the Board of Directors from among its members, who shall
serve at the pleasure of the Board and shall preside at all meetings of the
Directors and at all meetings of the stockholders.
11. Committees. The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the directors of the Corporation. The Board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification 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 any such absent or disqualified
member. Any such committee, to the extent provided in the resolution of the
Board, shall have and may exercise the powers and authority of the Board of
Directors in the management of the business and affairs of the Corporation with
the exception of any authority the delegation of which is prohibited by Section
141 of the General Corporation Law, and may authorize the seal of the
Corporation to be affixed to all papers which may require it.
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12. Action without Meeting. Any action that may be taken by the
Directors at a meeting may be taken without a meeting if all Directors entitled
to vote thereon consent thereto by a writing filed with the records of the
Directors' meetings. Such consent shall be treated for all purposes as a vote at
a meeting of the Directors.
13. Presumption of Assent. A Director who is present at a meeting of
the Directors at which any action on any corporate matter is taken shall be
presumed to have assented to the action taken unless his dissent shall be
recorded in the minutes of the meeting or unless he shall file his written
dissent to such action with the Secretary of the meeting before the adjournment
thereof or shall forward such dissent by certified mail to the Secretary of the
Corporation immediately after the adjournment of the meeting. Such right of
dissent shall not apply to a Director who voted at the meeting in favor of such
action.
14. Action by Telephone. The Board of Directors or any committee
designated thereby may participate in a meeting of such Board or committee by
means of a conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other at the same
time, and participation by such means shall constitute presence in person at a
meeting.
15. Personal Liability of Directors.
(a) To the fullest extent that the laws of the State of
Delaware, as the same exist or may hereafter be amended, permit elimination of
the personal liability of directors, no director of this Corporation shall be
personally liable to this Corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director.
(b) The provisions of this Section shall be deemed to be a
contract with each director of this Corporation who serves as such at any time
while this Section is in effect, and each such director shall be deemed to be
serving as such in reliance on the provisions of this Section. Any amendment or
repeal of this Section or adoption of any By-Law of this Corporation or other
provision of the Certificate of Incorporation of this Corporation which has the
effect of increasing director liability shall operate prospectively only and
shall not affect any action taken, or any failure to act, by a director of this
Corporation or to such amendment, repeal, By-Law or other provision becoming
effective.
16. Indemnification of Directors and Officers.
(a) The Corporation shall provide indemnification for
expenses (including attorneys' fees and interest for expenses actually
advanced), judgments, fines, and amounts paid in settlement actually and
reasonably incurred by the following persons:
(i) Any person who was or is a party or threatened to be made
a party to any threatened, pending or completed action, suit,
or proceeding
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(whether civil, criminal, investigative or administrative), by
reason of the fact that such person was or is a director,
officer or employee (or, at the discretion of the Board of
Directors, if such person was or is an agent of the
Corporation), or was or is serving at the request of the
Corporation as a director, officer, employee, or agent of
another corporation, partnership, joint venture, trust or
other enterprises; or
(ii) Any person who was or is a party or is threatened to be
made a party to any threatened, pending, or completed action
or suit by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that such person
was or is a director, officer or employee (or, at the
discretion of the Board of Directors, if such person was or is
acting as an agent of the Corporation), or was or is serving
at the request of the Corporation as a director, officer,
employee, or agent of another corporation, partnership, joint
venture, trust or other enterprise.
(b) Such indemnification shall be made only if the person to
be indemnified acted in good faith and in a manner he reasonably believed to be
in or not opposed to the best interests of the Corporation, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful; provided, however, no indemnification shall be made for
any person included within subparagraph (a) (ii) above if such person is
adjudged to be liable for negligence or misconduct in the performance of his
duty to the Corporation unless and only to the extent that the Court of Chancery
of the State of Delaware or the court which heard the action initially shall
determine that, under the circumstances of the particular case, such person is
entitled to indemnification.
(c) Expenses incurred in defending a civil or criminal action,
suit, or proceeding may be paid by the Corporation in advance of the final
disposition of such action, suit or proceeding as authorized by the Board of
Directors in the specific case upon receipt of an undertaking by or on behalf of
the person to be indemnified to repay such amount should it ultimately be
determined that he is not entitled to indemnification under this Section.
(d) The Corporation shall have the power to purchase and
maintain liability insurance on behalf of any person it desires to indemnify,
whether or not the Corporation would have the power to indemnify such person
against such liability under the provisions of this Section. The Corporation
shall have the power to enter into separate indemnification agreements with
directors and officers of the Corporation, as determined by the Board of
Directors.
(e) The indemnification provided by this Section shall not be
deemed to be exclusive, and shall not affect any other right to which any person
seeking indemnification may be entitled to under the General Corporation Law of
the State of Delaware, any agreement, vote of stockholders or disinterested
directors, any provision
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of the Corporation's By-Laws or otherwise. The purpose of this Section is to
provide for indemnification of directors, officers and employees of the
Corporation to the fullest extent provided for in the General Corporation Law of
the State of Delaware as it may be in force from time to time.
ARTICLE lII
OFFICERS
1. Enumeration. The officers of the Corporation shall consist of a
Chairman, a President, a Treasurer, a Secretary, and such other officers,
including one or more Vice Chairmen, Vice Presidents, Assistant Treasurers and
Assistant Secretaries as the Directors may determine.
2. Election. The Chairman, President, Treasurer and Secretary shall be
elected annually by the Directors at their first meeting following the annual
meeting of stockholders. Other officers may be chosen by the Directors at such
meeting or at any other meeting.
3. Qualification. No officer need be a Director or a stockholder. Any
two or more offices may be held by the same person. The Secretary shall be a
resident of Delaware unless the Corporation has a resident agent appointed for
the purpose of service of process. Any officer may be required by the Directors
to give bond for the faithful performance of his duties to the Corporation in
such amount and with such sureties as the Directors may determine.
4. Tenure. Except as otherwise provided by law, the Certificate of
Incorporation or these By-Laws, the President, Treasurer and Secretary shall
hold office until the first meeting of the Directors following the annual
meeting of stockholders and thereafter until his successor is chosen and
qualified; and all other officers shall hold office until the first meeting of
the Directors following the annual meeting of stockholders, unless a shorter
term is specified in the vote choosing or appointing them. Any officer may
resign by delivering his written resignation to the Corporation at its principal
office or to the President or Secretary, and such resignation shall be effective
upon receipt unless it is specified to be effective at some other time or upon
the happening of some other event.
5. Vacancies. Any vacancy in any office may be filled by the Directors
at a meeting called for that purpose. When any officer is, in the opinion of the
Directors, unable to perform his duties, they may by vote appoint a temporary
officer to act until further vote by them, with power to perform all or part of
the duties of such officer.
6. Removal. The Directors may remove any officer with or without cause
by a vote of a majority of the Directors then in office, provided, that an
officer may be removed for cause only after reasonable notice and opportunity to
be heard by the Board of Directors.
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7. President and Vice President. The President shall be the chief
executive officer of the Corporation and shall, subject to the direction of the
Directors, have general supervision and control of its business. Any Vice
President shall have such powers as the Directors may from time to time
designate.
8. Treasurer and Assistant Treasurer. The Treasurer shall have general
charge of the financial affairs of the Corporation and shall cause to be kept
accurate books of account. He shall have custody of all funds, securities, and
valuable documents of the Corporation, except as the Directors may otherwise
provide. Any Assistant Treasurer shall have such powers as the Directors may
from time to time designate.
9. Secretary and Assistant Secretaries. The Secretary shall keep a
record of the meetings of the stockholders and of the Directors. Unless a
Transfer Agent is appointed, the Secretary shall keep or cause to be kept at the
principal office of the Corporation or at his office, the stock and transfer
records of the Corporation, in which are contained the names of all stockholders
and the record address, and the amount of stock held by each. Any Assistant
Secretary shall have such powers as the Directors may from time to time
designate. In the absence of the Secretary from any meeting of stockholders, an
Assistant Secretary, if one be elected, otherwise a Temporary Secretary
designated by the person presiding at the meeting, shall perform the duties of
the Secretary.
10. Other Powers and Duties. Each officer shall, subject to these
By-Laws, have in addition to the duties and powers specifically set forth in
these By-Laws, such duties and powers as are customarily incident to his office,
and such duties and powers as the Directors may from time to time designate.
ARTICLE IV
CAPITAL STOCK
1. Certificates of Stock. Each stockholder shall be entitled to a
certificate of the capital stock of the Corporation in such form as may be
prescribed from time to time by the Directors. The certificate shall be signed
by the Chairman, the President or a Vice President, and by the Treasurer or an
Assistant Treasurer, or the Secretary or an Assistant Secretary, but when a
certificate is countersigned by a transfer agent or a registrar, other than a
Director, officer or employee of the Corporation, such signatures may be
facsimiles. In case any officer who has signed or whose facsimile signature has
been placed on such certificate shall have ceased to be such officer before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he were such officer at the time of its issue.
Every certificate for shares of stock that are subject to any
restriction on transfer pursuant to the Certificate of Incorporation, the
By-Laws or any agreement to which the Corporation is a party, shall have the
restriction noted conspicuously on the certificate
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and shall also set forth on the face or back either the full text of the
restriction or a statement of the existence of such restriction and a statement
that the Corporation will furnish a copy to the holder of such certificate on
written request and without charge. Every certificate issued when the
Corporation is authorized to issue more than one class or series of stock shall
set forth on its face or back either the full text of the preferences, voting
powers, qualifications and special and relative rights of the shares of each
class and series authorized to be issued or a statement of the existence of such
preferences, powers, qualifications and rights, and a statement that the
Corporation will furnish a copy thereof to the holder of such certificate on
written request and without charge.
2. Transfer on Books. All shares of stock shall be transferable on the
books of the Corporation except when closed as provided by the By-Laws, upon
surrender of the certificate therefor duly endorsed, or accompanied by a
separate document containing an assignment of the certificate or a power of
attorney to sell, assign, or transfer the same, or the shares represented
thereby, with all such endorsements or signatures guaranteed if required by the
Corporation. The Corporation shall be entitled to recognize as exclusive the
rights of a person registered on its books as the owner of legal title to
shares, to the full extent permitted by law. The stock-transfer and other books
of the Corporation may be closed by order of the Directors for sixty (60) days
or any lesser period previous to any meeting of stockholders or any day
appointed for the payment of a dividend or for any other purpose.
3. Lost Certificates. In case any certificate of stock of the
Corporation shall be lost or destroyed, a new certificate may be issued in lieu
thereof on reasonable evidence of such loss or destruction, and upon such
indemnity being given within the limits permitted by law as the Directors may
require for the protection of the Corporation or any transfer agent or
registrar.
4. Issue of Stock. Unless otherwise voted by the Incorporation or
stockholders, the whole or any part of any unissued balance of the authorized
capital stock of the Corporation or the whole or any part of any capital stock
of the Corporation held in its treasury may be issued or disposed of by vote of
the Directors in such manner, for such consideration, and on such terms as the
Directors may determine.
5. No Fractional Shares. The Corporation shall issue no fractional
shares to any stockholder and upon any action which would require such issuance
but for this provision, the Corporation shall, in lieu of such issuance, pay in
cash the fair value of fractions of a share as of the time when those entitled
to receive such fractions are determined.
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ARTICLE V
MISCELLANEOUS PROVISIONS
1. Fiscal Year. The fiscal year of the Corporation shall end on the
last day in December each year.
2. Seal. The seal of the Corporation shall bear its name and the year
of its incorporation or such other device or inscription as the Directors may
determine.
3. Execution of Instruments. All deeds, leases, transfers, contracts,
bonds, notes and other obligations authorized to be executed by an officer of
the Corporation in its behalf shall be signed by the Chairman, the President or
the Treasurer except as the Directors may generally or in particular cases
otherwise determine.
4. Voting of Securities. Except as the Directors may otherwise
designate, the Chairman, the President or Treasurer may waive notice of, and
appoint any person or persons to act as proxy or attorney in fact for this
Corporation (with or without power of substitution) at any meeting of
stockholders or stockholders of any other Corporation or organization, the
securities of which may be held by this Corporation.
5. Certificate of Incorporation. All references in these By-Laws to the
Certificate of Incorporation shall be deemed to be to the Certificate of
Incorporation of the Corporation, as amended and in effect from time to time.
6. Depository Authority. Any Chairman, President, Vice President or
Treasurer, together with the Secretary or any Assistant Secretary, shall
designate the banks and the name, whether it be the Corporate name or the name
of one of them or the name of other persons connected with the Corporation or
tradenames, in which such accounts shall be opened and kept and shall designate
the persons who shall have authority on behalf of the Corporation to sign checks
against such funds, to the extent of such funds in said accounts only, and the
persons who shall have authority to endorse and make payable to the order of
said banks, checks, drafts and other negotiable instruments, for deposit in said
banks, and to deposit such checks, drafts and other negotiable instruments in
said accounts.
ARTICLE VI
AMENDMENTS
These By-Laws may be amended at any annual or special meeting by vote
of the stockholders holding a majority of the shares having voting power,
provided that the nature or substance of the proposed amendment shall be stated
in the notice of the meeting. These By-Laws may also be amended by a majority of
the Board of Directors then in office. Not later than the time of giving notice
of the meeting of stockholders next following the adoption of an amendment by
the Directors, notice thereof stating the
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substance of such change shall be given to the stockholders. The authority of
the Board of Directors to amend the By-Laws shall be subject to the limitations
that no change may be made in the date fixed in the By-Laws for an annual
meeting of stockholders within sixty (60) days before the date stated in the
By-Laws and that notice of any change in the date of an annual meeting of
stockholders shall be given to all stockholders at least twenty (20) days before
the new date is fixed. To the extent of any conflict between the provisions
hereof and the Voting Agreements, the provisions of the Voting Agreements shall
be deemed to control.
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Exhibit 3.2(b)
FREEMARKETS, INC.
(a Delaware corporation)
----------------------------------
AMENDED AND RESTATED BYLAWS
----------------------------------
As adopted by the Board of Directors as of ____________, 1999.
<PAGE> 2
AMENDED AND RESTATED BYLAWS
OF
FREEMARKETS, INC.
ARTICLE I
OFFICES
Section 1.01 Registered Office. The registered office of the
Corporation shall be at CT Corporation, 1209 Orange Street, in the City of
Wilmington, County of New Castle, State of Delaware 19801, until otherwise
established by a resolution of the Board of Directors of the Corporation (the
"Board of Directors") and a certificate certifying the change is filed in the
manner provided by statute.
Section 1.02 Additional Offices. 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 as the business of the
Corporation may require.
ARTICLE II
STOCKHOLDERS
Section 2.01 Annual Meetings. An annual meeting of stockholders shall
be held at such date, time and place, either within or without the State of
Delaware, as the Board of Directors shall each year fix. At such annual meeting,
the stockholders shall elect a Board of Directors and transact such other
business as may properly be brought before the meeting.
Section 2.02 Special Meetings. Special meetings of the stockholders,
for any purpose or purposes described in the notice of the meeting, may be
called only by:
(a) the Board of Directors pursuant to a resolution adopted by
a majority of the total number of authorized directors (whether or not there
exist any vacancies in previously authorized directorships at the time any such
resolution is presented to the Board of Directors for adoption);
(b) the Chairman of the Board; or
(c) the Chief Executive Officer.
Special meetings of the stockholders shall be held at such place, on such date
and at such time as the person or persons calling the meeting shall fix.
Business transacted at any special meeting shall be confined to the purpose or
purposes stated in the notice of such meeting.
Section 2.03 Notice of Meetings. Written notice of all meetings of
stockholders shall be given stating the place, date and time of the meeting and,
in the case of a special meeting, the purpose or purposes for which the meeting
is called. Unless otherwise required by applicable
<PAGE> 3
law or the Certificate of Incorporation of the Corporation as then in effect
(the "Certificate of Incorporation"), such notice shall be given not less than
10 nor more than 60 days before the date of the meeting to each stockholder
entitled to vote at such meeting, by depositing it in the United States mail,
postage prepaid, directed to each stockholder at his or her address as it
appears on the records of the Corporation. An affidavit of the Secretary,
Assistant Secretary or transfer agent of the Corporation that the notice has
been given shall, in the absence of fraud, be prima facie evidence of the facts
stated therein. No notice need be given to any person with whom communication is
unlawful or to any person who has waived.
Section 2.04 Adjournments. Any meeting of stockholders may adjourn from
time to time to reconvene at the same or another place, and notice need not be
given of any such adjourned meeting if the time and place thereof are announced
at the meeting at which the adjournment is taken; provided, however, that 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, then a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the
meeting. At the adjourned meeting the Corporation may transact any business that
might have been transacted at the original meeting.
Section 2.05 Quorum. At each meeting of stockholders the holders of a
majority of the shares of stock entitled to vote at the meeting, present in
person or represented by proxy, shall constitute a quorum for the transaction of
business, except to the extent otherwise required by applicable law. Where a
separate vote by a class or classes is required, a majority of the shares of
such class or classes then outstanding, present in person or represented by
proxy, shall constitute a quorum entitled to take action with respect to that
vote on that matter. If a quorum shall fail to attend any meeting, the chairman
of the meeting or the holders of a majority of the shares entitled to vote who
are present, in person or by proxy, at the meeting may adjourn the meeting.
Shares of the Corporation's stock belonging to the Corporation (or to another
corporation, if a majority of the shares entitled to vote in the election of
directors of such other corporation are held, directly or indirectly, by the
Corporation) shall neither be entitled to vote nor be counted for quorum
purposes; provided, however, that the foregoing shall not limit the right of the
Corporation or any other corporation to vote any shares of the Corporation's
stock held by it in a fiduciary capacity.
Section 2.06 Organization. Every meeting of the stockholders shall be
presided over by the Chairman of the Board, if any, or, if the Chairman of the
Board is not present (or, if there is none), one of the following persons in the
order stated: (a) the Chief Executive Officer, if one has been appointed; (b)
the President; (c) a Vice President; (d) if none of the individuals named in
clauses (a), (b) or (c) is present, such person who may have been chosen by the
Board of Directors; or (e) if no individual named in clause (d) is present, a
chairman to be chosen by the stockholders owning a majority of the shares of
capital stock of the Corporation issued and outstanding and entitled to vote at
the meeting and who are present at in person or represented by proxy. The
Secretary of the Corporation, or such other person as may be appointed by the
chairman of the meeting, shall act as secretary of the meeting.
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Section 2.07 Voting.
(a) At any meeting of stockholders, every stockholder having
the right to vote shall be entitled to vote in person or by proxy. Except as
otherwise provided by the Delaware General Corporation Law (the "DGCL") or the
Certificate of Incorporation, each stockholder of record shall be entitled to
one vote for each share of capital stock having voting power registered in such
stockholder's name on the books of the Corporation.
(b) All elections shall be determined by a plurality vote,
and, except as otherwise provided by law or the Certificate of Incorporation,
all other matters shall be determined by a vote of a majority of the shares
present in person or represented by proxy and voting on such other matters.
(c) If a vote is to be taken by written ballot, then each such
ballot shall state the name of the stockholder or proxy voting and such other
information as the chairman of the meeting deems appropriate.
Section 2.08 Fixing Date for Determination of Stockholders of Record.
In order that the Corporation may determine the stockholders entitled to notice
of or to vote at any meeting of stockholders or any adjournment thereof, or
entitled to receive payment of any dividend or other distribution or allotment
of any rights, or entitled to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any other lawful action,
the Board of Directors may fix a record date, which shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors and which shall not be more than 60 nor less than 10 days before the
date of such meeting, nor more than 60 days prior to any other action. If no
record date is fixed by the Board of Directors, then the record date shall be as
provided by applicable law. A determination of stockholders of record entitled
to notice of or to vote at a 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.
Section 2.09 List of Stockholders Entitled to Vote. A complete list of
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 open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof and may be inspected by any stockholder who is present at the meeting.
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Section 2.10 Notice of Stockholder Business; Nominations.
(a) Annual Meetings of Stockholders.
(i) Nominations of persons for election to the Board of
Directors and the proposal of business to be considered by the stockholders
shall be made at an annual meeting of stockholders:
(A) pursuant to the Corporation's notice of such meeting;
(B) by or at the direction of the Board of Directors; or
(C) by any stockholder of the Corporation who was a
stockholder of record at the time of the giving of the notice provided for in
this Section 2.10, who is entitled to vote at such meeting and who complies with
the notice procedures set forth in this Section 2.10.
(ii) For nominations or other business to be properly
brought before an annual meeting by a stockholder pursuant to clause (C) of
subparagraph (a)(i) of this Section 2.10, the stockholder must have given timely
notice thereof in writing to the Secretary of the Corporation and such other
business must otherwise be a proper matter for stockholder action. To be timely,
a stockholder's notice must be delivered to the Secretary at the principal
executive offices of the Corporation:
(A) if the date of the annual meeting is not more than 30
days before and not more than 30 days after the first anniversary of the
preceding year's annual meeting, then not earlier than the close of business on
the ninetieth (90th) day, and not later than the close of business on the
sixtieth (60th) day, prior to the date on which the Corporation first mailed its
proxy materials for the preceding year's annual meeting of stockholders; and
(B) if the date of the annual meeting is more than 30
days before or more than 30 days after the first anniversary of the preceding
year's annual meeting, then not earlier than the close of business on the one
hundred twentieth (120th) day prior to such annual meeting and not later than
the close of business on the later of the ninetieth (90th) day prior to such
annual meeting or the tenth (10th) day following the day on which public
announcement (as defined herein) of the date of such meeting is first made by
the Corporation.
(iii) The stockholder's notice described in subparagraph (a)
(ii) of this Section 2.10 shall set forth:
(A) as to each person whom the stockholder proposes to
nominate for election or reelection as a director all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as
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amended (the "Exchange Act"), including such person's written consent to being
named in the proxy statement as a nominee and to serving as a director if
elected;
(B) as to any other business that the stockholder
proposes to bring before the meeting, a brief description of the business
desired to be brought before the meeting, the reasons for conducting such
business at the meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the proposal is
made; and
(C) as to the stockholder giving the notice and the
beneficial owner, if any, on whose behalf the nomination or proposal is made:
(1) the name and address of such stockholder, as
they appear on the Corporation's books, and of such beneficial owner; and
(2) the class and number of shares of the Corporation
that are owned beneficially and held of record by such stockholder and such
beneficial owner.
(b) Special Meetings of Stockholders.
(i) Only such business shall be conducted at a special
meeting of stockholders as shall have been brought before the meeting pursuant
to the Corporation's notice of such meeting.
(ii) Nominations of persons for election to the Board of
Directors may be made at a special meeting of stockholders at which directors
are to be elected pursuant to the Corporation's notice of such meeting:
(A) by or at the direction of the Board of Directors; or
(B) provided that the Board of Directors has determined
that directors shall be elected at such meeting, by any stockholder of the
Corporation who is a stockholder of record at the time of giving of notice of
the special meeting, who is entitled to vote at the meeting and who complies
with the notice procedures set forth in this Section 2.10.
(iii) If the Corporation calls a special meeting of
stockholders for the purpose of electing one or more directors to the Board of
Directors, then any such stockholder may nominate a person or persons (as the
case may be) for election to such position(s) as specified in the Corporation's
notice of meeting, if the stockholder's notice required by subparagraph (a)(ii)
of this Section 2.10 shall be delivered to the Secretary of the Corporation at
the principal executive offices of the Corporation:
(A) not earlier than the ninetieth (90th) day prior to
such special meeting; and
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(B) not later than the close of business on the later of
the sixtieth (60th) day prior to such special meeting or the tenth (10th) day
following the day on which public announcement is first made of the date of the
special meeting and of the nominees proposed by the Board of Directors to be
elected at such meeting.
(c) General.
(i) Only such persons who are nominated in accordance
with the procedures set forth in this Section 2.10 shall be eligible to serve as
directors and only such business shall be conducted at a meeting of stockholders
as shall have been brought before the meeting in accordance with the procedures
set forth in this Section 2.10. Except as otherwise provided by law or these
Bylaws, the chairman of the meeting shall have the power and duty to determine
whether a nomination or any business proposed to be brought before the meeting
was made or proposed, as the case may be, in accordance with the procedures set
forth in this Section 2.10 and, if any proposed nomination or business is not in
compliance herewith, to declare that such defective proposal or nomination shall
be disregarded.
(ii) For purposes of this Section 2.10, the term "public
announcement" shall mean disclosure in a press release reported by the Dow Jones
News Service, Associated Press or comparable national news service or in a
document publicly filed by the Corporation with the Securities and Exchange
Commission pursuant to Sections 13, 14 or 15(d) of the Exchange Act.
(iii) Notwithstanding the foregoing provisions of this
Section 2.10, a stockholder shall also comply with all applicable requirements
of the Exchange Act and the rules and regulations thereunder with respect to the
matters set forth herein. Nothing in this Section 2.10 shall be deemed to affect
any rights of stockholders to request inclusion of proposals in the
Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act.
ARTICLE III
BOARD OF DIRECTORS
Section 3.01 Number; Classes; Qualification. The Board of Directors
shall consist of no less than three and no more than 12 members. The total
number of authorized directors shall be fixed from time to time within such
range by a duly adopted resolution of the Board of Directors. The Board of
Directors shall be divided into three classes, designated Class I, Class II and
Class III. Each class shall consist, as nearly as may be possible, of one-third
of the total number of authorized directors. Directors need not be stockholders
of the Corporation.
Section 3.02 Initial Terms; Subsequent Terms.
(a) The initial term of office of directors of :
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(i) Class I shall expire at the annual meeting of
stockholders held in 2000;
(ii) Class II shall expire at the annual meeting of
stockholders held in 2001; and
(iii) Class III shall expire at the annual meeting of
stockholders held in 2002.
(b) Each subsequent term of office of each class shall expire
at each third succeeding annual meeting of stockholders after the election of
the directors of such class. Subject to the provisions of the Certificate of
Incorporation, each director shall serve until his or her successor is elected
and qualified or until his or her earlier resignation or removal. No decrease in
the total number of authorized directors constituting the Board of Directors
shall shorten the term of any incumbent director.
Section 3.03 Resignation; Removal; Vacancies. Any director may resign
at any time upon written notice to the Corporation. Unless otherwise specified
in such written notice, a resignation shall take effect upon delivery of such
written notice to the Corporation. It shall not be necessary for a resignation
to be accepted before it becomes effective. Subject to the rights of any holders
of any preferred stock of the Corporation then outstanding and the Certificate
of Incorporation:
(a) any director, directors or the entire Board of Directors
may be removed, with cause, by the holders of a majority of the shares then
entitled to vote at an election of directors;
(b) except as otherwise required by law, vacancies and newly
created directorships resulting from any increase in the total number of
authorized directors may be filled by a majority of the directors then in
office, although less than a quorum, or by a sole remaining director. Any
director elected to fill a vacancy not resulting from an increase in the total
number of authorized directors shall have the same remaining term as that of his
or her predecessor.
Any director elected to fill a vacancy shall hold office for a term expiring at
the next annual meeting of stockholders at which the term of office of the Class
to which such director has been elected expires, and until such director's
respective successor is elected, except in the case of the death, resignation or
removal of such director.
Section 3.04 Regular Meetings. Regular meetings of the Board of
Directors may be held at such places, within or without the State of Delaware,
and at such times as the Board of Directors may from time to time determine.
Notice of regular meetings need not be given if the dates, times and places
thereof are fixed by resolution of the Board of Directors.
Section 3.05 Special Meetings. Special meetings of the Board of
Directors may be called by the Chairman of the Board, the President or a
majority of the members of the Board of
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Directors then in office and may be held at any time, date or place, within or
without the State of Delaware, as the person or persons calling the meeting
shall fix. Notice of the time, date and place of such meeting shall be given,
orally or in writing, by the person or persons calling the meeting to all
directors at least four days before the meeting if the notice is mailed (which
shall be by first class, registered or certified United States mail), or at
least 48 hours before the meeting if such notice is given by telephone, hand
delivery, overnight or similar courier, telegram, telex, mailgram, facsimile or
similar communication method.
Section 3.06 Telephonic Meetings Permitted. Members of the Board of
Directors, or any committee of the Board, may participate in a meeting of the
Board of Directors or of such 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 such
means shall constitute presence in person at such meeting.
Section 3.07 Quorum; Vote Required for Action. At all meetings of the
Board of Directors a majority of the directors then in office shall constitute a
quorum for the transaction of business; provided that in no event shall a quorum
be less than one-third (1/3) of the total number of authorized directors. Except
as otherwise provided herein or in the Certificate of Incorporation, or required
by law, the vote of a majority of the directors present at a meeting at which a
quorum is present shall be the act of the Board of Directors.
Section 3.08 Organization. Meetings of the Board of Directors shall be
presided over: (a) by the Chairman of the Board; (b) in the absence of the
Chairman of the Board, by the President (if a director); and (c) in the absence
or ineligibility of the President, by a chairman chosen at the meeting by a
majority of those directors present. The Secretary, or such other person as the
chairman of the meeting may appoint, shall act as secretary of the meeting.
Section 3.09 Written Action by Directors. Any action required or
permitted to be taken at any meeting of the Board of Directors, or of any
committee thereof, may be taken without a meeting if all members of the Board of
Directors or of such committee, as the case may be, consent thereto in writing,
and the writing or writings are filed with the minutes of proceedings of the
Board of Directors or committee, respectively. Written consents representing
actions taken by the Board of Directors or committee may be executed by telex,
telecopy or other facsimile transmission, and such facsimile shall be valid and
binding to the same extent as if it were an original.
Section 3.10 Powers. The Board of Directors may, except as otherwise
required by law or the Certificate of Incorporation, exercise all such powers
and do all such acts and things as may be exercised or done by the Corporation.
Section 3.11 Compensation of Directors. Directors, as such, may
receive, pursuant to a resolution of the Board of Directors, fees and other
compensation for their services as directors, including, without limitation,
their services as members of committees of the Board of Directors.
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ARTICLE IV
COMMITTEES
Section 4.01 Creation. The Board of Directors may, by resolution passed
by a majority of the whole Board, designate one or more committees, each
committee to consist of one or more of the directors of the Corporation. The
Board may designate one or more directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee. In the absence or disqualification of a member of a committee, the
member or members of such committee present at any meeting of such committee who
are not disqualified from voting, whether or not such member or members
constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in place of any such absent or disqualified
member.
Section 4.02 Powers.
(a) Subject to paragraph (b) of this Section 4.02, any
committee, to the extent provided in the resolution of the Board of Directors,
shall have and may exercise all the powers and authority of the Board of
Directors in the management of the business and affairs of the Corporation, and
may authorize the seal of the Corporation to be affixed to all papers that may
require it.
(b) Notwithstanding paragraph (a) of this Section 4.02, no
committee shall have the power or authority to:
(i) 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 of stock adopted by the Board of Directors
as provided in subsection (a) of Section 151 of the DGCL, 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);
(ii) adopt an agreement of merger or consolidation under
Sections 251 or 252 of the DGCL;
(iii) recommend to the stockholders the sale, lease or
exchange of all or substantially all of the Corporation's property and assets;
(iv) recommend to the stockholders a dissolution of the
Corporation or a revocation of a dissolution;
(v) amend these Bylaws; or
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(vi) unless the resolution of the Board of Directors
expressly provides to the contrary, declare a dividend, authorize the issuance
of stock or adopt a certificate of ownership and merger pursuant to Section 253
of the DGCL.
Section 4.03 Committee Rules. Unless the Board of Directors otherwise
provides, each committee designated by the Board may make, alter and repeal
rules for the conduct of its business. In the absence of such rules, each
committee shall conduct its business in the same manner as the Board of
Directors conducts its business pursuant to Article III of these Bylaws.
ARTICLE V
OFFICERS
Section 5.01 Designations. The officers of the Corporation shall be
chosen by the Board of Directors. The Board of Directors shall choose a Chairman
of the Board, a President, a Secretary and a Treasurer (together, the "Required
Officers"), and may choose a Chief Executive Officer, a Chief Operating Officer,
a Chief Financial Officer, an Executive Vice President or Executive Vice
Presidents, a Vice President or Vice Presidents, one or more Assistant
Secretaries and/or Assistant Treasurers and other officers and agents as it
shall deem necessary or appropriate (together, the "Permitted Officers"). All
officers of the Corporation shall exercise such powers and perform such duties
as shall from time to time be determined by the Board of Directors. Any number
of offices may be held by the same person, unless the Certificate of
Incorporation or these Bylaws otherwise provide.
Section 5.02 Term of Office; Removal. Subject to the next sentence of
this Section 5.02, each officer of the Corporation shall hold office until such
officer's successor is chosen and shall qualify. Any officer elected or
appointed by the Board of Directors may be removed, with or without cause, at
any time by the affirmative vote of a majority of the directors then in office.
Such removal shall not prejudice the contract rights, if any, of the person so
removed. Any vacancy occurring in any office of the Corporation may be filled
for the unexpired portion of the term by the Board of Directors.
Section 5.03 Compensation. The salaries of all officers of the
Corporation shall be fixed from time to time by the Board of Directors, and no
officer shall be prevented from receiving such salary by reason of the fact that
such person is also a director of the Corporation.
Section 5.04 The Chairman of the Board. The Chairman of the Board, if
any, shall be an officer of the Corporation and, subject to the direction of the
Board of Directors, shall perform such executive, supervisory and management
functions and duties as may be assigned to the Chairman of the Board from time
to time by the Board of Directors. The Chairman of the Board shall, if present,
preside at all meetings of stockholders and of the Board of Directors.
Section 5.05 The Chief Executive Officer. The Chief Executive Officer,
if any, shall be an officer of the Corporation and, subject to the direction of
the Board of Directors, shall perform such executive, supervisory and management
functions and duties as may be assigned to the
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Chief Executive Officer from time to time by the Board of Directors or by the
Chairman of the Board (if the Chairman of the Board be so authorized by the
Board of Directors).
Section 5.06 The President.
(a) The President shall, subject to the direction of the Board
of Directors, have general supervision over the business and operations of the
Corporation. The President shall, in general and unless otherwise prescribed by
the Board of Directors, perform all duties incident to the office of President
and such other duties as from time to time may be assigned by the Board of
Directors, the Chairman of the Board (if the Chairman of the Board be so
authorized by the Board of Directors) or the Chief Executive Officer.
(b) Unless otherwise prescribed by the Board of Directors, the
President shall have full power and authority on behalf of the Corporation to
attend, act and vote at any meeting of security holders of other corporations in
which the Corporation may hold securities. At such meeting the President shall
possess and may exercise any and all rights and powers incident to the ownership
of such securities which the Corporation might have possessed and exercised if
it had been present. The Board of Directors may from time to time confer like
powers upon any other person or persons.
Section 5.07 The Chief Financial Officer and the Chief Operating
Officer. The Chief Financial Officer and the Chief Operating Officer shall,
subject to the direction of the Board of Directors, perform such executive,
supervisory and management functions and duties as may be assigned to each of
them, respectively, from time to time by the Board of Directors, the Chairman of
the Board (if the Chairman of the Board be so authorized by the Board of
Directors) or the Chief Executive Officer.
Section 5.08 The Executive Vice Presidents and the Vice Presidents. The
Executive Vice President, if any (or in the event that there be more than one,
the Executive Vice Presidents in the order designated, or in the absence of any
designation, in the order of their election), or, if none, the Vice President,
if any (or in the event that there be more than one, the Vice Presidents in the
order designated, or in the absence of any designation, in the order of their
election), shall, in the absence of, or in the event of the disability of, the
President, perform the duties and exercise the powers of the President and shall
generally assist the President and perform such other duties and have such other
powers as may from time to time be prescribed by the Board of Directors.
Section 5.09 The Secretary; Assistant Secretaries.
(a) Duties of the Secretary. The Secretary shall attend all
meetings of the Board of Directors and all meetings of stockholders and record
all votes and the proceedings of the meetings in a book to be kept for that
purpose and shall perform like duties for the Executive Committee or other
committees, if required. The Secretary shall give, or cause to be given, notice
of all meetings of stockholders and special meetings of the Board of Directors,
and shall perform such other duties as may from time to time be prescribed by
the Board of Directors, the
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Chairman of the Board or the President, under whose supervision the Secretary
shall act. The Secretary shall have custody of the seal of the Corporation, and
the Secretary or any Assistant Secretary, shall have authority to affix the same
to any instrument requiring it, and, when so affixed, the seal may be attested
by the Secretary's signature or by the signature of such Assistant Secretary.
The Board of Directors may give general authority to any other officer to affix
the seal of the Corporation and to attest the affixing thereof by such officer's
signature.
(b) Duties of the Assistant Secretary. The Assistant
Secretary, if any (or in the event there be more than one, the Assistant
Secretaries in the order designated, or in the absence of any designation, in
the order of their election), shall, in the absence of the Secretary or in the
event of the Secretary's disability, perform the duties and exercise the powers
of the Secretary and shall perform such other duties and have such other powers
as may from time to time be prescribed by the Board of Directors.
Section 5.10 The Treasurer; Assistant Treasurers.
(a) Duties of the Treasurer. The Treasurer shall have the
custody of the corporate funds and other valuable effects, including securities,
and shall keep full and accurate accounts of receipts and disbursements in books
belonging to the Corporation and shall deposit all moneys and other valuable
effects in the name and to the credit of the Corporation in such depositories as
may from time to time be designated by the Board of Directors. The Treasurer
shall disburse the funds of the Corporation as may be ordered by the Board of
Directors, taking proper vouchers for such disbursements, and shall render to
the Chairman of the Board, the President and the Board of Directors, at regular
meetings of the Board, or whenever they may require it, an account of all
transactions and of the financial condition of the Corporation.
(b) Duties of the Assistant Treasurer. The Assistant
Treasurer, if any (or in the event there shall be more than one, the Assistant
Treasurers in the order designated, or in the absence of any designation, in the
order of their election), shall, in the absence of the Treasurer or in the event
of the Treasurer's disability, perform the duties and exercise the powers of the
Treasurer and shall perform such other duties and have such other powers as may
from time to time be prescribed by the Board of Directors.
Section 5.11 Delegation of Authority. Notwithstanding any provision
hereof, the Board of Directors may, from time to time, delegate the powers or
duties of any officer to any other officers or agents.
Section 5.12 Representation of Shares of Other Corporations. Any
Required Officer or Permitted Officer, and any other person authorized by the
Board of Directors or a Required Officer, may vote, represent and exercise on
behalf of the Corporation all rights incident to any and all shares of any other
corporation or corporations held by the Corporation. The authority granted
herein may be exercised either by such person directly or by any other person
authorized to do so by proxy or power of attorney duly executed by the person
having such authority.
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ARTICLE VI
STOCK CERTIFICATES
Section 6.01 Form; Signatures.
(a) Every holder of stock in the Corporation shall be entitled
to have a certificate, signed by the Chairman of the Board, the Chief Executive
Officer or the President and the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary of the Corporation, exhibiting the number
and class (and series, if any) of shares owned by such person. Such signatures
may be facsimile. A certificate may be manually signed by a transfer agent or
registrar other than the Corporation or its employee but may be a facsimile. In
case any officer who has signed, or whose facsimile signature was placed on, a
certificate shall have ceased to be such officer before such certificate is
issued, it may nevertheless be issued by the Corporation with the same effect as
if such person were such officer at the date of its issue.
(b) All stock certificates representing shares of capital
stock which are subject to restrictions on transfer or to other restrictions may
have imprinted thereon such notation to such effect as may be determined by the
Board of Directors.
Section 6.02 Registration of Transfer. Upon surrender to the
Corporation or any transfer agent of the Corporation of a certificate for shares
duly endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, it shall be the duty of the Corporation or its transfer
agent to issue a new certificate to the person entitled thereto, to cancel the
old certificate and to record the transaction upon its books.
Section 6.03 Registered Stockholders.
(a) Except as otherwise provided by law, the Corporation shall
be entitled to recognize the exclusive right of a person who is registered on
its books as the owner of shares of its capital stock to receive dividends or
other distributions, to vote as such owner, and to hold liable for calls and
assessments any person who is registered on its books as the owner of shares of
its capital stock. The Corporation shall not be bound to recognize any equitable
or legal claim to or interest in such shares on the part of any other person.
(b) If a stockholder desires that notices and/or dividends
shall be sent to a name or address other than the name or address appearing on
the stock ledger maintained by the Corporation (or by the transfer agent or
registrar, if any), such stockholder shall have the duty to notify the
Corporation (or the transfer agent or registrar, if any) in writing, of such
desire. Such written notice shall specify the alternate name or address to be
used. Any stockholder directing or permitting dividends or other distributions
to be sent to a name or address other than that appearing on the Corporation's
stock ledger shall bear full responsibility for all taxes, fees, charges and
other sums that may be or become due and payable as a result thereof.
Section 6.04 Lost, Stolen or Destroyed Certificates. The Board of
Directors may direct a new certificate to be issued in place of any certificate
theretofore issued by the Corporation
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which is claimed to have been lost, stolen or destroyed, upon the making of an
affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen or destroyed. When authorizing such issue of a new certificate, the
Board of Directors may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
certificate, or such person's legal representative, to advertise the same in
such manner as it shall require and/or to give the Corporation a bond in such
sum, or other security in such form, as it may direct as indemnity against any
claim that may be made against the Corporation with respect to the certificate
claimed to have been lost, stolen or destroyed.
ARTICLE VII
INDEMNIFICATION
Section 7.01 Nature of Indemnity. The Corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that such
person is or was (or, to the extent permitted by Delaware law, has agreed to
become) a director or officer of the Corporation, or is or was serving (or, to
the extent permitted by Delaware law, has agreed to serve) at the request of the
Corporation as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise, or by reason of any action alleged to have
been taken or omitted in such capacity (each of the foregoing, a "Mandatory
Indemnitee"), and may indemnify any person who was or is a party or is
threatened to be made a party to such an action, suit or proceeding by reason of
the fact that such person is or was (or, to the extent permitted by Delaware
law, has agreed to become) an employee or agent of the Corporation, or is or was
serving (or, to the extent permitted by Delaware law, has agreed to serve) at
the request of the Corporation as an employee or agent of another corporation,
partnership, joint venture, trust or other enterprise (each of the foregoing, a
"Permissive Indemnitee"), against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person or on such person's behalf in connection with such action, suit
or proceeding and any appeal therefrom, if such person acted in good faith and
in a manner he or she reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe that his or her conduct was
unlawful; except that in the case of an action or suit by or in the right of the
Corporation to procure a judgment in its favor, (a) such indemnification shall
be limited to expenses (including attorneys' fees) actually and reasonably
incurred by such person in the defense or settlement of such action or suit, and
(b) no indemnification shall be made in respect of any claim, issue or matter as
to which such person shall have been adjudged to be liable to the Corporation
unless, and only to the extent that, the Delaware Court of Chancery or the court
in which such action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Delaware Court of Chancery or such other court shall deem
proper. The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he or she reasonably believed to be in or
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not opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his or her
conduct was unlawful.
Section 7.02 Successful Defense. To the extent that any Mandatory
Indemnitee or Permissive Indemnitee has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in Section
7.01, or in defense of any claim, issue or matter therein, such person shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by such person in connection therewith.
Section 7.03 Determination That Indemnification Is Proper. Any
indemnification of a Mandatory Indemnitee or Permissive Indemnitee (unless
ordered by a court) shall be made by the Corporation only as authorized in the
specific case upon a determination that indemnification of such person is proper
in the circumstances because such person has met the applicable standard of
conduct set forth in Section 7.01. Any such determination shall be made, with
respect to a person who is a director or officer at the time of such
determination:
(a) by the majority vote of the Board of Directors who were
not parties to such action, suit or proceeding even though less than a quorum;
(b) by a committee of such directors designated by majority
vote of such directors, even though less than a quorum;
(c) if there are no such directors, or if such directors so
direct, by independent legal counsel in a written opinion; or
(d) by the stockholders.
Section 7.04 Advance Payment of Expenses. Unless the Board of Directors
otherwise determines in a specific case, expenses incurred by a Mandatory
Indemnitee in defending a civil or criminal action, suit or proceeding shall be
paid by the Corporation in advance of the final disposition of such action, suit
or proceeding upon receipt of an undertaking by or on behalf of such Mandatory
Indemnitee to repay such amount if it shall ultimately be determined that he or
she is not entitled to be indemnified by the Corporation as authorized in this
Article VII. Such expenses incurred by a Permissive Indemnitee may be so paid
upon such terms and conditions, if any, as the Board of Directors deems
appropriate. The Board of Directors may authorize the Corporation's legal
counsel to represent any Mandatory Indemnitee or Permissive Indemnitee in any
action, suit or proceeding, whether or not the Corporation is a party to such
action, suit or proceeding.
Section 7.05 Survival. The foregoing indemnification provisions shall
be deemed to be a contract between the Corporation and each Mandatory Indemnitee
or Permissive Indemnitee who serves in any such capacity at any time while these
provisions as well as the relevant provisions of the DGCL are in effect and any
repeal or modification thereof shall not affect any right or obligation then
existing with respect to any state of facts then or previously existing or any
action, suit, or proceeding previously or thereafter brought or threatened based
in whole or in
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part upon any such state of facts. Such a contract right may not be modified
retroactively without the consent of such Mandatory Indemnitee or Permissive
Indemnitee.
Section 7.06 Preservation of Other Rights. The indemnification and
advancement of expenses provided by this Article VII shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in any
such person's official capacity and as to action in another capacity while
holding such office, and shall continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person. Subject to the limitations
set forth in Section 7.05, the Corporation may enter into an agreement with any
of its directors, officers, employees or agents, or any person serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, including
employee benefit plans, providing for indemnification and advancement of
expenses, including attorneys' fees, that may change, enhance, qualify or limit
any right to indemnification or advancement of expenses created by this Article
VII.
Section 7.07 Insurance. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
such person and incurred by such person in any such capacity, or arising out of
such person's status as such, whether or not the Corporation would have the
power to indemnify him or her against such liability under the provisions of the
DGCL.
Section 7.08 Severability. If this Article VII or any portion hereof
shall be invalidated on any ground by any court of competent jurisdiction, then
the Corporation shall nevertheless indemnify each Mandatory Indemnitee and may
indemnify each Permissive Indemnitee as to costs, charges and expenses
(including attorneys' fees), judgment, fines and amounts paid in settlement with
respect to any action, suit or proceeding, whether civil, criminal,
administrative or investigative, including an action by or in the right of the
Corporation, to the fullest extent permitted by any applicable portion of this
Article VII that shall not have been invalidated and to the fullest extent
permitted by applicable law.
Section 7.09 Subrogation. In the event of payment of indemnification to
a Mandatory Indemnitee or Permissive Indemnitee, the Corporation shall be
subrogated to the extent of such payment to any right of recovery such person
may have and such person, as a condition of receiving indemnification from the
Corporation, shall execute all documents and do all things that the Corporation
may deem necessary or desirable to perfect such right of recovery, including the
execution of such documents necessary to enable the Corporation to effectively
enforce any such recovery.
Section 7.10 No Duplication of Payments. The Corporation shall not be
liable under this Article VII to make any payment in connection with any claim
made against a Mandatory Indemnitee or Permissive Indemnitee to the extent such
person has otherwise received payment
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(under any insurance policy, bylaw or otherwise) of the amounts otherwise
indemnifiable hereunder.
Section 7.11 Effect of Amendment. Any amendment, repeal or modification
of any provision of this Article VII shall be prospective only, and shall not
adversely affect any right or protection conferred on any person pursuant to
this Article VII and existing at the time of such amendment, repeal or
modification.
ARTICLE VIII
NOTICES
Section 8.01 Notice. Except as otherwise specifically provided herein
or required by law, all notices required to be given pursuant to these Bylaws
shall be in writing. No requirement of notice in these Bylaws shall be construed
to mean personal notice unless otherwise specifically provided herein. Any
notice other than those specifically required herein to be given personally and
other than those specifically required herein to be transmitted by a particular
means may be given by first class mail or by telegram (with messenger service
specified), or courier service, charges prepaid, or by facsimile transmission
(with confirmation of receipt) to the address (or to the facsimile number) of
the person appearing on the books of the Corporation, or, in the case of
directors, supplied to the Corporation for the purpose of notice. Except as
otherwise specifically provided herein, if the notice is sent by mail, telegram
or courier service, it shall be deemed to be given when deposited in the United
States mail or with a telegraph office or courier service for delivery to that
person or, in the case of facsimile transmission, when transmitted.
Section 8.02 Waiver of Notice. Whenever notice is required to be given
under any provision of these Bylaws, a written waiver of notice, signed by the
person entitled to such notice, whether before or after the time stated therein,
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. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders, directors or members of a
committee of directors need be specified in any written waiver of notice, unless
so required by the Certificate of Incorporation.
ARTICLE IX
GENERAL PROVISIONS
Section 9.01 Dividends. Subject to applicable law and the provisions of
the Certificate of Incorporation, dividends upon the outstanding capital stock
of the Corporation may be declared by the Board of Directors at any regular or
special meeting and may be paid in cash, in property or in shares of the
Corporation's capital stock. The Board of Directors shall have full power,
subject to the provisions of law and the Certificate of Incorporation, to
determine whether
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any, and, if so, what part, of the funds legally available for the payment of
dividends shall be declared as dividends and paid to the stockholders of the
Corporation.
Section 9.02 Reserves. The Board of Directors, in its sole discretion,
may fix a sum which may be set aside as a fund or reserved over and above the
paid-in capital of the Corporation for working capital or as a reserve for any
proper purpose, and may, from time to time, increase, diminish or vary such fund
or reserve.
Section 9.03 Fiscal Year. The fiscal year of the Corporation shall be
determined, and may be subsequently changed from time to time, by resolution of
the Board of Directors.
Section 9.04 Seal. The Board of Directors may provide for a corporate
seal, which shall have inscribed thereon the name of the Corporation, the year
of its incorporation and the words "Corporate Seal" and "Delaware." Any
corporate seal shall otherwise be in such form as may be approved from time to
time by the Board of Directors.
Section 9.05 Certificate of Incorporation Governs. In the event of any
conflict between the provisions of the Certificate of Incorporation and these
Bylaws, the provisions of the Certificate of Incorporation shall govern.
Section 9.06 Severability. If any provision of these Bylaws shall be
held to be invalid, illegal, unenforceable or in conflict with the provisions of
the Certificate of Incorporation, then such provision shall nonetheless be
enforced to the maximum extent possible consistent with such holding and the
remaining provisions of these Bylaws (including, without limitation, all
portions of any section of these Bylaws containing any such provision held to be
invalid, illegal, unenforceable or in conflict with the Certificate of
Incorporation, that are not themselves invalid, illegal, unenforceable or in
conflict with the Certificate of Incorporation) shall remain in full force and
effect.
ARTICLE X
AMENDMENTS
Section 10.01 Amendment by Stockholders. Stockholders of the
Corporation holding at least a majority of the Corporation's outstanding voting
stock, voting as a single class, shall have the power to adopt, amend or repeal
bylaws of the Corporation.
Section 10.02 Amendment by the Board of Directors. To the extent
provided in the Certificate of Incorporation, the Board of Directors shall have
the power to adopt, amend or repeal bylaws of the Corporation by an affirmative
vote of a majority of the whole Board of Directors, except insofar as bylaws
adopted by the stockholders shall otherwise provide.
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Exhibit 4.1
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
This Amended and Restated Registration Rights Agreement (the "Restated
Agreement") is made and entered as of this 3rd day of August, 1999, by and among
FREEMARKETS ONLINE, INC., a Delaware corporation (the "Company") and the parties
listed on Schedule A hereto (the "Security Holders").
R E C I T A L S
WHEREAS, the Security Holders have previously entered into one or more
registration rights agreements with the Company (as defined in Section 12, the
"Predecessor Agreements");
WHEREAS, the Predecessor Agreements relate to the registration, under
the Securities Act of 1933, as amended, of the Registrable Securities (as
defined in Section 1) owned by the Security Holders;
WHEREAS, the parties hereto now desire to amend and restate each of the
Predecessor Agreements in the manner set forth in this Restated Agreement;
WHEREAS, the parties have agreed that this Restated Agreement shall
supersede the Predecessor Agreements in their entirety and that the rights and
obligations of the parties with respect to the registration of the Registrable
Securities shall be governed solely by this Restated Agreement;
WHEREAS, the Security Holders who are executing counterpart signature
pages to this Restated Agreement have the requisite power and authority to amend
and restate each of the Predecessor Agreements pursuant to the terms of each
such agreement (as more fully set forth in Section 12 of this Restated
Agreement).
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Security
Holders hereby agree as follows:
1. Certain Definitions. As used in this Restated Agreement, the
following terms shall have the following meanings:
(a) "Business Day" shall mean any day other than a Saturday,
Sunday or a day on which banks in the State of New York are required or
permitted to close.
(b) "Common Stock" shall mean the Common Stock, par value
$0.01 per share, of the Company.
<PAGE> 2
(c) "Holder" means a Security Holder and any assignee of the
rights of such Security Holder in accordance with Section 13(d) of this Restated
Agreement.
(d) "Prospectus" shall mean the prospectus included in any
Registration Statement, as amended or supplemented by any prospectus supplement
with respect to the terms of the offering of any portion of the Registrable
Securities covered by such Registration Statement and by all other amendments
and supplements to the prospectus, including post-effective amendments and all
material incorporated by reference in such prospectus.
(e) "Series A Preferred Stock" shall mean the Series A-1
Convertible Preferred Stock, par value $.01 per share, of the Company, and
Series A-2 Convertible Preferred Stock, par value $.01 per shares, of the
Company.
(f) "Series B Preferred Stock" shall mean the Series B
Convertible Preferred Stock, par value $.01 per share, of the Company.
(g) "Series C Preferred Stock" shall mean the Series C
Convertible Preferred Stock, par value $.01 per share, of the Company.
(h) "Series D Preferred Stock" shall mean the Series D
Convertible Preferred Stock, par value $.01 per share, of the Company.
(i) "Register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the 1933 Act (defined below), and, unless
the context otherwise requires, the declaration or ordering of effectiveness of
such registration statement or document.
(j) "Registrable Securities" shall mean (i) the Common Stock
acquired upon the conversion of the Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock or Warrants, as
defined, (ii) Common Stock owned by American Express Travel Related Services or
Stephen Getsy, (iii) Common Stock owned by Glen T. Meakem and Sam E. Kinney,
Jr., and (iv) any Common Stock of the Company issued as (or issuable upon the
conversion, exchange or exercise of any warrant, right or other security which
is issued as) a dividend or other distribution with respect to, or in exchange
for or in replacement of, such Common Stock; provided, however, that
"Registrable Securities" shall not include any shares that have previously been
registered or sold to the public; provided, further, that Registrable Securities
shall not include any securities of the Company which may be sold pursuant to
Rule 144 (k) under the 1933 Act or any successor rule.
(k) "Registration Statement" shall mean any registration
statement of the Company that covers any of the Registrable Securities pursuant
to the provisions of this Restated Agreement, including the Prospectus,
amendments and supplements to such Registration Statement, including
post-effective amendments, all exhibits and all material incorporated by
reference in such registration statement.
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(l) "SEC" means the U.S. Securities and Exchange Commission.
(m) "1933 Act" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
(n) "1934 Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
(o) "Warrants" shall mean warrants (i) issued by the Company
to United Technologies Corporation, (ii) Saturn Capital, Inc., and (iii)
Wybrook, L.P.
2. Piggyback Registrations.
(a) Right to Piggyback. Whenever the Company proposes to
register any of its securities under the 1933 Act, other than pursuant to a
registration on Forms S-4 or S-8 (or any successor form or forms), the Company
will give 20 days prior written notice to each Holder of Registrable Securities
of the intention to effect such a registration and, subject to the provisions of
subsection (b) hereof, will include in such registration all Registrable
Securities with respect to which the Holder has given notice of request for
inclusion therein to the Company within 15 days after the Company gives such
notice (a "Piggyback Registration"); provided that the Company shall have the
right to postpone or withdraw any registration effected pursuant to this Section
2(a) without obligation to any Holder.
(b) Priority on Piggyback Registration. In the event that any
Piggyback Registration is an underwritten public offering, the number of
Registrable Securities to be included in such an underwriting may be reduced
(pro rata among the Holders of Registrable Securities who have requested
registration of Registrable Securities based upon the number of Registrable
Securities requested to be registered by such Holders) if and to the extent that
the managing underwriter shall advise the Company that such inclusion would
adversely affect the marketing of the securities to be sold by the Company
therein, provided, however, that if any shares are to be included in such
underwriting for the account of any person ("Other Security Holder") other than
the Company or Holders of Registrable Securities, such shares of the Other
Security Holder will be reduced to zero before any reduction shall be made in
the number of Registrable Securities to be included in such registration by all
Holders of Registrable Securities.
3. Demand Registrations. If at any time following the date which is one
hundred eighty (180) days after the initial public offering by the Company, one
or more of the Holders of an aggregate of not less than 20% of the Registrable
Securities ("Initiating Holders") then outstanding shall notify the Company in
writing that it or they intend to offer or cause to be offered for public sale
all or any portion of their Registrable Securities ("Demand Request"), the
Company will notify all other Holders of Registrable Securities (the "Company
Notice"). The Company shall file as soon as practicable, and in any event within
60 days of the receipt of the Demand Request, a registration statement, and use
its best efforts to cause such registration statement to become effective, with
respect to the registration of such Registrable Securities as may be requested
by the Initiating Holders and such other Registrable Securities owned by any
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<PAGE> 4
other Holders with respect to which the Company has received written requests
for inclusion within 20 days of the Company Notice. Anything herein to the
contrary notwithstanding, the Company shall be obligated to comply with this
Section 3 on two occasions only. Notwithstanding the foregoing, if the Company
shall furnish to the Initiating Holder(s) a certificate signed by the Chief
Executive Officer of the Company stating that in the good faith judgment of the
Board of Directors of the Company it would be materially detrimental to the
Company and its stockholders for such registration statement to be filed and it
is therefore desirable to defer the filing of such registration statement, the
Company shall have the right to defer taking action with respect to such filing
for a period of 90 days after receipt of the Demand Request.
4. Registration on Form S-3. At such time as the Company is qualified
to register its securities on Form S-3, and in addition to the rights contained
in Section 2, if at any time a Holder or Holders of Registrable Securities (the
"Initiating Form S-3 Holders") requests that the Company file a registration
statement on Form S-3 for a sale or public offering of all or any portion of the
Registrable Securities held by such Initiating Form S-3 Holder or Holders (the
"Form S-3 Demand"), the reasonably anticipated aggregate price to the public of
which would exceed $5,000,000, then the Company (a) will promptly give at least
20 days written notice of the proposed registration to all other Holders and (b)
use its best efforts to register under the Securities Act on Form S-3, for
public sale in accordance with the method of disposition specified in the Form
S-3 Notice, the number of Registrable Securities specified in such Form S- 3
Notice together with any Registrable Securities requested to be included by any
other Holders joining in such request as are specified in a written request
given within 15 days after receipt of such written notice from the Company.
Notwithstanding the foregoing, if the Company shall furnish to the Initiating
Form S-3 Holder(s) a certificate signed by the Chief Executive Officer of the
Company stating that in the good faith judgment of the Board of Directors of the
Company it would be materially detrimental to the Company and its stockholders
for such registration statement to be filed and it is therefore desirable to
defer the filing of such registration statement, the Company shall have the
right to defer taking action with respect to such filing for a period of 90 days
after receipt of the Form S-3 Demand.
5. Holdback Agreements. Each holder of Registrable Securities agrees
not to effect any public sale or distribution of equity securities of the
Company, or any securities convertible into or exercisable for such securities,
for a period of 180 days beginning on the effective date of any underwritten
registration in which such Holder's Registrable Securities are included (except
as part of such underwritten registration) unless the underwriters managing the
registered public offering otherwise agree; provided, that in no event shall a
holder of Registrable Securities be subject to a limitation on sale or
distribution that covers a period longer than that to which any other security
holder whose securities are included in the registration is subject, and
provided further, that the limitation set forth herein shall not apply to any
securities of the Company which are purchased in a public offering registered
under the 1933 Act or in the open market following an initial public offering by
the Company.
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6. Registration Procedures. Whenever the holders of Registrable
Securities have requested that any Registrable Securities be registered pursuant
to this Restated Agreement, the Company will as expeditiously as reasonably
possible:
(a) prepare and file with the SEC a Registration Statement
with respect to such Registrable Securities and use its best efforts to cause
such Registration Statement to become effective and to remain continuously
effective for a period which will terminate when all Registrable Securities
covered by such Registration Statement, as amended from time to time, have been
sold or a period of 180 days, whichever is shorter;
(b) prepare and file with the SEC such amendments and
post-effective amendments to the Registration Statement and the Prospectus as
may be necessary to keep the Registration Statement effective for the period
specified in Section 6(a) and to comply with the provisions of the 1933 Act and
the 1934 Act with respect to the distribution of all Registrable Securities;
provided that, at a time reasonably prior to the filing of a Registration
Statement or Prospectus, or any amendments or supplements thereto, the Company
will furnish to counsel for the Holders of Registrable Securities included in
such registration, copies of all documents proposed to be filed, which documents
will be subject to the comments of such counsel;
(c) make available for inspection by a representative of the
Holders of Registrable Securities, any underwriter participating in any
distribution pursuant to such registration, and any attorney, accountant or
other agent retained by such representative or underwriter, all financial and
other records, pertinent corporate documents and properties of the Company, and
cause the Company's officers, directors and employees to supply all information
reasonably requested by any such representative, underwriter, attorney,
accountant or agent in connection with such registration statement;
(d) notify the counsel for the Holders of Registrable
Securities included in such registration promptly, and, if requested, confirm
such advice in writing, (i) when the Prospectus or any supplement or
post-effective amendment has been filed, and with respect to the Registration
Statement or any post-effective amendment, when the same has become effective,
(ii) of any request by the SEC for amendments or supplements to the Registration
Statement or the Prospectus or for additional information, (iii) of the issuance
by the SEC of any stop order suspending the effectiveness of the Registration
Statement or the initiation of any proceedings for that purpose, and (iv) of the
receipt by the Company of any notification with respect to the suspension of the
qualification of the Registrable Securities for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose;
(e) make reasonable effort to obtain the withdrawal of any
order suspending the effectiveness of the Registration Statement;
(f) deliver to each Holder of Registrable Securities included
in such registration, as the case may be, as many copies of the Registration
Statement and Prospectus (including each preliminary prospectus) and any
amendment or supplement thereto as such holder may reasonably request;
5
<PAGE> 6
(g) prior to any public offering of Registrable Securities,
use its best efforts to register or qualify or cooperate with the holders of
Registrable Securities and the underwriters, if any, and their respective
counsel in connection with the registration or qualification of such Registrable
Securities for offer and sale under the securities or blue sky laws of such
jurisdictions as such Holder or any underwriter reasonably requests in writing,
and do any and all other acts or things necessary or advisable to enable the
distribution in such jurisdictions of the Registrable Securities covered by the
Registration Statement; provided that the Company will not be required to
qualify generally to do business in any jurisdiction where it is not then so
qualified or to take any action which would subject it to general service of
process in any such jurisdiction where it is not then so subject;
(h) cause all Registrable Securities covered by the
Registration Statement to be listed on each securities exchange, interdealer
quotation system or other market on which similar securities issued by the
Company are then listed; and provide a transfer agent and registrar for all
Registrable Securities included in such Registration Statement and a CUSIP
number for all such Registrable Securities, in each case not later than the
effective date of such registration;
(i) in the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, usual and
customary in form, with the managing underwriter of such offering (the Holders
of Registrable Securities included in such registration, shall also enter into
and perform their obligations under such agreement, usual and customary in
form); and the Company shall take such other actions as the underwriters
reasonably request in order to expedite or facilitate a disposition of the
Registrable Securities;
(j) upon request, furnish to each Holder of Registrable
Securities included in such registration, a signed counterpart, addressed to
such Holder, of (i) an opinion of counsel for the Company, dated the effective
date of such Registration Statement (or, if such registration includes an
underwritten public offering, dated the date of the closing under the
underwriting agreement), and (ii) if permitted, a "comfort" letter, dated the
effective date of such Registration Statement (and, if such registration
includes an underwritten public offering, dated the date of the closing under
the underwriting agreement), signed by the independent public accountants who
have certified the Company's financial statements included in such Registration
Statement;
(k) immediately notify each Holder of Registrable Securities
included in such registration, at any time when a Prospectus relating thereto is
required to be delivered under the Securities Act, upon discovery that, or upon
the happening of any event as a result of which, the Prospectus included in such
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omits to state any material fact required to be stated therein
or necessary to make the statements therein not misleading in the light of the
circumstances then existing, and at the request of any such Holder, promptly
prepare and furnish to such Holder a reasonable number of copies of a supplement
to or an amendment of such Prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such Registrable Securities, such Prospectus
shall not include an untrue statement of a material fact or omit to state a
material fact
6
<PAGE> 7
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing;
(l) otherwise use its reasonable efforts to comply with all
applicable rules and regulations of the SEC under the 1933 Act and the 1934 Act,
and take such other actions as may be reasonably necessary to facilitate the
registration or the disposition of the Registrable Securities hereunder;
(m) In connection with each registration hereunder, the
Holders of Registrable Securities to be included in the registration will
furnish to the Company in writing such information with respect to themselves
and the proposed distribution by them as reasonably shall be necessary in order
to assure compliance with federal and applicable state securities laws. In
addition, the Holders of Registrable Securities agree that they will not deliver
any form of Prospectus in connection with the sale of any Registrable Securities
as to which the Company has advised such Holders that it is preparing an
amendment or supplement.
7. Expenses. The Company will pay all expenses in connection with any
registration pursuant to Sections 2, 3 and 4, including, without limitation, all
registration and filing fees, printing expenses, fees and disbursements of
counsel and independent public accountants for the Company, fees and expenses
(including counsel fees) incurred in connection with complying with state
securities or "blue sky" laws, fees of the National Association of Securities
Dealers, Inc., transfer taxes, fees of transfer agents and registrars, costs of
insurance and fees and disbursements of one counsel for the Holders of
Registrable Securities. All underwriting discounts and selling commissions
applicable to the sale of a holder's Registrable Securities will be paid by such
holder.
8. Indemnification.
(a) Indemnification by Company. In connection with any
registration pursuant to this Restated Agreement, the Company agrees to
indemnify and hold harmless, to the fullest extent permitted by law, each Holder
of Registrable Securities included in a registration pursuant to this Restated
Agreement, such Holder's officers, directors, partners and employees and each
person who controls such holder (within the meaning of the 1933 Act) and each
underwriter, if any (including any broker or dealer which may be deemed an
underwriter) and each person who controls any underwriter of the Registrable
Securities against all losses, claims, damages, liabilities, and expenses caused
by (i) any untrue or alleged untrue statement of a material fact contained in
any Registration Statement, Prospectus or any preliminary prospectus or any
amendment or supplement thereto or any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, or (ii) any violation by the Company of any
federal, state or common law, rule or regulation applicable to the Company in
connection with any Registration Statement, Prospectus or any preliminary
prospectus, or any amendment or supplement thereto, and shall reimburse, as
incurred, each of the foregoing persons for any legal and any other expenses
reasonably incurred in connection with investigating or defending any such
claims; provided, however that the indemnity agreement contained in this Section
8(a) shall not apply to amounts paid in settlement
7
<PAGE> 8
of any such loss, claim, damage, liability, or action if such settlement is
effected without the consent of the Company (which consent shall not
unreasonably be withheld), nor shall the Company be liable to the extent any
loss, claim, damage, liability or action arises out of or is based upon any
information furnished in writing to the Company by any Holder, underwriter or
controlling person expressly for use in connection with such registration.
(b) Indemnification by Holder of Registrable Securities. In
connection with any registration pursuant to the terms of this Restated
Agreement, each Holder of Registrable Securities included in such registration
agrees to indemnify and hold harmless, to the fullest extent permitted by law,
the Company, its directors and officers and each person who controls the Company
(within the meaning of the 1933 Act) against any losses, claims, damages,
liabilities and expense resulting from any untrue statement of a material fact
or any omission of a material fact required to be stated in the Registration
Statement or Prospectus or preliminary prospectus or any amendment or supplement
thereto, or necessary to make the statements therein not misleading, to the
extent, but only to the extent, that such untrue statement or omission is
contained in any information furnished in writing by the Holder of Registrable
Securities to the Company specifically for inclusion in such Registration
Statement or Prospectus and that such information was substantially relied upon
by the Company in preparation of the Registration Statement or Prospectus or any
amendment or supplement thereto. In no event shall the liability of the Holder
of Registrable Securities hereunder be greater in amount than the lesser of (i)
an amount equal to the proportion that the public offering price of the
Registrable Securities sold by the holder in such registration bears to the
total public offering price of all securities sold thereunder or (ii) the dollar
amount of the proceeds (net of all expense paid by such Holder and the amount of
any damages such Holder has otherwise been required to pay by reason of such
untrue statement or omission) received by such Holder upon the sale of the
Registrable Securities pursuant to such registration; provided, however that the
indemnity agreement contained in this Section 8(b) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of the Holder (which consent shall
not unreasonably be withheld).
(c) Contribution. If for any reason the indemnification
provided for in the preceding clauses (a) and (b) is judicially determined (by
the entry of a final judgment or decree by a court of competent jurisdiction and
the expiration of time to appeal or the denial of the last right of appeal) to
be unavailable to an indemnified party or insufficient to hold it harmless,
notwithstanding the fact that this Section 8 provides for indemnification in
such case, then the indemnifying party shall contribute to the amount paid or
payable by the indemnified party as a result of such loss, claim, damage or
liability in such proportion as is appropriate to reflect the relative fault of
the indemnified party and the indemnifying party, as well as any other relevant
equitable considerations. The relative fault of the indemnifying party and of
the indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
8
<PAGE> 9
(d) Survival of Obligations. The obligations of the parties
under this Section 8 shall survive the completion of the offering of Registrable
Securities and shall remain in full force and effect regardless of any
investigation made by or on behalf of any indemnified party.
9. Limitations on Subsequent Registration Rights. From and after the
date of this Restated Agreement, the Company shall not, without the prior
written consent of Holder(s) of 662/3% of all Registrable Securities then held
by all Holders, enter into any agreement with any holder or prospective holder
of any securities of the Company giving such holder or prospective holder any
registration rights the terms of which are more favorable than the registration
rights granted to the Holders hereunder.
10. Changes in Common Stock. If, and as often as, there is any change
in the Common Stock by way of a stock split, stock dividend, combination or
reclassification, or through a merger, consolidation, reorganization or
recapitalization, or by any other means, appropriate adjustment shall be made in
the provisions hereof so that the rights and privileges granted hereby shall
continue with respect to the Common Stock as so changed.
11. Rule 144 Reporting. With a view to making available the benefits of
certain rules and regulations of the Commission that may permit the sale of the
Registrable Securities to the public without registration, the Company agrees
to:
(a) make and keep public information available, as those terms
are understood and defined under the 1933 Act, at all times from and after 90
days following the earlier of the effective date of the Company's first
registration under the 1933 Act or the registration of any class of the
Company's securities under Section 12 of the 1934 Act.
(b) use its best efforts to file with the Commission in a
timely manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act; and
(c) furnish to each Holder of Registrable Securities forthwith
upon request (i) a written statement by the Company as to its compliance with
the reporting requirements of Rule 144 and of the 1933 Act and the 1934 Act,
(ii) a copy of the most recent annual or quarterly report of the Company, and
(iii) such other reports and documents so filed by the Company as such Holder
may reasonable request in availing itself of any rule or regulation of the
Commission allowing such holder to sell any Registrable Securities without
registration.
12. Amendment and Restatement of Predecessor Agreements. This Restated
Agreement amends and restates the following agreements (collectively, the
"Predecessor Agreements") in all respects:
(a) Article 4 of the Shareholders' Agreement dated July 31,
1995 between the Company and Glen T. Meakem and Sam E. Kinney, as amended,
pursuant to authority granted in Section 5.9 thereof;
9
<PAGE> 10
(b) Section 7.2.5 of the Purchase Agreement dated August 17,
1995 between the Company and American Express Travel Related Services Company,
Inc. (as clarified by side letter dated April 7, 1999), pursuant to authority
granted in Section 10.3 thereof;
(c) Section 10 of the Stock Subscription Agreement dated
September 7, 1995 between the Company and Stephen Getsy, pursuant to authority
granted in Section 8 thereof;
(d) Registration Rights Agreement dated March 29, 1996 between
the Company and the purchasers of Series A-1 Preferred Stock, as amended to
date, pursuant to authority granted in Section 14(b) thereof;
(e) Registration Rights Agreement dated December 29, 1996
between the Company and the purchasers of Series B Preferred Stock, as amended
to date, pursuant to authority granted in Section 14(b) thereof; and
(f) Registration Rights Agreement dated December 2, 1997
between the Company and the purchasers of Series A-2 Preferred Stock, as amended
to date, pursuant to authority granted in Section 14(b) thereof.
Each Security Holder who executes a counterpart signature page to this Restated
Agreement consents and agrees to the amendment and restatement of each
Predecessor Agreement to which such Security Holder is a party as set forth in
this Restated Agreement. The Security Holders executing a counterpart signature
page to this Restated Agreement have the requisite power and authority to amend
and restate each of the Predecessor Agreements and, with respect to each of the
Predecessor Agreements identified in subsections (d), (e) and (f) above, such
Security Holders hold at least the minimum number of "Registrable Securities"
(as that term is defined in such agreement) necessary to effect an amendment and
restatement of such agreement.
13. Miscellaneous.
(a) Remedies. If the Company shall breach its obligations to
register the Registrable Securities pursuant to this Restated Agreement, the
Holders shall be entitled to exercise all rights provided herein or granted by
law, including recovery of damages, or in equity, including specific
performance.
(b) Amendments and Waivers. This Restated Agreement may be
amended and the Company may take any action herein prohibited, or omit to
perform any act herein required to be performed by it, only if the Company shall
have obtained the written consent to such amendment, action or omission to act,
of the Holder or Holders of at least 662/3% of the Registrable Securities then
held by all Holders. Each Holder of any Registrable Securities at the time and
any subsequent Holder of Registrable Securities shall be bound by any consent
authorized by this subsection 13(b), whether or not such Registrable Securities
shall have been marked to indicate such consent.
10
<PAGE> 11
(c) Notices. All notices and other communications provided for
or permitted hereunder shall be in writing and shall be deemed to have been duly
delivered (a) when delivered by hand, if personally delivered, (b) if sent by
mail to a party whose address is in the same country as the sender, two Business
Days after being deposited in the mail, postage prepaid, (c) when delivered by
courier as evidenced by receipt from the courier, if delivered by courier, or
(d) if sent by facsimile transmission on a Business Day, upon confirmation of
receipt.
(d) Assignments and Transfers. Each Holder of Registrable
Securities may make an assignment or transfer to any transferee or assignee of
any Registrable Securities, provided, that (i) such transfer is made expressly
subject to this Restated Agreement and the transferee agrees in writing to be
bound by the terms and conditions hereof, and (ii) the Company is provided with
reasonably prompt written notice of such assignment.
(e) Benefits of the Agreement. The terms and conditions of
this Restated Agreement shall inure to the benefit of and be binding upon the
respective permitted successors and assigns of the parties.
(f) Severability. If one or more provisions of this Restated
Agreement are held to be unenforceable under applicable law, such provision
shall be excluded from this Restated Agreement and the balance of this Restated
Agreement shall be interpreted as if such provision were so excluded and shall
be enforceable in accordance with its terms.
(g) Entire Agreement. This Restated Agreement is intended by
the parties as a final expression of their agreement and intended to be a
complete and exclusive statement of the agreement and understanding of the
parties hereto in respect of the subject matter contained herein. This Restated
Agreement supersedes all prior agreements and understandings between the parties
with respect to such subject matter.
(h) Applicable Law. This Restated Agreement shall be governed
by, and construed in accordance with, the laws of the State of Delaware without
regard to principles of conflicts of law.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
11
<PAGE> 12
IN WITNESS WHEREOF, the parties have executed this Restated Agreement
as of the date first written above.
The Company: FREEMARKETS ONLINE, INC.
By: /s/ Glen T. Meakem
-------------------------------
Name: Glen T. Meakem
Title: President
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
12
<PAGE> 13
SIGNATURE PAGE TO AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
SECURITY HOLDER
-------------------------------------
Printed Name
-------------------------------------
Signature
-------------------------------------
Date
-------------------------------------
Number of Registrable Securities
SECURITY HOLDER
-------------------------------------
Printed Name
-------------------------------------
Signature
-------------------------------------
Date
-------------------------------------
Number of Registrable Securities
13
<PAGE> 14
Additional signature pages of the following parties omitted:
1. American Express Travel Related Services, Inc.
2. CSM Partners, L.P.
3. Sean Sebastian
4. Francis H. Bricmont
5. Hugh W. Nevin, Jr.
6. John P. Levis, III
7. David A. Noble
8. James M. Edwards
9. Keith B. Kirkland & Jane M. Kirkland
10. Jack W. Elliot
11. The Goldman Sachs Group, Inc.
12. Stone Street Fund 1998, L.P.
13. Bridge Street Fund 1998, L.P.
14. Douglas T. Millar and Deborah L. Millar
15. Raymond C. Becker and Mary Jo Becker
16. Barry B. Bridger and Sheila A. Bridger
17. Robert Kopf
18. Thomas Kopf
19. Robert B. Egan and Ann M. Egan
20. Birchmere Investments, L.P.
21. Glen T. Meakem
22. Sam E. Kinney, Jr.
23. Stephen Getsy
24. ATGF II
25. James Stableford
26. Anthony Ciulla
27. Vertex Capital II LLC
28. Matthew O. Fitzmaurice
29. Christopher Lord
30. Pivotal Asset Management LLC, d/b/a Pivotal Appreciation Fund
31. Ralph Cechettini 1995 Trust
32. Pivotal Partners, L.P.
33. California Bank & Trust, Agent for
Ralph Cechettini IRA Rollover A/C 69-2161-37
34. Daniel E. Chapey
35. Marc Weiss
36. William S. Slattery
37. Nevada Bond Investment Corp. II
<PAGE> 1
Exhibit 10.2(a)
INFORMATION DENOTED BY [*] HEREIN HAS BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT. THIS INFORMATION HAS BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
SERVICE AND SYSTEM ACCESS AGREEMENT BETWEEN UNITED TECHNOLOGIES CORPORATION
AND FREEMARKETS ONLINE, INC.
This Service and System Access Agreement ("Agreement") is made this
14th day of January, 1999, effective as of January 1, 1999 ("Effective Date"),
by and between United Technologies Corporation, a corporation organized and
existing under the laws of the state of Delaware with an office and place of
business at Hartford, Connecticut (hereinafter referred to as "United") and
FreeMarkets OnLine, Inc., a corporation organized and existing under the laws of
the state of Delaware with an office and place of business at 130 Seventh
Street, Suite 500, Pittsburgh, PA 15222 (hereinafter referred to as
"FreeMarkets" or "Seller"). For purposes of this Agreement, the rights granted
to United under this Agreement shall also be deemed granted to any United
"Affiliate," which shall mean any entity in which United owns more than 50% of
the outstanding voting ownership interests, and shall also mean International
Aero Engines, Inc.
United wishes to be provided with, and FreeMarkets wishes to provide,
the following: (i) a series of online and offline industrial market making
project(s), including overall project management for these projects, and (ii)
access to FreeMarkets' proprietary global online bidding system for the conduct
of Competitive Bidding Events ("CBEs"), consisting of proprietary
Bidware(R)/BidServer(R) software, computer and networking hardware and operating
software used to conduct CBEs (the "System"). A CBE, the result of substantial
preparation work with buyers and suppliers, is an online session where suppliers
submit bids in an interactive fashion to establish market prices for the various
materials or components desired to be purchased by United. The parties intend
that FreeMarkets will assist United to achieve savings and supplier
consolidation for purchased components and materials used in United's products.
This Agreement is intended to address the specific understanding of the parties
related to such projects and the provision of access to the System, including
without limitation, provisions regarding confidentiality and exclusivity.
In consideration of the premises and of the mutual promises of each
party to the other herein contained, it is hereby mutually agreed as follows:
ARTICLE I - STATEMENT OF BUSINESS SERVICES, SYSTEM ACCESS, SCOPE OF WORK AND
RESOURCE COMMITMENTS
A) TERM OF SERVICES. FreeMarkets agrees that during the period commencing on
the 1st day of January, 1999 and ending on December 31, 2000 (the "Initial
Term"), and during all renewal term(s) of this Agreement (if any) (any such
renewal term(s) together with the Initial Term shall be collectively
referred to herein as the "Term"), FreeMarkets will make available to
United, to the extent, and in the manner hereinafter provided, its business
services with respect to industrial market making and purchasing and access
to the System.
B) PROJECT MANAGEMENT SERVICES. FreeMarkets will conduct a series of online
and offline industrial market making project(s) (also known as sourcing
project(s)) for the purposes of assisting United to achieve savings and
supplier consolidation for purchased components and materials used in
United's products, as identified by United from time to time. FreeMarkets
will provide overall project management for these projects utilizing either
the following FreeMarkets' market making process, organized into five
phases,
<PAGE> 2
or the United sourcing process set forth in Exhibit J attached hereto which
is similar to the FreeMarkets process except that the United process does
not include CBEs and related online industrial sourcing services:
1. Phase 1: Identify Savings Opportunities - FreeMarkets will conduct
detailed reviews of information on current and historic spending, as well
as interviews of United staff to identify savings opportunities appropriate
for utilizing the System or other sourcing processes.
2. Phase 2: Prepare Total Cost Request For Quotation ("RFQ") - FreeMarkets
will gather detailed information at the part level on quality, logistics,
engineering, manufacturing, tooling, and commercial requirements. It will
create bidding strategies designed to achieve United's desired results,
including lot setting and reserve prices, then write and obtain buyer
approval of RFQ(s), which RFQs shall include terms and conditions
satisfactory to United, including, without limitation, government contract
provisions when appropriate, insurance specifications, and confidentiality
requirements.
3. Phase 3: Identify, Screen, and Prepare Suppliers - FreeMarkets will
obtain supplier selection criteria from United buyers for manufacturing
capability, quality, delivery requirements, location, financial strength,
etc. FreeMarkets will research and identify potential new suppliers, then
screen all suppliers, including those that may be identified by United,
against the selection criteria. FreeMarkets will gain buyer approval for
final lists of suppliers, answer supplier questions on RFQs and, if
applicable, train suppliers in the use of the System.
4. Phase 4: Online Competitive Bidding Event(s) - FreeMarkets will provide
access to the System for the conduct of CBEs. FreeMarkets will provide all
necessary infrastructure (except local buyer and supplier site personal
computers and other equipment) so that United can employ the System.
FreeMarkets will also provide all technical support and necessary
operations personnel, including training of United buyers in the use of the
System (where United does not use the System, FreeMarkets will assist
United with any offline supplier negotiations).
5. Phase 5: Provide Savings Implementation Support - FreeMarkets will
provide post-bid supplier cost breakdowns, analysis of award options,
support for supplier qualification trips and other general implementation
support as reasonably requested by United.
C) FREEMARKETS SOURCING PROJECTS. For purposes of this Agreement, a
"FreeMarkets Sourcing Project" shall include any United sourcing project
commenced before or during the Term where FreeMarkets provides one or more
of the following services described above:
(I) Prepare the RFQ for the project;
(II) Identify, screen and prepare suppliers for the project; and/or
(III) Provide access to the System for the conduct of CBEs.
Unless otherwise agreed by the parties, FreeMarkets Sourcing Projects shall
not include sourcing projects related to products and services not
purchased for use in United's products such as office supplies, travel and
outside services. Within thirty (30) days of the Effective Date,
FreeMarkets will provide to United
-2-
<PAGE> 3
a schedule identifying each FreeMarkets Sourcing Project commenced prior to
the Effective Date. Thereafter, FreeMarkets will provide to United a
monthly schedule identifying each FreeMarkets Sourcing Project that was
commenced during the prior month. Within thirty (30) days of receipt of any
such schedule, United will notify FreeMarkets of any objection to such
schedule and the parties will work to mutually resolve any such objections.
No project will be designated as a FreeMarkets Sourcing Project unless the
parties mutually agree to such designation, provided that if United fails
to object to a designation within thirty (30) day of receipt of the
schedule containing such designation, United will be deemed to have
accepted such designation.
D) OVERALL PROJECT MANAGEMENT SERVICES. In addition to providing services
related to FreeMarkets Sourcing Projects as described above, during the
Term, FreeMarkets will provide the following services ("Overall Project
Management Services") to United in connection with the United Sourcing
Initiative as defined from time to time by the United personnel leading
such initiative (the "Sourcing Initiative"): overall Sourcing Initiative
planning and scheduling; assistance with tracking and reporting of savings
achieved pursuant to [*] as defined in Article I k) below; assistance in
high level purchasing problem solving; and, consulting with senior United
managers engaged in the Sourcing Initiative. The Overall Project Management
Services will be provided as reasonably requested by United, subject to the
resource limitations in [*****] set forth in Exhibit B attached hereto.
E) TRAINING. It is the intention of FreeMarkets to assist United in developing
internal world class sourcing capability across its many businesses. In
addition to Overall Project Management Services described above,
FreeMarkets will provide training in online and offline sourcing processes
to the United personnel working on FreeMarkets Sourcing Projects with
FreeMarkets. FreeMarkets will also provide training classes to United
personnel to assist United in the development of internal sourcing
capabilities, including the ability to effectively utilize the System.
FreeMarkets will provide [*] during each calendar year of the Term.
FreeMarkets will be prepared to provide such training classes beginning on
January 31, 1999. Such training will include instruction regarding
identification of savings opportunities (Phase 1), preparation of RFQs
(Phase 2), identification, screening and preparation of suppliers (Phase
3), conducting CBEs using the System (Phase 4), and implementing savings
(Phase 5).
F) SOURCING STRATEGY DEVELOPMENT SERVICES. To further assist United in
developing internal world class sourcing capability across its many
businesses, as specifically requested by United, FreeMarkets will analyze
and create sourcing strategies for the categories of spend which
FreeMarkets helps United to source. Sourcing strategy development services
set forth in this Article I f) will be provided as reasonably requested by
United, subject to the resource limitations [*] set forth in Exhibit B
attached hereto.
G) PRODUCT SPEND SAVINGS GOAL. Throughout the Term, FreeMarkets will provide a
complete market making team (the "FreeMarkets Market Making Team") which
will provide services with respect to FreeMarkets Sourcing Projects,
Overall Project Management Services and other services as described above.
The FreeMarkets Market Making Team shall consist on average of the number
of full time equivalent staff members set forth on Exhibit B attached
hereto. The goal of FreeMarkets and United is to meet or exceed the savings
goals set forth in Exhibit A. Specifically, FreeMarkets' goal will be to
help United generate [*] (the "Product
-3-
<PAGE> 4
Spend Savings Goal") in Implementable Savings (as defined below) for United
in each calendar year of the Term. FreeMarkets does not guarantee that
United can reach the Product Spend Savings Goal [*]. The results of the
FreeMarkets Sourcing Projects and Overall Project Management Services for
United will be highly dependent upon the support the FreeMarkets Market
Making Team receives from United staff. FreeMarkets and United staff will
cooperate to identify and execute Sourcing Projects, Training, Sourcing
Strategy Development and Overall Project Management Services sufficient to
deliver savings to United.
H) REPORTING. Throughout the Term, the FreeMarkets Market Making Team will
schedule periodic review sessions with the United day-to-day teams and
senior project sponsors as necessary to conduct the projects and maintain
communication. On a monthly basis, FreeMarkets will provide [*] with a [*]
in support of the various [*] and [*] teams. The FreeMarkets Market Making
Team will split its time between work at United site(s) and FreeMarkets'
offices.
I) BIDWARE(R)/BIDSERVER(R)SOFTWARE. Subject to the terms of Article III e),
throughout the Term, in consideration of the business service and System
access fees set forth in Article II a), FreeMarkets will provide United and
its Affiliates with any necessary license to use its proprietary
BidWare(R)/BidServer(R)software pursuant to the terms of this Agreement and
the Software License Agreement effective as of January 1, 1998 between
United and FreeMarkets attached hereto as Exhibit E ("Software License
Agreement") and will provide suppliers with any necessary license to use
its proprietary BidWare(R)/BidServer(R) software pursuant to the terms of
the standard FreeMarkets' supplier license agreement. These licenses are
for any usage necessary to conduct CBEs under this Agreement, but do not
extend beyond these projects or the Term.
J) SERVICE STANDARDS. FreeMarkets represents and warrants that during the
Term, the System will perform in a manner necessary to carry out its
obligations under this Agreement, including without limitation accurately
processing date/time data from, into, and between the twentieth and twenty-
first centuries (1999-2000), provided that all hardware and software with
which the System exchanges data is year 2000 compliant. FreeMarkets' sole
obligation under this performance warranty for the System shall be to
remedy any nonconformance of the System. EXCEPT AS EXPRESSLY SET FORTH
HEREIN OR THE SOFTWARE LICENSE AGREEMENT, FREEMARKETS MAKES NO OTHER
WARRANTIES REGARDING THE SYSTEM, ANY COMPETITIVE BIDDING EVENT, ANY
SUPPLIER, OR UNITED'S PARTICIPATION IN ANY COMPETITIVE BIDDING EVENT,
EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO, ANY IMPLIED WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
K) [*]. Subject to the terms of the Software License Agreement and the terms
of the Service Agreement effective as of January 1, 1998 between United and
FreeMarkets, FreeMarkets hereby continues to grant to United and its
Affiliates [*******] for any internal purpose, including any right
possessed by FreeMarkets to use [******] for any internal purpose.
L) RENEWAL. At the request of United, FreeMarkets will extend this Agreement
beyond the Initial Term for a period of one year subject to the same terms
and conditions for services, System access and compensation.
-4-
<PAGE> 5
M) SUPPLIER SELECTION. In no event shall United be obligated hereunder to
accept the lowest bid in a CBE or any other project hereunder.
ARTICLE II - COMPENSATION
In consideration for the business services and System access provided by
FreeMarkets hereunder, United agrees to pay FreeMarkets as follows:
A) BUSINESS SERVICE AND SYSTEM ACCESS FEES. An annual total of [*] million
(including [*] million in [*] during each of 1999 and 2000, payable in
equal monthly installments, as set forth in Article II f) and Exhibit B.
Exhibit B is a complete schedule of business service and System access fees
payable by United under this Agreement.
B) EXPENSE REIMBURSEMENT. Reimbursement for the cost of all reasonable and
necessary traveling expenses, clerical expenses, telecommunications
expenses, mailing, courier, blueprinting, printing, copying or stenographic
services, in connection with the performance of the services hereunder. The
estimated monthly expenses set forth on Exhibit B will be payable as set
forth in Article II f).
C) ADDITIONAL COMPENSATION. In addition to the business service and System
access fees and the expense reimbursement set forth above, FreeMarkets will
earn additional bonus compensation provided the conditions set forth in
this Agreement are met. Subject to the terms of Article II e) (Bonus
Determinations), United will pay to FreeMarkets, the following additional
bonus compensation earned by FreeMarkets:
(I) United will pay to FreeMarkets an "Implementable Savings Bonus" equal
to [*] of Implementable Savings (as defined below) for FreeMarkets
Sourcing Projects; and
(II) United will pay to FreeMarkets an "Implemented Savings Bonus" equal to
[*] of Implemented Savings (as defined below) for FreeMarkets Sourcing
Projects; and
(III)Provided that the Implementable Savings for FreeMarkets Sourcing
Projects for any calendar year during the Term equals or exceeds the
Product Spend Savings Goal as defined in Article I g) for FreeMarkets
Sourcing Projects, United will pay to FreeMarkets a Major Business
Objective or "MBO Bonus" equal to [*] with respect to such year.
D) DEFINITIONS. For the purposes hereof:
(I) "Implementable Savings" means a good faith estimate of [*] stated in
U.S. dollars expected to be implemented as a result of FreeMarkets
Sourcing Projects as reported [*] or an alternative tracking and
reporting system agreed upon by the parties. Implementable Savings
shall include [*] from all [*] commenced [*]. Implementable Savings
shall be determined [*] upon finalization of agreement(s) with [*]
based on [*] and elimination of any potential savings which are [*] at
a site level to be [*] or [*] to implement. Savings shall not be
classified as "Implementable Savings" until [*] that any potential
savings are [*]. Implementable Savings (as reported [*] or an
alternative tracking and reporting system agreed upon by the parties)
shall not include any deduction for costs of implementation.
(II) "Implemented Savings" means a good faith estimate of [*] stated in
U.S. dollars implemented as a result of FreeMarkets Sourcing Projects
as reported using [*] or an alternative tracking and reporting system
agreed upon by the parties. Implemented
-5-
<PAGE> 6
Savings shall be determined [*] upon acceptance of purchase orders by
selected supplier(s) as a result of FreeMarkets Sourcing Projects and
shall be based on [*] and [*]. Implemented Savings shall include
savings from all FreeMarkets Sourcing Projects commenced [*].
Implemented Savings (as reported [*] or an alternative tracking and
reporting system agreed upon by the parties) shall not include any
deduction for non-incremental costs of implementation.
E) BONUS DETERMINATIONS.
(I) BILLING FOR IMPLEMENTABLE SAVINGS BONUS. No later than 15 days
following the end of each calendar quarter (including the calendar
quarter ending on December 31, 1998), FreeMarkets will submit to
United a schedule and invoice (the "Implementable Savings Schedule")
identifying the Implementable Savings with respect to all FreeMarkets
Sourcing Projects conducted during or before such calendar quarter
([*] or an alternative tracking and reporting system agreed upon by
the parties). The Implementable Savings Bonus with respect to
FreeMarkets Sourcing Projects shall be determined based on excess of
the cumulative Implementable Savings as of the end of such calendar
quarter over the cumulative Implementable Savings as of the end of the
immediately prior quarter. In the event that the [*] Implementable
Savings as of the end of such [*] the cumulative Implementable Savings
as of the end of [*] in the following [*].
(II) BILLING FOR IMPLEMENTED SAVINGS BONUS. No later than 15 days following
the end of each calendar quarter (including the calendar quarter
ending on December 31, 1998), FreeMarkets will submit to United a
schedule and invoice (the "Implemented Savings Schedule") identifying
Implemented Savings [*] or an alternative tracking and reporting
system agreed upon by the parties). The Implemented Savings Bonus with
respect to FreeMarkets Sourcing Projects shall be determined based on
excess of [*]. In the event that the [*] Implemented Savings as of the
end of [*] than the Implemented Savings as of [*] in the following
[*].
(III)BILLING FOR MBO BONUS. No later than 15 days following the end of each
calendar year (including the calendar year ending on December 31,
1998), FreeMarkets will submit to United a schedule and invoice (the
"MBO Bonus Schedule") identifying cumulative Implementable Savings
with respect to all FreeMarkets Sourcing Projects as of the end of
such calendar year ([*] or an alternative tracking and reporting
system agreed upon by the parties). Payment of the MBO Bonus with
respect to FreeMarkets Sourcing Projects for each calendar year during
the Term shall be determined based on the [******]of such calendar
year over the cumulative Implementable Savings as of December 31 of
the prior year. In the event that [****] of such calendar year
[******] as of December 31 of the prior year, [*******].
Based on such determinations, if the excess cumulative Implementable
Savings for a calendar year during the Term meets or exceeds the
Product Spend Savings Goal, then United will pay the applicable MBO
Bonus to FreeMarkets in accordance with Article II c) (iii).
-6-
<PAGE> 7
(IV) SETTLEMENT PROCESS. Upon receipt of the Implementable Savings
Schedule, Implemented Savings Schedule or MBO Bonus Schedule, United
shall have [*] to confirm the amounts billed and due under this
Agreement using [*] or an alternative tracking and reporting system
agreed upon by the parties. All undisputed amounts shall be paid
within thirty days of United's receipt of the Implementable Savings
Schedule, Implemented Savings Schedule or MBO Bonus Schedule. United
shall notify FreeMarkets of any disputed Implementable Savings or
Implemented Savings amounts within the initial [*] period. The parties
will use their best efforts to resolve any such disputes, and United
will pay the mutually agreed settlement of all disputed amounts within
thirty (30) days of such settlement.
F) PAYMENT. Amounts that are due under Article II a) and b) will be invoiced
to United by FreeMarkets at [*] of each calendar month; provided that the
estimated amounts due under Article II b) will be invoiced to United for
each month during the Term and within thirty (30) days after each calendar
year, FreeMarkets will provide a schedule that reconciles actual expenses
under Article II b) for such calendar year with the estimated payments and
will provide United with an invoice for any amount by which actual expenses
exceeded estimated expenses. If actual expenses were less than estimated
expenses, FreeMarkets will either credit United with the difference or, if
no further invoices are to be sent to United hereunder, will pay such
difference to United. United acknowledges that it shall be responsible for
all amounts invoiced and due under this Agreement. FreeMarkets will submit
invoices for the services and related expenses as described herein directly
to [*] or another designated member of the [*]. Upon presentation of such
invoices in form and detail satisfactory to United, United will use [*] to
make payments within [*], and in all events shall make payment within [*].
Each invoice shall fairly and accurately describe in sufficient detail the
actual services performed, the period of performance and the fees and
expenses that are payable to FreeMarkets under the provisions of this
Agreement.
ARTICLE III - TERMS AND CONDITIONS OF SOURCING PROJECTS
United acknowledges and agrees as follows:
A) CBE RULES. With respect to any CBE conducted hereunder, to abide by the
attached Rules and Procedures Governing Competitive Bidding Events (Exhibit
C), which contain marketplace ground rules for United, suppliers, and
FreeMarkets. These Rules and Procedures are designed to ensure ethical
participation. In the event that FreeMarkets postpones, cancels or
otherwise modifies any CBE in accordance with Exhibit C, to the extent
possible, FreeMarkets agrees to provide advance notice to United of such
modification.
B) NDA. United and FreeMarkets have entered into the attached Non-Disclosure
Agreement as of October 1, 1997 (Exhibit D), under which each party
mutually agrees to keep confidential information which either party shall
designate to the other as confidential, including but not limited to
engineering data and prints. The parties hereby agree that the terms of
such Non- Disclosure Agreement apply to this Agreement and that the terms
and conditions of this Agreement shall be designated confidential
information under such Non-Disclosure Agreement; provided, however, that
notwithstanding Section 2 thereof, Confidential Information shall be
maintained in confidence perpetually, except as otherwise agreed by the
parties and unless such information is information described in
Sections 1(a)-(f) thereof.
-7-
<PAGE> 8
C) RFQ COPIES. United acknowledges that FreeMarkets has the right to include
in RFQs all information it receives from United for purposes of inclusion
in the RFQs and to copy RFQs for distribution to suppliers selected by
United for procurement by United only. United or its Affiliates also has
the right to copy RFQs. United will provide FreeMarkets for inclusion in
such RFQs any non-disclosure agreement forms required by United or its
Affiliates to be executed by such suppliers.
D) USE OF DATA. FreeMarkets shall have the right to use all data generated in
connection with FreeMarkets Sourcing Projects, including data that United
provides to FreeMarkets, to do the following: (i) perform such general
analyses to track the performance of the BidWare(R)/BidServer(R)and [*****]
(or any alternative) software; (ii) determine general price trends in
various supply industries; and (iii) create predictive analyses useful for
estimating the price for a Component before such Component has been the
subject of a FreeMarkets Sourcing Project. For purposes of this subsection,
"Component" shall mean a distinct part or material described by a United
technical drawing or part number. FreeMarkets will use such data and
perform such analyses and publish the same in such a way [*******].
FreeMarkets shall have the right to publish general results of FreeMarkets
Sourcing Projects to suppliers through FreeMarkets provided [******]. These
results may include: specific results for supplier participants in each
FreeMarkets Sourcing Project; and general results for all supplier members
of the service.
E) SOFTWARE OWNERSHIP AND LICENSE. United acknowledges that FreeMarkets
retains full ownership rights to the BidWare(R)/BidServer(R)suite of
software applications and [*****], and that United is not acquiring any
ownership interest in such technology. The terms under which FreeMarkets
will supply the BidWare(R)/BidServer(R)and [*****] technology (collectively
"Software") under this Agreement are further described in the Software
License Agreement. Unless otherwise agreed in writing by the parties,
United also acknowledges that FreeMarkets will retain full ownership rights
to any software, including [*****], developed by FreeMarkets during the
Term.
F) [*]. In the event that [*] during the term of this Agreement in addition to
[*], if any, [*] to United no later than the time [*] its other industrial
customers. In addition, subject to any applicable confidentiality
requirements and other restrictions, FreeMarkets shall provide United with
[*].
ARTICLE IV - INDEMNITIES
A) FREEMARKETS. FreeMarkets agrees to protect, defend, indemnify, and hold
harmless United from and against all claims, demands, causes of action of
every type or character, arising out of or related to negligent or willful
acts or omissions of FreeMarkets or its subcontractors, officers,
directors, assigns or employees in connection with the performance of the
work under this Agreement.
B) UNITED. United agrees to protect, defend, indemnify and hold harmless
FreeMarkets from and against all claims, demands, causes of every type and
character arising out of or related to any negligent or willful act or
omission of United or its subcontractors, officers, directors, assigns, or
employees in connection with the performance of its obligations under this
Agreement.
C) COSTS. In the event that a claim is made hereunder, at law or otherwise,
alleging damage as a result of any error, omission or other act arising out
of or relating to this Agreement, the prevailing party shall be entitled to
reimbursement for all costs, including reasonable attorney's fees, incurred
in defending itself against such claim.
-8-
<PAGE> 9
ARTICLE V - INTELLECTUAL
PROPERTY INDEMNIFICATION
A) GENERAL. FreeMarkets shall protect, defend, indemnify and hold harmless
United from any suit or proceeding brought against United based on a claim
that [*] furnished by FreeMarkets hereunder,[*] or (3) [*] or documentation
as permitted herein [*] or other [*] asserted under the laws of the United
States.
B) LIMITATIONS. FreeMarkets shall have [*] based upon: (i) the combination,
operation or use of the Software with equipment, devices or software not
supplied or specified by FreeMarkets; (ii) the alteration or modification
of the Software which alteration or modification was not made by
FreeMarkets; or (iii) the failure by United to use the most current version
of the Software [*].
ARTICLE VI -[*]
[*]
ARTICLE VII - NOTICES
Whenever any notice is required or authorized to be given hereunder, such
notice shall be given in writing and sent by certified mail, return receipt
requested, or overnight delivery by a national reputable service. Any such
notice, if sent by United to the Seller, shall be addressed as follows:
Glen T. Meakem
Chief Executive Officer
FreeMarkets OnLine, Inc.
130 Seventh Street
Century Building, Suite 500
Pittsburgh, PA 15222
and if sent by FreeMarkets to United, shall be
addressed as follows:
United Technologies Corporation
One Financial Plaza
Hartford, CT 06101
Attention: [******]
ARTICLE VIII - ADDITIONAL
PROVISIONS
A) UNITED GENERAL TERMS. This Agreement is subject to and governed by the
following additional provisions: (i) "United Technologies Corporation
Service Agreement Provisions, dated February 1998" (attached hereto as
Exhibit G) except provisions 3, 4, 9(a), 13 and 14 which shall not apply;
(ii) United's "Code of Ethics"; and (iii) United's Policy Statement on
Business Ethics and Contracting With the United States Government, as they
may be amended from time to time.
B) REGULATORY COMPLIANCE. FreeMarkets represents and warrants to United that
FreeMarkets shall comply strictly with all of the covenants, agreements,
and undertakings made by FreeMarkets in, or furnished under or as part of
this Agreement, including without limitation, compliance with all
applicable laws or regulations, whether or not specifically referenced in
this Agreement.
C) INSURANCE COVERAGE. The coverage amounts set forth in Provision 18 (2)-(6)
of United's Service Agreement Provisions set forth in Exhibit G attached
hereto shall be increased [*] to [*], and in addition to such coverages,
FreeMarkets shall obtain [*]. Notwithstanding anything to the contrary in
Provision 18, such insurance shall contain a provision prohibiting
cancellation or reduction in coverage except upon at least 30 days' prior
notice to United. FreeMarkets represents that, as of the date of execution
of this Agreement, it has obtained all such insurance coverage.
-9-
<PAGE> 10
D) [*] WILL BE LIABLE [*] FOR ANY DIRECT DAMAGES, ARISING FROM THIS AGREEMENT
OR THE SOFTWARE LICENSING AGREEMENT, UNDER ANY THEORY OF LIABILITY IN
EXCESS OF)[*]. IN NO EVENT WILL [*] BE LIABLE TO THE OTHER FOR
CONSEQUENTIAL, INCIDENTAL OR SPECIAL DAMAGES OR LOST PROFITS OF ANY NATURE
WHATSOEVER UNDER ANY THEORY OF LIABILITY, ARISING FROM THIS AGREEMENT OR
THE SOFTWARE LICENSING AGREEMENT, [*].
E) TERMINATION. This Agreement will remain in full force and effect during
the Term, and may be terminated prior to the end of the Term only as
follows:
(I) By either party if the other party has materially breached this
Agreement and has failed to correct such breach within 90 days after
receiving written notice from the other party specifying the nature of
such breach;
(II) By either party if the other party (i) becomes the subject of a
voluntary or involuntary petition in bankruptcy or any proceeding
relating to insolvency, receivership, liquidation, or composition for
the benefit of creditors, if that petition or proceeding is not
dismissed within thirty (30) days after filing, (ii) suspends the
operation of its present business or liquidates its business assets,
or (iii) generally fails to pay its debts as such debts become due or
admits in writing its inability to pay its debts.
(III)By United, provided it gives FreeMarkets 30 days prior written notice
of termination, and pays to FreeMarkets the following:
(A) all business service and System access fees and reimbursement that
have accrued under Article II a) and b) through the date of
termination;
(B) any Implementable Savings Bonus and Implemented Savings Bonus with
respect to all FreeMarkets Sourcing Projects based on the cumulative
Implementable Savings and Implemented Savings from such FreeMarkets
Sourcing Projects, which Savings Bonuses shall be paid in accordance
with Article II (e) (the final payment of such Savings Bonuses shall
be based on the cumulative Implementable Savings and Implemented
Savings, respectively, as of the last day of the calendar month which
includes the one-year anniversary of the date of termination, taking
into account any existing credits under Article II e));
(C) provided that the excess cumulative Implementable Savings from
January 1 through the date of termination is equal to or greater than
the amount obtained by multiplying the Product Spend Savings Goal by a
fraction, the numerator of which is the number of days that have
elapsed in such calendar year through the date of termination and the
denominator of which is 365 ("Proration Fraction"), a portion of the
MBO Bonus will be paid for the calendar year in which termination
occurs equal to [*] multiplied by the Proration Fraction (examples of
the determination of the MBO Bonus upon termination are set forth in
Exhibit I); and
(D) a fee (the "Termination Fee") equal to [*]. The parties agree that
the Termination Fee will compensate FreeMarkets for the resources it
is committing to United hereunder, and is not in the nature of
liquidated damages or a penalty.
-10-
<PAGE> 11
(IV) In the event that this Agreement expires under Article I (a) in
accordance with the terms thereof or is terminated by United under
Article VIII (e) (i) or (ii), United shall not be obligated to pay
FreeMarkets the Termination Fee; provided that such expiration or
termination shall not affect United's obligations to pay compensation
that has accrued under the terms of this Agreement prior to the date
of expiration or termination (as determined under Article VIII e)
(iii).
(V) In the event that this Agreement is
terminated for any reason, FreeMarkets
will provide United with a schedule of
all FreeMarkets Sourcing Projects
commenced prior to the date of
termination and the parties will
reasonably cooperate to transition the
FreeMarkets Sourcing Projects to
United provided that termination of
this Agreement shall not relieve either
party of any obligation incurred prior
to the termination.
ARTICLE IX - MISCELLANEOUS
MODIFICATION. This Agreement can only be modified by a written agreement duly
signed by the persons authorized to sign agreements on behalf of the parties and
any other variance from the terms and conditions of this Agreement will be of no
effect.
SEVERABILITY OF PROVISIONS. If any provision or provisions of this Agreement
shall be held to be invalid, illegal or unenforceable, the validity, legality
and enforceability of the remaining provisions shall not in any way be affected
or be impaired thereby.
GOVERNING LAW. This Agreement shall be governed by and construed in accordance
with the laws of the [*****] (other than the laws on the conflict of laws).
Unless the parties otherwise agree, any action or proceeding [******] shall be
brought in the federal or state courts located in [******].
ENTIRE AGREEMENT. This Agreement, including all exhibits and schedules hereto,
the Non- Disclosure Agreement and the Software License Agreement referenced
herein and attached hereto, are the complete and exclusive statement of the
agreement between the parties as to the subject matter herein, and they
supersede all prior and contemporaneous proposals or agreements, oral or
written, and all other communications between the parties related to the subject
matter of this Agreement.
WAIVERS. A waiver of a breach or default under this Agreement shall not be a
waiver of any other or subsequent breach or default. The failure or delay by
either party in enforcing compliance with any term or condition of this
Agreement shall not constitute a waiver of such term or condition unless such
term or condition is expressly waived in writing.
AGREEMENT BINDING. This Agreement shall be binding upon and inure to the benefit
of the parties hereto, their successors and permitted assigns.
ASSIGNMENT. Neither party may assign this Agreement without the prior written
consent of the other party, which consent shall not be unreasonably withheld or
delayed.
AUTHORITY. Each party represents that it has full power and authority to enter
into and perform this Agreement, and the person signing this Agreement on behalf
of it has been properly authorized and empowered to enter into this Agreement.
COUNTERPARTS. This Agreement may be executed in several counterparts, all of
which taken together shall constitute one agreement between the parties.
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<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have executed or caused these
presents to be executed in duplicate (each of which shall be deemed to be an
original) effective as of the date first written above.
- --------------------------------------------------------------------------------
UNITED TECHNOLOGIES FREEMARKETS ONLINE, INC.
CORPORATION
By: By:
------------------------------ -----------------------------
Name: [*] Name: Glen T. Meakem
Title: [*] Title: Chief Executive Officer
Federal ID # 043265483
-12-
<PAGE> 13
Exhibit A
SAVINGS GOALS
<TABLE>
<CAPTION>
TOTAL PRODUCT IMPLEMENTABLE IMPLEMENTED
SPEND* SAVINGS SAVINGS
YEAR ($000,000S) ($000,000S) ($000,000S)
---- ----------- ----------- -----------
<S> <C> <C> <C>
1999 [*] [*] [*]
2000 [*] [*] [*]
</TABLE>
* Dollar amount of total potential annual spending under
FreeMarkets Sourcing Projects
<PAGE> 14
Exhibit B
United Technologies Corporation Schedule of Payments
To FreeMarkets OnLine for Business Services and System Access
<TABLE>
<CAPTION>
Business System
Service Access Estimated Total Estimated
Calendar Fees Fees Expenses** Cost**
Month Year [*] ($000s) ($000s) ($000s) ($000s)
- -------------- ------------ ---------- ----------- ---------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Jan 1999 [*] [*] [*] [*] [*]
Feb [*] [*] [*] [*] [*]
Mar [*] [*] [*] [*] [*]
Apr [*] [*] [*] [*] [*]
May [*] [*] [*] [*] [*]
Jun [*] [*] [*] [*] [*]
Jul [*] [*] [*] [*] [*]
Aug [*] [*] [*] [*] [*]
Sep [*] [*] [*] [*] [*]
Oct [*] [*] [*] [*] [*]
Nov [*] [*] [*] [*] [*]
Dec [*] [*] [*] [*] [*]
Subtotal 1999 [*] [*] [*] [*] [*]
- -------------- ------------ ---------- ----------- ---------- -------------- -----------------
Jan 2000 [*] [*] [*] [*] [*]
Feb [*] [*] [*] [*] [*]
Mar [*] [*] [*] [*] [*]
Apr [*] [*] [*] [*] [*]
May [*] [*] [*] [*] [*]
Jun [*] [*] [*] [*] [*]
Jul [*] [*] [*] [*] [*]
Aug [*] [*] [*] [*] [*]
Sep [*] [*] [*] [*] [*]
Oct [*] [*] [*] [*] [*]
Nov [*] [*] [*] [*] [*]
Dec [*] [*] [*] [*] [*]
Subtotal 2000 [*] [*] [*] [*] [*]
- -------------- ------------ ---------- ----------- ---------- -------------- -----------------
Overall Contract [*] [*] [*] [*]
Total
- -------------- ---------- ----------- ---------- -------------- -----------------
</TABLE>
* [*] United by FreeMarkets.
** Estimated payments only. Exact amounts will depend upon actual expenses
incurred and year-end reconciliation.
<PAGE> 15
Exhibit C
RULES AND PROCEDURES
GOVERNING COMPETITIVE BIDDING EVENTS
<PAGE> 16
Exhibit D
NON-DISCLOSURE AGREEMENT
This NON-DISCLOSURE AGREEMENT (this "Agreement") dated this 1st day of
October, 1997 is by and between United Technologies Corporation ("United"), and
FreeMarkets OnLine, Inc. ( "FreeMarkets"), a Delaware corporation.
- --------------------------------------------------------------------------------
Preamble:
In the course of the online industrial market making projects described in
the accompanying "Service Agreement" (Service Agreement Between United
Technologies Corporation and FreeMarkets OnLine, Inc. dated October 1, 1997),
United and FreeMarkets may acquire and communicate information between one
another which either party may consider to be proprietary or confidential in
nature. Such "Confidential Information" shall mean any information owned by the
owning party or any of its subsidiaries or affiliates, or entrusted to the
owning party that provides economic value, actual or potential, to the owning
party by reason of it not being generally known to other persons or entities who
can obtain economic value from its disclosure or use. Such information may
include, by way of example: computer programs and documentation; technical
design, manufacturing and application information; customer information;
training information; financial information; personnel information; new product
developments; advertising, business, and marketing plans. Therefore, based on
our mutual desire to protect our respective Confidential Information, we each
have agreed to execute this Agreement. Therefore, with the intent to be legally
bound, the parties agree as follows:
(1) All Confidential Information acquired by or disclosed to either party or
its employees or agents (a "Party") during the course of our engagement, or
disclosed in any manner incidental to the engagement by any party in whatever
form, whether written, graphic or machine-readable form, orally disclosed or
visually observed by the discovering Party, shall not be published or disclosed
internally (except to those who have a need to know in connection with the
Parties' performance of the engagement), or to any other person, firm, or
corporation or used by the discovering Party, except for any such information:
(a) which is already known to the discovering
Party at the time it acquires such information;
or
(b) which is or becomes publicly known through no wrongful act of the
discovering Party; or
(c) which is rightfully received from a third person without restriction; or
(d) which is furnished to a third person by the owning Party without a similar
restriction on the third person's right; or
(e) which is approved for release by written authorization of the owning Party
including without limitation pursuant to tem-is of the Service Agreement;
or
(f) which is required by law or the judicial process to be disclosed.
In addition and notwithstanding the foregoing, and consistent with Article
III d) of the Service Agreement between United and FreeMarkets, FreeMarkets
shall have the right to publish general results of CBEs to Suppliers.
The parties will make their best effort to mark or verbally identify as
"CONFIDENTIAL" all Confidential Information. The failure to so mark or identify
any Confidential Information shall not constitute a waiver of confidentiality
with respect to the Confidential Information. Each Party shall be responsible
for violations of this Agreement by its employees, representatives, and agents.
<PAGE> 17
(2) Each Party agrees that the obligations hereunder shall continue for a
period of five (5) years from the date on which the Confidential Information was
first acquired.
(3) The discovering Party shall use the same reasonable degree of care to
protect Confidential Information from disclosure as it exercises in protecting
like information of its own.
(4) Nothing in this Agreement shall be deemed, either expressly or by
implication, to convey any right or license to the discovering Party.
(5) Confidential Information is and shall remain the property of the owning
Party. All such information which is in writing shall be returned to the
appropriate owning Party upon written request to the discovering Party.
(6) Each Party agrees to notify the owning Party immediately upon becoming
aware of or reasonably suspecting the possession, use or knowledge of all or
part of any Confidential Information of such Party by any person or entity not
authorized to have such possession, use or knowledge. Each Party will promptly
furnish the owning Party with details of such possession, use or knowledge, will
assist in preventing a recurrence thereof and will cooperate with the owning
Party in protecting their rights in the Confidential Information. Compliance
with the terms of this section will not be construed in any way as a waiver of
the owning Party's right to recover damages or obtain other relief for the
breach of this Agreement.
(7) The Parties agree that in the event of a breach or threatened breach of the
terms of this Agreement, the non-breaching party may be entitled to an
injunction prohibiting any such breach. Any such relief shall be in addition to
and not in lieu of any other relief. The Parties acknowledge that the
Confidential Information is unique and that disclosure in breach of this
Agreement may result in irreparable injury to the Party owning such information.
(8) This Agreement shall continue in effect for the Initial Term of the Service
Agreement, and during any renewal terms. Notwithstanding any termination of this
Agreement or of the Service Agreement, all obligations of each Party with
respect to Confidential Information obtained during the term of this Agreement
shall survive such termination.
(9) This Agreement:
(a) may not be amended or modified in any
manner except in writing signed by all Parties,
and
(b) shall be governed and construed in accordance with the laws of the
Commonwealth of Pennsylvania without regard to choice of law provisions.
(10) Nothing in this Agreement shall limit or otherwise restrict either party's
obligations under terms of the Service Agreement.
(11) If any provision of this Agreement is found to be unenforceable, the
remainder shall be enforced as fully as possible and the unenforceable provision
shall be deemed modified to the limited extent required to permit its
enforcement in a manner most closely representing the intention of the Parties
expressed herein.
2
<PAGE> 18
Exhibit E
SOFTWARE LICENSE AGREEMENT
This Software License Agreement ("License Agreement") is made this ____ day
of January, 1999, effective as of January 1, 1998 ("Effective Date"), by and
between United Technologies Corporation, a corporation organized and existing
under the laws of the state of Delaware with an office and place of business at
Hartford, Connecticut (hereinafter referred to as "United") and FreeMarkets
OnLine, Inc., a corporation organized and existing under the laws of the state
of Delaware with an office and place of business at 130 Seventh Street, Suite
500, Pittsburgh, PA 15222 (hereinafter referred to as "FreeMarkets").
In consideration of the premises and of the mutual promises of each party
to the other herein contained, it is hereby mutually agreed as follows:
1. CAPITALIZED TERMS. Unless otherwise defined herein, all capitalized terms
shall have the meanings set forth in the Service and System Access Agreement
(the "Service Agreement") entered into between United and FreeMarkets effective
as of January 1, 1998. For purposes of this License Agreement, the rights
granted to United under this License Agreement shall also be deemed granted to
any United "Affiliate," which shall mean any entity in which United owns more
than 50% of the outstanding voting ownership interests, and shall also mean
International Aero Engines, Inc; provided, however that any such rights are
subject to the terms and conditions of this License Agreement.
2. GRANT OF LICENSE.
2.1 BIDWARE(R). Subject to the terms and conditions set forth in this License
Agreement, in consideration of the business services and System access fees set
forth in the Service Agreement, FreeMarkets hereby grants to United a
non-transferable and non-exclusive license to use BidWare(R), and any of its
respective components and any other software, exclusive of [*****], provided
under the Service Agreement. The license granted herein authorizes use of
BidWare(R) only by United authorized users and only in connection with the
services to be provided to United by FreeMarkets. For purposes of this License,
United's "use" of the BidWare(R), means to load BidWare(R) into RAM or to store
BidWare(R) in a memory storage device such as a hard drive, CD-ROM or other
storage device. Under no circumstances shall United make BidWare(R) or its
components ("BidWare(R)") available, or allow BidWare(R) to be made available,
on a network or file server other than the FreeMarkets BidServer(R) and the
FreeMarkets Network. Under no circumstances shall United copy BidWare(R), or
allow BidWare(R) to be copied, for any purpose other than to produce the single
archival (backup) copy permitted under this license.
[*]. Subject to the terms and conditions set forth in this License Agreement,
FreeMarkets hereby grants United and its Affiliates a perpetual, non-exclusive,
world-wide, non-transferrable, royalty-free license tot use, copy, modify and
make derivative works of the [*] delivered to United defined in Article I of the
Service Agreement [*] for any internal purpose, including the right to use the
name [*] for any internal purpose. No license is granted for United to sell,
license, sub-license or otherwise distribute [*]. [*]. FreeMarkets disclaims any
warranties and any liability of any kind in relation to such enhancements,
modifications, improvements or derivative works and nothing herein shall provide
[*]. Nothing in this Agreement provides United with any license rights to any
enhancement, improvement, modification, derivative work and/or commercial
version of [*].
For purposes of this License Agreement, BidWare(R) and [*] shall collectively be
referred to as the "Software".
<PAGE> 19
3. USE AND LOCATION
3.1 BidWare(R) shall not be used to connect with any server, on-line service, or
any other system except as specifically provided or specified by FreeMarkets.
3.2 BidWare(R) users who have complied with the terms of this License Agreement
will be assigned a user ID and password to govern access to the FreeMarkets
Network and BidWare(R) databases. FreeMarkets reserves the right to change or
cancel or render inoperable any user ID and/or password at any time without
prior notification. United is required at all times to maintain security for its
assigned user ID(s) and password(s). Disclosure of user IDs and passwords to
anyone else is strictly prohibited, and will be grounds for termination of
FreeMarkets' services under this license.
3.3 United understands that FreeMarkets may from time-to-time make available
upgrades to modify the performance of BidWare(R). United understands that in
order to utilize BidWare(R) in conjunction with the BidServer(R) and the
FreeMarkets Network, FreeMarkets may require United to perform the necessary
tasks, and supply the necessary computer equipment, to install software
upgrades. United's failure to install upgrades or provide appropriate computer
equipment may render the BidWare(R) inoperable for its intended purpose.
4. LIMITED WARRANTY/WARRANTY
DISCLAIMER/LIMITATION OF
LIABILITY
4.1 FreeMarkets represents and warrants that:
a) during the term of this Agreement and any
renewal term, BidWare(R) will conform to, and
perform in the manner described in, the user
documentation;
b) FreeMarkets owns or otherwise has the right to grant a license for the use of
the Software;
c) any diskettes, tapes or other media provided to United by FreeMarkets
pursuant to this Agreement shall be free from physical defects under normal use,
and, at the time of delivery, shall be free from viruses;
d) any enhancements of BidWare(R) generally made available to the public or
other customers will be made available for United's use pursuant to the terms
and conditions of this Agreement.
e) BidWare(R) is designed to and will be year 2000 compliant, which means that
the product, by itself or in exchanging data with other software and/or
hardware, accurately processes date/time data (including, but not limited to,
calculating, comparing and sequencing) from, into, and between the twentieth and
twenty-first centuries (1999-2000), and the years 1999 and 2000 and leap year
calculations, provided that all hardware and software with which the Software
exchanges data (excluding hardware and software in the System used by
FreeMarkets to conduct FreeMarkets Sourcing Projects ) is year 2000 compliant.
4.2 FreeMarkets shall deliver [*] 1.1 to United with any [*] and [*] shall
perform at United in substantially the same manner it operates at FreeMarkets as
of September 18, 1998 as long as the operating environment at United for [*]
meets the requirements set forth in Exhibit H of the Services Agreement. United
acknowledges that [*], that it has not been developed or tested for commercial
use, that it may contain bugs and errors that effect its performance, that
United takes [*] an AS-IS condition and that FreeMarkets has no obligation to
repair, replace or otherwise maintain [*].
4.3 EXCEPT AS EXPRESSLY SET FORTH HEREIN OR IN THE SERVICES AGREEMENT,
FREEMARKETS MAKES NO OTHER WARRANTIES TO UNITED, EXPRESS OR IMPLIED, INCLUDING
BUT NOT LIMITED TO, ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE,
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<PAGE> 20
RESPECTING THE SOFTWARE, NETWORK, ANY COMPETITIVE BIDDING EVENT, ANY SUPPLIER,
OR UNITED'S PARTICIPATION IN ANY COMPETITIVE BIDDING EVENT. SUBJECT TO
FREEMARKETS OBLIGATIONS REGARDING REPAIR OR REPLACEMENT, UNITED HEREBY
ACKNOWLEDGES AND AGREES THAT THE SOFTWARE AND THE NETWORK ARE NEW CREATIONS, AND
THAT THERE MAY SURFACE FROM TIME- TO-TIME "BUGS" OR "GLITCHES" THAT MAY AFFECT
FREEMARKETS' PERFORMANCE OF ITS OBLIGATIONS, AND/OR THE RIGHTS AND BENEFITS OF
UNITED, UNDER THIS AGREEMENT. SUBJECT TO FREEMARKETS OBLIGATIONS REGARDING
REPAIR OR REPLACEMENT, UNITED AGREES THAT IT ASSUMES THE RISKS OF SUCH "BUGS" OR
"GLITCHES".
FREEMARKETS' SOLE OBLIGATION UNDER THE PERFORMANCE WARRANTY FOR THE BIDWARE(R)
SOFTWARE SHALL BE TO USE REASONABLE EFFORTS TO REMEDY ANY NONCONFORMANCE OF THE
BIDWARE(R) SOFTWARE OR REPLACE THE BIDWARE(R) SOFTWARE.
5. PROPRIETARY RIGHTS. This License does not convey to United any patent,
copyright, trademark, service mark, trade secret, trade name or other
intellectual property rights, except that United will have the limited rights
for BidWare(R) and [*****] expressly set forth in this License. Accordingly,
United acknowledges that, except as expressly provided for in this License,
United possesses no title or ownership of any Software or any portion thereof.
6. NON-ASSIGNMENT OF USE OR LICENSE. United may not assign or otherwise
transfer, voluntarily, by operation of law or otherwise, any of its rights under
this License, without, in each instance, FreeMarkets' prior written consent,
which consent may be withheld, delayed or conditioned in FreeMarkets' sole
discretion. Any attempted assignment or transfer in violation of the terms of
this Section 6 shall, at FreeMarkets' option, be null and void. Any assignment
consented to by FreeMarkets will not act to relieve United of any of its
obligations under this License.
7. TERMINATION OF LICENSE. The License is effective as set forth in the Services
Agreement. The license for BidWare(R) shall terminate immediately upon
completion of or termination of services to be provided by FreeMarkets to
United. United may terminate this Agreement by notifying FreeMarkets and
returning to FreeMarkets any BidWare(R) software and copies thereof and extracts
therefrom held by United.
FreeMarkets may terminate this License Agreement if United has materially
breached this License Agreement and has failed to correct such breach within [*]
after receiving written notice from FreeMarkets specifying the nature of such
breach [*].
Upon any termination of the License, for whatever reason, United shall, within
ten (10) days after such termination, return to FreeMarkets the BidWare(R)
software, any and all copies thereof, materials related thereto and derivations
therefrom then in United's possession or under its control.
8. U.S. GOVERNMENT RESTRICTED RIGHTS. The Software is provided with RESTRICTED
RIGHTS. Use, duplication, or disclosure by the U.S. Government is subject to
restrictions as set forth in subparagraph (c)(1)(ii) of the Rights in Technical
Data and Computer Software clause at DFARS 242.227-7013 or subparagraphs (c)(1)
and (2) of the Commercial Computer Software - Restrict Rights clause at 48 CFR
52.227-19, as applicable. Contractor/Manufacturer is FreeMarkets OnLine, Inc.,
130 Seventh Street, Century Building, Suite 500, Pittsburgh, PA 15222, USA.
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<PAGE> 21
9. GENERAL PROVISIONS.
9.1 General. This License will be governed by and construed in accordance with
the laws of the [*], without giving effect to its conflicts of laws provisions.
In the event that any provision of this Agreement is held to be illegal, invalid
or unenforceable under present or future laws by any court of competent
jurisdiction, then such provision will be fully severable and this Agreement
will be construed and enforced as if such illegal, invalid or unenforceable
provision were not a part hereof. BidWare(R) and BidServer(R) are registered
trademarks of FreeMarkets. No right, license or interest to such trademarks are
granted hereunder and United agrees that no such right, license or interest
shall be asserted by United with respect to such trademarks.
9.2 Modification. This Agreement can only be modified by a written agreement
duly signed by the persons authorized to sign agreements on behalf of the
parties and any other variance from the terms and conditions of this Agreement
will be of no effect.
9.3 Entire Agreement. This Agreement, including all exhibits and schedules
hereto, the Service Agreement referenced herein and the Non-Disclosure Agreement
referenced in the Service Agreement, are the complete and exclusive statement of
the agreement between the parties as to the subject matter herein, and they
supersede all proposals or agreements, oral or written, and all other
communications between the parties related to the subject matter of this
Agreement.
9.4 Waivers. A waiver of a breach or default under this Agreement shall not be a
waiver of any other or subsequent breach or default. The failure or delay by
either party in enforcing compliance with any term or condition of this
Agreement shall not constitute a waiver of such term or condition unless such
term or condition is expressly waived in writing.
9.5 Agreement Binding. This Agreement shall be binding upon and inure to the
benefit of the parties hereto, their successors and permitted assigns.
9.6 Assignment. Neither party may assign this Agreement without the prior
written consent of the other party.
9.7 Authority. Each party represents that it has full power and authority to
enter into and perform this Agreement, and the person signing this Agreement on
behalf of it has been properly authorized and empowered to enter into this
Agreement.
9.8 Counterparts. This Agreement may be executed in several counterparts, all of
which taken together shall constitute one agreement between the parties.
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<PAGE> 22
IN WITNESS WHEREOF, the parties hereto have executed or caused these
presents to be executed in duplicate (each of which shall be deemed to be an
original) effective as of the date first written above.
- --------------------------------------------------------------------------------
UNITED TECHNOLOGIES FREEMARKETS ONLINE, INC.
CORPORATION
By: /s/ By: /s/ Glen T. Meakem
------------------------------ ----------------------------
Name: [*] Name: Glen T. Meakem
Title: [*] Title: Chief Executive Officer
Federal ID # 043265483
5
<PAGE> 23
Exhibit F
[*]
<PAGE> 24
Exhibit G
UNITED TECHNOLOGIES CORPORATION
SERVICE AGREEMENT PROVISIONS
(Government related)
February, 1998
PROVISION 1 - INTERPRETATION AND CONSTRUCTION
a. This Agreement shall be interpreted as a unified contractual document with
these Provisions and the Articles set forth in the Service Agreement attached
hereto having equal effect, except that in the event of any inconsistency
between an Article and a Provision, the Article shall control. The construction
of this Agreement shall be governed by the laws of the State of Connecticut,
excluding its conflict of law rules. The title designations of the Articles or
Provisions in this Agreement are for convenience only and shall not affect the
interpretation or construction hereof.
b. The terms and provisions set forth in this Agreement constitute the entire
agreement between the parties and shall supersede all previous communications,
representations, and agreements, either oral or written, between the parties
hereto with respect to the subject matter hereof and no agreement or
understanding varying or extending this Agreement shall be binding upon either
party hereto unless made in a writing referencing this Agreement and signed by a
duly authorized officer or representative of the party to be bound.
c. Ambiguities, inconsistencies, or conflicts arising out of or related to this
Agreement will not be strictly construed against United; rather, they shall be
resolved by applying the most reasonable interpretation under the circumstances,
giving full consideration to the intentions of the parties at the time of
contracting.
d. If in any instance any provision of this Agreement shall be determined to be
invalid or unenforceable under any law or regulation, such provision shall not
apply in such instance, but the remaining provisions hereof shall be given
effect in accordance with their terms.
e. United's failure to insist on performance of any of the terms or conditions
herein, or to exercise any right or privilege, or United's waiver of any breach
hereunder, shall not thereafter waive any such terms, conditions, or privileges
or any other terms, conditions, or privileges, whether of the same or similar
type.
PROVISION 2 - INDEPENDENT SELLER RELATIONSHIP
a. The relationship of the Seller to United is that of an independent contractor
and nothing herein shall be construed as creating any other relationship. The
Seller may adopt such arrangements as the Seller may desire with regard to the
details of the services performed hereunder, the hours during which said
services are to be provided, and the place or places where said services are to
be furnished, provided that such details, hours and services shall be consistent
with the proper accomplishment of said services and provided further that said
services shall be performed in a manner calculated to attain the most
satisfactory results for United.
b. Seller accepts, in connection with the work called for hereby, exclusive
liability for the payment of any taxes or contributions measured by Seller's
income or levied on Sellers property (real or personal). Seller also assumes all
liability for Social Security, unemployment insurance, old age payments,
annuities or retirement benefits which are measured by wages, salaries or other
remuneration's paid by Seller to any and all persons employed by it in
connection with the performance of the work, and to comply with all valid
Federal and State administrative regulations respecting the assumption of
liability for any of the aforesaid taxes or contributions. Seller represents
that the Agreement prices incorporated herein include all such taxes
<PAGE> 25
or contributions and agrees to indemnify and hold United and United's directors,
officers and employees harmless from and against any and all liability for the
delay or failure of Seller and its subcontractors to pay any such taxes or
contributions.
[*]
[*]
PROVISION 5 - TITLE TO MATERIALS AND EQUIPMENT
a. All materials and equipment furnished by United and all materials and
equipment the cost of which shall be reimbursed to the Seller by United
hereunder are to be and remain the sole property of United and are to be
returned to United within ninety (90) days after the expiration or earlier
termination of this Agreement
PROVISION 6 - REPRESENTATIONS, WARRANTIES, AGREEMENTS AND COVENANTS
Seller represents, warrants, covenants and agrees that:
a. The Seller and any others used by the Seller in the performance of services
hereunder will comply with United's "Code of Ethics" and shall not, directly or
indirectly, wrongfully solicit, obtain or use on behalf of the United, or
wrongfully disclose to United, any information of any other person, association,
firm, corporation, government or other entity, including information which is a
trade secret, confidential, proprietary, government security classified, or
government procurement sensitive (including documents identified prior to the
award of a government contract as source selection information and any other
information which offers or may offer United an illegal or unfair competitive
advantage); and, unless otherwise specifically identified in writing at the time
of disclosure, all information disclosed to United by the Seller and any others
used by the Seller in the performance of services hereunder may be used or
disclosed by United without restriction;
b. None of the provisions of this Agreement, nor the services performed
hereunder by the Seller and any others used by the Seller, contravenes or is in
conflict with any law, judgment, decree, order or regulation of any governmental
authority, or with any contract or agreement with, or any obligations owed to,
any other person, association, firm, corporation, government or other entity to
which the Seller or any such others used by the Seller are subject, including
without limiting the generality of the foregoing, employment agreements,
consulting agreements, disclosure agreements or agreements for the assignment of
inventions;
c. No entertainment, gift, gratuity, money, or anything of value shall be paid,
offered, given or promised by the Seller or by any others used by the Seller in
the performance of services hereunder to, or be obtained or solicited by the
Seller or by any such others from, directly or indirectly, any person,
association, firm, corporation, government or other entity that is prohibited by
United's Code of Ethics, by applicable law or regulation, by the policies of
that association, firm, corporation, government or other entity, or by the
"Policy Statement";
d. Prior to the effective date hereof and throughout the term of this Agreement,
the Seller shall promptly notify United in writing of any action, change or
development which would make any representation, warranty, covenant or agreement
in or furnished under or as a part of this Agreement untrue, inaccurate or
incomplete in any respect;
2
<PAGE> 26
e. If the Seller (or any others used by the Seller in the performance of
services hereunder) is expected to or may engage in services considered to be
within the definitions of a "Government Marketing Consultant", "Lobbyist", or
"current or former employee of, or consultant to, the U.S. Government," as such
terms are defined in pertinent laws and regulations, the Seller agrees to notify
United immediately in writing.
In addition to the representation, warranties, covenants, and agreements
provided above, the Seller additionally warrants, represents, agrees and
covenants, that:
(1) The Seller (and all others used by the Seller in performing services
hereunder) will comply with all applicable laws and regulations, including, but
not limited to:
(A) the "Byrd Amendment", 31 U.S.C. 1352, as implemented by Federal
Acquisition Regulation ("FAR") 3.8; and
(B) the Office of Federal Procurement Policy Act, 41 U.S.C. 423, as
implemented by FAR 3.104; and
(C) section 8141 of the 1989 Department of Defense Appropriation Act and
section 6 of the OFPP Act, 41 U.S.C. 404, as implemented by FAR 9.5 and OFPP
Policy Letter 89-1.
(2) The Seller shall avoid and refrain from all activities on behalf of
United which could be interpreted as creating conflicts of interest or the
appearance of a conflict for United or the Seller, including, but not limited
to:
(A) any activities that are contrary to the responsibilities and
standards of conduct set forth in the regulations of the Office of
Personnel Management, 5 CFR Parts 2635-2637, or would create conflicts of
interest as such conflicts are described in 18 U.S.C. 201-218;
(B) any activities that are prohibited by the Office of Federal
Procurement Policy Act Amendments of 1988 (herein the "OFPP Amendments") or
implementing regulations thereunder, including the prohibitions applicable
to Sellers and their Sellers during the conduct of any federal agency
procurement from knowingly:
(i) making, directly or indirectly, any offer or promise of future
employment or business opportunity to, or engage, directly or
indirectly, in any discussion of future employment or business
opportunity with, any procurement official of such agency;
(ii) offering, giving, or promising to offer or give, directly or
indirectly, any money, gratuity, or other thing of value to any
procurement official of such agency; or
(iii) soliciting or obtaining, directly or indirectly, from any
officer or employee of such agency, prior to award of a contract, any
proprietary or source selection information regarding such procurement
or disclosing such information, directly or indirectly, to a person
other than a person authorized by the government to receive such
information;
(3) The Seller is familiar with and shall continue to be familiar with all
such conflicts of interest laws and regulations and shall provide such written
certifications under such laws and regulations as United may reasonably request.
Written certifications may be required as provided for under the OFPP Amendments
and other regulations governing the conduct of Government Marketing Consultants
and/or Lobbyists. United shall make available to the Seller, upon written
request, copies or synopses of such laws and regulations.
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<PAGE> 27
Failure to promptly and accurately complete certifications shall be grounds for
United's immediate termination of this Agreement, without liability to United;
(4) The Seller agrees to promptly notify United if the Seller at any time
has information or reason to believe that the performance of services hereunder
would violate any such laws or regulation or would create such a conflict of
interest, or the appearance of such a conflict;
(5) Payment by United and acceptance of compensation by the Seller under
this Agreement does not constitute a violation of 10 U.S.C. 2397b, and Seller
shall not use or provide compensation to any other persons in connection with
the performance of services hereunder in violation of such statute;
(6) The Seller and any other persons used by the Seller in the performance
of services hereunder shall not contact, directly or indirectly, (i) any
officer, employee, principal or agent of the Government (including any elected
member of the legislative branch of the Government or their staff) or, (ii) any
customer, competitor, prime Seller, subcontractor, vendor or supplier of United,
if such contact relates to a current or prospective government procurement;
unless the Seller is specifically authorized to make such a contact under the
terms of this Agreement or the Seller receives the prior written approval of
United to make such a contact; in any and all such instances the Seller and any
such others used by the Seller shall comply with all applicable laws and
regulations; and
(7) Neither the Seller nor, where applicable, any others used by the Seller
in the performance of services hereunder, has been convicted of a felony or has
been debarred or suspended from doing business with the government or declared
ineligible by the government to perform services for or on behalf of United, or
is presently the subject of any such action.
PROVISION 7 -ASSIGNMENT
a. Neither this Agreement nor any interest hereunder shall be assignable by
either party unless such assignment is mutually agreed to in writing by the
parties hereto; provided, however, that United may assign this Agreement to any
corporation with which United may merge or consolidate or to which United may
assign substantially all of its assets or that portion of its business to which
this Agreement pertains without obtaining the agreement of the Seller.
PROVISION 8 - MODIFICATION
a. No modification of this Agreement shall be valid unless in writing and signed
by each of the parties hereto.
PROVISION 9 - EXPIRATION OR TERMINATION
a. [*]
b. Notwithstanding any other provisions of this Agreement, if Seller or others
used by the Seller in the performance of services hereunder violate any of the
provisions of this Agreement, including but not limited to any applicable laws
or regulations or United's "Code of Ethics" or the "Policy Statement", United
may,
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<PAGE> 28
in its sole discretion and in addition to any other remedies available at law or
in equity, terminate this Agreement by written notice to the Seller effective
immediately upon the sending of said notice.
c. The expiration or termination of this Agreement or of any renewal thereof
shall discharge any further obligations of either party hereto with respect to
this Agreement or any renewal thereof; provided, however, that the Seller's
obligations under Provisions 3, 4, 5, 20, 21 and 22 hereof with respect to such
of said services as may have been furnished prior to the effective date of
expiration or termination shall not be discharged by such expiration or
termination but shall remain in full force and effect; and, provided further,
that United's obligation hereunder to make payment to the Seller with respect to
the period prior to the effective date of said expiration or termination shall,
except in the event of termination for cause under b.
above, remain in full force and effect.
d. At any time prior to final payment for work under this Agreement and within
three (3) years thereafter, United shall have the right to audit all direct and
indirect charges, to the extent United may deem necessary, for the purpose of
verifying all charges claimed under any invoice. Seller agrees to maintain and
make available all records and books of account detailing any costs and expenses
charged against this Agreement or any invoice hereunder.
PROVISION 10 -WARRANTIES
a. Seller warrants that all work will be performed in accordance with current,
sound and generally accepted industry practices by appropriately licensed
personnel who are experienced in the appropriate fields. These services are to
be performed by Seller for United in consideration of the payments specified
herein and with the obligation that should any of the work not prove
satisfactory at any time, in United's sole judgment, Seller shall re-perform all
work originally undertaken by Seller and/or necessary to correct such defective
work, at no additional cost to United.
b. Seller agrees to provide A high standard of professional service and will
exert its best efforts to achieve satisfactory results within the time and funds
available.
c. All work submitted by Seller shall comply with federal, state, or local
guidelines and directions, as appropriate, regarding the format of documents,
protocols, testing procedures, and/or contents of designs, plans,
specifications, etc., to the extent such guidelines and directions are available
to Seller prior to performance of work.
d. Seller shall assign to United all warranties for materials and equipment
furnished by Seller during the performance of work. Seller shall notify United
prior to furnishing any materials or equipment that are not fully warranted for
at least the six month period immediately following conclusion of work
hereunder.
e. Seller further agrees to execute any certificate reasonably required by
United and within the scope of work hereunder if such certificate is required
pursuant to federal, state, or local laws or regulations.
f. Seller agrees to comply with all applicable federal, state, and local laws
pertinent to performance of work under this Agreement, and further agrees to
include the substance of this paragraph in all subcontracts entered into by
Seller.
g. Any payment(s) otherwise due Seller for any item o f work in dispute may be
withheld by United (in whole or part) upon evidence of default by Seller in the
performance of any such work. In no event shall
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<PAGE> 29
payment be made for any work performed by the Seller if such work is not stated
in or is not otherwise within the scope of work.
h. Seller warrants that the prices/charges/rates set forth or incorporated via
reference in this Agreement are not less favorable than those currently extended
to any other customer for the same or similar services, in similar quantities,
during the term hereof. No additional charges or rates of any type shall be
added without United's prior written consent
PROVISION 11 - EXCUSABLE DELAYS
a. Should the progress or completion of the work required be delayed due to
causes such as (but not limited to) strikes, accidents, or other unforeseeable
causes beyond the Seller's reasonable control and without its fault or
negligence, the time for completion of said work shall be extended for an
equivalent period of such delay as may be approved in writing by United (such
approval not to be unreasonably withheld). Delays caused by acts of
subcontractors or parties engaged by Seller shall not be excusable unless such
subcontractor's or party's delay was excusable within the meaning of this clause
and Seller was unable to secure alternate sources of supply or services within a
commercially reasonable time . Prompt notice in writing shall be given to United
whenever it appears said work shall be delayed or is likely to be delayed for
any cause, and Seller shall use its best efforts to minimize any delay and
continue its performance.
b. United shall be excused for any delays due to causes beyond its reasonable
control.
PROVISION 12 - CHANGES
a. At any time during the performance of services hereunder, United shall have
the right to make changes in, deletions from, or additions to the work,
hereinafter collectively referred to as "Changes". In the event that such
Changes require different and/or additional work by Seller, then prior to
commencement of work under such Change, Seller shall present to United, and
United shall consider, a claim for an equitable increase in its compensation for
services rendered because of such Change. Such claim shall be supported by such
data and information as United reasonably may require. Any such claim by Seller
for an equitable increase in compensation shall be mutually agreed to prior to
the commencement of work under the proposed Change.
b. The parties anticipate that Changes hereunder may be required under
circumstances not permitting sufficient time in which to meet the formalities
described in paragraph a. above. In such event, both parties agree to use their
best efforts to prosecute the work required as well as to fully define any
equitable increase in compensation within a reasonable time after the Change is
ordered by United.
c. Any Changes ordered hereunder shall be issued only by United's duly
authorized representative or other designee appointed in writing in advance of
ordering the Change.
[*]
[*]
6
<PAGE> 30
PROVISION 15 - PERMITS AND LICENSES
a. Except for permits and/or licenses required by statute or regulation to be
obtained by United, Seller agrees to obtain and maintain - at its own expense -
all permits, licenses and other forms of documentation required by Seller in
order to comply with all existing laws, ordinances, and regulations of the
United States and of any state, county, township, or municipal subdivision
thereof, or other governmental agency, which may be applicable to Seller's
performance of work hereunder. United reserves the right to review and approve
all applications, permits, and licenses prior to the commencement of any work
hereunder.
PROVISION 16 - REPRESENTATIVES
a. Both United and Seller shall designate a representative or representatives
who shall be available during progress of work and who shall have authority to
act in all matters concerning such services, excepting, however, such
representative(s) shall not be empowered to amend or waive any term or condition
of this Contract.
PROVISION 17 - EQUAL OPPORTUNITY
a. Seller will not discriminate against any employee or applicant for employment
because of age, race, color, handicap, religion, sex, or national origin. Seller
will take affirmative action to ensure that applicants are employed, and that
employees are treated during employment without regard to their age, race,
color, religion, sex, handicap, or national origin. Such action shall include
but not be limited to the following: Employment, upgrading, demotion, or
transfer, recruitment or recruitment advertising, layoff or termination, rates
of pay or other forms of compensation, selection for training, including
apprenticeship. Seller agrees to post in conspicuous places, available to
employees and applicants for employment, notices setting forth the provisions of
this nondiscrimination clause.
b. Seller will, in all solicitations or advertisements for employees placed by
or on behalf of Seller, state that all qualified applicants will receive
consideration for employment without regard to age, race, color, religion, sex,
handicap, or national origin.
c. Seller will send to each labor union or representative of workers with which
he has a collective bargaining agreement or other contract or understanding, a
notice advising the labor union or workers' representative of the Seller's
commitments under this Equal Opportunity clause and shall post copies of the
notice in conspicuous places available to employees and applicants for
employment.
d. Seller will comply with all provisions of the rules, regulations, and
relevant orders of the Secretary of Labor.
e. Seller will include the substance of this Article in every subcontract or
purchase order unless exempted by rules, regulations, or orders of the Secretary
of Labor issued pursuant to section 204 of Executive Order 11246 of September
24, 1965, as amended by Executive Order 11375 of October 13, 1967, so that such
provisions will be binding upon each subcontractor or vendor.
7
<PAGE> 31
PROVISION 18 - INSURANCE
a. Seller agrees to secure and carry as a minimum the following insurance
covering all work to be performed under this Agreement
(1) [*] in an amount sufficient by virtue of the laws of the U.S., foreign
country, state, or other governmental subdivision in which the work or any
portion of the work is performed;
(2) [*] in which the limit of liability for injuries, including accidental
death, shall be [*] for any one occurrence;
(3) [*] in which the limit of liability for property damage shall be [*]
for any one occurrence;
(4) [*] in which the limit of liability for injuries, including accidental
death, shall be [*] for any one occurrence;
(5) [*] Insurance in which the limit of liability for property damage shall
be [*] for any one occurrence; and
(6) [*] subject to a limit of [*].
(7) [*] sufficient in scope of coverage and amount [*] to cover the
liabilities herein assumed by Seller.
b. All such insurance shall be issued by companies authorized to do business
under the laws of the State in which all or part of the services are to be
performed, shall be in form satisfactory to United, and shall contain a
provision prohibiting cancellation except upon at least ten (10) days' prior
notice to United. All such insurance policies will be primary in the event of a
loss arising out of the Seller's performance of work. Certified copies of said
policies or certificates evidencing such insurance and naming United as an
additional insured shall be filed with United within 30 days after the date of
this Agreement and within a reasonable time after any renewals or changes to
such policies are issued.
c. To the extent permitted by law, Seller and its insurer(s) agree that
subrogation rights against United are hereby waived. Seller hereby undertakes to
reflect such waiver in any policy(ies) required under this Agreement.
d. Seller agrees to insert the substance of paragraphs a. through c. above in
all subcontracts entered into by Seller to support work performed under this
Agreement.
PROVISION 19 - CONTINUATION OF WORK DURING THE PENDENCY OF A DISPUTE
a. No failure of Seller and United to settle any dispute or to reach any
agreement provided for by the terms of this Agreement shall excuse Seller from
diligently proceeding with the performance of this Agreement, except as
otherwise expressly provided in this Agreement.
8
<PAGE> 32
PROVISION 20 - GOVERNMENT CONTRACTING PROVISIONS
a. This Agreement is subject to and governed by United's "Policy Statement on
Business Ethics and Conduct in Contracting with the United States Government,"
dated February 1, 1989, made a part hereof, as such may be amended from time to
time. The Seller covenants and agrees that the Seller and any others used by the
Seller in the performance of services hereunder will comply with the laws and
regulations applicable to contracting with the United States Government and with
the "Policy Statement."
PROVISION 21 - NATIONAL DEFENSE INFORMATION
a. The Seller recognizes that United is engaged in the performance of contracts
with the United States Government and that under such contracts United is
required to meet various requirements as to the safeguarding and nondisclosure
of information relating to the national defense. The Seller agrees, therefore,
that the Seller and others used by the Seller in the furnishing of services
hereunder shall comply strictly with all applicable laws, rules, regulations and
requirements of the Government and of United with regard to such matters. The
Seller further understands that failure to safeguard, or improper disclosure of,
information relating to the national defense may subject Seller or any such
others used by Seller to criminal liability under the laws of the United States,
including Title 18 U.S.C., Sections 793 through 799, and Executive Orders No.
10865 dated February 20, 1960, as amended by Executive Orders No. 10909 and No.
11382, and modified by No. 12030; and No. 12065 dated June 28, 1978.
PROVISION 22 - KICKBACKS
a. Seller represents and warrants to United that neither Seller (including any
of its officers, partners, employees or agents) nor any subcontractor or
subcontractor employee has:
(1) provided, attempted to provide, or offered to provide any kickback;
(2) solicited, accepted or attempted to accept any kickback; or
(3) included, directly or indirectly, the amount of any kickback in the
price applicable to this Agreement or in the subcontract price charged by any
subcontractor to a higher tier subcontractor.
b. In addition to any other remedies that United may have, Seller shall
indemnify and hold harmless United from and against any loss or damage,
including, without limitation, United's costs, attorney's fees, or any fines or
penalties assessed against United, resulting from a violation of (i) the
Anti-Kickback Act of 1986 or (ii) other pertinent federal, state, or local laws
regarding kickbacks or commercial bribery, by Seller (including any of its
officers, partners, employees, or agents) or by any subcontractor or
subcontractor employee.
9
<PAGE> 33
Exhibit H
TECHNICAL ENVIRONMENT REQUIREMENTS FOR RUNNING [*****]
Server Requirements:
The server environment for the [*****] Server Database for use on a network must
have:
1. Network environment with shared file storage
2. 10-20 Mb Free files space on network accessible shared drive
Client Requirements
The computer to run the [*****] Client Software must have:
1. Pentium Processor (or equivalent)
2. 32 Mb or more RAM
3. At least 20 Mb free space on hard drive
4. Microsoft Windows 95 Release 4.00.950 or greater or
Microsoft Windows NT 4.0 or greater
5. Network connection and authority to access and write to
network drive where shared database
file is stored (UTCMeasures.mdb)
6. Microsoft Access 97
<PAGE> 34
Exhibit I
Determination of MBO Bonus Upon Termination
Assumptions:
Product Spend Savings Goal: [*]
Date of Termination: May 26
146 Days
Prorated Savings Goal: [*] x ------------ = [*] Million
365 Days
******************************************************************************
Scenario 1:
MBO Savings
January 1 - May 26: [*]
146 Days
MBO Bonus: [*] x ------------ = [*]
365 Days
******************************************************************************
Scenario 2:
MBO Savings
January 1 - May 26: [*] Million
MBO Bonus: No MBO Bonus
<PAGE> 35
Exhibit J
United Sourcing Process
The goal of the United Technologies Corporation Supply Management Process is to
select and manage the best possible suppliers. The detailed steps are outlined
below:
# Perform Procurement Analysis and Profile Sourcing Group (SG)
# Develop Sourcing Strategy
# Generate Supplier Portfolio
# Develop Solicitation and Visit Suppliers
# Evaluate Supplier Proposals
# Select Competitive Supplier
# Negotiate with Selected Supplier
# Manage Transition Plan for Products and Services
<PAGE> 1
Exhibit 10.2(b)
July 30, 1999
United Technologies Corporation
One Financial Plaza
Hartford, CT 06101
Attention: Vice President -- Purchasing
Re: Letter Agreement to Amend Service and System Access Agreement
-------------------------------------------------------------
Ladies and Gentlemen:
The purpose of this letter is to set forth the legally binding agreement between
FreeMarkets OnLine, Inc. ("FreeMarkets") and United Technologies Corporation
("UTC") to amend the Service and System Access Agreement dated as of January 14,
1999 between UTC and FreeMarkets (the "Service Agreement") in consideration for
the issuance by FreeMarkets of a certain warrant, in the form attached hereto as
Exhibit A (the "Warrant"), to purchase 304,431 shares of Series D Convertible
Preferred Stock, par value $.01 per share of FreeMarkets.
FreeMarkets and UTC hereby agree that, effective immediately upon the issuance
of the Warrant, and without any further action or notice by the parties hereto,
the Service Agreement shall be amended by [****] and [*****] thereto in [*****].
FreeMarkets and UTC further agree that, in consideration for the amendment set
forth above to the Service Agreement, subject to and concurrent with the
Closing, as such term is defined in the Series D Preferred Stock Purchase
Agreement of even date herewith among FreeMarkets, UTC, Nevada Bond Investment
Corp. II, Pivotal Partners, L.P. and ATGF II, FreeMarkets shall issue the
Warrant to Nevada Bond Investment Corp. II.
Except as specifically and expressly amended in accordance with this Letter
Agreement, the Service Agreement shall remain in full force and effect.
Very truly yours,
FREEMARKETS ONLINE, INC.
By: /s/ Glen T. Meakem
Glen T. Meakem
Chief Executive Officer
Acknowledged and agreed
to this 30th day of July, 1999:
UNITED TECHNOLOGIES CORPORATION
By: [*****]
----------------------------
Name: [*****]
Title: [*****]
Information denoted by [*] herein has been omitted pursuant to a request for
confidential treatment. This information has been filed separately with the
Securities and Exchange Commission.
<PAGE> 2
THIS WARRANT AND THE SECURITIES ISSUABLE UPON ITS EXERCISE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
STATE SECURITIES STATUTES OR REGULATIONS. NEITHER THIS WARRANT NOR THE
SECURITIES ISSUABLE UPON ITS EXERCISE MAY BE TRANSFERRED EXCEPT IN
COMPLIANCE WITH APPLICABLE STATE SECURITIES STATUTES AND REGULATIONS,
AND PURSUANT TO AN EFFECTIVE REGISTRATION UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR IN A TRANSACTION WHICH QUALIFIES AS AN EXEMPT
TRANSACTION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND THE RULES
AND REGULATIONS PROMULGATED THEREUNDER.
SERIES D CONVERTIBLE PREFERRED STOCK PURCHASE WARRANT
-----------------------------------------------------
Warrant to Purchase 304,431 Shares Exercise Price: $.01 per share
of Series D Convertible Preferred (subject to adjustment)
Stock (subject to adjustment)
September ____, 1999
FREEMARKETS, INC., a Delaware corporation (the "Company"), hereby certifies
that, for value received, NEVADA BOND INVESTMENT CORP. II (the "Holder") is
entitled, subject to the terms set forth below, to purchase from the Company, at
any time and from time to time during the Exercise Period (as defined below), in
whole or in part, the number of fully paid and non-assessable shares of the
Company's Series D Convertible Preferred Stock, par value $.01 per share
("Series D Stock"), first set forth above at the per share exercise price (the
"Exercise Price") first set forth above (subject to adjustment as set forth in
Article II).
ARTICLE I -- EXERCISE OF WARRANT
1.1 Exercise Period and Procedure.
(a) The Warrant shall be exercisable, in whole or in part, by the
Holder at any time and from time to time during the period (the "Exercise
Period") beginning on the date hereof (the "Warrant Issue Date") and ending on
the earlier of (i) 5:00 p.m. (prevailing local time at the principal executive
office of the Company) on the fifth anniversary date of the Warrant Issue Date,
or (ii) the date on which all outstanding shares of the Company's Series D Stock
are converted pursuant to an automatic conversion event (a "Conversion Event")
as set forth in Section 3(b) of the Company's Certificate of Designation, Rights
and Preferences for the Series D Convertible Preferred Stock, or as set forth in
any successor thereto. The Company shall provide to the Holder, at the Holder's
address set forth in the warrant register referenced in Section 6.3 hereof,
written notice of a Conversion Event at least two business days prior to the
occurence thereof. Any portion of the Warrant that has not been exercised at the
time of a Conversion Event shall automatically be deemed to have been exercised
immediately prior to such event in accordance with Section 1.1(c) hereof.
<PAGE> 3
(b) The purchase rights represented by this Warrant are exercisable by
the Holder, in whole or in part, during the Exercise Period by the surrender of
this Warrant, with the form of Notice of Exercise attached hereto as Annex A
duly completed and executed by such Holder, to the Company at its principal
executive office, upon payment in cash (subject to Section 1.1(c)), by certified
or official bank check or by wire transfer, of an amount equal to the Exercise
Price multiplied by the number of shares of Series D Stock being purchased
pursuant to such exercise of the Warrant.
(c) If the fair market value of one share of Series D Stock is greater
than the Exercise Price (at the date of calculation as set forth below), in lieu
of exercising this Warrant for cash, the Holder may elect to receive shares of
Series D Stock equal to the value (as determined below) of this Warrant (or the
portion thereof being canceled) by surrender of this Warrant at the principal
office of the Company together with the properly endorsed Notice of Exercise and
notice of such election in which event the Company shall issue to the Holder a
number of shares of Series D Stock computed using the following formula:
X = Y (A-B)
-----
A
Where:
X = the number of shares of Series D Stock to be issued to
the Holder
Y = the number of shares of Series D Stock purchasable under
the Warrant or, if only a portion of the Warrant is being
exercised, the portion of the Warrant being canceled (at
the date of such calculation)
A = The fair market value of one share of the Company's
Series D Stock (at the date of such calculation)
B = Exercise Price (as of the date of such calculation)
For purposes of the above calculation, the fair market value of one share of
Series D Stock shall be (i) as determined in good faith by the Company's Board
of Directors prior to a Qualified Public Offering (as such term is defined in
the Company's Certificate of Designation, Rights and Preferences for the Series
D Convertible Preferred Stock); or (ii) in the event that the Warrant is
automatically exercised pursuant to Section 1.1(a) hereof as a result of a
Conversion Event that constitutes a Qualified Public Offering, the product of
(a) the per share offering price of such Qualified Public Offering, and (b) the
number of shares of Common Stock into which each share of Series D Stock is
convertible at the time of such exercise.
1.2 Partial Exercise. This Warrant may be exercised for less than the full
number of shares of Series D Stock first shown above, provided that this Warrant
may not be exercised in part for less than a whole number of shares of Series D
Stock. Upon any such partial exercise, the Company at its expense will forthwith
issue to the Holder a new Warrant or Warrants of like tenor exercisable for the
number of shares of Series D Stock as to which rights have not been exercised
(subject to adjustment as herein provided), such Warrant or Warrants to be
issued in the name of the Holder or its nominee (upon payment by such Holder of
any applicable transfer taxes).
1.3 Delivery of Stock Certificates on Exercise. As soon as practicable after the
exercise of this Warrant and payment of the Exercise Price (or, in the event of
an automatic exercise pursuant to Section 1.1(a), after the surrender of the
Warrant, along with the form of Notice of Exercise attached hereto as Annex A
duly completed and executed by the Holder) and in any event within 10 days
thereafter, the Company, at its expense, will cause to be issued in the name of
and delivered to the Holder a certificate or certificates for the number of duly
authorized, validly issued, fully paid and non-assessable shares or other
securities or property to which such Holder shall be
2
<PAGE> 4
entitled upon such exercise, plus, in lieu of any fractional share to which such
Holder would otherwise be entitled, cash in an amount determined in accordance
with Section 2.5 hereof. The Company agrees that the shares so purchased shall
be deemed to be issued to the Holder as the record owner of such shares as of
the close of business on the date on which this Warrant shall have been
surrendered and payment made for such shares as aforesaid.
ARTICLE II -- ADJUSTMENTS
2.1 Adjustments Generally. In order to prevent dilution of the rights granted
hereunder in the specific circumstances contemplated by this Article II, the
Exercise Price shall be subject to adjustment from time to time in accordance
with this Article II. Upon each adjustment of the Exercise Price pursuant to
this Article II, the registered Holder of this Warrant shall thereafter be
entitled to acquire upon exercise, at the Exercise Price resulting from such
adjustment, the number of shares of the Company's Series D Stock determined by
(a) multiplying (i) the Exercise Price in effect immediately prior to such
adjustment by (ii) the number of shares of the Company's Series D Stock issuable
upon exercise hereof immediately prior to such adjustment, and (b) dividing the
product thereof by the Exercise Price resulting from such adjustment.
2.2 Subdivisions and Combinations. In case the Company shall at any time
subdivide its outstanding shares of Series D Stock into a greater number of
shares (including, without limitation, through any stock split effected by means
of a dividend on the Series D Stock which is payable in Series D Stock), the
Exercise Price in effect immediately prior to such subdivision shall be
proportionately reduced, and, conversely, in case the outstanding shares of
Series D Stock of the Company shall be combined into a smaller number of shares,
the Exercise Price in effect immediately prior to such combination shall be
proportionately increased.
2.3 Reorganization, Reclassification, Consolidation, Merger or Sale of Assets.
If any capital reorganization or reclassification of the capital stock of the
Company, or consolidation or merger of the Company with another corporation, or
the sale of all or substantially all of its assets to another corporation shall
be effected in such a way that holders of Series D Stock shall be entitled to
receive stock, securities, cash or other property with respect to or in exchange
for Series D Stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate provision
shall be made whereby the Holder of this Warrant shall have the right to acquire
and receive upon exercise of this Warrant such shares of stock, securities, cash
or other property of the successor corporation that a holder of the shares
deliverable upon exercise of this Warrant would have been entitled to receive in
such reorganization, reclassification, consolidation, merger or sale if this
Warrant had been exercised immediately before such reorganization,
reclassification, consolidation, merger or sale. The foregoing provisions shall
similarly apply to successive reorganizations, reclassifications,
consolidations, mergers or sales and to the stock or securities of any other
corporation that are at the time receivable upon the exercise of this Warrant.
In all events, appropriate adjustments (as determined by the Board of Directors
of the Company) shall be made in the application of the provisions of this
Warrant with respect to the rights and interests of the Holder after the
transaction, to the end that the provisions of this Warrant shall be applicable
after that event, as near as reasonably may be, in relation to any shares or
other property deliverable after that event upon exercise of this Warrant.
2.4 Adjustment by Board of Directors. If any event occurs as to which, in the
opinion of the Board of Directors of the Company, the provisions of this Article
II are not strictly applicable or if strictly applicable would not fairly
protect the rights of the Holder of this Warrant in accordance with the
essential intent and principles of such provisions, then the Board of Directors
may make such adjustment in the application of such provisions, in accordance
with such essential intent and principles, as it deems appropriate so as to
protect such rights as aforesaid, but in no event shall any adjustment have the
effect of increasing the Exercise Price as otherwise determined pursuant to any
of the provisions of this Article II except in the case of a combination of
shares of a type contemplated in Section 2.2 and then in no event to an amount
larger than the Exercise Price as adjusted pursuant to Section 2.2.
3
<PAGE> 5
2.5 Fractional Shares. The Company shall not issue fractions of shares of Series
D Stock upon exercise of this Warrant or scrip in lieu thereof. If any fraction
of a share of Series D Stock would, except for the provisions of this Section
2.5, be issuable upon exercise of this Warrant, then the Company shall in lieu
thereof pay to the person entitled thereto an amount in cash equal to the fair
market value of such fraction (as determined in good faith by the Board of
Directors of the Company), less the equivalent fraction of the then applicable
Exercise Price which would otherwise have been payable in respect of such
fractional share.
2.6 Certificate as to Adjustments. Whenever the Exercise Price shall be adjusted
as provided in Article II, the Company shall promptly compute such adjustment
and furnish to the Holder a certificate setting forth such adjustment and
showing in reasonable detail the facts requiring such adjustment, the Exercise
Price that will be effective after such adjustment and the number of shares and
the amount, if any, of other property that at the time would be received upon
the exercise of this Warrant.
ARTICLE III -- NO IMPAIRMENT
The Company will not, by amendment of its charter or through reorganization,
consolidation, merger, dissolution, sale of assets or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of this Warrant, but will at all times in good faith assist in the carrying out
of all such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Holder against impairment.
Without limiting the generality of the foregoing, the Company will not increase
the par value of any shares of stock receivable upon the exercise of this
Warrant above the amount payable therefor upon such exercise, and at all times
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 stock upon
the exercise of this Warrant.
ARTICLE IV -- RESERVATION OF STOCK
The Company shall at all times reserve and keep available out of its authorized
but unissued stock, solely for the issuance and delivery upon the exercise of
this Warrant, such number of its duly authorized shares of Series D Stock (and
Common Stock issuable upon conversion thereof) as from time to time shall be
issuable upon the exercise of this Warrant. All of the shares of Series D Stock
issuable upon exercise of this Warrant, when issued and delivered in accordance
with the terms hereof, will be duly authorized, validly issued, fully paid and
non-assessable.
ARTICLE V -- REPLACEMENT OF WARRANT
Upon receipt of evidence reasonably satisfactory to the Company of the loss,
theft, destruction or mutilation of this Warrant and (in the case of loss, theft
or destruction) upon delivery of an indemnity agreement reasonably satisfactory
to the Company (with surety if reasonably required), or (in the case of
mutilation) upon surrender and cancellation thereof, the Company will issue, in
lieu thereof, a new Warrant of like tenor and amount.
ARTICLE VI -- NEGOTIABILITY
This Warrant is issued upon the following terms, to all of which each taker or
owner hereof consents and agrees:
6.1 Transfer. Subject to the legend appearing on the first page hereof and any
restrictions to which the holders of the Company's Series D Stock are subject,
title to this Warrant may be transferred by endorsement (by the Holder executing
the Notice of Transfer attached hereto as Annex B) and delivery in the same
manner as in
4
<PAGE> 6
the case of a negotiable instrument transferable by endorsement and delivery;
provided that this Warrant may not be transferred in part unless such transfer
is to a transferee who pursuant to such transfer receives the right to purchase
at least fifty thousand (50,000) shares of Series D Stock hereunder. Absent an
effective registration statement under the Securities Act of 1933, as amended
(the "Securities Act"), covering the disposition of this Warrant or the shares
of Series D Stock and Common Stock issued or issuable upon exercise hereof and
conversion thereof, the Holder will not sell or transfer any or all of such
Warrant or shares, as the case may be, without first providing the Company with
an opinion of counsel (which may be counsel for the Company) to the effect that
such sale or transfer will be exempt from the registration and prospectus
delivery requirements of the Securities Act. Each certificate representing
shares of Series D Stock or Common Stock issued upon exercise hereof or
conversion thereof shall bear a legend in substantially the following form on
the face thereof:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR APPLICABLE STATE SECURITIES LAWS AND MAY BE TRANSFERRED OR
RESOLD ONLY IN COMPLIANCE WITH SUCH SECURITIES LAWS.
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a certificate issued upon completion of
a distribution under a registration statement covering the securities
represented) shall also bear such legend unless, in the opinion of counsel to
the Company, the securities represented thereby may be transferred as
contemplated by such Holder without violation of the registration requirements
of the Securities Act.
6.2 Title. Any person in possession of this Warrant properly endorsed is
authorized to represent himself as absolute owner hereof and is granted power to
transfer absolute title hereto by endorsement and delivery hereof to a bona fide
purchaser hereof for value; each prior taker or owner waives and renounces all
of its equities or rights in this Warrant in favor of every such bona fide
purchaser, and every such bona fide purchaser shall acquire title hereto and to
all rights represented hereby.
6.3 Warrant Register. The Company will maintain a warrant register containing
the name and address of the Holder. The Holder may change its address as shown
on the warrant register by written notice to the Company requesting such change.
Until this Warrant is transferred on the books of the Company, the Company may
treat the registered Holder of this Warrant as the absolute owner hereof for all
purposes without being affected by any notice to the contrary.
6.4 No Rights as Stockholder. Prior to the exercise of this Warrant, the Holder
shall not be entitled to any rights of a Stockholder of the Company with respect
to shares for which this Warrant shall be exercisable, including, without
limitation, the right to vote, to receive dividends or other distributions or to
exercise any preemptive rights, and shall not be entitled to receive any notice
of any proceedings of the Company.
6.5 Transfer Taxes. The Company shall not be required to pay any federal or
state transfer tax or charge that may be payable in respect of any transfer
involved in the transfer or delivery of this Warrant or the issuance or
conversion or delivery of certificates for Series D Stock in a name other than
that of the registered Holder of this Warrant or to issue or deliver any
certificates for Series D Stock upon the exercise of this Warrant until any and
all such taxes and charges shall have been paid by the Holder of this Warrant or
until it has been established to the Company's reasonable satisfaction that no
such tax or charge is due.
6.6 Compliance with Securities Laws. The Holder of this Warrant, by acceptance
hereof, acknowledges that this Warrant and the shares of Series D Stock or
Common Stock to be issued upon exercise hereof or conversion thereof are being
acquired solely for the Holder's own account and not as a nominee for any other
party, and for investment, and that the Holder will not offer, sell or otherwise
dispose of this Warrant or any shares of Series D Stock or Common Stock to be
issued upon exercise hereof or conversion thereof except under circumstances
that will not result in a violation of applicable federal and state securities
laws. Upon exercise of this Warrant, the
5
<PAGE> 7
Holder shall, if requested by the Company, confirm in writing, in a form
satisfactory to the Company, that the shares of Series D Stock so purchased are
being acquired solely for the Holder's own account and not as a nominee for any
other party, for investment, and not with a view toward distribution or resale.
ARTICLE VII -- SUBDIVISION OF RIGHTS
This Warrant (as well as any new Warrants issued pursuant to the provisions of
this Article VII) is exchangeable, upon the surrender hereof by the Holder, at
the principal executive office of the Company for any number of new Warrants of
like tenor and date representing in the aggregate the right to subscribe for and
purchase the number of shares of Series D Stock of the Company which may be
subscribed for and purchased hereunder.
ARTICLE VIII -- MISCELLANEOUS
8.1 Headings. The headings in this Warrant are for purposes of reference only,
and shall not limit or otherwise affect the meaning hereof.
8.2 Amendment; Waiver. This Warrant may be amended only by a writing executed by
both the Company and the Holder. Any term of this Warrant may be waived by the
party entitled to the benefit thereof by an instrument in writing signed by such
party. No waiver of any term, condition or provision of this Warrant, in any one
or more instances, shall be deemed to be, or construed as, a further or
continuing waiver of any such term, condition or provision.
8.3 Governing Law. This Warrant shall be construed and interpreted according to
the laws of the State of Delaware, without giving effect to any of the conflicts
of laws or choice of law provisions thereof that would compel the application of
the substantive laws of any other jurisdiction.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
6
<PAGE> 8
IN WITNESS WHEREOF, the Company has executed and issued this Warrant on the date
first written above.
Attest: FREEMARKETS, INC.
_________________________ By:_________________________________
Secretary Name:
Title:
7
<PAGE> 9
ANNEX A
-------
NOTICE OF EXERCISE
[To be signed only upon exercise of Warrant]
To: FREEMARKETS, INC.
The undersigned, the Holder of the within Warrant, hereby [check the box that
applies]:
[ ] elects to exercise the purchase right represented by such Warrant for,
and to purchase thereunder, ________ shares of Series D Stock of
FreeMarkets, Inc., and herewith makes payment of $________ therefor.
[ ] elects to exercise the Warrant for the purchase of _________ shares of
Series D Stock pursuant to Section 1.1(c) of the Warrant.
In exercising this Warrant, the undersigned hereby confirms and acknowledges
that the shares of Series D Stock to be issued upon exercise hereof (and any
shares of Common Stock acquired upon conversion thereof) are being acquired
solely for the Holder's own account and not as a nominee for any other party,
and for investment, and that the Holder will not offer, sell or otherwise
dispose of any such securities except under circumstances that will not result
in a violation of applicable federal and state securities laws.
Please issue a certificate or certificates representing said shares of Series D
Stock in the name of the undersigned or in such other name as is specified
below:
Dated: _____________ ______________________________
NAME
By: ___________________________
(Signature must conform in all respects to
name of Holder as specified on the face of
the Warrant)
Address:
----------------------------------
----------------------------------
----------------------------------
<PAGE> 10
ANNEX B
-------
NOTICE OF TRANSFER
[To be signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto the
Assignee named below the right represented by the within Warrant with respect to
the number of shares of Series D Stock of FreeMarkets, Inc. set forth below:
NAME OF ASSIGNEE ADDRESS NO. OF SHARES
and appoints _______________ attorney to transfer said right on the warrant
register of FreeMarkets, Inc. with full power of substitution in the premises.
Dated: _____________ _______________________________
By:
(Signature must conform in all respects to
name of Holder as specified on the face of
the Warrant)
Address:
----------------------------------
----------------------------------
----------------------------------
<PAGE> 1
Exhibit 10.3(a)
OFFICE LEASE
----------
LEASE AGREEMENT
dated as of October 21, 1998
by and between
One Oliver Associates Limited Partnership
as Landlord
and
FREEMARKETS ONLINE, INC.,
as Tenant
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
ARTICLE TITLE PAGE
<S> <C> <C>
1 Premises 1
2 Definitions 1
3 Term 5
4 Base Rent 6
5 Operating Expenses, Taxes and Other Charges 7
6 Use 10
7 Prior Occupancy; Possession 10
8 Termination, Extension and Hold Over 10
9 Place of Payment 11
10 Tenant's Covenants 11
11 Services and Equipment 13
12 Electricity 17
13 Alterations; Condition of Premises 18
14 Repairs 20
15 Insurance Requirements 21
16 Covenant of Quiet Enjoyment 22
17 Liability of Landlord; Indemnification; and Excuse of Performance 22
18 Damage by Fire or Other Cause 24
19 Condemnation 26
20 Entry 27
21 Right to Change Public Portions, Name and Address of Building 27
22 No Light, Air or View Easements 28
</TABLE>
ii
<PAGE> 3
<TABLE>
<S> <C> <C>
23 Bankruptcy 28
24 Defaults; Remedies; Damages 29
25 Assignment, Mortgaging, Subleasing and Recapture 33
26 Subordination 37
27 Surrender of Premises 38
28 Effect of Conveyance by Landlord 38
29 Notices 39
30 Waiver of Redemption 40
31 Estoppel Certificate 40
32 Relocation 40
33 Hazardous Substances 41
34 Representations by Landlord 42
35 Miscellaneous 42
36 Security Deposit 45
37 Tenant Options 46
LEASE SUMMARY
EXHIBITS
Exhibit A - Description of Premises
Exhibit B - Legal Description of Land
Exhibit C - Building Standard Cleaning and Janitorial Services
Exhibit D - Work Letter
Exhibit E - Rules and Regulations
Exhibit F - Supplement to Lease
</TABLE>
iii
<PAGE> 4
LEASE SUMMARY
Landlord: One Oliver Associates Limited Partnership
TENANT: FreeMarkets OnLine, Inc.
TENANT'S BROKER: Grubb & Ellis
BUILDING: One Oliver Plaza
PREMISES: Suites 2100 and 2200
RENTABLE AREA OF BUILDING: 619,631 rentable square feet
RENTABLE AREA OF PREMISES: 36,000 rentable square feet
SCHEDULED DELIVERY DATE: March 1, 1999
SCHEDULED TERM COMMENCEMENT DATE: March 1, 1999
SCHEDULED RENT COMMENCEMENT DATE: June 1, 1999
EXPIRATION DATE: May 31, 2004
EXTENSION OPTION: Not Applicable
BEGINNING ANNUAL BASE RENT: $720,000
BEGINNING MONTHLY BASE RENT: $60,000
BASE YEAR: Calendar year ending December 31, 1999
TENANT'S SHARE OF OPERATING EXPENSES: 5.81%
TENANT'S SHARE OF TAXES: 5.81%
SECURITY DEPOSIT: $60,000
LANDLORD'S ADDRESS FOR NOTICES: One Oliver Associates Limited Partnership, c/o
Kojaian Management Corporation, 1400 N. Woodward, Suite 250, Bloomfield Hills,
MI 48304
TENANT'S ADDRESS FOR NOTICES: FreeMarkets OnLine, Inc., 130 Seventh Street,
Century Building, Suite 500, Pittsburgh, PA 15222
<PAGE> 5
LEASE AGREEMENT
THIS LEASE AGREEMENT (this "Lease") dated as of October 21, 1998 by and
between One Oliver Associates Limited Partnership, a Michigan limited
partnership ("Landlord"), and FREEMARKETS ONLINE, INC., a Delaware corporation
("Tenant").
RECITALS:
Intending to be legally bound hereby, the parties agree as follows:
ARTICLE 1 - PREMISES
SECTION 1.01. In consideration of the rents, charges, covenants and
agreements herein contained, Landlord hereby demises and lets unto Tenant, and
Tenant does hereby rent, hire, take and lease from Landlord, the twenty-first
(21st) and twenty-second (22nd) floors of that certain building, located at
Sixth and Wood Streets, Pittsburgh, Pennsylvania 15222 and commonly known and
referred to as One Oliver Plaza building (the "Building"), containing
approximately 36,000 rentable square feet (the "Rentable Area of the Premises"),
known as Suites 2100 and 2200, and shown on the plan attached hereto as Exhibit
A (the "Premises"), together with the right to use, in common with others, the
common areas of the Building.
TO HAVE AND TO HOLD unto Tenant, its permitted successors and assigns,
for the Term of this Lease; but subject and subordinate to all agreements,
covenants and conditions of record which affect the Building and/or the Land on
which the Building is located. Although the Term shall commence at the
Commencement Date, this Lease shall constitute a binding agreement, and the
obligations of Landlord and Tenant hereunder shall be effective, upon execution
of this Lease by both Landlord and Tenant.
ARTICLE 2 - DEFINITIONS
SECTION 2.01. The terms defined in this Article shall, for all purposes
of this Lease and all agreements supplemental hereto, have the meanings herein
specified unless the context otherwise requires. Such definitions shall be
applicable to both the singular and plural use of such terms.
"Additional Rent" shall have the meaning set forth in Section 5.04.
"Base Rent" shall have the meaning set forth in Section 4.01.
"Base Year" shall mean the calender year ending on December 31, 1999.
"Building" shall have the meaning set forth in Section 1.01.
<PAGE> 6
"Commencement Date" shall mean the date upon which the Premises becomes
available to Tenant for its possession and has been substantially completed in
accordance with the Work Letter, as defined.
"Default Rate" for any period shall mean interest at the rate equal to
the lesser of (i) the highest rate permitted by law or (ii) one percent (1%) per
annum above the Prime Rate in effect for such period.
"Event of Default" shall have the meaning set forth in Section 24.01.
"Expiration Date" shall have the meaning set forth in Section 3.01.
"Extension Term" shall have the meaning set forth in Section 3.02.
"Extension Term Rent" shall have the meaning set forth in Section 4.02.
"Holidays", whenever used in this Lease, shall mean, as of the date of
this Lease, those days generally observed in the City of Pittsburgh,
Pennsylvania as New Years Day, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. If, during the term of this Lease, the paid
holidays observed by the maintenance employees at the Building should change,
the definition of "Holidays" shall then change accordingly without changing the
validity of this Lease.
"HVAC" shall have the meaning set forth in Section 11.01.
"Injured Party" shall have the meaning set forth in Section 15.04.
"Initial Alterations" shall have the meaning set forth in Section
13.01.
"Land" shall mean the property described in Exhibit B.
"Landlord Insured Entities" shall have the meaning set forth in Section
15.03.
"Lease Supplement" shall have the meaning set forth in Section 3.01.
"Lease Year" shall mean each calendar year during the Term and any
extensions thereof.
"New Premises" shall have the meaning set forth in Section 32.01.
"Normal Business Hours" for the Building shall mean from 7:00 a.m. to
7:00 p.m., Pittsburgh time, weekdays (Saturdays, Sundays and Holidays excepted)
and 7:00 a.m. to 1:00 p.m., Pittsburgh time, on Saturday.
2
<PAGE> 7
"Operating Expenses" shall mean (i) all those expenses of every kind
and character actually incurred during each year in respect of the operation,
management, maintenance, replacement and repair of the Land and the Building in
accordance with accepted principles of sound management and accounting practices
as applied to the operation, management, maintenance, replacement and repair of
comparable office buildings, including, without limitation, premiums for all
insurance carried by Landlord, plus (ii) if the Building is not at least
ninety-five percent (95%) leased to third parties paying rent, those additional
expenses which Landlord reasonably determined it would have incurred during the
year for which Operating Expenses are being calculated assuming that the
Building is at least ninety-five percent (95%) leased to third parties paying
rent. Operating Expenses shall include, without limitation, utility expenses,
labor directly related to the operation of the Building (including contracted
labor) insurance, materials, fees and licenses, management fees not to exceed
five percent (5%) of the gross income of the building, sales and use taxes,
capital expenditures which reduce Operating Expenses or are mandated by any
government body having jurisdiction over the Building or the Premises which
requirement comes into existence after the Commencement Date (provided that such
capital expenditures are amortized over such periods as are determined under
GAAP).
Operating Expenses shall not include the following: income taxes
(corporate, partnership or otherwise); any costs or expenditures regarded as
capital costs or expenditures under generally accepted accounting principles
except as specifically set forth above, and any costs or expenses which under
generally accepted accounting principles would not be considered a normal
maintenance expense except as specifically set forth above; the cost of
improvements to premises of other tenants; the cost of performing any
improvements or services contemplated as part of the "Initial Alterations" or
otherwise identified as Landlord obligations herein, as specifically set forth
on Exhibit G; interest and principal payments on mortgages; depreciation and
amortization expenses; any and all legal and other fees, audit fees, inspection
fees, appraisal fees, leasing, commissions, advertising expenses and other costs
incurred in connection with the acquisition, development, leasing and ownership
of the Premises, the Building or the Land; ground rental payments; costs
associated with the clean-up, remediation and removal of any hazardous wastes or
substances and any and all other costs of causing the Premises, Building or the
Land to comply with applicable environmental laws and other applicable laws and
codes, except as specifically set forth above; expenses in connection with
services or other benefits for which Tenant or any other tenant is charged for
directly; fines or penalties (including tax penalties) paid by Landlord;
Landlord's general corporate overhead and general and administrative expenses;
expenses for repairs or other work occasioned by fire, windstorm or other
insured casualty (except reasonable deductibles); costs arising from the
presence of Hazardous Materials; costs arising from Landlord's or another
tenant's negligent or intentional acts; and any other expenses which, in
accordance with generally accepted accounting principles, consistently applied,
would not normally be treated as Operating Expenses by Landlord or comparable
First Class Office Buildings, as defined, except as provided above.
3
<PAGE> 8
"Partial Lease Year" shall mean that period from and including the
Commencement Date to the end of the calendar year during which this Lease
commences and that period from the beginning of the calendar year in which this
Lease terminates to and including the Expiration Date.
"Premises" shall mean the space described in Section 1.0l.
"Prime Rate" shall mean (i) for the period of time from the first day
such rate of interest is assessable in accordance with this Lease through and
including the last business day of such month, the interest rate per annum
announced or published by Mellon Bank, N.A., Pittsburgh, Pennsylvania, as its
prime rate in effect at the close of business on the first business day such
rate of interest is assessable in accordance with the terms of this Lease and
(ii) for each calendar month thereafter, the interest rate per annum announced
or published by Mellon Bank, N.A., Pittsburgh, Pennsylvania, as its prime rate
in effect at the close of business on the last business day of the prior
calendar month.
"Proposed Transfer" shall have the meaning set forth in Section 25.02.
"Rent" shall include Base Rent, Additional Rent and all other sums
which may become due by Tenant to Landlord under this Lease.
"Rent Confirmation Agreement" shall have the meaning set forth in
Section 4.02.
"Rentable Area of the Building" shall mean 619,631 rentable square
feet, subject to verification by the Landlord within six (6) months of the
Commencement Date using the 1996 BOMA/ANSI standard of measurement.
"Rentable Area of the Premises" shall have the meaning set forth in
Section 1.01.
"Tenant's Share" shall mean that percentage determined by dividing the
Rentable Area of the Premises by the Rentable Area of the Building, which
percentage is initially computed as 5.81%.
"Tenant's Share of Operating Expenses" shall have the meaning set forth
in Section 5.01.
"Tenant's Share of Taxes" shall have the meaning set forth in Section
5.01.
"Taxes" shall mean all federal, state and local governmental taxes,
assessments, duties, levies, and charges (including, but not limited to, real
estate taxes and assessments) of every kind or nature, which Landlord shall pay
or become obligated to
4
<PAGE> 9
pay because of or in connection with the ownership, leasing, management,
control, operation of the Building and the Land or of the personal property,
fixtures, machinery, equipment, systems or apparatus located therein and used in
connection therewith, including any rental or similar taxes, including, but not
limited to, the Pittsburgh Business Privilege Tax, and license, building,
occupancy, permit or similar fees levied in lieu of or in addition to general
real or personal property taxes. For purposes hereof, Taxes for any year shall
be Taxes which are due for payment or paid in that year. There shall be included
in Taxes for any year the amount of all reasonable, out-of-pocket fees, costs
and expenses (including reasonable attorneys' fees) paid by Landlord during such
year in seeking or obtaining any refund or reduction of Taxes. Taxes in any year
shall be reduced by the net amount of any tax refund received by Landlord in
such year and attributable to any Lease Year for which Tenant paid Tenant's
Share of Taxes. Taxes shall not include any federal, state or local income,
corporate, sales, use, franchise, capital stock, inheritance, general income,
gift or estate taxes, except that if a change occurs in the method of taxation
resulting in whole or in part of the substitution of any such taxes, or any
other assessment, levy, duty, or charge, for any Taxes as above defined, such
substituted taxes, assessments, levies, duties, or charges shall be included in
Taxes.
"Term" shall have the meaning set forth in Section 3.01.
"Work Letter" shall mean the obligations of Tenant and Landlord set
forth in Exhibit "D".
ARTICLE 3 - TERM
SECTION 3.01. The term ("Term") of this Lease shall begin on the
Commencement Date and end at 12:00 noon on the date (the "Expiration Date") 63
months from: (a) the Commencement Date, if the Commencement Date is the first
day of a month; or (b) the last day of the month in which the Commencement Date
occurs, if the Commencement Date is not the first day of a month.
At such time as the Commencement Date is established, Landlord and
Tenant shall enter into a Lease Supplement (herein so defined) in the form
attached hereto as Exhibit F, to confirm the Commencement Date and the
Expiration Date, and to make such other modifications necessitated by the
establishment of the Commencement Date. Failure to execute a Lease Supplement by
either party shall not affect the occurrence of the Commencement Date or the
Expiration Date.
SECTION 3.02. Tenant shall have the right to extend the term of this
Lease for two (2) additional five (5) year terms, commencing at 12:01 a.m. on
the first day immediately following the then current Expiration Date ("Extension
Term"). Tenant shall exercise such right to extend this Lease by giving Landlord
written notice to such effect at least one (1) year prior to the then current
Expiration Date; provided, however, that the right to extend is contingent upon
(a) this Lease being in full force and effect and (b) Tenant not being in
default hereunder after the
5
<PAGE> 10
delivery of notice and beyond the expiration of applicable cure periods, both at
the time of giving such written notice and at the commencement of the Extension
Term. Upon the giving of such written notice by Tenant and the compliance by
Tenant with the aforesaid conditions, this Lease shall be automatically extended
for the Extension Term referred to in such notice with the same effect as if
such Extension Term had originally been included in the Term of this Lease, and
all of the terms, covenants and conditions of this Lease, except such as are
inapplicable or inappropriate to such Extension Term and except as set forth
herein, shall continue in full force and effect for such Extension Term. The
Base Rent for the Extension Term shall be determined in accordance with the
provisions of Section 4.02. All reference in this Lease to the Term of this
Lease and to the Expiration Date shall be deemed to mean, when the Extension
Term is in effect, such Extension Term and the date of expiration of such
Extension Term, respectively. Upon the commencement of the Extension Term,
Landlord and Tenant shall execute an amendment to this Lease setting forth the
terms of such extension, including but not limited to the expiration of the
Extension Term and the amount of the Base Rent.
ARTICLE 4 - BASE RENT
SECTION 4.01. Tenant covenants and agrees to pay Landlord in lawful
currency of the United States in advance on the first day of each month during
the Term without any previous demand therefor, and without any setoff or
deduction, but subject to the abatement rights set forth in Section 11.12, the
following amount (the "Base Rent"):
(a) months 1-3, no Base Rent;
(b) months 4-12, $20.00 per rentable square foot per year or $60,000
per month;
(c) months 13-24, $20.60 per rentable square foot per year or $61,800
per month;
(d) months 25-36, $21.22 per rentable square foot per year or $63,660
per month;
(e) months 37-48, $21.86 per rentable square foot per year or $65,580
per month; and
(f) months 49-63, $22.51 per year or $67,530 per month.
The rentable square footage of the Premises (estimated at 36,000
rentable square feet) shall be subject to final verification using the 1996
BOMA/ANSI standard of measurement.
If the Commencement Date is not the first day of a month, a prorated
monthly installment of Base Rent shall be paid by the Commencement Date based on
calendar days for the fractional month during which the Commencement Date
occurs.
6
<PAGE> 11
SECTION 4.02. The Base Rent during each year of the Extension Term
("Extension Term Rent") shall be at ninety-five percent (95%) of the prevailing
market rent for comparable office space in the Building. The parties hereto
shall negotiate in good faith to establish the Extension Term Rent based on the
foregoing criteria, but if the Extension Term Rent has not been confirmed in
writing ("Rent Confirmation Agreement") by the parties no later than nine months
prior to the contemplated commencement date of the Extension Term, Tenant shall
have the right, upon written notice to the Landlord at any time prior to the
execution of a Rent Confirmation Agreement, to nullify and void the Extension
Term and this Lease shall thereupon terminate at the end of the Term. Should
Tenant not elect to nullify this Lease then the setting of the Base Rent for the
Extension Term shall be sent to Arbitration.
SECTION 4.03 It is agreed that if at any time a dispute shall arise as
to any amount or sum of money to be paid by one party to the other under the
provisions hereof, the party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such payment
shall not be regarded as a voluntary payment and there shall survive the right
on the part of said party to institute suit for the recovery of such sum, and if
it shall be adjudged that there was no legal obligation on the part of said
party to pay such sum or any part thereof, said party shall be entitled to
recover such sum or so much thereof as it was not legally required to pay under
the provisions of the Lease, and if at any time a dispute shall arise between
the parties hereto as to any work to be performed by either of them under the
provisions hereof, the party against whom the obligation to perform the work is
asserted may perform such work and pay the cost thereof "under protest" and the
performance of such work and payment therefor shall in no event be regarded as a
voluntary performance or payment, and there shall survive the right on the part
of said party to institute suit for the recovery of the cost of such work, and
if it shall be adjudged that there was no legal obligation on the part of said
party to perform or pay for the same or any part thereof, said party shall be
entitled to recover the cost of such work or the cost of so much thereof as said
party was not legally required to perform or pay for under the provisions of the
Lease.
ARTICLE 5 - OPERATING EXPENSES, TAXES AND OTHER CHARGES
SECTION 5.01. In addition to Base Rent and all other charges required
under this Lease, Tenant shall pay to Landlord the amount of money ("Tenant's
Share of Operating Expenses") determined by multiplying Tenant's Share times the
amount by which the Operating Expenses incurred by Landlord during any Lease
Year or Partial Lease Year exceeds the Operating Expenses for the Base Year;
provided, however, that if Tenant's Share of Operating Expenses is calculated
for any Partial Lease Year, the Operating Expenses for such Partial Lease Year
shall be appropriately prorated in making such calculation.
In addition to Base Rent and all other charges required under this
Lease, Tenant shall pay to Landlord the amount of money ("Tenant's Share of
Taxes") determined by multiplying Tenant's Share times the amount by which Taxes
which are due for payment or were paid during any Lease Year or Partial Lease
Year exceeds the Taxes for the Base Year; provided, however, that if Tenant's
Share of Taxes is calculated for any Partial Lease Year, the Taxes for such
Partial Lease Year shall be appropriately prorated in making such calculation.
7
<PAGE> 12
If Tenant shall exercise its right to extend the term of this Lease,
the Base Year shall be the year in which the Lease Extension commences for
purposes of calculating Tenant's Share of Operating Expenses and Tenant's Share
of Taxes. The new Base Year shall be set forth in an amendment to this Lease
setting forth the terms of such extension pursuant to Section 3.02.
SECTION 5.02. Tenant shall pay Tenant's Share of Operating Expenses and
Tenant's Share of Taxes as follows:
(a) Tenant shall pay Landlord, monthly in advance with each monthly
payment of Base Rent, one-twelfth (1/12th) of the amounts, if any, estimated
from time to time by Landlord to be Tenant's Share of Operating Expenses and
Tenant's Share of Taxes.
(b) On or before May 31 of each Lease Year or Partial Lease Year after
the Commencement Date, Landlord shall furnish to Tenant a statement of the
Operating Expenses and Taxes for the preceding Lease Year and a calculation of
Tenant's share thereof. To the extent that Tenant's Share of Operating Expenses
or Tenant's Share of Taxes for any Lease Year or Partial Lease Year is more than
the amount actually paid by Tenant under subparagraph (a), then Tenant shall pay
the difference due Landlord within thirty (30) days after receipt of the
aforesaid statement. If the payments made by Tenant under subparagraph (a) above
for any Lease Year or Partial Lease Year exceed Tenant's Share of Operating
Expenses or Tenant's Share of Taxes, such excess shall be credited against the
amount next due from Tenant to Landlord pursuant to this Article or, upon the
expiration of the Term, shall be paid to Tenant in cash. Failure of the Landlord
to provide Tenant a statement of Operating Expenses and/or Taxes by the date
specified above shall not be deemed a waiver of Tenant's obligations to pay
Tenant's Share of Operating Expenses and Tenant's Share of Taxes, or any rights
of Landlord associated with such obligations hereunder.
(c) If this Lease expires or terminates on a day other than the last
day of a calendar year, Tenant's Share of Operating Expenses and Tenant's Share
of Taxes shall be equitably prorated and Tenant's obligation to pay any
underpayment of Tenant's Share of Operating Expenses and Tenant's Share of Taxes
or Landlord's obligation to refund any over payment shall survive the expiration
or termination of this Lease.
SECTION 5.03. Tenant further agrees to pay to Landlord the following
amounts:
(a) Any and all sums which may become due Landlord by reason of the
failure of Tenant, after the giving of any required notice and time to cure, to
comply with any one or more of the covenants of this Lease and any and all
damages, costs and expenses, including reasonable attorneys' fees, that Landlord
has suffered or incurred thereby or any damages to the Premises caused by any
act or neglect of Tenant.
(b) As a late charge, interest at the Default Rate on any Rent that is
not paid within five (5) business days following the due date thereof on two
occasions during any Lease Year. On the third and any subsequent occasion such
late charge and interest thereon shall accrue from the due date until such Rent
is received by Landlord.
(c) All Taxes becoming a lien or charge against the Land and Building
to the extent that the same are assessed on the basis of the value of any
machinery or equipment installed by Tenant.
8
<PAGE> 13
(d) All costs and expenses incurred by Landlord in performing any
alterations, improvements, additions or other work in or to the Premises at the
request of Tenant (other than that which Landlord is required to do under the
provisions of this Lease without charge to Tenant or under the Work Letter) or
to cure any Event of Default hereunder, plus an overhead and construction
management fee equal to five percent (5%) of the total cost of such alterations,
improvements, additions or other work or amount necessary to cure any default.
SECTION 5.04. Any sums required to be paid by Tenant under this Lease
(other than Base Rent), including, without limitation, any sums payable under
this Article 5 or Article 11, shall be deemed to be "Additional Rent". Tenant
agrees to pay (on demand unless otherwise specified herein) Additional Rent in
lawful currency of the United States without any setoff or deduction whatsoever.
Tenant's obligation to pay Base Rent and all Additional Rent under this Lease
shall survive any expiration or termination of this Lease.
SECTION 5.05. Within two (2) years after the end of the period to which
such records relate, Tenant shall have the right, at its sole cost and expense,
to inspect and/or audit Landlord's books and records (not more than once in any
twelve (12) month period), with respect to Operating Expenses, Taxes and any and
all other additional rent payable by or claimed by Landlord to be payable by
Tenant under this Lease. Tenant shall give Landlord not less than seven (7) days
prior written notice of its intention to conduct any such audit. If such audit
discloses that the amount paid by Tenant for any one or more of the above
enumerated items for the Lease Year under consideration has been overstated,
then Landlord shall immediately rebate to Tenant the amount of overcharge. and
if the overstatement shall be five (5%) or more, then in addition to immediately
rebating to Tenant the overcharge, Landlord shall also pay the reasonable costs
incurred by Tenant for such audit. Provided, that if Landlord disagrees with the
results of said audit, the parties will seek to amicably resolve such
differences, and, if they fail to do so, will retain an independent third-party
auditor to resolve such differences. The findings of any such third-party
auditor shall be final and binding on both parties, and the costs of the auditor
shall be borne by the party whose position was not correct. Provided further,
that neither party may retain an auditor whose compensation is paid on a
contingency fee basis.
ARTICLE 6 - USE
SECTION 6.01. The Premises may be used and occupied only for GENERAL
OFFICE PURPOSES which shall include, without limitation, all matters related to
the conduct of electronic commerce by Tenant, training of its employees and
holding of meetings for its customers, and other matters related to the above,
and for no other purpose without Landlord's prior written consent, which consent
may be withheld in Landlord's sole and absolute discretion.
SECTION 6.02. Tenant shall not do or permit anything to be done in or
about the Premises which will in any way unreasonably obstruct or interfere with
the rights of Landlord or other tenants, occupants or invitees of the Building
or injure or annoy them or use or allow the Premises to be used for any
improper, immoral or objectionable purpose, nor shall Tenant cause, maintain or
permit nuisance in, on or about the Building or the Premises. Tenant shall not
commit or suffer the commission of any waste in, on or about the Building or the
Premises.
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ARTICLE 7 - PRIOR OCCUPANCY; POSSESSION
SECTION 7.01. There are presently no tenants in the Premises. If
Tenant's occupancy is delayed beyond July 31, 1999, through no fault of the
Tenant, then Tenant shall have the right to terminate this Lease upon written
notice to Landlord.
ARTICLE 8 - TERMINATION, EXTENSION AND HOLD OVER
SECTION 8.01. Unless sooner terminated as set forth in this Lease, this
Lease shall terminate on the Expiration Date without the necessity of any notice
from either Landlord or Tenant to terminate the same. TENANT HEREBY EXPRESSLY
WAIVES NOTICE TO VACATE THE PREMISES (INCLUDING, WITHOUT LIMITATION, ANY NOTICE
PROVIDED FOR UNDER THE PENNSYLVANIA LANDLORD AND TENANT ACT OF 1951, AS AMENDED,
68 Pa. C.S.A. Section 250.101 et seq.) AND AGREES THAT LANDLORD SHALL BE
ENTITLED TO THE BENEFIT OF ALL PROVISIONS OF LAW RESPECTING THE SUMMARY RECOVERY
OF POSSESSION OF THE PREMISES FROM A TENANT HOLDING OVER TO THE SAME EXTENT AS
IF STATUTORY NOTICE HAD BEEN GIVEN. Notwithstanding the above, Tenant shall have
the right, upon sixty days prior written notice to Landlord, to hold over for
two, one-month periods after the Expiration Date. Tenant shall pay rent for this
period equal to the existing Base Rent and pro rated Additional Rent in effect
at the time of such holdover.
SECTION 8.02. If the Premises are not surrendered at the expiration or
termination of the Term or such extended Term as set forth above, Tenant shall:
(a) Indemnify landlord against actual losses directly incurred
resulting from Tenant's delay in surrendering the Premises;
(b) Reimburse Landlord for any reasonable, out-of-pocket costs and
expenses incurred by Landlord in obtaining possession of the Premises; and
(c) Pay to Landlord one and one-half (1 1/2) times the Rent payable in
the last month of the Term together with all other sums payable hereunder for
each month or portion thereof that such delay exists.
The provisions of this Section shall not operate: (i) as a waiver by
Landlord of any remedies Landlord may have due to Tenant's failure to surrender
the Premises, including but not limited to all remedies specified herein, or
otherwise at law or in equity; or (ii) to extend the Term.
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ARTICLE 9 - PLACE OF PAYMENT
SECTION 9.01. All Rent shall be payable to Landlord, without prior
written notice or demand, to Lockbox Checking Account #361383214 at Hatfield
Philips, Inc. on behalf of LBHI for One Oliver Associates Limited Partnership,
Dept #77318, P.O. Box 77000, Detroit, MI 48277-0318 or at such other place as
Landlord may from time to time designate by written notice to Tenant.
ARTICLE 10 - TENANT'S COVENANTS
SECTION 10.01. Tenant shall promptly fulfill and comply with all laws,
ordinances, regulations and requirements of the city, county, state and federal
governments and any and all departments thereof having jurisdiction over the
Building, which relate to Tenant's use of the Premises (as distinguished from
general office uses) or the business conducted therein, and Tenant shall notify
Landlord within ten (10) days of its receipt of notice alleging a violation
thereof by Tenant or the Premises.
SECTION 10.02. Tenant shall not use the Premises or permit anything to
be done in or about the Premises which will in any way conflict with any law,
statute, ordinance, or governmental rule or regulation now in force or which may
hereafter be enacted or promulgated or which conflicts with any certificate of
occupancy for the Building. Tenant shall not do or permit anything to be done in
or about the Premises or bring or keep anything therein which will in any way
increase the rate of applicable insurance upon the Building or any of its
contents, and Tenant shall, at its sole cost and expense, promptly comply with
all laws, statutes, ordinances and governmental rules, regulations, and
requirements now in force or which may hereafter be in force, and with the
requirements of any Board of Fire Underwriters or other similar body now or
hereafter constituted relating to or affecting the condition, use or occupancy
of the Premises, excluding structural changes not related to or affected by
Tenant's alterations or improvements. The final, unappealable judgment of any
court of competent jurisdiction or the admission of Tenant in an action against
Tenant, whether Landlord be a party thereto or not, that Tenant has so violated
any law, statute, ordinance, or governmental rule, regulation, or requirement,
shall be conclusive of such violation as between Landlord and Tenant.
SECTION 10.03. Tenant shall observe faithfully and comply strictly with
the Rules and Regulations set forth in Exhibit E attached hereto and made a part
hereof, which Rules and Regulations shall be applied on a non-discriminatory
basis to all tenants of the Building and shall not unreasonably restrict
Tenant's ability to use and enjoy the Premises in accordance with the terms of
the Lease. Landlord shall have the right from time to time to make reasonable
changes in, and additions to, the Rules and Regulations, upon ten (10) days
prior written notice to Tenant. Landlord's failure to enforce any Rule or
Regulation shall not constitute a waiver by Landlord of its right to enforce
such Rule or Regulation. Provided, that any such changes shall not adversely
affect Tenant's enjoyment of the Premises and the Building or conflict with the
terms of this Lease, except as may be required by law.
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SECTION 10.04. Tenant shall use every reasonable precaution against
fire and immediately notify Landlord of any condition which may have a negative
impact on fire security or safety.
SECTION 10.05. Tenant shall give to Landlord prompt written notice of
any accident, fire or damage occurring on or to the Premises.
SECTION 10.06. Tenant shall not place or allow to be placed any stand,
booth, sign, banner, showcase, device or projection of any kind upon or near the
entrance, doorsteps, vestibules, outside walls, pavements or windows of the
Premises or near Building without the prior written consent of Landlord, except
that Tenant shall have the right to use its standard graphics in the elevator
lobby of the 21st and 22nd floors of the Building (and any other floor it fully
occupies during the Term). Landlord shall provide space for Tenant's name in the
Building directory located in the main lobby at no cost to Tenant.
SECTION 10.07. Tenant shall not use or operate any devices or machinery
that, in Landlord's opinion, is harmful to the Building or disturbing to other
tenants occupying other parts thereof.
SECTION 10.08. Tenant shall not place any weights in any portion of the
Premises beyond its safe carrying capacity. The safe carrying capacity is 75
pounds per usable square foot, inclusive of partitions.
ARTICLE 11 - SERVICES AND EQUIPMENT
SECTION 11.01. Subject to the provisions of Article 17, Landlord shall
provide heating, ventilating and air-conditioning ("HVAC") throughout the
Premises during Normal Business Hours, as required by weather conditions, in a
manner befitting a first class office building in the central business district
of the City of Pittsburgh ("First Class Office Building"). For the purposes of
this paragraph, such a standard shall mean that the base building HVAC system
will provide interior conditions of 75(degree) F and 50% relative humidity when
the outside summer conditions are 89(degree) F. In the winter the system will
maintain 70(degree) F inside when outside conditions are 0(degree) F. The HVAC
system consists of 12 to 14 interior VAV zones per floor and one constant volume
exterior zone per column bay. The interior zones include ceiling mounted supply
diffusers and return grilles. The exterior zones are supplied by floor mounted
induction units with hot water and chilled water coils. Both interior and
exterior zones are equipped with appropriate ductwork and controls and are
designed to accommodate a combined lighting and appliance load of 5 watts per
square foot at an average occupancy of one person per 200 square feet. Any
additional zones or capacity will be provided at Tenant's expense.
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SECTION 11.02. Tenant understands that, after the Commencement Date,
any occupancy of the Premises above the Building standard occupancy conditions
or any rearrangement of partitioning which interferes with normal operation of
the HVAC system and/or the fire or other safety equipment or systems, may
require changes or alterations in said systems or in the ducts through which the
same operates, and Tenant accordingly agrees that any changes or alterations so
occasioned shall be done by Landlord, at Tenant's expense, and in accordance
with the plans and specifications of Tenant to be submitted to and approved in
writing by Landlord. For purposes of this Lease, "Building standard occupancy
conditions" shall mean one person per each 200 rentable square feet.
Whenever heat-generating machines or equipment installed by Tenant
affect the air-conditioning systems, or the population or electrical load
exceeds the Building standard occupancy conditions, Landlord's responsibility
for providing heating, ventilating and air-conditioning shall be reduced to the
load for normal Building standard occupancy conditions. Landlord reserves the
right to install at Tenant's expense supplementary air-conditioning equipment
and equipment auxiliary to such supplementary air-conditioning equipment in the
Premises, and the charge for such installation and for the operation thereof
shall be paid by Tenant as Additional Rent within thirty (30) days of being
billed therefor. Any such installation shall be discussed with Tenant in advance
of taking such action, and any action taken shall be reasonable in light of the
circumstances.
If the temperature otherwise maintained in any portion of the Building
by the HVAC systems is affected as a result of any lights, machines, equipment,
occupancy or electrical load in or with respect to the Premises, Landlord shall
have the right, but not the obligation, to install any machinery and equipment
which Landlord reasonably deems necessary to maintain or restore temperature
balance, including modifications to the standard HVAC equipment. The cost of any
such additional machinery or equipment, including the cost of installation and
any additional cost of operation and maintenance incurred thereby, shall be paid
by Tenant as Additional Rent within thirty (30) days of being billed therefor.
Any such installation shall be discussed with Tenant in advance of taking such
action, and any action shall be reasonable in light of the circumstances.
SECTION 11.03. If Tenant requires HVAC service on days or hours other
than Normal Business Hours, Landlord shall, upon advance notice by Tenant,
furnish such additional service and Tenant shall pay for such service as
Additional Rent at rates then charged by Landlord (which shall be the actual
cost plus administrative expense of less than 5%) within thirty (30) days of
being billed therefor. Such advance notice shall be adequately provided if given
(i) on 12 hours notice if notice occurs during a business day, and (ii) on
forty-eight hour notice if given on a weekend.
SECTION 11.04. Landlord shall provide passenger elevator service (which
may be automatic, at Landlord's option) in common with others during Normal
Business Hours and have an elevator servicing the Premises subject to call at
all other times.
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Landlord shall provide freight elevator service in common with others
during Normal Business Hours. If Tenant shall require freight elevator service
and/or use of the Building loading dock outside of Normal Business Hours (other
than Tenants initial move into the Premises), Tenant shall pay for the services
of any additional Building personnel specifically attributable to the services
required as Additional Rent at rates then charged by Landlord within thirty (30)
days of being billed therefor. Tenant may only use the Building loading dock
upon 24 hour prior notice to Landlord.
SECTION 11.05. Landlord shall provide heated and unheated water to the
Premises for lavatory, toilet, drinking, ordinary cleaning and other usual
purposes drawn through plumbing and other facilities installed by Landlord in a
manner consistent with a First Class Office Building. If Tenant requires, uses
or consumes water for any other purpose, Tenant agrees to the installation of a
meter or meters to measure Tenant's domestic water consumption and Tenant shall
pay as Additional Rent, within thirty (30) days of being billed therefor, for:
the meter or meters and the installation thereof; the maintenance of said meter
equipment; and the water consumed. The charge for all excess water consumed as
measured by said meter or meters and sewerage charges applicable to such water
consumption shall be paid as Additional Rent within thirty (30) days of being
billed therefor.
Landlord shall also provide extermination and pest control when
necessary.
SECTION 11.06. Landlord may, at its option, provide any special
services or equipment requested by Tenant, but not provided herein, upon 48
hours prior notice. If Landlord provides such services, Tenant shall pay as
Additional Rent, within thirty (30) days of being billed therefor, an amount
equal to the cost of providing such special services or equipment plus five
percent (5%) of the cost of the services for administrative and supervising
expenses. Such special services may include, without limitation, maintenance,
repair, janitorial, cleaning, HVAC and other services provided during hours
other than Normal Business Hours and/or in amounts not reasonably considered by
Landlord as standard.
SECTION 11.07. Tenant shall pay as Additional Rent, within thirty (30)
days of being billed therefor, for the removal from the Premises and the
Building of such refuse and rubbish of Tenant as shall exceed that ordinarily
accumulated daily in the usual and customary business office.
SECTION 11.08. Landlord shall provide standard cleaning and janitorial
services in and about the Building and the Premises weekdays (Saturdays, Sundays
and Holidays excepted) substantially in accordance with Exhibit C attached
hereto. Landlord, its cleaning contractor and their respective employees shall
have access to the Premises, and shall have the right to use, without charge
therefor, all light, power and water in the Premises reasonably required to
clean the Premises.
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To the extent that Tenant shall require special or more frequent
cleaning and janitorial service, Landlord shall, upon reasonable advance notice
by Tenant, furnish such special cleaning services and Tenant agrees to pay as
Additional Rent, within thirty (30) days of being billed therefor, the cost of
special cleaning services plus five percent (5%) of such cost as consideration
for administrative and supervisory expenses. Without limiting the generality of
the foregoing, the following, as applicable, shall be considered to be "special
cleaning services":
(a) The cleaning of plates and dishes, the microwave, the refrigerator
or other food storage or cooking appliances in the kitchen area, or performing
services beyond standard janitorial services in the kitchen area;
(b) The cleaning and maintenance of excessive amounts of paper from
computer areas;
(c) The cleaning and maintenance of special equipment areas, private
toilets and locker and storage rooms, medical centers, mailrooms, and large
scale reproduction rooms. For purposes of this Lease, the four existing men's
rooms and four existing women's rooms in the Premises shall not be considered as
private bathrooms.
(d) The cleaning and maintenance in areas of special security such as
storage vaults.
(e) Consumable supplies for private toilet rooms.
(f) All cleaning services performed at the request of Tenant other than
during normal cleaning hours which shall mean 10:00 p.m. to 7:00 a.m.
(g) Any extra cleaning of the Premises required because of the
carelessness or indifference of Tenant, or unsanitary conditions caused by
Tenant.
SECTION 11.09. Notwithstanding anything to the contrary in this Lease,
Landlord may institute such policies, programs and measures as may be reasonably
necessary, required, desired or expedient for the conservation and/or
preservation of energy or energy services as may be necessary to comply with
applicable laws, codes, rules or regulations, whether mandatory or voluntary.
Provided, that if such compliance is voluntary, Landlord shall ensure that the
energy provided is of a comparable standard and does not compromise Tenant's use
of the Premises.
SECTION 11.10. Landlord reserves the right to interrupt, curtail, stop
or suspend the supply of any service, including, but not limited to, the
furnishing of HVAC, elevator, escalator, and cleaning services, and the
operation of plumbing and electrical systems for repairs, alterations,
replacements or improvements. If any event described in this Section occurs, (i)
Landlord shall use reasonable efforts to make such repairs at times other than
Normal Business Hours, and (ii) Landlord shall, in each instance, promptly
effect performance or restore service when and as soon as possible.
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SECTION 11.11. Tenant agrees to pay Landlord, if there is a metered
utility connection to the Premises, all charges for the utility(ies) consumed
upon the Premises and all charges for repairs to the meter or meters on the
Premises, whether such repairs are made necessary by ordinary wear and tear,
including, but not limited to, freezing or hot water.
SECTION 11.12. If and to the extent that Tenant is unable to conduct
its ordinary business operations for a continuous period of three (3) working
days resulting from Landlord's failure to supply, or inadequacy in supplying,
HVAC, elevator, cleaning services, or the operations of plumbing and electrical
systems, then Tenant's Base Rent shall be abated or reduced to the extent of
Tenant's diminution in its use and enjoyment of the Premises, for the entire
period of time Tenant remains unable to use and enjoy the Premises due to the
failure to supply such service. Provided, that Tenant shall not have the right
to abate or reduce the Base Rent if (i) the reason for the failure to supply
such service is not reasonably within the control of Landlord, and (ii) Landlord
has used reasonable efforts to cause such failure to be cured. Tenant shall have
the right to cancel this Lease upon written notice to Landlord if the
interruption unreasonably and materially interferes with Tenant's use of or
access to the Premises for at least 45 days and Landlord is not exercising
reasonable efforts to restore the services. Provided further, that Tenant may
institute such other actions as our available under applicable law to recover
damages against Landlord.
SECTION 11.13. All services and all systems provided by Landlord
pursuant to this Article 11 shall be consistent with the standards for a First
Class Office Building.
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ARTICLE 12 - ELECTRICITY
SECTION 12.01. Electric current shall be supplied by Landlord to Tenant
as herein provided. Base Rent includes a charge for consumption of electricity
for the Building standard 277-volt lighting fixtures installed in the Premises
and for normal small office machines and fixtures connected to the Building
standard 110-volt, single phase outlets, 24 hours per day. Tenant shall pay as
Additional Rent, and on a monthly basis, for the consumption of electricity used
in the Premises for a total connected load in excess of a total of five (5)
watts per square foot of Rentable Area of the Premises at a rate computed on
Landlord's average cost per kilowatt hour. Such average cost shall be determined
by dividing the total kilowatt hours used in the Building into the total cost of
the utility company's electricity invoices for the Building. The amount of
electrical consumption in the Premises for a total connected load in excess of
five (5) watts shall be determined by Landlord's reasonable estimate, or if
requested by Tenant, by an engineering analysis and/or study by a consultant
retained by Landlord and Tenant, such study to be at Tenant's sole cost. For
computer floors, supplemental HVAC and other special installations, additional
electrical usage shall be determined by measurement by electric meters to be
installed as required by Landlord at Tenant's sole cost. If Tenant requires
electrical current beyond five (5) watts per square foot, Tenant shall pay for
such consumption as Additional Rent, based on the above method of calculating
cost. Charges for excess electrical consumption shall be billed and paid as
Additional Rent.
SECTION 12.02. Tenant shall pay as Additional Rent, within ten (10)
days of being billed therefor, the cost of all replacement lamps, bulbs,
starters and ballasts used in the Premises, together with the charge for
installation thereof.
SECTION 12.03. Tenant covenants and agrees that at all times its use of
electric current shall not exceed Tenant's proportionate share of the capacity
of existing feeders to the Building or the risers or wiring installation. Any
riser or risers or wiring to meet Tenant's excess electrical requirements, upon
written request of Tenant, will be installed by Landlord, at the sole cost and
expense of Tenant if, in Landlord's sole judgment, the same are necessary and
will not cause permanent damage or injury to the Building or Premises or cause
or create a dangerous or hazardous condition or entail excessive or unreasonable
alterations, repairs or expense or interfere with or disturb other tenants or
occupants.
SECTION 12.04. Tenant shall make no alterations or additions to the
electric equipment or installation without the prior written consent of Landlord
in each instance, and all work shall be done by Landlord at Tenant's expense in
accordance with plans and specifications of Tenant to be submitted and approved
by Landlord.
SECTION 12.05. If, at any time when Landlord is furnishing electric
current to the Premises, it becomes illegal for Landlord to continue to do so,
Landlord may, upon not less than thirty (30) days' prior written notice to
Tenant, discontinue the furnishing of such electric current. If Landlord gives
any such notice of discontinuance, Landlord shall make all the necessary
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arrangements with a public utility to furnish such electric current to the
Premises, but Tenant will contract directly with such public utility for the
supplying of such electric current to the Premises.
ARTICLE 13 - ALTERATIONS; CONDITION OF PREMISES
SECTION 13.01. All tenant improvements to prepare the Premises for
initial occupancy by Tenant (the "Initial Alterations") shall be performed in
accordance with and subject to the terms, covenants and conditions of the Work
Letter attached hereto as Exhibit D and hereby made a part hereof. The Tenant
Allowance shall be used in accordance with the provisions of the Work Letter.
SECTION 13.02. Excepting alterations of less than twenty-five thousand
dollars per year which are non-structural, Tenant shall not make any
alterations, improvements or additions to the Premises without the prior written
approval of Landlord, which consent shall not be unreasonably withheld. All
alterations, improvements and additions to the Premises must be performed by
Landlord or by contractors which have been approved by Landlord. Tenant shall,
if requested by Landlord, furnish Landlord with plans and specifications, names
and addresses of contractors, copies of contracts, necessary permits, and
indemnification in form and amount satisfactory to Landlord and shall, prior to
the commencement of any work, cause its contractors to file waivers of lien
against any and all claims, costs, damages, liabilities and expenses which may
arise in connection with any such work. Tenant hereby agrees to indemnify and
hold harmless Landlord from any and all liabilities of every kind and
description which may arise out of or be connected in any way with any such
work, unless such work is performed by Landlord or contractors retained by
Landlord to perform such work. Before commencing any such work, Tenant shall
furnish Landlord with certificates of insurance from all contractors performing
labor or furnishing materials insuring Landlord in such amounts as Landlord
deems appropriate against any and all liabilities which may arise out of or be
connected in any way with such work. Tenant shall pay the cost of all such work
and also the cost of repairing the Premises or the Building occasioned by such
work.
Upon completing any such work, Tenant shall furnish Landlord with
contractors' affidavits and full and final waivers of lien and receipted bills
covering all labor and materials expended and used. All such work shall comply
with all insurance requirements, with all of Landlord's Rules and Regulations,
and with all laws, ordinances, regulations and requirements of any governmental
and quasi-governmental bodies or agencies having or claiming jurisdiction. If
any such work results in a change in the HVAC load in the Premises, Landlord
shall, at Tenant's expense, at Landlord's option, either modify the existing
systems or provide supplementary HVAC systems or equipment necessary to
accommodate such load change. Notwithstanding the foregoing, Landlord may, at
its option, direct Tenant, at Tenant's expense, to either modify the existing
systems or provide supplementary HVAC systems or equipment necessary to
accommodate such load change. Tenant shall perform or cause such work to be
performed in a manner which will not interfere with or impair the use and
enjoyment of any other portion of the Building by Landlord and/or other tenants.
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Tenant shall not permit any lien or claim for lien of any mechanic,
laborer or supplier or any other lien to be filed against the Building, the land
upon which the Building is situated, the Premises, or any part thereof arising
out of work performed, or alleged to have been performed by, or under the
direction of, or on behalf of Tenant. If any such lien or claim for lien is
filed, Tenant, within ten (10) days thereof, shall either have such lien or
claim for lien released of record or shall deliver to landlord a bond in form,
content and amount satisfactory to Landlord and issued by a surety satisfactory
to Landlord, indemnifying Landlord and anyone else designated by Landlord
against all costs and liabilities resulting from such lien or claim for lien and
the foreclosure or attempted foreclosure thereof. If Tenant fails to have such
lien or claim for liens released or to deliver such bond to Landlord with ten
(10) days thereof, Landlord, without investigating the validity of such lien,
may pay or discharge the same and Tenant shall reimburse Landlord as Additional
Rent upon demand for the amount so paid by Landlord, including Landlord's
expenses and attorneys' fees.
All alterations, improvements, additions or fixtures (excluding trade
fixtures), including, but not limited to any wiring and cabling, whether
installed before or after the making of this Lease, shall remain upon the
Premises at the expiration or sooner termination of this Lease and shall become
the property of Landlord, unless Landlord and Tenant shall mutually agree prior
to Tenant's installing such alterations that Tenant shall have the right to
remove such property at the Lease termination, and Tenant shall be obligated to
remove such alterations, improvements, additions and fixtures (as were mutually
agreed to by the parties) and restore the Premises to the same good order and
condition in which they were prior to the commencement of this Lease, reasonable
wear and tear excepted. Landlord shall also have the right to require Tenant to
remove certain specified alterations, improvements, additions or fixtures.
Tenant's obligation to remove such alterations, improvements, additions or
fixtures as specified above shall survive the Expiration Date.
SECTION 13.03 If changes or alterations are made by Landlord to any
portion of the Building, Landlord shall not thereby be subject to any liability
nor shall Tenant be entitled to any compensation or any reduction or abatement
of Rent and such changes or alterations shall not be deemed to be a constructive
or actual eviction or a breach of Landlord's covenant of quiet enjoyment,
provided that such changes or alterations do not adversely affect Tenant's use
and occupancy of the Premises or change Tenant's leased area.
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ARTICLE 14 - REPAIRS
SECTION 14.01. Tenant shall keep the Premises and the fixtures and
appurtenances therein in good order and condition at its sole cost and expense
which are not Landlord's obligations pursuant to any provision of this Lease,
and shall commit no waste in the Premises or the Building. In addition, Tenant
shall make repairs necessitated by its negligence or the negligence of its
employees and guests. Tenant's ordinary repairs shall include, without
limitation, the following:
(a) any installations made by or on behalf of Tenant (excepting the
Initial Alterations for a period of twelve (12) months);
(b) trade fixtures and other property belonging to Tenant.
SECTION 14.02. Landlord shall promptly make all repairs necessary to
maintain the structural portions of the Building, the roof, and the Building
systems (HVAC, electrical, plumbing, mechanical, etc.), exterior glass, parking
areas and facilities servicing the Premises in proper order, condition, and
repair.
Unless Landlord has actual knowledge of the need for repairs, Tenant
shall provide a written notice to Landlord that repairs to the Premises are
needed. Landlord shall not be obligated under this Article to repair any damage
caused by the negligence of Tenant, its employees or guests, subtenants, or
contractors or subcontractors retained by Tenant to perform work on the
Premises.
SECTION 14.03. All repairs, restorations or replacements by either
party shall be of first-class quality and done in a good and workmanlike manner.
SECTION 14.04. Except as otherwise set forth in this Lease, there shall
be no allowance to Tenant or diminution of Rent and no liability on the part of
Landlord by reason of inconvenience, annoyance or injury to business arising
from the making of any repairs, alterations, additions, substitutions or
improvements in or to any portion of the Building or the Premises or in and to
the fixtures, appurtenances and equipment thereof; provided that in each case
such repairs, alterations, additions, substitutions or improvements are effected
in a manner which does not cause unreasonable inconvenience to Tenant and
provided further that in each case all work done in connection with such
repairs, alterations, additions, substitutions or improvements is done promptly
in a good and workmanlike manner consistent with a First Class Office Building.
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ARTICLE 15 - INSURANCE REQUIREMENTS
SECTION 15.01. Tenant shall not do or permit to be done any act or
thing upon the Premises which will invalidate or be in conflict with the
Certificate of Occupancy for the Premises or the terms of any standard form of
"all risk" property insurance policies covering the Building and the fixtures
and property therein; and shall, at its own expense, comply with all rules,
orders, regulations or requirements of the National Fire Protection Association
and the Insurance Service Office of Pennsylvania or any other similar body
having jurisdiction and shall not knowingly do or permit anything to be done in
or upon the Premises or bring or keep anything therein or use the Premises in a
manner which increases the rate of property insurance upon the Building or on
the property or equipment located therein or cause any such policy or policies
to be canceled.
SECTION 15.02. If any installation in or use of the Premises by Tenant
increases the rate of "all risk" property insurance on the Building or on the
property and equipment of Landlord or any other tenant or subtenant in the
Building and such rate shall be higher than it otherwise would be, Tenant shall,
within ten (10) days after being billed therefor, reimburse Landlord for that
part of the fire insurance premiums thereafter paid by Landlord which shall have
been charged because of such installation or use by Tenant, and such
reimbursement shall be deemed Additional Rent.
SECTION 15.03. Tenant covenants and agrees to provide on or before the
Commencement Date and to keep in force during the entire Term of this Lease: (a)
commercial general liability insurance for the mutual benefit of Landlord and
Tenant relating to the Premises and its appurtenances in an amount of not less
than Five Million and 00/l00 Dollars ($5,000,000.00) in respect of personal
injury or death and of not less than Five Million and 00/l00 Dollars
($5,000,000.00) in respect of property damage; and (b) "All Risk" property
insurance covering all risks of physical loss, in an amount adequate to cover
the cost of replacement of all fixtures, equipment, decoration, contents and
personal property therein, provided, that upon satisfactory evidence of
financial worth of at least $100,000,000, Tenant shall have the ability to
self-insure such risks; and (c) if there is a boiler or air-conditioning
equipment in, on, adjoining or beneath the Premises for the sole benefit of
Tenant, broad form, boiler or machine insurance in the amount of Two Hundred
Fifty Thousand and 00/l00 Dollars ($250,000.00). All such insurance shall name
Landlord, Building Manager and Landlord's mortgagee ("Landlord Insured
Entities") as additional insureds as their respective interests may appear and
contain a stipulation that it is Tenant's primary insurance. Tenant agrees to
deliver to Landlord at least fifteen (15) days prior to the time such insurance
is first required to be carried by Tenant, and thereafter at least fifteen (15)
days prior to the expiration of any such policy, either a duplicate original or
a certificate of insurance procured by Tenant evidencing compliance with its
obligations hereunder, together with evidence of payment therefor. Landlord
agrees that it shall carry insurance on the Building sufficient to replace the
Building, including the Premises.
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All of the aforesaid insurance shall be written by one or more
responsible insurance companies satisfactory to Landlord and shall contain
endorsements that: (i) such insurance may not be canceled or amended with
respect to Landlord and the other Landlord Insured Entities except upon thirty
(30) days written notice to Landlord from the insurer; and (ii) Tenant shall be
solely responsible for payment of premiums for such insurance. If Tenant fails
to furnish such insurance, Landlord may obtain such insurance and the premiums
shall be paid by Tenant as Additional Rent within ten (10) days after being
billed therefor.
SECTION 15.04. Notwithstanding anything to the contrary contained in
this Lease, if either party suffers an injury (such injured party being referred
to herein as the "Injured Party"), the Injured Party waives claims arising in
any manner in its favor and against the other party and the other party's
directors, officers, employees, shareholders and agents for loss or damage to
the Injured Party's property located within or constituting a part or all of the
Building, but only to the extent the loss or damage is capable of being insured
against by "All Risk" form insurance coverage, whether carried or not. This
waiver does not apply to claims caused by a party's willful misconduct. The
property insurance policies carried by Landlord and Tenant shall contain a
waiver of subrogation clause consistent with this Section 15.04.
ARTICLE 16 - COVENANT OF QUIET ENJOYMENT
SECTION 16.01. Landlord covenants that upon Tenant's paying Rent and
observing and performing all the terms, covenants and conditions of this Lease
on its part to be observed and performed, Tenant may peaceably and quietly enjoy
the Premises (which shall include 24 hours per day and 7 days per week access to
the Building and the Premises, subject to reasonable security procedures)
without any hindrance, interference or molestation from Landlord or any party
acting by, through or under the direction of Landlord, subject, nevertheless, to
the terms and conditions of this Lease.
ARTICLE 17 - LIABILITY OF LANDLORD;
INDEMNIFICATION; AND EXCUSE OF PERFORMANCE
SECTION 17.01. Landlord and its officers, directors, shareholders,
employees, servants and agents shall not be liable for any injury or damage to
persons or property resulting from fire, explosion, falling plaster, steam, gas,
electricity, electrical disturbance, water, rain or snow or leaks from any part
of the Building or from the pipes, appliances or plumbing works or from the
roof, street or subsurface or from any other place or caused by dampness or by
any other cause of whatever nature, unless caused by or due to any negligent act
or omission of Landlord, its officers, directors, shareholders, employees,
servants and agents, and then only after (a) notice (if reasonably practicable
under the circumstances) to Landlord of the condition claimed to constitute
negligence and (b) the expiration of a reasonable time after such notice has
been received by Landlord without Landlord having taken all commercially
reasonable and practicable means to cure or correct such condition; and pending
such cure or correction by Landlord, Tenant shall take all reasonably prudent
temporary measures (if possible under the
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circumstances) and safeguards to prevent and mitigate any injury, loss or damage
to persons or property. In no event shall Landlord or any of its officers,
directors, shareholders, employees, servants or agents be liable for (i) any
loss, the risk of which is covered by Tenant's insurance or would have been
covered had Tenant maintained the insurance required under the Lease; (ii) any
damage caused by other tenants or persons in the Building or caused by
operations in construction of any private, public, or quasi-public work.
SECTION 17.02. Landlord and its officers, directors, shareholders,
employees, servants and agents shall not be liable to Tenant, its employees,
agents, contractors, invitees and licensees, and Tenant shall indemnify Landlord
and its officers, directors, shareholders, employees, servants and agents and
hold them harmless from and against any and all liability arising from or
occasioned by the injury or death of the employees, agents, contractors,
invitees and licensees of Tenant, irrespective of the cause of such injury or
death, unless caused by or due to any negligent act or omission of Landlord, its
agents or employees.
SECTION 17.03. Tenant shall defend, indemnify and save harmless
Landlord, its directors, officers, shareholders, agents and employees, against
and from all liabilities, obligations, damages, amounts paid in settlement,
penalties, claims, costs, charges and expenses, including reasonable attorneys'
fees, which may be imposed upon or incurred by or asserted against Landlord
and/or its agents during the Term of this Lease, or during any period of time
that Tenant may have been given access to or possession of all or any part of
the Premises but only to the extent that it arises from any negligent act or
omission of Tenant or any of Tenant's agents, employees, servants, licensees,
contractors or subtenants.
SECTION 17.04. Landlord shall not be liable (a) for any failure to
provide access to the Premises or (b) to assure the beneficial use of the
Premises or (c) if any utility become unavailable from any public utility
company, public authority or any other person, firm or corporation, including
Landlord, supplying or distributing such utility when such failure, or
unavailability is caused by natural disasters, riots, civil disturbances,
insurrection, war, court order, public enemy, strikes, lockouts or other labor
disturbances the inability to obtain an adequate supply of fuel, gas, steam,
water, electricity, labor or other supplies or by any other condition beyond
Landlord's reasonable control, and Tenant shall not be entitled to any damages
resulting from such failure or unavailability, nor shall such failure or
unavailability relieve Tenant of the obligation to pay all sums due hereunder or
constitute or be construed as a constructive or other eviction of Tenant. If any
governmental entity promulgates or revises any statute, ordinance or building,
fire or other code, or imposes mandatory controls or guidelines on Landlord or
the Building or any part thereof, relating to the use or conservation of energy,
water, gas, steam, light, or electricity or the provision of any other utility
or service provided with respect to this Lease, or if Landlord is required to
make alterations to the Building in order to comply with such mandatory controls
or guidelines, Landlord may, in its sole discretion, comply with such mandatory
controls or guidelines, or make such alterations to the Building. Neither such
compliance nor the making of such alterations shall in any event entitle Tenant
to any damages, relieve Tenant of the obligation to pay any of the sums due
hereunder, or constitute or be construed as a constructive or other eviction of
Tenant.
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SECTION 17.05. Except as set forth in this Lease, this Lease and the
obligations of Tenant to pay Rent hereunder and perform all of the other
covenants, agreements, terms, provisions and conditions hereunder on the part of
Tenant to be performed shall in no way be affected, impaired or excused because
Landlord is unable to fulfill or is delayed in fulfilling any of its obligations
under this Lease or is unable to supply or is delayed in supplying any service,
express or implied, to be supplied or is unable to make or is delayed in
supplying any equipment or fixtures if Landlord is prevented or delayed from so
doing by reason of any cause whatsoever beyond Landlord's reasonable control,
including, but not limited to, acts of God, strikes, lockouts or other labor
disturbances, governmental preemption in connection with a national emergency or
by reason of any rule, order or regulation of any department or subdivision
thereof or of any governmental agency or by reason of the conditions of supply
and demand which have been or are affected by war, hostilities or other similar
emergency. Notwithstanding the above, Landlord shall be required to undertake
its reasonable efforts to fulfill its obligations under this Lease, and if such
condition exists for greater than ninety (90) days, Tenant shall have the right
to terminate this Lease without the payment of any damages to Landlord.
SECTION 17.06. If at any time windows of the Premises or entrances to
the Building are temporary closed off, darkened, or blocked up, Landlord shall
not be liable for any damages Tenant may thereby sustain and Tenant shall not be
entitled to any compensation therefor. Provided, that if such condition is due
to the actions of Landlord, Landlord shall take actions to minimize the
disturbance to Tenant.
SECTION 17.07. The provisions of this Article are intended to be
cumulative and not exclusive of any other rights or remedies which Landlord
would otherwise have hereunder, at law, in equity or otherwise.
ARTICLE 18 - DAMAGE BY FIRE OR OTHER CAUSE
SECTION 18.01. If the Premises or the Building should be partially or
totally damaged or destroyed by fire or other cause, then (if this Lease shall
not have been canceled as provided in this Section 18.01 or Section 18.02),
Landlord shall promptly make application to receive insurance proceeds and
thereafter diligently repair the damage and restore, replace and rebuild the
Building and Premises to the condition originally provided by Landlord.
Landlord's repair obligations with respect to the Premises shall be to restore
the Premises to the condition it was in on the Commencement Date, including
restoration of the Initial Alterations. Landlord shall not be required to repair
or replace at its expense any property that Tenant is required to insure
pursuant to Section 15.03.
If the Premises shall be damaged or destroyed, the Base Rent payable
hereunder shall be abated to the extent that the Premises shall have been
rendered untenantable or unfit for
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Tenant's use; provided, however, that should Tenant reoccupy a portion of the
Premises that had been rendered untenantable or unfit for Tenant's use prior to
the date that Landlord has completed all its repair obligations, Base Rent shall
be apportioned and payable by Tenant in proportion to (i) the part of the
Premises occupied by it, and (ii) Tenant's ability to use and enjoy such part of
the Premises relative to use and enjoyment before such damage or destruction.
Base Rent will not be abated for any damage caused by the willful misconduct of
Tenant or any of its agents, employees or contractors.
Nevertheless, in case of such total or substantial damage to or
destruction of, or complete, or substantial untenantability of the Premises,
Tenant may, at its option, upon thirty (30) days notice to Landlord, cancel this
Lease by written notice to Landlord if either (i) Landlord has not completed the
making of the repairs and substantially restored, replaced and rebuilt the
Premises to the extent required hereunder within twelve (12) months from the
date of such damage or destruction, or (ii) it is reasonably determined by
Landlord's architect and Tenant's architect (or, if such parties fail to reach
an agreement, a mutually agreed to third-party architect) at the time of such
destruction that such repair and substantial restoration cannot be performed
within twelve (12) months from the date of such damage or destruction..
Provided that Landlord has maintained adequate insurance to cover the
"replacement cost" of the Building and the Premises, Landlord's obligations
under this Section 18.01 to repair and replace the Premises shall be limited to
the insurance proceeds received.
If the damage to the Building should be so extensive that Landlord
shall decide not to repair or rebuild the Building, this Lease shall be
terminated as of the date of such damage or destruction by written notice from
Landlord to Tenant given within one hundred twenty (120) days after such damage
or destruction and Tenant shall thereupon promptly vacate the Premises.
SECTION 18.02. If the Building or the Premises shall be substantially
destroyed by fire or other causes at any time during the last year of the Term
of this Lease, either Landlord or Tenant may terminate this Lease upon written
notice to the other party hereto given within sixty (60) days after the date of
such destruction.
SECTION 18.03. Intentionally Omitted.
SECTION 18.04. No damages, compensation or claim shall be payable by
Landlord for inconvenience, loss of business or annoyance arising from any
repair or restoration of any portion of the Premises or of the Building.
Landlord shall use commercially reasonable efforts to effect such repairs
promptly following receipt of insurance proceeds and in such manner as not to
unreasonably interfere with Tenant's occupancy.
SECTION 18.05. Landlord shall not insure any property that is Tenant's
obligation to insure under Section 15.03.
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SECTION 18.06. In the event of termination of this Lease pursuant to
this Article 18, Landlord shall promptly refund to Tenant any Rent allocable to
the period subsequent to the date of damage or destruction except any portion
which may be allocable to partial occupancy. Tenant shall thereupon surrender
possession of the Leased Premises. Termination of this Lease by either Landlord
or Tenant under this Article 18 shall not be deemed a waiver of any other rights
or remedies which either may have against the other nor relieve Landlord or
Tenant of any liability for any loss or damage suffered by reason of the failure
of either party to perform any of its obligations under this Lease arising prior
to the date of such termination.
ARTICLE 19 - CONDEMNATION
SECTION 19.01. If the whole or substantially the whole of the Building
shall be condemned or taken permanently for any public or quasi-public use, this
Lease and the estate hereby granted, shall forthwith cease and terminate as of
the date of taking of possession for such use or purpose.
SECTION 19.02. If less than the whole or substantially the whole of the
Building shall be condemned or taken permanently or if the whole or
substantially the whole of the Building is condemned or taken temporarily, this
Lease shall remain in full force and effect, except that (a) if the taking shall
nevertheless be so extensive that Landlord shall decide not to restore the
Building, then Landlord (whether or not the Premises are affected) may, at its
option, terminate this Lease and the Term and estate hereby granted shall be
terminated as of the date of such taking of possession for such use, or (b) if
more than ten percent (10%) of the Premises should be condemned or taken, Tenant
may elect at any time within thirty (30) days of the date of such taking to
cancel this Lease upon written notice to Landlord, and thereupon this Lease
shall terminate upon the date Tenant may specify in said notice. If this Lease
shall remain in force as to any part of the Premises, the Base Rent shall be
abated by an amount representing the part of the Base Rent properly allocable to
the portion of the Premises which may be so condemned or taken. In addition, to
the extent that access to the Building or parking is materially and adversely
affected by a condemnation, Tenant shall have the right to terminate this Lease.
SECTION 19.03. In the event of the termination of this Lease pursuant
to the provisions of Sections 19.01 or 19.02, this Lease and the Term and estate
hereby granted shall expire as of the date of such termination in the same
manner and with the same effect as if that were the date set for the normal
expiration of the Term of this Lease, and the Base Rent and any Additional Rent
shall be apportioned as of such date.
SECTION 19.04. Landlord shall be entitled to receive the entire award
arising from any condemnation proceeding without deduction therefrom for any
estate vested in Tenant by this Lease and Tenant shall receive no part of such
award or awards, except as provided in Section 19.05. Tenant hereby expressly
assigns to Landlord any and all of its right, title and interest in or to such
award or awards or any part thereof.
SECTION 19.05. Notwithstanding the foregoing, in the event of any
condemnation or taking as described in this Article, Tenant shall be entitled to
appear, claim, prove and receive in the condemnation proceeding such amounts as
may be separately awarded to Tenant for removal expenses, business dislocation
damages and moving expenses, provided no such claims shall diminish Landlord's
award.
SECTION 19.06. In the event of a condemnation or taking as described in
this Article 19 and if the Lease has not been terminated as a result thereof,
Landlord shall, to the extent of net condemnation award received (net of the
cost of collection), proceed with reasonable diligence to repair and restore the
remaining part of the Building (and the Premises, if applicable) to the
condition originally provided by Landlord to the extent feasible.
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ARTICLE 20 - ENTRY
SECTION 20.01. Landlord, its employees, agents or designees shall have
the right to enter the Premises at reasonable times without notice for the
purposes of providing cleaning and other services to be provided by Landlord
under this Lease, and making such repairs or alterations as Landlord shall be
required or shall have the right to make by the provisions of this Lease or any
other lease in the Building.
In the case of an emergency, Landlord shall have the right to enter the
Premises for such reasonable purposes as Landlord, in its discretion, may find
appropriate. Landlord shall also have the right to enter the Premises at
reasonable times upon prior written notice for the purpose of inspecting it or
exhibiting it to prospective purchasers, lessees or mortgagees; provided
however, Landlord shall not unreasonably interfere with Tenant's use of the
Premises.
ARTICLE 21 - RIGHT TO CHANGE PUBLIC PORTIONS, NAME AND
ADDRESS OF BUILDING
SECTION 21.01. Landlord shall, upon written notice to Tenant, have the
right at any time without thereby creating an actual or constructive eviction,
breaching Landlord's covenant of quiet enjoyment, or incurring any liability to
Tenant therefor, to change the arrangement or location of the common areas of
the Building, including but not limited to such of the following as are not
contained within the Premises or any part thereof: entrances; passageways; doors
and doorways; corridors; stairs; toilets; and other like public service portions
of the Building. Nevertheless, subject to Section 22.01, Landlord shall not make
any permanent change which shall materially interfere with access to the
Premises from and through the Building or change the character of the Building
from that of a comparable office building.
SECTION 21.02. Landlord reserves the right, in its sole discretion, to
change the name and/or address of the Building without creating or incurring any
liability to Tenant therefor.
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ARTICLE 22 - NO LIGHT, AIR OR VIEW EASEMENTS
SECTION 22.01. Any diminution or shutting off of light, air or view by
any structure which is now or may hereafter be erected on land adjacent to the
Building and noise, dust or vibration shall in no way affect this Lease or
impose any liability on Landlord.
ARTICLE 23 - BANKRUPTCY
SECTION 23.01. If at any time prior to the Commencement Date or during
the Term of this Lease (i) there shall be entered a decree or order providing
for relief by a court having jurisdiction in the Premises in respect of Tenant
in an involuntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, or appointing a receiver, liquidator,
assignee, custodian, trustee sequestrator (or similar official) of Tenant or for
any substantial part of its property, or ordering the winding-up or liquidation
of its affairs and if such decree or order shall continue unstayed and in effect
for a period of sixty (60) consecutive days, and (ii) Tenant shall have failed
to pay Rent timely or otherwise have failed to perform its obligations under
this Lease, then, at the option of Landlord exercised within a reasonable period
of time after notice of the happening of any such event, may be canceled and
terminated and in such event neither Tenant nor any person claiming through or
under Tenant or by virtue of any statute or of any order of any court shall be
entitled (a) in the case of any such event happening prior to the Commencement
Date, to possession of the Premises, or (b) in the case of any such event
happening during the Term of this Lease, to remain in possession of the Premises
and Tenant shall forthwith quit and surrender the Premises, and Landlord, in
addition to the other rights and remedies it has by virtue of any other
provision in this Lease contained or by virtue of any statute or rule of law,
may retain as liquidated damages any Rent, security deposit or moneys received
by it from Tenant or others on behalf of Tenant upon the execution of this
Lease.
SECTION 23.02. If at any time prior to the Commencement Date or during
the Term of this Lease there shall be commenced by Tenant a voluntary case under
any applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, or if Tenant should consent to the entry of an order for relief in an
involuntary case under any such law, or if Tenant should consent to the
appointment of or to the taking of possession of the Premises or a substantial
part of Tenant's assets or property by a receiver, liquidator, assignee,
trustee, custodian, sequestrator (or other similar official), or if Tenant
should make any assignment for the benefit of creditors, or if Tenant should
fail generally to pay its debts as such debts become due (within the meaning of
the Federal bankruptcy act) or if Tenant takes any action in furtherance of any
of the foregoing, this Lease at the option of Landlord exercised within a
reasonable time after notice of the happening of any one or more of such events,
may be canceled and terminated by Landlord, in which event neither Tenant nor
any person claiming through or under Tenant by virtue of any statute or of any
order of any court shall be entitled (a) in the case of any such event happening
prior to the Commencement Date, to possession of the Premises, or (b) in the
case of any such event happening during the Term of this Lease, to remain in
possession of the Premises, and Tenant shall forthwith quit and surrender the
Premises, and Landlord, in addition to the other rights and remedies it has by
virtue of any other provisions in this Lease contained, or by virtue of any
statute or rule of law, may retain as liquidated damages any Rent, security
deposit or moneys received by Landlord from Tenant or others on behalf of
Tenant.
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SECTION 23.03. It is stipulated and agreed that in the event of the
termination of this Lease pursuant to this Article 23, Landlord shall forthwith,
notwithstanding any other provision of this Lease to the contrary, be entitled
to recover from Tenant as and for liquidated damages an amount equal to the
difference between the Rent reserved hereunder for the unexpired portion of the
Term of this Lease and the rental value of the Premises, if lower than the Rent
reserved, at the time of termination, for the unexpired portion of the Term of
this Lease, both discounted at the rate of five percent (5%) per annum to
present worth subject to any limitation placed on such recovery by Federal
bankruptcy act. Nothing herein contained shall limit or prejudice the right of
Landlord to prove for and obtain as liquidated damages by reason of such
termination an amount equal to the maximum amount allowed by any statute or rule
of law in effect at the time when, and governing the proceedings in which, such
damages are to be proved, whether or not such amount be greater than, equal to
or less than the amount of the difference referred to above.
ARTICLE 24 - DEFAULTS; REMEDIES; DAMAGES
SECTION 24.01. Any one or more of the following events shall constitute
an "Event of Default":
(a) The sale of Tenant's interest in the Premises under attachment,
execution or similar legal process;
(b) The occurrence of any event referred to in Article 23 and, in the
case of an occurrence of any event referred to in Section 23.01, the continuance
of such event for the time period therein specified;
(c) The failure of Tenant to pay any Rent or other sum of money within
ten (10) days after Tenant's receipt of written notice that said amount is past
due; provided, that an Event of Default shall occur if Tenant fails to pay Rent
as required by this item (c) more than two times during any one Lease Year
without any such notice.
(d) The failure by Tenant in the performance or observance of any other
covenant or agreement of this Lease (other than a failure involving the payment
of money), which failure is not cured within thirty (30) days after written
notice thereof by Landlord, unless such failure is of such nature that it cannot
reasonably be cured within such thirty (30) day period, in which case Landlord
shall not exercise the remedies described below so long as Tenant shall commence
the curing of the default within such thirty (30) day period and shall
thereafter diligently prosecute the curing of same to completion;
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(e) The default by Tenant in the performance of any covenant or
agreement of this Lease more than three (3) times in any period of twelve (12)
months, notwithstanding that such defaults shall have each been timely cured,
and after following the procedure required in paragraph (d) for the first three
defaults in performance;
(f) The abandonment of the Premises which shall be defined as the
removal by Tenant of all or substantially all of Tenant's furniture, equipment,
appliances and personal property from the Premises or the failure of Tenant to
carry on its business at the Premises, unless Tenant shall continue to pay Rent
to Landlord;
(g) A default by Tenant under Section 25.01 and Section 25.02 of this
Lease;
(h) An assignment by Tenant for the benefit of creditors or the
appointment of a receiver for Tenant by legal proceedings or otherwise.
SECTION 24.02. Upon the occurrence of an Event of Default, Landlord,
without notice to Tenant in any instance (except where expressly provided for
below), may do any one or more of the following:
(a) Declare all Rent and Additional Rent to the date of the Default due
and payable. In addition, Tenant shall be liable for the net present value of
the sum of all Rent plus all Additional Rent that otherwise would have been
payable by Tenant during the remainder of the Term had there been no Default,
less the net present value of the sum of the fair market value of all Rent plus
all Additional Rent that would be paid by a third party in an arms-length
transaction to lease the Premises during the remainder of the Term.
(b) Sell at public or private sale all or any part of the goods,
chattels, fixtures and other personal property belonging to Tenant which are or
may be put into the Premises during the Term, whether exempt or not from sale
under execution or attachment (it being agreed that said property shall at all
times be bound with a lien in favor of Landlord and shall be chargeable for all
Rent and for the fulfillment of the other covenants and agreements herein
contained) and apply the proceeds of such sale: first, to the payment of all
costs and expenses of conducting the sale or caring for or storing said
property; second, toward the payment of any indebtedness, including, without
limitation, indebtedness for Rent, which may be or may become due from Tenant to
Landlord; and third, to pay to Tenant, on demand in writing, any surplus
remaining after all indebtedness of Tenant to Landlord has been fully paid.
Provided, that in no event shall Landlord be able to claim ownership, in whole
or in part, of any intellectual property of Tenant, which shall include, without
limitation, any proprietary software of Tenant's which may be stored on any
computer system taken by Landlord. In addition, Landlord's right under this
Section 24.02 shall be subordinate to any senior liens which Tenant has granted
on any of its assets and Landlord shall grant any waivers (which shall be in a
form reasonably satisfactory to Landlord) necessary to permit such present or
future senior liens.
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(c) Elect to terminate this Lease and the property rights created
hereby by giving notice of such election to Tenant, and reenter the Premises, by
summary proceedings or otherwise, and remove Tenant and all other persons and
property from the Premises, and store such property in a public warehouse or
elsewhere at the cost of and for the account of Tenant without resort to legal
process and without Landlord being deemed guilty of trespass or becoming liable
for any loss or damage occasioned thereby. Landlord's election to terminate this
Lease upon Event of Default shall not constitute a waiver of any claims Landlord
may have against Tenant and shall not relieve Tenant of any liabilities.
(d) Exercise any other legal or equitable right or remedy which
Landlord may have.
SECTION 24.03. Landlord reserves the right to perform, upon thirty (30)
days written notice, on behalf and at the expense of Tenant, any obligation of
Tenant under this Lease which Tenant has failed to perform, the cost of which
performance by Landlord, together with interest thereon at the Default Rate from
the date of such expenditure until the date Landlord receives reimbursement,
shall be deemed Additional Rent and shall be payable by Tenant to Landlord upon
demand. Notwithstanding the provisions set forth above, Landlord may act without
notice to Tenant if Landlord reasonably believes it would be materially injured
by the failure to take rapid action or if the unperformed act of Tenant
constitutes an emergency. Landlord shall be entitled to reasonable attorney's
fees for any legal costs incurred to enforce this Section.
SECTION 24.04. If this Lease is terminated, Landlord may, without
further notice, re-enter the Premises by aid of legal process, terminate all
services, and relet the Premises or any part thereof, alone or together with
other premises, for such term or terms (which may be greater or less than the
period which otherwise would have constituted the balance of the Term) and on
such terms and conditions (which may include concessions or free rent and
alterations of the Premises) as Landlord, in its reasonable discretion, may
determine, but Landlord shall not be liable for, nor shall Tenant's obligations
hereunder be diminished by reason of any failure by Landlord to relet the
Premises if Landlord has taken reasonable steps to mitigate damages and relet
the Premises following a vacancy by Tenant or an Event of Default. Landlord's
damages shall include, but not be limited to: (a) the deficiency between Rent
for what would have been the unexpired Term and any rent collected by Landlord
less costs of reletting; or (b) a lump sum payment equal to the difference
between Rent for what would have been the balance of the Term and the market
rent discounted at five percent (5%) per annum.
SECTION 24.05. Except in an instance where the parties are disputing an
abatement or reduction in Rent, as otherwise set forth in this Lease, Tenant
agrees that it shall not interpose any counterclaim in a summary proceeding or
in any action based on non-payment of Rent or any other payment required of
Tenant hereunder unless the failure to interpose a particular claim as a
counterclaim would result in the loss of such claim; notwithstanding the above,
Tenant shall not be prevented from raising any defense to Landlord's claims (as
opposed to counterclaims).
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Initials Section 24.06. Tenant further authorizes and empowers any
of such attorney, either in addition to or without such judgment for
Tenant: the specific amount of Rent or accelerated rents due under this
Lease, to appear for Tenant, and for any other persons claiming
- ------- under, by or through Tenant, and confess judgment forthwith against
Tenant and such other persons and in favor_of_Landlord, in an
amicable action of ejectment from the Premises, with all the
conditions, fees, releases, waivers and confessions of judgments in
ejectment as are set forth in this Article for confession of
judgment for amounts due. The entry of judgment under the foregoing
warrants shall not exhaust the warrants, but successive judgments
may be entered thereunder from time to time as often as defaults
occur.
TENANT FURTHER ACKNOWLEDGES THAT IT UNDERSTANDS THE
CONFESSION OF JUDGMENT AUTHORIZED ABOVE; THAT THIS TRANSACTION IS
COMMERCIAL IN NATURE; AND THAT TENANT WAIVES THE RIGHT TO A HEARING
OR TRIAL IN COURT WHICH WOULD OTHERWISE BE REQUIRED BY LAW AS A
CONDITION PRECEDENT TO LANDLORD'S OBTAINING THE JUDGEMENT AUTHORIZED
ABOVE.
Section 24.07. Tenant expressly releases to Landlord and to any and all
attorneys who may appear for Tenant all procedural errors in said proceedings
and all liability therefor.
SECTION 24.08. No reference to any specific right or remedy shall
preclude Landlord from exercising any other right or from having any other
remedy or from maintaining any action to which it may otherwise be entitled by
law or in equity. No failure by Landlord to insist upon the strict performance
of any agreement, term, covenant or condition hereof or to exercise any right or
remedy consequent upon a breach thereof, and no acceptance of full or partial
Rent during the continuance of any such breach, shall constitute a waiver of any
such breach, agreement, term, covenant or condition. No waiver by Landlord of
any breach by Tenant under this Lease or of any breach by any other tenant under
any other lease of any portion of the Building shall affect or alter this Lease
in any way whatsoever.
SECTION 24.09. CUMULATIVE REMEDIES. Acceptance of a sum of money by
Landlord or Tenant shall not be implied to mean an accord and satisfaction
unless expressly agreed to in writing. It is understood and agreed that the
remedies herein given to Landlord or Tenant shall be cumulative, and the
exercise of any one remedy by Landlord or Tenant shall not be to the exclusion
of any other remedy.
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ARTICLE 25 - ASSIGNMENT, MORTGAGING, SUBLEASING AND RECAPTURE
SECTION 25.01. MORTGAGES AND ENCUMBRANCES. Tenant shall not mortgage,
pledge, encumber or otherwise hypothecate this Lease or the Premises or any part
thereof in any manner whatsoever without the prior written consent of Landlord,
and any attempt to do so shall be null and void and a material breach and an
Event of Default under this Lease.
SECTION 25.02. ASSIGNMENT AND SUBLEASE. Except as otherwise provided in
this Section, Tenant shall not assign this Lease, sublease all or any part of
the Premises or allow occupancy by anyone other than Tenant (any such
assignment, sublease or occupancy, a "Proposed Transfer") without the prior
written consent of Landlord, which shall be requested by letter ("Notice")
advising Landlord of its intention from, on and after a stated date (which shall
not be less than sixty (60) days after the date of the Notice), to sublease or
allow occupancy to any part or all of the Premises or to assign its interest in
this Lease, and Landlord shall not unreasonably withhold consent; provided that:
(a) the proposed sublessee, occupant or assignee shall be of a character in
keeping with the standards of the Building; (b) the creditworthiness of the
proposed sublessee, occupant or assignee and the proposed use of the Premises
shall be reasonably acceptable to Landlord; (c) Tenant provides all reasonably
available information on the proposed sublessee, occupant or assignee that
Landlord requests; and (d) the sublease, occupancy agreement or assignment is in
form and substance reasonably satisfactory to Landlord. Tenant shall also submit
any advertising or offering materials that Tenant intends to use in connection
with any efforts to sublease, assign or transfer. Within twenty (20) days after
receipt of the Notice, Landlord shall advise Tenant whether it approves or
rejects the proposed sublease, occupancy or assignment as set forth in the
Notice or whether it elects to recapture the space described in the Notice. If
Landlord fails to advise Tenant within twenty (20) days, there shall be a deemed
assent on the part of Landlord. Any assignment, occupancy or subletting taken
without Landlord's written consent shall, at Landlord's option, be deemed null
and void and a material breach of and Event of Default under this Lease.
Notwithstanding anything to the contrary contained herein, Tenant may
assign this Lease to or permit any corporation or other business entity which is
and continues at all times to control, be controlled by, or be under common
control with Tenant (each a "related corporation") to sublet the Premises for
any of the purposes permitted to Tenant under this Lease (subject however to
compliance with Tenant's obligations under this Lease) provided that (i) Tenant
shall not then be in default in the performance of any of its obligations under
this Lease, (ii) prior to such assignment or subletting, Tenant furnishes
Landlord with the name of any such related corporation, together with evidence
reasonably satisfactory to Landlord that the proposed assignee or subtenant, as
the case may be, is a related corporation of Tenant, (iii) in the event of an
assignment or a sublease of all or substantially all of the Premises, the
assignee or sublessee shall have a net worth computed in accordance with
generally accepted accounting principles at least equal to the net worth of
Tenant named herein on the date of this Lease, and proof satisfactory to
Landlord of such net worth shall have been delivered to Landlord at least ten
(10) days prior to the effective date of any such transaction. For the purposes
hereof, "control" shall be deemed to mean ownership of not less than fifty-one
percent (51%) of all of the legal and equitable interest in any other business
entities.
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SECTION 25.03. RECAPTURE. Landlord's notice to Tenant that it has
elected to recapture said space shall automatically cancel and terminate this
Lease with respect to the space therein described as of the date stated in the
Notice. If the Notice shall cover all of the Premises, and if Landlord elects to
recapture the Premises, the Term of this Lease shall expire and end on the date
stated in the Notice as fully and completely as if that date had been herein
definitely fixed for the expiration of the Term of this Lease. If, however, this
Lease shall be canceled pursuant to the foregoing with respect to less than the
entire Premises, the Base Rent and Additional Rent shall be adjusted on the
basis of the number of square feet retained by Tenant in proportion to the
number of square feet contained in the Premises and this Lease as so amended
shall continue thereafter in full force and effect. Landlord shall not have the
right to recapture less than all the space offered by Tenant.
SECTION 25.04. CORPORATIONS AND OTHER ENTITIES. If Tenant is a
corporation, a dissolution of the corporation or a transfer of a majority of
Tenant's voting stock (by one or more transaction, other than the sale of
publicly traded stock, including, without limitation, an initial public offering
by Tenant) shall be deemed an assignment of this Lease subject to the provisions
of this Article 25; but such provisions (with the exception of Section 25.06)
shall not apply to an assignment or deemed assignment of this Lease on account
of the transfer to, or a merger or consolidation transaction with, a corporation
or other entity into or with which Tenant is merged or consolidated or to which
substantially all of Tenant's assets or stock are transferred, provided that a
principal purpose of such merger or transfer is not the assignment of this
Lease, and provided that the successor to Tenant has a net worth computed in
accordance with generally accepted accounting principles at least equal to the
net worth of Tenant on the date of this Lease (and proof satisfactory to
Landlord of such net worth shall have been delivered to Landlord at least ten
(10) days prior to the effective date of any such transaction). If Tenant is a
partnership or limited liability company, dissolution of the partnership or the
limited liability company or transfer of a controlling interest in Tenant
(including by admission of new partners or members or withdrawal of existing
partners or members having a controlling interest) shall be deemed an assignment
of this Lease subject to the provisions of this Article, regardless of whether
the transfer is made by one or more transactions, or whether the controlling
interest before the transfer or afterwards is held by more than one person.
SECTION 25.05. RESTRICTIONS ON IDENTITY OF ASSIGNEE OR SUBLESSOR.
Tenant shall not assign this Lease, sublease all or any part of the Premises or
allow occupancy to any existing tenants of the Building (or their subtenants or
assignees) or to any prospective tenant with whom Landlord or its agents are
currently negotiating or had negotiated for other space in the Building within
the six (6) month period prior to the Notice.
SECTION 25.06 OTHER PROVISIONS. A sublease or assignment permitted
hereunder shall be subject to and made upon the following terms:
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(a) Any such sublease or assignment shall be subject to the terms of
this Lease and the Term thereof may not extend beyond the expiration or other
termination of the Term of this Lease;
(b) The use to be made of the subleased or assigned space shall be
permissible under this Lease and in keeping with the character of the Building,
such that the proposed subtenant shall not: (i) be likely to increase Landlord's
Operating Expenses beyond that which would be incurred for use by other
tenancies in the Building; (ii) increase the burden on existing cleaning
services or elevators over the burden prior to such proposed subletting; (iii)
require any alterations to be performed in or made to any portion of the
Building or the Land other than the Premises; or (iv) violate any provision or
restrictions herein relating to the use or occupancy of the Premises; if
Landlord shall have consented to a sublease and, as a direct and provable result
of the use and occupancy of the subleased portion of the Premises by the
subtenant, Landlord's Operating Expenses are increased (as reasonably documented
by Landlord), then Tenant shall pay to Landlord, within thirty(30) days after
demand, as Additional Rent, all resulting increases in Operating Expenses ;
(c) Such sublease or assignment shall not violate any negative use
covenants relating to the Building;
(d) No sublease or assignment shall be valid and no subtenant or
assignee shall take possession of the Premises until an executed counterpart of
such sublease or assignment has been delivered to Landlord and, with respect to
an assignment, a written consent document among Landlord, Tenant and the
assignee in form and substance reasonably acceptable to Landlord and each
signatory party has been executed, expressly enforceable by Landlord, whereby
the assignee assumes and agrees to be bound by all of the provisions of this
Lease and to perform all of the obligations of Tenant hereunder accruing from
the day after the execution thereof;
(e) No sublessee or assignee shall have a right to further sublease or
assign;
(f) The Tenant shall reimburse Landlord within thirty (30) days
following request for payment, as Additional Rent, for any out-of-pocket costs
(including reasonable attorneys' fees and expenses not to exceed $2,500)
reasonably incurred by Landlord in connection with any actual or proposed
assignment or sublease, whether or not consummated, including the costs of
making investigations as to the acceptability of the proposed assignee or
subtenant;
(g) Tenant shall not advertise the availability of the Premises for
assignment or subletting without Landlord's approval as to the form and content
of such advertisement, which shall, in any case, exclude a description of the
Rent;
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(h) A permitted subtenant or assignee shall specifically assume the
obligations and duties of Tenant hereunder without, however, releasing Tenant
from such obligations and duties (unless otherwise agreed to by the parties in
writing), and Tenant shall remain fully liable for the payment of Rent, and for
the performance of all other obligations of Tenant contained in this Lease. Any
act or omission of any assignee or subtenant, or of anyone claiming under or
through any assignee or subtenant, that violates any of the obligations of this
Lease shall be deemed a violation of this Lease by Tenant unless such act or
omission is an act or omission of Landlord or Landlord's designee or of anyone
claiming under or through Landlord or Landlord's designee;
(i) Landlord shall have the right to enforce the provisions of any
sublease, including collection of rents as provided in Section 25.08; and in the
event of termination of this Lease or reentry or repossession of the Premises by
Landlord, Landlord shall have the right, at its sole option, to terminate the
sublease or to recognize such sublease and, in such event, to take over all of
the right, title and interest of Tenant, as sublessor, under such sublease, and
such subtenant shall, at Landlord's option, attorn to Landlord but nevertheless
Landlord shall not (i) be liable for any previous act or omission of Tenant
under such sublease; (ii) be subject to any defense or offset previously accrued
in favor of the subtenant against Tenant; or (iii) be bound by any previous
modification of such sublease made without Landlord's written consent or by any
previous prepayment of more than one (1) month's rent.
SECTION 25.07. ADDITIONAL RENT. If Landlord shall grant its consent to
a proposed transfer (excepting those transfers in the second paragraph of
Section 25.02 and 25.04), then Tenant, in consideration therefor, shall pay to
Landlord, as Additional Rent, a sum equal to fifty percent (50%) of the
aggregate of all sums and other consideration received by Tenant for or by
reason of such Proposed Transfer (including all rents, charges and other
consideration payable to Tenant under the terms of the sublease or assignment
and any collateral agreements), as and when such sums and other consideration
are received by Tenant; provided, however, that such Additional Rent shall be
reduced (but not to less than zero) by the following amounts, to the extent that
Tenant shall have furnished to Landlord reasonably satisfactory documentation
therefor: (a) in the case of a sublease, all Rents theretofor actually paid to
Landlord by Tenant hereunder for the subleased portion of the Premises during
the term of such sublease (determined based on the ratio of the Rentable Area of
the subleased portion of the Premises to the Rentable Area of the Premises,
except to the extent that different Base Rents are specified herein for
different portions of the Premises); (b) any reasonable and customary brokerage
commissions theretofor actually paid by Tenant on account of such sublease or
assignment; (c) any Additional Rent theretofor actually paid to Landlord
pursuant to Section 25.06(f) in connection with such assignment or sublease; (d)
any reasonable advertising costs theretofor actually paid by Tenant in
connection such assignment or sublease; (e) any out-of-pocket costs theretofor
actually paid by Tenant in providing concessions to the assignee or subtenant in
connection with such transaction (such as the cost of any tenant improvement
allowance or other payment provided by Tenant to such assignee or subtenant);
(f) any reasonable fees and charges theretofor actually paid by Tenant to
attorneys, architects and space planners reasonably necessary to effect such
assignment or sublease; and (g) the net unamortized or undepreciated cost of any
of Tenant's property that was paid for by Tenant and that is sold to the
assignee or subtenant in connection with such assignment or sublease, determined
on the basis of Tenant's federal income tax returns.
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SECTION 25.08. ACCEPTANCE OF RENT. If this Lease is assigned, whether
or not in violation of the provisions of this Lease, Landlord may collect rent
from the assignee. If all or any part of the Premises are sublet, whether or not
in violation of this Lease, Landlord may, after an Event of Default by Tenant
and expiration of Tenant's time to cure such default, collect rent from the
subtenant. In either event, Landlord may apply the net amount collected to
payment of Rents, but no such assignment, subletting, or collection shall be
deemed a waiver of any of the provisions of this Article 25, an acceptance of
the assignee or subtenant as a tenant, or a release of Tenant from the
performance by Tenant of Tenant's obligations under this Lease.
ARTICLE 26 - SUBORDINATION AND NON-DISTURBANCE
SECTION 26.01. If Landlord has a leasehold interest in the Premises or
if the Premises are subject to any mortgages or deeds of trust as of the date
hereof, Landlord and Tenant shall, and Landlord shall cause the fee simple owner
of the Premises and each holder of such mortgages or deeds of trust to, execute
within thirty (30) days after the execution of this Lease a subordination,
non-disturbance and attornment agreement in form and substance reasonably
satisfactory to the parties thereto. If Landlord does not deliver the required
subordination, non-disturbance and attornment agreement(s) to Tenant within
thirty (30) days after the execution of the Lease, Tenant may terminate this
Lease by written notice to Landlord at any time prior to the date Landlord
delivers such executed agreement(s) to Tenant.
SECTION 26.02. Landlord shall obtain for, and provide to, Tenant from
each lender, mortgagee, underlying landlord or other party whose title might
hereafter become superior to the title of Landlord, or who may have perfected or
may perfect any title that might otherwise cause a termination of this Lease
(any such party being hereinafter referred to as a "Superior Mortgagee"), a
written agreement executed by such Superior Mortgagee and Landlord, and to be
executed by Tenant, in form and substance reasonably satisfactory to the parties
thereto, which agreement shall incorporate, among other things, provisions to
the following effect: (a) that such Superior Mortgagee shall at all times and
under all conditions, including, but not limited to, any foreclosure or other
repossession proceedings, recognize, permit and continue the tenancy of Tenant
and its successor and assigns in the Premises and assume the obligations of
Landlord under the provisions of this Lease; and (b) that such Superior
Mortgagee shall require that any purchaser acquiring the Building and the Land
shall assume the obligations of Landlord under this Lease so that the rights of
Tenant or those holding under Tenant shall not be interfered with or affected in
any manner whatsoever.
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ARTICLE 27 - SURRENDER OF PREMISES
SECTION 27.01. Upon the expiration or other termination of this Lease
for any cause whatsoever, Tenant shall peaceably and quietly deliver up to the
Landlord possession of the Premises, together with all alterations,
improvements, additions or fixtures, whether installed before or after the
execution of this Lease and by whomsoever made, in as good order and condition
as the same are at the commencement of the Term of this Lease or as thereafter
altered by Landlord or Tenant, reasonable use and wear thereof, fire, casualty
and repairs which are Landlord's obligations excepted. If Landlord gives written
notice to Tenant to remove any alterations, improvements, additions or fixtures
pursuant to Article 13 hereof, Tenant shall remove them. Tenant's goods,
effects, personal property, business and trade fixtures, machinery and equipment
not removed by Tenant at the expiration or other termination of this Lease (or
commenced to be removed within seven (7) days after a termination by reason of
Tenant's default) shall be considered abandoned or become property of Landlord
and Landlord may dispose of same as it deems expedient, but Tenant shall
promptly reimburse Landlord for any expenses incurred by Landlord in connection
therewith, including, without limitation, the cost of removal thereof and
repairing any damage occasioned by such removal.
Tenant's obligation to observe or perform this covenant shall survive
the expiration or other termination of the Term of this Lease.
ARTICLE 28 - EFFECT OF CONVEYANCE BY LANDLORD
SECTION 28.01. Tenant shall attorn to and recognize as Landlord under
the Lease any transferee of Landlord's interest which by voluntary or
involuntary sale or transfer, including, but not limited to, any purchaser which
shall succeed to the interest of Landlord hereunder at any foreclosure sale or
at any sale under a power of sale contained in any mortgage that now exists or
may hereafter be placed upon the Land or the Building or any part thereof and
all renewals, replacement, modifications, consolidations and extensions thereof,
as the case may be, for the balance of the remaining Term. Tenant shall execute
and deliver in recordable form whatever reasonable instruments Tenant may be
required to acknowledge such attornment.
ARTICLE 29 - NOTICES
SECTION 29.01. Any notice or demand required or permitted to be given
by the terms and provisions of this Lease, or by any law or governmental
regulations, either by Landlord to Tenant, or by Tenant to Landlord, shall be in
writing and shall be sent to the following address(es) by (a) registered or
certified mail, or (b) nationally recognized overnight courier:
If to Tenant:
FreeMarkets OnLine, Inc.
130 Seventh Street
Century Building, Suite 500
Pittsburgh, Pennsylvania 15222
Attention: Vincent Rago
and to:
Morgan, Lewis & Bockius LLP
One Oxford Centre
32nd Floor
Pittsburgh, Pennsylvania 15219
Attention: Eric D. Kline
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If to Landlord:
One Oliver Associates Limited Partnership
c/o Kojaian Management Corporation
1400 N. Woodward
Suite 250
Bloomfield Hills, MI 48304
and to:
Grubb & Ellis Real Estate Management
2000 Town Center, Suite 500
Southfield, MI 48075
Grubb & Ellis Company
600 Six PPG Place
Pittsburgh, PA 15222
Any such notice or demand shall be deemed received (a) three (3) days after
deposit with the United States Postal Service if sent by registered or certified
mail or (b) one (1) day after delivery to the courier if sent by nationally
recognized overnight courier. Either party may, by not less than ten (10) days
written notice given as provided in this Section 29.01, designate a different
address or addresses for notices or demands to it.
SECTION 29.02. Notwithstanding anything to the contrary in Section
29.01, notices requesting services during other than Normal Business Hours
pursuant to Article 11 shall be given as provided in the Rules and Regulations
attached hereto.
ARTICLE 30 - WAIVER OF REDEMPTION
SECTION 30.01. Tenant, for itself, and on behalf of any and all persons
claiming through or under it, including creditors of all kinds, does hereby
waive and surrender all right and privilege which they or any of them might have
under or by reason of any present or future law, to redeem the Premises or to
have a continuance of this Lease for the Term hereby demised after having been
disposed or ejected therefrom by process of law or under the terms of this Lease
or after the termination of this Lease as herein provided.
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ARTICLE 31 - ESTOPPEL CERTIFICATE
SECTION 31.01. Tenant agrees at any time, and from time to time, upon
not less than fifteen (15) days' prior notice, to execute, acknowledge and
deliver, without cost or expense to Landlord, a statement in writing certifying:
(a) that Tenant has accepted the Premises (or if Tenant has not accepted the
Premises the reasons therefor) ; (b) the Commencement Date and Expiration Date;
(c) that this Lease is unmodified and in full force and effect (or if there have
been modifications, that the same is in full force and effect as modified and
further stating the modifications); (d) the amount and dates to which the Base
Rent, Additional Rent and other charges have been paid; and (e) that to Tenant's
knowledge Tenant is not in default under the Lease nor does any event exist
which, with the passage of time or the giving of notice or both would constitute
an Event of Default, except as to defaults specified in the certificate; (f)
whether or not to the knowledge of Tenant, Landlord is in default in performance
of any covenant, agreement, term, provision or condition contained in this Lease
on its part to be performed, and, if so, specifying each such default of which
Tenant may have knowledge, and (g) and other information reasonably requested;
it being intended that any such statement delivered pursuant hereto may be
relied upon by any other party with whom Landlord may be dealing.
ARTICLE 32 - RELOCATION
Landlord shall have no right to relocate Tenant from the Premises
during the Term or any extension thereof.
ARTICLE 33 - HAZARDOUS SUBSTANCES
(a) Tenant shall not cause or allow the generation, treatment, storage,
or disposal of Hazardous Substances on or near the Premises or the Building
except that Tenant may use and dispose of normal office and cleaning supplies so
long as such supplies are used in compliance with applicable laws. "Hazardous
Substances" shall mean (i) any hazardous substance as that term is defined in
the Comprehensive Environment Response, Compensation and Liability Act
("CERCLA"), 42 U.S.C. 9601 et seq., as amended, (ii) any hazardous waste or
hazardous substance as those terms are defined in any local state or federal
law, regulation and ordinance applicable to the Premises or the Building, or
(iii) petroleum including crude oil or any fraction thereof.
(b) Tenant agrees to indemnify, defend and hold harmless Landlord, its
employees, agents, successors, and assigns, from and against any and all damage,
claim, liability or loss, including reasonable attorneys' and other fees,
arising out of or in any way connected to the generation, treatment, storage or
disposal of Hazardous Substances by Tenant, its employees, agents, contractors,
or invitees, on or near the Premises or the Building. Such duty of
indemnification shall include, but not be limited to, damage, liability, or loss
pursuant to all federal, state and local environmental laws, rules and
ordinances, strict liability and common law.
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(c) Landlord agrees to indemnify, defend and hold harmless Tenant, its
employees, agents, successors, and assigns, from and against any and all damage,
claim, liability or loss, including reasonable attorneys' and other fees,
arising out of or in any way connected to the generation, treatment, storage or
disposal of Hazardous Substances by Landlord, its employees, agents,
contractors, or invitees, on or near the Premises or the Building. Such duty of
indemnification shall include, but not be limited to, damage, liability, or loss
pursuant to all federal, state and local environmental laws, rules and
ordinances, strict liability and common law.
(d) Where Tenant has knowledge, Tenant agrees to notify Landlord
immediately of any disposal of Hazardous Substances on or near the Premises or
the Building, of any discovery of Hazardous Substances on or near the Premises
or the Building, or of any notice by any governmental authority or private party
alleging or suggesting that a disposal of Hazardous Substances on or near the
Premises or the Building may have occurred. Furthermore, Tenant agrees to
provide Landlord with full and complete access to any documents or information
in Tenant's possession or control relevant to the question of the generation,
treatment, storage or disposal of Hazardous Substances on or near the Premises
or the Building.
(e) Landlord represents and warrants that, to its knowledge, it is
delivering the Premises in full compliance with all Environmental Laws, except
for asbestos in the Building. Landlord has received a copy of the report
prepared by Crouse & Co. ("Crouse Report") and has agreed to remediate the
Premises by vacuuming the ceiling tiles and encapsulating friable asbestos.
Except as set forth in Section 33(a) and Section 33(b), Landlord shall remain
liable for compliance with all Environmental Laws and remediation of all
Hazardous Substances on the Premises throughout the Term. Provided further, that
Landlord expressly acknowledges the existence of encapsulated asbestos in the
ceiling of each of the 21st and 22nd floors taken by Tenant, and no action taken
by Tenant (other than its negligence with respect to such asbestos) shall cause
it to have any liability for any matter related to said asbestos.
ARTICLE 34 - REPRESENTATIONS BY LANDLORD
SECTION 34.01. Landlord represents and warrants as follows:
(a) it has good title to the Building, Land and Premises free and clear
of all liens, encumbrances, mortgages, leases and other matters that would
restrict or prevent the use and enjoyment of Tenant of the Premises or the
rights, easements, or privileges granted to Tenant under this Lease;
(b) it has the authority to enter into this Lease, is in good standing
in Pennsylvania, and entering into this Lease will not conflict with any other
agreement to which it is subject or cause it to be in default under any other
agreement;
(c) it has received no notice that the Building, Land, and Premises are
not in compliance with all applicable governmental regulations, including,
without limitation, all federal, state and local codes and ordinances ("Laws"),
and, if such notice is received during the Term, shall take all necessary
actions as are required by law to cause the Building, Land and Premises to
comply with all Laws at Landlord's expense (i.e., such costs shall not be
charged directly or indirectly through Operating Expenses to Tenant);
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(d) it has received no notice that the common areas of the Building,
and the Premises, are not in compliance in all material respects with the
American with Disabilities Act ("ADA") and, if such notice is received during
the Term, Landlord shall take all necessary actions as are required by law to
cause such areas to comply with the ADA at Landlord's expense (i.e., such costs
shall not be charged directly or indirectly through Operating Expenses to
Tenant).
ARTICLE 35 - MISCELLANEOUS
SECTION 35.01. SUCCESSORS AND ASSIGNS. This Lease and the covenants and
conditions herein contained shall inure to the benefit of and be binding upon
Landlord, its successors and assigns and shall be binding upon Tenant, its
successors and permitted assigns and shall inure to the benefit of Tenant and
its permitted assigns.
SECTION 35.02. Captions and Headings. The Table of Contents, Article
and Section captions and headings are for convenience of reference only and in
no way shall be used to construe or modify the provisions set forth in this
Lease.
SECTION 35.03. BROKER'S COMMISSION. Each party represents and warrants
to the other party that it did not deal with any broker or finder with respect
to this Lease or the Premises other than Grubb & Ellis (the "Broker"), as
representative of Tenant. The execution and delivery of this Lease by each party
shall be conclusive evidence that such party has relied upon the foregoing
representation and warranty. Landlord shall pay the Broker a full commission in
accordance with the brokerage agreement with Grubb & Ellis; provided, that if
Landlord shall fail to pay such commission, Tenant shall have the right to make
such payment on behalf of Landlord and deduct such commission from Tenant's Base
Rent until Tenant has recovered the full amount of such commission. Tenant shall
indemnify and hold Landlord harmless from and against any and all claims for
commission, fee or other compensation by any Person (other than Broker) who
shall claim to have dealt with Tenant in connection with this Lease and for any
and all costs incurred by Landlord in connection with such claims, including,
without limitation, reasonable attorneys' fees and disbursements. Landlord shall
indemnify and hold Tenant harmless from and against any and all claims for
commission, fee or other compensation by the Broker and any person who shall
claim to have dealt with Landlord in connection with this Lease and for any and
all costs incurred by Tenant in connection with such claims, including, without
limitation, reasonable attorneys' fees and disbursements. This provision shall
survive the expiration or earlier termination of this Lease.
SECTION 35.04. No Discrimination. It is intended that the Building
shall be operated so that all prospective tenants thereof, and all customers,
employees, licensees and invitees of all tenants shall have the opportunity to
obtain all the goods, services, accommodations, advantages, facilities and
privileges of the Building without discrimination because of race, creed, color,
sex, age, national origin or ancestry. To that end, Tenant will not discriminate
in the conduct and operation of its business in the Premises against any person
or group of persons because of the race, creed, color, sex, age, national origin
or ancestry of such person or group of persons.
42
<PAGE> 47
SECTION 35.05. NO JOINT VENTURE. Any intention to create a joint
venture or partnership or any relationship other than landlord and tenant
between the parties hereto is hereby expressly disclaimed, and, in no event,
shall Landlord have any liability for Tenant's debts and liabilities.
SECTION 35.06. NO OPTION. The submission of this Lease for examination
does not constitute a reservation of or option for the Premises, and this Lease
shall become effective only upon execution and delivery thereof by both parties.
SECTION 35.07. NO MODIFICATION. This writing is intended by the parties
as a final expression of their agreement and as a complete and exclusive
statement of the terms thereof, all negotiations, considerations and
representations between the parties having been incorporated herein. No course
of prior dealings between the parties or their officers, employees, agents or
affiliates shall be relevant or admissible to supplement, explain or vary any of
the terms of this Lease. Acceptance of, or acquiescence in, a course of
performance rendered under this or any prior agreement between the parties or
their affiliates shall not be relevant or admissible to determine the meaning of
any of the terms of this Lease. No representations, understandings or agreements
have been made or relied upon in the making of this Lease other than those
specifically set forth herein. This Lease can be modified only by a writing
signed by the party against whom the modification is enforceable.
SECTION 35.08. SEVERABILITY. If any term or provision, or any portion
thereof of this Lease, or the application thereof to any person or circumstances
shall, to any extent, be illegal, invalid or unenforceable, the remainder of
this Lease, or the application of such term or provision to persons or
circumstance other than those as to which it is held illegal, 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. It is also the intention of the parties to this Lease that in lieu of each
clause or provision of this Lease that is illegal, invalid or unenforceable,
there shall be added as a part of this Lease a clause or provision as similar in
terms to such illegal, invalid or unenforceable clause or provision as may be
possible and be legal, valid, and enforceable, provided such addition does not
increase or decrease the obligations of or derogate from the rights or powers of
either Landlord or Tenant.
SECTION 35.09. LIMITED LIABILITY. If Landlord shall fail to perform any
covenant, term or condition of this Lease, and if as a consequence of such
default, Tenant shall recover a money judgment against Landlord, such judgment
shall be satisfied only out of the proceeds of sale received upon execution of
such judgment and levied thereon against the right, title and interest of
Landlord in the Building and out of rents or other income from the Building
receivable by Landlord (including rents payable by Tenant), or out of the
consideration received by Landlord from the sale or other disposition of all or
any part of Landlord's right, title and interest in the Building, and neither
Landlord nor any of its partners shall be liable for any deficiency.
43
<PAGE> 48
SECTION 35.10. THIRD PARTY BENEFICIARY. Nothing contained in this Lease
shall be construed so as to confer upon any other party the rights of a third
party beneficiary except rights contained herein for the benefit of a mortgagee
of Landlord.
SECTION 35.11. AUTHORITY. The persons executing this Lease on behalf of
Tenant hereby covenant and warrant that: (a) Tenant is a duly constituted
corporation qualified to do business in the state in which the Premises are
situate; (b) all Tenant's taxes have been paid to date; and (c) such persons are
duly authorized by proper action to execute and deliver this Lease on behalf of
the Tenant.
SECTION 35.12. APPLICABLE LAW. This Lease and the rights and obligation
of the parties hereunder shall be construed in accordance with the laws of the
Commonwealth of Pennsylvania.
SECTION 35.13. CONFIDENTIALITY. Tenant agrees that, except as may be
required by law, it shall maintain in confidence and shall not divulge to any
third party (except as required by law) any of the terms, covenants and
conditions of this Lease, including without limitation, any information related
to the rental rate, the length of the Term, any extension, termination,
expansion, contraction or similar options, if any, or the amount of any free
rent, improvement allowance or other concessions granted to Tenant by Landlord
under this Lease. Tenant further agrees to take commercially reasonable
precautions to prevent the unauthorized disclosure of any of such information to
any third parties. Tenant's obligations under this Section 35.l3 shall survive
the termination or expiration of this Lease.
SECTION 35.14. CONSTRUCTION. This Lease shall be construed without
regard to any presumption or other rule requiring construction against the party
drafting a document.
SECTION 35.15. COUNTERPARTS. This Lease may be executed in any number
of counterparts and by the different parties hereto in separate counterparts,
each of which, when executed, shall be deemed an original, but all such
counterparts shall constitute but one and the same instrument.
SECTION 35.16. NO RECORDING. Except as required by law, Tenant shall
not record this Lease or any memorandum hereof without the prior written consent
of Landlord.
SECTION 35.17. PARKING. Tenant shall be entitled to initially have
eight (8) parking spaces (which shall not be "reserved" spaces) in Landlord's
parking garage in the Building at a monthly rate of $220.00 per space, which
rate shall be in effect for the first twelve months during this Lease, and
thereafter shall be at market rates for comparable parking space in Pittsburgh.
Such number of parking spaces shall be proportionally increased if Tenant
exercises the options set forth in Article 37.
44
<PAGE> 49
ARTICLE 36 - SECURITY DEPOSIT
SECTION 36.01. SECURITY DEPOSIT.
Upon the execution of this Lease, Tenant has deposited with Landlord
the "Deposit" in the amount of Sixty Thousand Dollars ($60,000). The Deposit
shall be held by Landlord as security for the faithful performance by Tenant of
this Lease. If Tenant fails to pay rent or other charges due hereunder, or
otherwise defaults with respect to any provision of this Lease, Landlord may,
but shall have no obligation to, use, apply or retain all or any portion of the
Deposit for the payment of any rent or other charge in default or for the
payment of any other sum to which Landlord may become obligated by reason of
Tenant's default, or to compensate Landlord for any loss or damage which
Landlord may suffer thereby. If Landlord so uses or applies all or any portion
of the Deposit, Tenant shall within ten (10) days after demand therefor deposit
cash with Landlord in an amount sufficient to restore the Deposit to the full
amount thereof. Landlord shall not be required to keep the Deposit separate from
its general accounts. If Tenant performs all of Tenant's obligations hereunder,
the Deposit or so much thereof as has not theretofore been applied by Landlord,
shall be returned, without payment of interest or other increment for its use to
Tenant (or, at Landlord's option, to the assignee, if any, of Tenant's interest
hereunder) at the expiration of the Term, and after Tenant has vacated the
Premises. No trust relationship is created herein between Landlord and Tenant
with respect to the Deposit.
ARTICLE 37 - TENANT OPTIONS
SECTION 37.01. EXPANSION. Reserved.
SECTION 37.02. OPTION TO EXPAND TO 23RD FLOOR. On or before July 1,
2000, Tenant shall have the option to lease, under the same terms and conditions
of this Lease, as the same may be amended, an additional area of not less than
18,000 rentable square feet of space on the twenty-third (23rd) floor, effective
upon nine months written notice. Tenant shall notify Landlord in writing of its
intent to lease such space on or before September 30, 1999. The Base Rent for
such space shall be the then-current escalated Base Rent being paid for the
original Premises. The Tenant improvement allowance shall be pro-rated relative
to the initial allowance based upon the remaining term of the Lease, calculated
according to the following formula: $0.2381 per square foot multiplied by the
number of months remaining in the Term. If Tenant does not provide written
notice of its intent to occupy such space by September 30, 1999, Tenant shall be
deemed to have waived its option to expand onto the twenty-third (23rd) floor.
Landlord shall deliver such additional space in compliance with the provisions
of this Lease.
45
<PAGE> 50
SECTION 37.03. RIGHT OF FIRST REFUSAL ON 24TH AND 25TH FLOORS. Tenant
shall have a right of first refusal to lease either (or both) of the 24th and
25th Floors of the Building. If at any time during the Term, Landlord shall
receive a bona fide offer from a third party for the lease of either the 24th
Floor or the 25th Floor which Landlord desires to accept, Landlord shall
promptly deliver to Tenant a copy of the terms of such offer, and Tenant may,
within ten business (10) days thereafter, elect to lease such space on the same
terms and conditions as those set forth in such offer (except that there shall
be no right to relocate Tenant from such space). In addition, if any acceptable
third party offer to Landlord shall be for part of the 24th Floor or 25th
Floors, Tenant's right of first refusal shall be applicable thereto, but the
failure of Tenant to take up such space shall not bar its right on any
additional space subsequently offered on such floor or floors. Provided further,
that, after complying with the provisions of this Section 37.03, such third
party offer is not consummated, Tenant's right of first refusal shall remain
applicable to subsequent offers. To preserve Tenant's 24th Floor right of first
refusal, Landlord shall use its reasonable efforts to lease space other than the
24th Floor of the Building. If Tenant pays an amount equal to or greater than
the current Base Rent, the Tenant improvement allowance shall be pro-rated
relative to the initial allowance based upon the remaining term of the Lease,
calculated according to the following formula: $0.2381 per square foot
multiplied by the number of months remaining in the Term. If such Base Rent is
less than the then current Base Rent, the tenant allowance shall be on terms
substantial the same as those offered to the third-party. Landlord shall deliver
such additional space in compliance with the provisions of this Lease.
[REMAINDER OF PAGE INTENTIONALLY BLANK]
46
<PAGE> 51
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the day
and year first above written.
Landlord:
WITNESS: ONE OLIVER ASSOCIATES LIMITED
PARTNERSHIP, A MICHIGAN LIMITED
PARTNERSHIP
/s/ [illegible] By: ONE OLIVER - GP, INC., A MICHIGAN
- ------------------------------ CORPORATION, ITS GENERAL PARTNER
Title:
By: /s/ Mike Kojaian
----------------------------------
Mike Kojaian, President
Tenant:
WITNESS: FREEMARKETS ONLINE, INC.
/s/ [illegible] By /s/ Glen T. Meakem
- ------------------------------ -----------------------------------
Name: Glen T. Meakem
Title: President
47
<PAGE> 52
COMMONWEALTH OF PENNSYLVANIA )
) ss:
COUNTY OF ALLEGHENY )
On this the 21st day of October, 1998, before me a Notary Public,
personally appeared Glen T. Meakem, who acknowledged himself to be the President
of FreeMarkets OnLine, Inc, and that he as such President, being authorized to
do so, executed the foregoing instrument for the purposes therein contained by
signing the name of Glen T. Meakem by himself as President.
IN WITNESS WHEREOF, I have hereunto set my hand and seal.
________________________
Notary Public
My Commission Expires:
48
<PAGE> 53
COMMONWEALTH OF PENNSYLVANIA )
) ss.
COUNTY OF ALLEGHENY )
On this the ___ day of ________________, 199 , before me a Notary
Public, personally appeared _____________________, who acknowledged ___self to
be a ___________________ of _______________________ and that he as such
___________________, being authorized to do so, executed the foregoing
instrument for the purposes therein contained by signing the name of the
corporation by ___self as ________________.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
________________________
Notary Public
My Commission Expires:
49
<PAGE> 54
EXHIBIT A
[GRAPHIC OF 21ST FLOOR
PLAN, ONE OLIVER PLAZA]
<PAGE> 55
EXHIBIT B
LEGAL DESCRIPTION OF LAND
ALL THAT CERTAIN PIECE OR PARCEL OF GROUND situate in the Second Ward of
the City of Pittsburgh, County of Allegheny and Commonwealth of Pennsylvania,
being bounded and described as follows, to wit:
BEGINNING at the intersection of the southerly side of Sixth Avenue and the
westerly side of Wood Street; thence along the westerly side of Wood Street
South 29 degrees 20 feet West a distance of 175.51 feet to a point; thence
through lands now or late of Oliver Tyrone Corporation, the following five
courses and distances: North 61 degrees 54 feet West a distance of 90.25
feet to a point; thence North 28 degrees 19 feet East a distance of 19.14
feet to a point; thence North 61 degrees 48 feet 15 inches West a distance
of 59.17 feet to a point; thence South 74 degrees 28 feet 20 inches West a
distance of 33.97 feet to a point; and thence North 16 degrees 37 feet 15
inches West a distance of 111.32 feet to a point on the southerly side of
Liberty Avenue; thence along the southerly side of Liberty Avenue North 73
degrees 17 feet 10 inches East a distance of 143.51 feet to a point on the
southerly side of Sixth Avenue; thence along the southerly side of Sixth
Avenue South 61 degrees 41 feet East a distance of 154.23 feet to the point
at the place of beginning.
TOGETHER with all right, title and interest of the grantor now owned or
hereafter acquired in and to the land within the streets and alleys
adjoining all of the real estate described herein.
BEING designated as Block 1D, Lot No. 221 in the Deed Registry Office of
Allegheny County.
<PAGE> 56
EXHIBIT C
TO
LEASE AGREEMENT
BUILDING STANDARD CLEANING AND JANITORIAL SERVICES
REGULARLY:
Empty wastepaper baskets and ashtrays. Vacuum clean or carpet sweep all
carpets and rugs, dry mop all resilient and hard floors.
Dust and wipe clean all office furniture and window sills, washing
window sills when necessary.
Wipe clean all water fountains and coolers - empty waste water.
Dust and damp dust, as necessary, interiors of all wastepaper baskets.
Remove wastepaper and normal office refuse.
Sweep and dust all private stairways.
Clean all men's and ladies' toilets, sanitize all fixtures.
Mop all ceramic tile, marble and terrazzo flooring.
PERIODICALLY:
Wash all exterior windows.
Dust while in place all pictures, frames, charts, graphs and similar
wall hangings not reached in night cleaning schedule.
Dust all vertical surfaces and walls, partitions, doors, door bucks and
other surfaces not reached in night cleaning schedule.
Dust all venetian blinds.
Dust ceiling surfaces, other than acoustical ceiling material.
Clean all building standard lighting fixtures.
AFTER CLEANING, ALL LIGHTS SHALL BE TURNED OFF, DOORS LOCKED AND OFFICES LEFT IN
AN ORDERLY FASHION.
<PAGE> 57
EXHIBIT "D"
WORK LETTER
ATTACHED TO AND MADE PART OF
OFFICE SPACE LEASE BETWEEN
ONE OLIVER ASSOCIATED LIMITED PARTNERSHIP, AS LANDLORD
AND FREEMARKETS ONLINE, INC., AS TENANT
As a material inducement to Tenant to enter into the Lease, and in
consideration of the covenants herein contained, Landlord and Tenant, intending
to be legally bound, agree as follows:
1. Lease; Defined Terms. The Lease is hereby incorporated by
reference to the extent that the provisions of this Work Letter apply thereto.
Terms not otherwise defined in this Work Letter shall have the meanings given to
them in the Lease.
2. General Principles. It is the intent of the parties to achieve a
substantial redesign and alteration of the Premises, so that the Premises will
have a level of comfort, quality and efficiency comparable to a First Class
Office Building.
3. Premises Work.
a. Landlord shall, except to the extent set forth in paragraph 4
below, provide all labor, materials and expertise necessary for the renovation
and improvement of the Premises (the "Premises Work "). Tenant shall complete
architectural plans and specifications and related design plans for the Premises
Work (such architectural plans and specifications and related design plans are
together referred to as the " Premises Plans"). The Premises Plans shall be
delivered to Landlord by December 1, 1998 for its review and approval. Tenant
shall make such changes to the Premises Plans as are reasonably requested by
Landlord to obtain Landlord's approval. If the Premises Plans are not delivered
to Landlord by December 1, 1998, the Commencement Date shall nevertheless be
March 1, 1999. Landlord shall promptly obtain a building permit for the Premises
and commence the Premises Work within the later of (i) thirty days after
receiving the Premises Plans or (ii) ten days after receiving the building
permit.
b. Landlord shall select a reputable general contractor to perform
the Premises Work. Such general contractor shall supply the costs for
construction, including bids from three (3) reputable subcontractors (if three
such reputable subcontractors are reasonably available) to provide pertinent
sub-contractor work. Landlord shall review the list of all subcontractors to
determine that all such parties are reputable. In consultation with Landlord,
Tenant shall review the bids and shall have the option of preparing and
delivering to Landlord, within 5 days of Tenant's receipt of the bids, revisions
to the Premises Plans that implement adjustments in the scope or quality of the
Premises Work required by Tenant, and Landlord shall assist Tenant in
coordinating any such revisions and will provide Tenant with construction cost
D-1
<PAGE> 58
estimates to facilitate potential savings. Tenant shall have only one
opportunity to revise the Premises Plans as set forth in the preceding sentence.
Upon Landlord's review and approval of the revised Premises Plans, which
approval shall be deemed given if Landlord fails to disapprove the same within 5
days of its receipt thereof, or, if the Premises Plans are not revised by
Tenant, upon Tenant's written notice to Landlord that the Premises Plans are
acceptable to Tenant, then Landlord shall select the low bidder and prepare a
cost estimate that sets forth in detail the total expected cost of the Premises
Work, including the cost of the Premises Plans, permit and inspection fees,
labor, materials, general conditions, competitive contractor profits and a
construction management fee of 5.0 % paid to Landlord's construction manager
(collectively, the " Premises Work Costs"). In the event that Landlord prefers
to select a bidder other than the low bidder to perform the Premises Work,
Landlord may do so, but the Premises Work Costs shall be reduced by the savings
that would have resulted from using the low bidder. Provided, that the preceding
sentence shall not apply if Landlord failed to choose the low bidder for the
reason that such low bidder did not provide an all-inclusive bid.
c. Landlord shall perform, or cause to be performed, the
Premises Work in accordance with the Premises Plans. Landlord reserves the
right, however: (i) to make substitutions of material of equivalent grade and
quality when and if any specified material shall not be readily and reasonably
available, and (ii) to make, after discussion with Tenant, reasonable changes
necessitated by conditions met in the course of construction which shall not
substantially deviate from the intended results of the Premises Plans.
d. Except as permitted by paragraph 3(c) above, changes in the
Premises Work may be accomplished only by a Change Order (defined below). Tenant
shall have the right to require changes in the Premises Work by making a written
demand to Landlord describing the required change, but Landlord shall not be
obliged to perform the requested change unless a Change Order is issued with
respect thereto. As used in this Work Letter, a "Change Order" shall mean a
written instrument prepared by Landlord and signed by Landlord and Tenant
stating their agreement upon all of the following: (i) a change in the Premises
Work; (ii) the extent of the adjustment in the Premises Work Costs; and (iii)
the extent of the adjustment in the scheduled date of first occupancy of the
premises, as set forth below ("Occupancy Date"). Landlord shall act reasonably
and diligently in preparing a Change Order following its receipt of Tenant's
demand therefor. Provided, that if Tenant's Change Orders result in a delay to
its occupancy of the Premises, Tenant shall nevertheless be required to pay Base
Rent from the scheduled Occupancy Date but for the Change Order.
e. Landlord shall notify Tenant no less than fifteen (15) days
prior to the expected date of substantial completion of the Premises Work
("Notice"). Promptly following Landlord's Notice of the expected date of
substantial completion, Landlord and Tenant shall inspect the Building and the
Premises, and Tenant shall create a punch list of work which Landlord has not
completed substantially in accordance with the Premises Plans. Such punch list
shall be promptly reviewed for approval by Landlord, which approval shall not be
unreasonably withheld. Upon completion of the inspection, unless Tenant shall
notify Landlord in writing regarding any observed deficiencies in the Premises
Work that go beyond punch list items, which notice shall be delivered to
Landlord, if at all, within two business days following Tenant's
D-2
<PAGE> 59
inspection, it shall be presumed that the Premises Work was satisfactorily
performed in accordance with, and meeting the requirements of, this Work Letter,
except for the punch list items and any items covered by Landlord's one year
warranty (set forth in Section 14.01(a) of the Lease). In the event Tenant sends
such notice concerning observed deficiencies beyond punch list items, the
Premises shall not be deemed to be substantially complete, and Landlord shall
promptly correct the deficiencies and again provide written notice of
substantial completion to Tenant as if Landlord's Notice had not been sent.
Landlord agrees to complete the items set forth on the punch list with
reasonable speed and diligence. Provided, that if Tenant takes possession of the
Premises by moving personnel into the Premises, the Premises Work shall be
deemed to be satisfactorily completed from the date Tenant takes such
possession. For such purposes, the action of moving equipment, but not
personnel, into the Premises shall not be deemed to be taking possession of the
Premises.
f. Tenant shall receive an improvement allowance (the
"Improvement Allowance ") equal to $20.00 multiplied by the gross rentable
square footage ("RSF") of the Premises determined in accordance with Article 4
of the Lease. Tenant may apply up to $2.00 of this allowance toward costs
incurred for architectural and design services, and $3.00 per RSF toward the
costs incurred for moving, including cabling for telephone and computer systems.
In addition, any required demolition costs shall be deducted from this
allowance. Tenant shall also be permitted to apply the Improvement Allowance
toward the payment of the Premises Work which payment shall applied directly by
Landlord. Landlord shall keep accurate records of all costs, fees, disbursements
and amounts incurred by it in the performance of the Premises Work, and Tenant
shall have the right to audit and contest Landlord's determination of the final
cost of the Premises Work and to inspect Landlord's records with respect
thereto, provided that such audit shall be made within sixty (60) days of
substantial completion of the Premises. Tenant shall have the right at any time
after the date of execution and delivery of the Lease to obtain reimbursement
from Landlord from the Improvement Allowance on account of any of the expenses
described above, except that Tenant shall not have the right to such
reimbursement if the Improvement Allowance has been exceeded or if the
reimbursement would cause the Improvement Allowance to be exceeded. Landlord
shall pay all such requests for reimbursement within 30 days after Landlord's
receipt of written demand for the same from Tenant, which request shall specify
the nature and amount of the cost for which reimbursement is sought and shall
include reasonably satisfactory evidence that the same has been paid. If the
Premises Work Costs exceed the Improvement Allowance, Tenant shall pay one-half
the excess amount to Landlord within 10 days after Tenant's receipt of
Landlord's written request for the same, which request shall specify the nature
and amount of the cost for which reimbursement is sought. Tenant shall pay the
remaining one-half the excess before taking possession of the Premises.
g. Any Tenant Delay (as described below) shall operate to extend
the time for substantial completion, but not the Commencement Date. As used in
this Work Letter, the term " Tenant Delay" shall mean any:
i. delays caused by the failure of the Premises Plans to be
complete by the date set forth in paragraph 3(a);
D-3
<PAGE> 60
ii. delays caused by Tenant's failure to comply with the
specific time periods established in paragraph 3(b) of this Work Letter;
iii. delays resulting from a Change Order; or
iv. delays caused by Tenant Work (as defined in paragraph 4
below) interfering with the progress of Premises Work;
v. delays caused by Tenant's failure to pay excess charges
required under this Work Letter.
4. Tenant Work. Tenant shall have access to the Building during normal
working hours prior to the date of substantial completion for the purpose of
installing supplemental air conditioning units. Provided, that Tenant shall only
have the period after Notice is given to access the Premises for the purpose of
(i) performing fit-out work, and (ii) installing furniture, fixtures and
equipment within the Premises (collectively, "Tenant Work"); provided, however,
that in connection with the performance of Tenant Work, Tenant shall not
interfere with or delay the completion of the Premises Work. Tenant shall not
perform the work identified in the first sentence above until Landlord has
approved plans and specifications for the same, which approval shall not be
unreasonably withheld and shall be given or denied promptly so as not to
unreasonably delay construction. Tenant Work shall be subject to the reasonable
coordination of Landlord and shall be performed by contractors compatible with
Landlord's contractors.
5. Work Standards.
a. Landlord shall cause the Premises Work to be done in a first
class quality and a good and workmanlike manner in conformity with the Premises
Plans and all applicable federal, state and local laws, ordinances and building
codes and requirements of public authorities and insurance underwriters.
Landlord shall cause the Premises Work to be carried forward expeditiously and
with adequate work forces so as to achieve substantial completion of the
Premises on or before the Occupancy Date, subject to Tenant Delays and events of
force majeure (as the same are set forth in the Lease). Notwithstanding
Landlord's completion of the Premises Plans and all punch list work, the
Premises shall not be deemed to be "substantially completed" until (i) the HVAC,
fire protection, life safety, electrical systems and all other building systems
shall be in proper working order and functioning in accordance with design
standards described herein or in the exhibits hereto, (ii) safe access to and
egress from all parking areas shall be provided, (iii) all requisite permanent
or temporary city and commonwealth certificates of occupancy shall have been
delivered by Landlord to Tenant, and (iv) Tenant shall be able to take lawful
occupancy of the Premises and fully use and enjoy the Premises for the conduct
of its business thereon.
Landlord shall secure and pay for the building permit and all other
permits and fees, licenses and inspections necessary for the proper execution
and completion of the Premises Work, provided that such fees and inspections
shall be paid from the Tenant Allowance. Landlord shall comply with and give all
notices required by all applicable federal, state and local
D-4
<PAGE> 61
laws, ordinances and building codes and requirements of public authorities and
insurance underwriters. Landlord shall be responsible for initiating,
maintaining and supervising all safety precautions and programs in connection
with performance of the Premises Work.
b. Tenant shall cause the Tenant Work to be done in a good and
workmanlike manner in conformity with all applicable federal, state and local
laws, ordinances and building codes and requirements of public authorities and
insurance underwriters. Tenant shall secure and pay for the building permit and
all other permits and fees, licenses and inspections necessary for the proper
execution and completion of the Tenant Work. Tenant shall comply with and give
all notices required by all applicable federal, state and local laws, ordinances
and building codes and requirements of public authorities and insurance
underwriters. Tenant shall be responsible for initiating, maintaining and
supervising all safety precautions and programs in connection with performance
of the Tenant Work. Tenant shall procure insurance of the types and coverage
amounts required pursuant to the Lease.
D-5
<PAGE> 62
SCHEDULE 1
Title of Document Date of Document No. of Sheets/Pages Comments
- ----------------- ---------------- ------------------- --------
<PAGE> 63
EXHIBIT E
TO
LEASE AGREEMENT
Rules and Regulations for One Oliver Plaza
Referred to in the foregoing Lease, and forming a part thereof.
1. As used herein the term "Tenant" shall apply to and include the Tenant
within named and Tenant's servants, employees, agents and representatives
as well as Tenant's visitors, customers, clients, patients and business
invitees and such term is deemed to be of such number and gender as the
circumstances require. The word "Landlord" shall be taken to include the
Landlord's agents.
2. The entries, sidewalks, halls, passages, elevators, garage and stairways
shall not be obstructed by Tenant or used for any purpose other than for
entering and leaving the Premises. Tenant shall not bring into or keep
within the Building any pets or vehicles (except bicycles for Tenant's
employees which shall be stored in an area provided by Landlord in the
parking garage, but for which Landlord assumes no responsibility for
security of such bicycles). ALL HANDICAPPED PERSONNEL ARE EXCLUDED FROM
THIS RULE/REGULATION.
3. Tenant shall not mark, drive nails, screw or drill into or tape onto the
partitions, woodwork or plaster; mark or defile elevators, water closets,
toilet rooms, or any part of the Building, or throw dirt or other
substances about the Building or in any way deface the Premises or the
Building or any part thereof.
4. Tenant shall not place anything, or allow anything to be placed, near or on
any window, door, partition or wall which may be likely to fall or drop or
which may appear unsightly from outside the Building. Building Management
shall have the right to remove any such item without notice to and at the
expense of the Tenant.
5. Any material such as paper, cartons, wood or other materials stacked or
piled on floors to be removed, as rubbish, by the night cleaning force must
be properly labeled "TOSS". Any such material not to be discarded must
specifically be labeled "DO NOT REMOVE".
6. The toilets, urinals, wash bowls, drinking fountains and other apparatus
and plumbing facilities in any part of the Building shall not be used for
any purpose other than for which
<PAGE> 64
they were constructed and no foreign substance of any kind shall be thrown
therein. The expense of any breakage, stoppage or damage resulting from any
violation of this rule shall be borne by the Tenant who caused it. All
building equipment malfunctions such as toilets, sinks, drinking fountains,
lights, switches, receptacles, etc. shall be reported to the Building
Manager's office immediately. The Building Manager's office number is
234-7189.
7. No food, food containers, cups, cans, bottles or materials other than
wastepaper shall be put in wastepaper baskets. Special containers will be
provided in specific areas for the above mentioned trash. Any and all
violators will be reported by the Cleaning Staff to the Building
Management. Tenants violating this rule, causing additional exterminating
or similar expenses will be charged all those expenses associated with the
violation.
8. The doors of the Premises, stairwells, toilet rooms, etc. shall at all
times remain closed. No doors, locks or bolts shall be altered or installed
in the Premises without Building Management's approval. All keys for the
Premises will be furnished by Building Management upon written request
(Work Request Form RE-1).
9. Work requests (RE-1 forms) submitted by Tenant shall be typed and sent to
the Building Management office, located on B-level, Room 29. All contractor
employees shall not perform any work outside their supervisor's
instructions and no such employee will admit any person to any office
without specific instruction from the Building Management office.
10. No furniture, freight or equipment (excepting computer equipment used in
the ordinary course of Tenant's business) of any kind shall be brought into
or removed from the Building without the consent of Building Management.
All moving of same into or out of the Building by Tenant shall be done at
such time and in such manner as shall be designated by Building Management.
11. Delivery of drinking water, towel service, special mail service (excepting
express delivery mail service required in the ordinary course of Tenant's
business), etc. may be made only as directed by Building Management.
12. All Building lighting, heating, ventilation and air-conditioning shall be
as provided in the Lease.
13. All requests for after hour lighting, heating, ventilating and
air-conditioning for Saturdays, Sundays and Legal Holidays shall be as
provided in the Lease.
14. All equipment (which is not otherwise required to be operated 24 hours a
day), desk lights, water faucets, etc. should be shut off to prevent waste
and damages prior to leaving the Premises.
15. All persons will enter the Building from the Grant Street and Fifth Avenue
Concourse Entrance, the Bigelow Square Entrance, the East Plaza Entrance or
the Parking Garage.
<PAGE> 65
16. NO unauthorized Tenant or visitor will be permitted in any construction
area. Likewise, NO unauthorized construction personnel will be permitted in
completed and occupied space. Any occupant recognizing unauthorized
construction personnel or unauthorized "strangers" on the Premises shall
report same to Building Security immediately.
17. All smoking or carrying of lighted cigarettes, cigars or pipes in elevators
is prohibited by City of Pittsburgh Ordinance. Any fines levied due to this
violation shall be borne by the Tenant.
18. No foul or obnoxious gas or substances, hazardous materials or substances,
or flammable or combustible materials shall be used or stored in the
Premises.
19. All persons entering or leaving the office portion of the Building prior to
7:00 a.m. or after 6:00 p.m. or on Saturdays, Sundays and Legal Holidays
must display building identification badges and sign the in/out register at
the security desk, located at the top of the escalators. Any persons
without their identification badges will be denied admittance to the
Premises until identified by their supervisor at the security desk.
20. All items of value, including personal items, shall be secured and locked
in the individual's work station or office. Building Management shall not
be responsible for articles lost or stolen from any area.
21. No automatic coffee machines, refrigerators, food or food substances,
vending machines or other similar equipment shall be stored or installed in
any area without prior approval of Building Management, except as set forth
in the Lease or Building drawings accepted by Landlord.
22. In cases of EMERGENCY, please dial ______ This number is dedicated for
immediate response to an emergency.
23. Any malfunction of elevators or escalators is to be reported to the LOBBY
Security Guard Station on [234-3995].
<PAGE> 66
EXHIBIT F
TO
LEASE AGREEMENT
FORM OF LEASE SUPPLEMENT
THIS SUPPLEMENT TO LEASE AGREEMENT (this "Supplement"),dated as of
_________________ __, ____, by and between ______________________, as Landlord,
and _____________________, as Tenant.
WHEREAS, the Landlord and Tenant have entered into that certain Lease
Agreement, dated as of ____________________ __, ____ (the "Lease").
NOW, THEREFORE, intending to be legally bound, Landlord and Tenant
specifically agree to supplement the Lease as follows:
1. COMMENCEMENT DATE. The Commencement Date for the Lease shall be
________________ __, ____.
2. EXPIRATION DATE. The Expiration Date for the Lease shall be
__________________ __, ___.
3. AMENDMENTS. [TBA, if necessary].
IN WITNESS WHEREOF, the parties hereto have executed this Supplement as
of the day and year first above written.
___________________________, as
Landlord
By_____________________________
Name:
Title:
________________________, as Tenant
By_________________________________
Name:
Title:
<PAGE> 67
Exhibit G
to
Lease Agreement
The following items relating to Landlord's initial renovation to the Building
are contemplated to be completed on or about December 31, 1999 and shall be
excluded from Operating Expenses of the Building and the Premises:
1. Parking garage renovations;
2. Lobby improvements;
3. Retail reconfiguration;
4. Plaza Improvements;
5. ADA Restrooms;
6. Projection clean up in various areas to get the building back into shape;
7. Window or curtainwall retrofit;
8. ADA Elevator Upgrade;
9. ADA Lobby Door Upgrade;
10. Management Model Office Upgrades.
<PAGE> 1
Exhibit 10.3(b)
FIRST AMENDMENT TO LEASE
THIS FIRST AMENDMENT TO LEASE is made this 30th day of March, 1999, by and
between ONE OLIVER ASSOCIATES LIMITED PARTNERSHIP, a Michigan limited
partnership, whose address is c/o Kojaian Management Corporation, 1400 North
Woodward, Suite 250, Bloomfield Hills, Michigan 48304-2876 (hereinafter referred
to as "Landlord") and FREEMARKETS ONLINE, INC., a Delaware corporation, whose
address is 130 Seventh Street, Century Building, Suite 500, Pittsburgh,
Pennsylvania 15222 (hereinafter referred to as "Tenant").
R E C I T A L S:
WHEREAS, Landlord, as Landlord, and Tenant, as Tenant entered into that
certain Lease dated October 21, 1998, (hereinafter referred to as "Lease"),
pursuant to which Tenant leases the 21st and 22nd floors consisting of
approximately 36,000 rentable square feet in One Oliver Plaza, Pittsburgh,
Pennsylvania (hereinafter referred to as "Original Premises") more particularly
described therein; and
WHEREAS, Landlord has determined that the Rentable Area of the Original
Premises, as measured is 17,910 rentable square feet, on the twenty-first floor
and 18,309 rentable square feet on the twenty-second floor; and
WHEREAS, Landlord has determined that the Rentable Area of the Building, as
measured is 637,398 rentable square feet; and
WHEREAS, Tenant desires to lease additional premises consisting of
seventeen thousand eight hundred ninety (17,890) rentable square feet on the
twenty-third floor (hereinafter referred to as and designated "Additional
Premises" on Exhibit "A" hereto) and Landlord is willing to lease the Additional
Premises to Tenant upon the terms and conditions set forth herein; and,
WHEREAS, Landlord and Tenant have agreed upon the terms and conditions for
the leasing of the Additional Premises and the Basic Rental thereof and wish to
set forth such agreement as more particularly set forth herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
1.
(a) On or before April 1, 1999, Tenant shall cause its architect to prepare
plans an specifications for the renovations to the Additional Premises and shall
submit the same to Landlord for Landlord's approval, which approval shall not be
unreasonably withheld or delayed. If the plans and specifications are not
delivered to Landlord by April 1, 1999, the Commencement Date shall nevertheless
be July 1, 1999. Landlord shall promptly obtain a building permit for the
Premises and commence the work within the later of (i) thirty days after
receiving the plans or (ii) ten days after receiving the building permit.
(b) Landlord shall complete the Additional Premises in accordance with
Sections 3(b) - 3(e) and Section 5 of Exhibit "D" to the Lease.
(d) Landlord shall perform or cause to be performed, the renovations to the
Additional Premises in accordance with the approved plans and specifications and
Landlord shall pay the cost of the improvements up to a cost of two hundred
fifty-one thousand three hundred sixteen and 93/100 dollars $251,316.93
(hereinafter referred to as the "Tenant Allowance"). All demolition costs,
permits, permit fees, labor, materials, general conditions, competitive
contractor profits and a construction management fee of 5.0% paid to Landlord's
construction manager shall be charged against the Tenant Allowance.
(e) If the net cost of completing the improvements in accordance with the
approved plans and specifications shall exceed the Tenant Allowance, Tenant
shall pay one-half the excess amount to Landlord within ten (10) days after
Tenant's receipt of Landlord's written request for the same, which request shall
specify the nature and amount of the cost for which reimbursement is sought.
Tenant shall pay the remaining one-half the excess before taking possession of
the Premises. In no event shall Landlord be required to commence or continue
such construction if Tenant defaults in its obligation to make the payments
herein required.
<PAGE> 2
(f) Landlord shall complete the renovations and deliver the Additional
Premises to Tenant on or about July 1, 1999 (hereinafter referred to as the
"Effective Date" ). Effective on the Effective Date and subject to Sections 3(g)
and 4 of Exhibit "D" of the Lease, the Additional Premises shall be deemed part
of the Original Premises for all purposes of the Lease.
2.
Effective upon the date hereof, the Lease shall be amended in part as
follows:
(a) Section 1.01: Premises: (Floors 21-23)
Original Premises: approximately 17,910 rentable square feet, located
on the twenty-first floor, and 18,309 rentable square feet located on
the twenty-second floor
Additional Premises: approximately 17,890 rentable square feet,
located on the twenty-third floor
(b) Tenant's Share of Operating Expenses: Original Premises: 5.68%
Tenant's Share of Taxes: Additional Premises: 2.81%
(c) Section 2.1: "Rentable Area of the Building" shall mean 637,398
rentable square feet using the 1996 BOMA/ANSI standard of measurement.
(d) Section 4.01: Basic Rental:
ORIGINAL PREMISES
TERM MONTHLY BASIC RENTAL
---- --------------------
March 1, 1999 through
May 31, 1999 $-0-
June 1, 1999 through
February 28, 2000 $60,365.00
March 1, 2000 through
February 28, 2001 $62,175.95
March 1, 2001 through
February 28, 2002 $64,047.27
March 1, 2002 through
February 28, 2003 $65,978.95
March 1, 2003 through
May 31, 2004 $67,940.81
ADDITIONAL PREMISES
TERM MONTHLY BASIC RENTAL
---- --------------------
Effective Date through
February 28, 2000 $29,816.67
March 1, 2000 through
February 28, 2001 $30,711.17
March 1, 2001
through February 28, 2002 $31,635.48
March 1, 2002
through February 28, 2003 $32,589.62
March 1, 2003 through
May 31, 2004 $33,558.66
<PAGE> 3
3.
(a) All references in Section 37.02 of the Lease to the twenty-third (23rd)
floor shall be replaced with the twenty-fourth (24th) floor.
(b) All references in Section 37.03 of the Lease to the twenty-fourth
(24th) and twenty-fifth (25th) floors shall be replaced with the twenty-fifth
(25th) floor and twenty-sixth (26th) floors.
4.
Exhibit "A" to the Lease is hereby deleted in its entirety and replaced by
Exhibit "A" attached hereto. All references in the Lease to Exhibit "A" shall
hereinafter mean Exhibit "A" hereto.
5.
Each of Landlord and Tenant acknowledges that the Lease is in full force
and effect and neither Landlord nor Tenant is currently in default thereunder.
6.
The Lease, as herein amended, is hereby ratified and confirmed by the
parties and shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and
seals the day and year first set forth above.
WITNESS: ONE OLIVER ASSOCIATES LIMITED
PARTNERSHIP, a Michigan limited
partnership
/s/ Heather A. Delikat By: ONE OLIVER-GP, INC.,
- ------------------------- a Michigan corporation
Its: General Partner
/s/ Anne L. Gatland By: /s/ C. Michael Kojaian
- ------------------------- -----------------------------
C. Michael Kojaian,
Its: Vice President
"LANDLORD"
WITNESS: FREEMARKETS ONLINE, INC.
a Delaware corporation
/s/ [Illegible] By: /s/ Glen T. Meakem
- ------------------------- -----------------------------
Its: President
"TENANT"
<PAGE> 4
EXHIBIT A
PAGE 1 OF 3
[GRAPHIC OF ADDITIONAL PREMISES]
<PAGE> 5
EXHIBIT A
PAGE 2 OF 3
[GRAPHIC OF ADDITIONAL PREMISES]
<PAGE> 6
EXHIBIT A
PAGE 3 OF 3
[GRAPHIC OF ADDITIONAL PREMISES]
<PAGE> 1
Exhibit 10.4(a)
LOAN AND SECURITY AGREEMENT
BY AND BETWEEN
FREEMARKETS ONLINE, INC., AS BORROWER
AND
SILICON VALLEY BANK, THE BANK
FEBRUARY 5, 1999
<PAGE> 2
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT is entered into as of February 5,
1999, by and between SILICON VALLEY BANK, a California chartered bank ("Bank")
with its principal place of business at 3003 Tasman Drive, Santa Clara,
California 95054 and with a loan production office located at One Central Plaza
11300 Rockville Pike, Suite 1205, Rockville, Maryland and FREEMARKETS ONLINE,
INC., a corporation organized and in good standing under the laws of the State
of Delaware ("Borrower").
RECITALS
Borrower wishes to obtain credit from time to time from Bank, and Bank
desires to extend credit to Borrower. This Agreement sets forth the terms on
which Bank will advance credit to Borrower, and Borrower will repay the amounts
owing to Bank.
AGREEMENT
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION
1.1 Definitions. As used in this Agreement, the following terms shall
have the following definitions:
"Accounts" means all presently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods (including, without limitation, the
licensing of software and other technology) or the rendering of services by
Borrower, whether or not earned by performance, and any and all credit
insurance, guaranties, and other security therefor, as well as all merchandise
returned to or reclaimed by Borrower and Borrower's Books relating to any of the
foregoing.
"Advance" or "Advances" means a loan advance under the
Committed Revolving Line or the Committed Equipment Line.
"Affiliate" means, with respect to any Person, any Person that
owns or controls directly or indirectly such Person, any Person that controls or
is controlled by or is under common control with such Person, and each of such
Person's senior executive officers, directors, partners and, for any Person that
is a limited liability company, such Persons, managers and members.
"Bank Expenses" means all reasonable costs or expenses
(including reasonable attorneys' fees and expenses) incurred in connection with
the preparation, negotiation, administration, and enforcement of the Loan
Documents; and Bank's reasonable attorneys' fees
<PAGE> 3
and expenses incurred in amending, enforcing or defending the Loan Documents,
(including fees and expenses of appeal or review, or those incurred in any
Insolvency Proceeding) whether or not suit is brought.
"Borrower's Books" means all of Borrower's books and records
including, without limitation: ledgers, records concerning Borrower's assets or
liabilities, the Collateral, business operations or financial condition; and all
computer programs, or tape files, and the equipment, containing such
information.
"Borrowing Base" means an amount equal to seventy-five percent
(75%) of Eligible Accounts, as determined by Bank with reference to the most
recent Borrowing Base Certificate delivered by Borrower.
"Business Day" means any day that is not a Saturday, Sunday, or
other day on which banks in the Commonwealth of Pennsylvania are authorized or
required to close.
"Closing Date" means the date of this Agreement.
"Code" means the Pennsylvania Uniform Commercial Code.
"Collateral" means the property described on Exhibit A attached
hereto.
"Committed Revolving Line" means a credit extension of up to
Two Million Dollars ($2,000,000).
"Committed Equipment Line" means a credit extension of up to
Two Million Dollars ($2,000,000).
"Committed Equipment Line Maturity Date" means February 5,
2003.
"Contingent Obligation" means, as applied to any Person, any
direct or indirect liability, contingent or otherwise, of that Person with
respect to (i) any indebtedness, lease, dividend, letter of credit or other
obligation of another, including, without limitation, any such obligation
directly or indirectly guaranteed, endorsed, co-made or discounted or sold with
recourse by that Person, or in respect of which that Person is otherwise
directly or indirectly liable; (ii) any obligations with respect to undrawn
letters of credit issued for the account of that Person; and (iii) all
obligations arising under any interest rate, currency or commodity swap
agreement, interest rate cap agreement, interest rate collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; provided, however,
that the term "Contingent Obligation" shall not include endorsements for
collection or deposit in the ordinary course of business. The amount of any
Contingent Obligation shall be deemed to be an amount equal to the stated or
determined amount of the primary obligation in respect of which such Contingent
Obligation is made or, if not stated or determinable, the maximum reasonably
anticipated liability in respect thereof as determined by such Person in good
faith; provided, however, that such amount shall not in any event exceed the
maximum amount of the obligations under the guarantee or other support
arrangement.
2
<PAGE> 4
"Copyrights" means any and all copyright rights, copyright
applications, copyright registrations and like protections in each work or
authorship and derivative work thereof, whether published or unpublished and
whether or not the same also constitutes a trade secret, now or hereafter
existing, created, acquired or held.
"Credit Extension" means each Advance or Equipment Advance, or
any other extension of credit by Bank for the benefit of Borrower hereunder.
"Current Assets" means, as of any applicable date, all amounts
that should, in accordance with GAAP, be included as current assets on the
consolidated balance sheet of Borrower and its Subsidiaries as at such date.
"Current Liabilities" means, as of any applicable date, all
amounts that should, in accordance with GAAP, be included as current liabilities
on the consolidated balance sheet of Borrower and its Subsidiaries, as at such
date, plus, to the extent not already included therein, all outstanding Credit
Extensions made under this Agreement, including all Indebtedness that is payable
upon demand or within one year from the date of determination thereof unless
such Indebtedness is renewable or extendable at the option of Borrower to a date
more than one year from the date of determination, but excluding deferred
revenues and Subordinated Debt.
"Eligible Accounts" means those Accounts that arise in the
ordinary course of Borrower's business that comply with all of Borrower's
representations and warranties to Bank set forth in Section 5.4. Unless
otherwise agreed to by Bank in writing, Eligible Accounts shall not include the
following:
(a) Accounts that the account debtor has failed to pay within
ninety (90) days of invoice date;
(b) Accounts with respect to an account debtor, fifty percent
(50%) of whose Accounts the account debtor has failed to pay within ninety (90)
days of invoice date;
(c) Accounts with respect to an account debtor, including
Affiliates, whose total obligations to Borrower exceed forty percent (40%) of
all Accounts, except with respect to General Motors Corporation and United
Technology Corporation, as to which the percentage shall be fifty percent (50%),
to the extent such obligations exceed the aforementioned percentage, except as
approved in writing by Bank;
(d) Accounts with respect to which the account debtor does not
have its principal place of business in the United States;
(e) Accounts with respect to which the account debtor is a
federal, state, or local governmental entity or any department, agency, or
instrumentality thereof, unless the Borrower has taken all steps required by
Bank to comply with the Federal Assignment of Claims Act of 1940 and any
comparable law with respect to state or local government agencies;
3
<PAGE> 5
(f) Accounts with respect to which Borrower is liable to the
account debtor, but only to the extent of any amounts owing to the account
debtor (sometimes referred to as "contra" accounts, e.g. accounts payable,
customer deposits, credit accounts etc.);
(g) Accounts generated by demonstration or promotional
equipment, or with respect to which goods are placed on consignment, guaranteed
sale, sale or return, sale on approval, bill and hold, or other terms by reason
of which the payment by the account debtor may be conditional;
(h) Accounts with respect to which the account debtor is an
Affiliate, officer, employee, or agent of Borrower;
(i) Accounts with respect to which the account debtor disputes
any material amount of liability or makes any claim with respect thereto as to
which Bank believes, in its sole discretion, that there may be a basis for
dispute (but only to the extent of the amount subject to such dispute or claim),
or is subject to any Insolvency Proceeding, or becomes insolvent, or goes out of
business; and
(j) Accounts the collection of which Bank reasonably determines
after reasonable inquiry and reasonable consultation with Borrower to be
doubtful.
"Equipment" means all present and future machinery, equipment,
tenant improvements, furniture, fixtures, vehicles, tools, parts and attachments
in which Borrower has any interest.
"Equipment Advance" has the meaning set forth in
Section 2.1.2(a).
"Equipment Availability End Date One" has the meaning set forth
in Section 2.1.2(a).
"Equipment Availability End Date Two" has the meaning set forth
in Section 2.1.2(b).
"Equipment Term Note" means one of the two (2) equipment term
notes now or hereafter delivered by the Borrower to the Bank in connection with
the Committed Equipment Line in substantially the form of Exhibit F and
"Equipment Term Notes" means collectively, the equipment term notes which may
now or hereafter be delivered by the Borrower to Bank in connection with the
Committed Equipment Line, together with all renewals, amendments, modifications
and substitutions therefore.
"ERISA" means the Employment Retirement Income Security Act of
1974, as amended, and the regulations thereunder.
4
<PAGE> 6
"GAAP" means generally accepted accounting principles as in
effect in the United States from time to time.
"Indebtedness" means (a) all indebtedness for borrowed money or
the deferred purchase price of property or services, including without
limitation reimbursement and other obligations with respect to surety bonds and
letters of credit, (b) all obligations evidenced by notes, bonds, debentures or
similar instruments, (c) all capital lease obligations and (d) all Contingent
Obligations.
"Insolvency Proceeding" means any proceeding commenced by or
against any person or entity under any provision of the United States Bankruptcy
Code, as amended, or under any other bankruptcy or insolvency law, including
assignments for the benefit of creditors, formal or informal moratoria,
compositions, extension generally with its creditors, or proceedings seeking
reorganization, arrangement, or other relief.
"Intellectual Property" means
(a) Copyrights, Trademarks, Patents and Mask Works;
(b) Any and all trade secrets, and any and all intellectual
property rights in computer software and computer software products now or
hereafter existing, created, acquired or held;
(c) Any and all design rights which may be available to
Borrower now or hereafter existing, created, acquired or held;
(d) Any and all claims for damages by way of past, present and
future infringement of any of the rights included above, with the right, but not
the obligation, to sue for and collect such damages for said use or infringement
of the intellectual property rights identified above;
(e) All licenses or other rights to use any of the Copyrights,
Patents, Trademarks or Mask Works, and all license fees and royalties arising
from such use to the extent permitted by such license or rights;
(f) All amendments, renewals and extensions of any of the
Copyrights, Trademarks, Patents or Mask Works; and
(g) All proceeds and products of the foregoing, including
without limitation all payments under insurance or any indemnity or warranty
payable in respect of any of the foregoing.
"Inventory" means all present and future inventory in which
Borrower has any interest, including merchandise, raw materials, parts,
supplies, packing and shipping materials, work in process and finished products
intended for sale or lease or to be furnished
5
<PAGE> 7
under a contract of service, of every kind and description now or at any time
hereafter owned by or in the custody or possession, actual or constructive, of
Borrower, including such inventory as is temporarily out of its custody or
possession or in transit and including any returns upon any accounts or other
proceeds, including insurance proceeds, resulting from the sale or disposition
of any of the foregoing and any documents of title representing any of the
above.
"Investment" means any beneficial ownership of (including
stock, partnership interest or other securities) any Person, or any loan,
advance or capital contribution to any Person.
"IRC" means the Internal Revenue Code of 1986, as amended, and
the regulations thereunder.
"Lien" means any mortgage, lien, deed of trust, charge, pledge,
security interest or other encumbrance.
"Loan Documents" means, collectively, this Agreement, the
Negative Pledge Agreement, any note or notes executed by Borrower, and any other
present or future agreement entered into between Borrower and/or for the benefit
of Bank in connection with this Agreement, all as amended, extended or restated
from time to time.
"Mask Works" means all mask work or similar rights available
for the protection of semiconductor chips, now owned or hereafter acquired.
"Material Adverse Effect" means a material adverse effect on
(i) the business operations or condition (financial or otherwise) of Borrower
taken as a whole or (ii) the ability of Borrower to repay the Obligations or
otherwise perform its obligations under the Loan Documents.
"Maturity Date" means the later of either the Revolving
Maturity Date or the Committed Equipment Line Maturity Date.
"Negative Pledge Agreement" means that certain negative pledge
agreement covering all Intellectual Property executed by the Borrower in favor
of the Bank of even date herewith.
"Negotiable Collateral" means all of Borrower's present and
future letters of credit of which it is a beneficiary, notes, drafts,
instruments, securities, documents of title, and chattel paper.
"Note" means the Revolving Promissory Note or an Equipment Term
Note, and "Notes" means the Revolving Promissory Note and the Equipment Term
Notes.
"Obligations" means all debt, principal, interest, Bank
Expenses and other amounts owed to Bank by Borrower pursuant to this Agreement
or any other agreement, whether absolute or contingent, due or to become due,
6
<PAGE> 8
now existing or hereafter arising, including any interest that accrues after the
commencement of an Insolvency Proceeding and including any debt, liability, or
obligation owing from Borrower to others that Bank may have obtained by
assignment or otherwise.
"Patents means all patents, patent applications and like
protections including without limitation improvements, divisions, continuations,
renewals, reissues, extensions and continuations-in-part of the same.
"Payment Date" means the fifth calendar day of each month
commencing on the first such date after the Closing Date and ending on the
Maturity Date.
"Permitted Indebtedness" means:
(a) Indebtedness of Borrower in favor of Bank arising under
this Agreement or any other Loan Document;
(b) Indebtedness of Borrower in favor of The Urban
Redevelopment Authority of Pittsburgh;
(c) Indebtedness existing on the Closing Date and disclosed in
the Schedule;
(d) Subordinated Debt;
(e) Indebtedness to trade creditors incurred in the ordinary
course of business; and
(f) Indebtedness secured by Permitted Liens.
"Permitted Investment" means:
(a) Investments existing on the Closing Date disclosed in the
Schedule; and
(b) (i) marketable direct obligations issued or unconditionally
guaranteed by the United States of America or any agency or any State thereof
maturing within one (1) year from the date of acquisition thereof, (ii)
commercial paper maturing no more than one (1) year from the date of creation
thereof and currently having the highest rating obtainable from either Standard
& Poor's Corporation or Moody's Investors Service, Inc., and (iii) certificates
of deposit maturing no more than one (1) year from the date of investment
therein issued by Bank.
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"Permitted Liens" means the following:
(a) Any Liens existing on the Closing Date and disclosed in the
Schedule or arising under this Agreement or the other Loan Documents;
(b) Liens on Equipment in favor of The Urban Redevelopment
Authority of Pittsburgh;
(c) Liens for taxes, fees, assessments or other governmental
charges or levies, either not delinquent or being contested in good faith by
appropriate proceedings and as to which adequate reserves are maintained on
Borrower's Books in accordance with GAAP, provided the same have no priority
over any of Bank's security interests;
(d) Liens (i) upon or in any Equipment acquired or held by
Borrower to secure the purchase price of such Equipment or indebtedness incurred
solely for the purpose of financing the acquisition of such Equipment, or (ii)
existing on such equipment at the time of its acquisition, provided that the
Lien is confined solely to the property so acquired and improvements thereon,
and the proceeds of such equipment; and
(e) Liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by Liens of the type described in
clauses (a) through (c) above, provided that any extension, renewal or
replacement Lien shall be limited to the property encumbered by the existing
Lien and the principal amount of the indebtedness being extended, renewed or
refinanced does not increase.
"Person" means any individual, sole proprietorship,
partnership, limited liability company, joint venture, trust, unincorporated
organization, association, corporation, institution, public benefit corporation,
firm, joint stock company, estate, entity or governmental agency.
"Prime Rate" means the variable rate of interest, per annum,
most recently announced by Bank, as its "prime rate," whether or not such
announced rate is the lowest rate available from Bank.
"Quick Assets" means, as of any applicable date, the
consolidated cash, cash equivalents and accounts receivable of Borrower
determined in accordance with GAAP.
"Responsible Officer" means the Chief Executive Officer, the
President, the Chief Financial Officer, the Director of Finance and
Administration and the Controller of Borrower.
"Revolving Maturity Date" means February 5, 2000.
"Revolving Promissory Note" means that certain Revolving
Promissory Note of even date herewith in substantially the form of Exhibit E
hereto in the maximum principal amount of Two Million Dollars ($2,000,000) from
the Borrower in favor of Bank, together with all renewals, amendments,
modifications and substitutions therefore.
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"Schedule" means the schedule of exceptions attached hereto, if
any.
"Subordinated Debt" means any debt incurred by Borrower that is
subordinated to the debt owing by Borrower to Bank on terms acceptable to Bank
(and identified as being such by Borrower and Bank).
"Tangible Net Worth" means as of any applicable date, the
consolidated total assets of Borrower and its Subsidiaries minus, without
duplication, (i) the sum of any amounts attributable to (a) goodwill, (b)
intangible items such as unamortized debt discount and expense, patents, trade
and service marks and names, copyrights and research and development expenses
except prepaid expenses, and (c) all reserves not already deducted from assets,
and (ii) Total Liabilities.
"Total Liabilities" means as of any applicable date, any date
as of which the amount thereof shall be determined, all obligations that should,
in accordance with GAAP be classified as liabilities on the consolidated balance
sheet of Borrower, including in any event all Indebtedness, but specifically
excluding Subordinated Debt.
"Trademarks" means any trademark and servicemark rights,
whether registered or not, applications to register and registrations of the
same and like protections, and the entire goodwill of the business of Assignor
connected with and symbolized by such trademarks.
1.2 Accounting and Other Terms. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP and all calculations
and determinations made hereunder shall be made in accordance with GAAP. When
used herein, the term "financial statements" shall include the notes and
schedules thereto. The terms "including"/ "includes" shall always be read as
meaning "including (or includes) without limitation", when used herein or in any
other Loan Document.
2. LOAN AND TERMS OF PAYMENT
2.1 Advances. Borrower promises to pay to the order of Bank, in lawful
money of the United States of America, the aggregate unpaid principal amount of
all Advances made by Bank to Borrower hereunder. Borrower shall also pay
interest on the unpaid principal amount of such Advances at rates in accordance
with the terms hereof.
2.1.1 (a) Subject to and upon the terms and conditions of this
Agreement, Bank agrees to make Advances to Borrower in an aggregate outstanding
amount not to exceed the Committed Revolving Line or the Borrowing Base,
whichever is less. Subject to the terms and conditions of this Agreement,
amounts borrowed pursuant to this Section 2.1 may be repaid and reborrowed at
any time during the term of this Agreement.
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(b) Whenever Borrower desires an Advance, Borrower will notify
Bank by facsimile transmission or telephone no later than 3:00 p.m. Washington,
D.C. time, on the Business Day that the Advance is to be made. Each such
notification shall be promptly confirmed by a Payment/Advance Form in
substantially the form of Exhibit B hereto. Bank is authorized to make Advances
under this Agreement, based upon instructions received from a Responsible
Officer or a designee of a Responsible Officer, or without instructions if in
Bank's discretion such Advances are necessary to meet Obligations which have
become due and remain unpaid. Bank shall be entitled to rely on any telephonic
notice given by a person who Bank reasonably believes to be a Responsible
Officer or a designee thereof, and Borrower shall indemnify and hold Bank
harmless for any damages or loss suffered by Bank as a result of such reliance.
Bank will credit the amount of Advances made under this Section 2.1 to
Borrower's deposit account.
(c) The Committed Revolving Line shall terminate on the
Revolving Maturity Date, at which time all Advances under this Section 2.1 and
other amounts due under this Agreement (except as otherwise expressly specified
herein) shall be immediately due and payable.
2.1.2 Equipment Advances.
(a) Subject to and upon the terms and conditions of this
Agreement, at any time from the date hereof through August 5, 1999 (the
"Equipment Availability End Date One"), Borrower may from time to time request
advances (each together with the advances described in subsection (b) below, an
"Equipment Advance" and collectively, the "Equipment Advances") to Borrower in
an aggregate outstanding amount not to exceed the Committed Equipment Line.
Amounts borrowed pursuant to this Section 2.1.2(a) may not be readvanced.
All Equipment Advances made prior to the Equipment Availability
End Date One shall be evidenced by an Equipment Term Note ("Equipment Term Note
No. 1") to be executed and delivered by the Borrower to Bank on the Closing
Date. All Equipment Advances made prior to the Equipment Availability End Date
One shall be repaid in accordance with the terms of Equipment Term Note No. 1.
(b) At any time after August 5, 1999 through February 5, 2000
(the "Equipment Availability End Date Two"), Borrower may from time to time
request Equipment Advances from Bank in an aggregate amount not to exceed the
Committed Equipment Line less Equipment Advances made under 2.1.2(a) hereof.
Amounts borrowed pursuant to this Section 2.1.2(b) may not be readvanced.
All Equipment Advances made after the Equipment Availability
End Date One, but prior to the Equipment Availability End Date Two shall be
evidenced by an Equipment Term Note ("Equipment Term Note No. 2") to be executed
and delivered by Borrower to Bank on the Closing Date. All Equipment Advances
made after the Equipment Availability End Date One, but prior to the Equipment
Availability End Date Two shall be repaid in accordance with the terms of
Equipment Term Note No. 2.
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(c) To evidence the Equipment Advance or Equipment Advances,
Borrower shall deliver to Bank, at the time of each Equipment Advance request,
an invoice for the Equipment to be purchased. The Equipment Advances shall be
used only to purchase Equipment purchased on or after November 1, 1998 and shall
not exceed One Hundred Percent (100%) of the invoice amount of such equipment
approved from time to time by Bank, excluding taxes, shipping, warranty charges,
freight discounts and installation expense. Software may, however, constitute up
to twenty-five percent (25%) of aggregate Equipment Advances. At no time shall
Bank make any Equipment Advances if after giving effect to such request the
aggregate amount then outstanding would exceed the Committed Equipment Line.
(d) Interest shall accrue from the date of each Equipment
Advance at the rate as set forth in the Equipment Term Notes and shall be
payable monthly in accordance with the Equipment Term Notes.
2.2 Overadvances. If, at any time or for any reason, the amount of
Obligations owed by Borrower to Bank pursuant to Section 2.1.1 of this Agreement
is greater than the lesser of (i) the Committed Revolving Line or (ii) the
Borrowing Base, Borrower shall immediately pay to Bank, in cash, the amount of
such excess.
2.3 Interest Rates, Payments, and Calculations.
(a) Interest Rate. Except as set forth in Section 2.3(b), all
Advances shall bear interest as set forth in the Notes.
(b) Default Rate. All Obligations shall bear interest, at all
times during the continuance of any Event of Default, at a rate equal to the
lesser of (i) five (5) percentage points above the interest rate applicable
immediately prior to the occurrence of the Event of Default, or (ii) the highest
rate of interest permissible by law.
(c) Payments. Interest hereunder shall be due and payable on
each Payment Date. Borrower hereby authorizes Bank to debit any accounts with
Bank, including, without limitation, Account Number _____________________ for
payments of principal and interest due on the Obligations and any other amounts
owing by Borrower to Bank. Bank will notify Borrower of all debits which Bank
has made against Borrower's accounts. Any such debits against Borrower's
accounts in no way shall be deemed a set-off. Any interest not paid when due
shall be compounded by becoming a part of the Obligations, and such interest
shall thereafter accrue interest at the rate then applicable hereunder.
(d) Computation. In the event the Prime Rate is changed from
time to time hereafter, the applicable rate of interest hereunder shall be
increased or decreased effective as of 12:01 a.m. Washington, D.C. time on the
day the Prime Rate is changed, by an amount equal to such change in the Prime
Rate. All interest chargeable under the Loan Documents shall be computed on the
basis of a three hundred sixty (360) day year for the actual number of days
elapsed.
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2.4 Crediting Payments. Prior to the occurrence of an Event of Default,
Bank shall credit a wire transfer of funds, check or other item of payment to
such deposit account or Obligation as Borrower specifies. After the occurrence
of an Event of Default, the receipt by Bank of any wire transfer of funds,
check, or other item of payment, whether directed to Borrower's deposit account
with Bank or to the Obligations or otherwise, shall be immediately applied to
conditionally reduce Obligations, but shall not be considered a payment in
respect of the Obligations unless such payment is of immediately available
federal funds or unless and until such check or other item of payment is honored
when presented for payment. Notwithstanding anything to the contrary contained
herein, any wire transfer or payment received by Bank after 12:00 noon Pacific
time shall be deemed to have been received by Bank as of the opening of business
on the immediately following Business Day. Whenever any payment to Bank under
the Loan Documents would otherwise be due (except by reason of acceleration) on
a date that is not a Business Day, such payment shall instead be due on the next
Business Day, and additional fees or interest, as the case may be, shall accrue
and be payable for the period of such extension.
2.5 Fees. Borrower shall pay to Bank the following:
(a) Revolving Line Facility Fee. A revolving line facility fee
equal to Five Thousand Dollars ($5,000), which fee shall be due on the Closing
Date and shall be fully earned and non-refundable;
(b) Equipment Line Facility Fee. An equipment line facility fee
equal to Five Thousand Dollars ($5,000), which fee shall be due on the Closing
Date and shall be fully earned and non-refundable;
(c) Financial Examination and Appraisal Fees. Bank's customary
fees and out-of-pocket expenses for Bank's audits of Borrower's Accounts, and
for each appraisal of Collateral and financial analysis and examination of
Borrower performed from time to time by Bank or its agents, provided that such
audits will be conducted no more often than every six (6) months unless an Event
of Default has occurred and is continuing;
(d) Bank Expenses. Upon demand from Bank, including, without
limitation, upon the date hereof, all Bank Expenses incurred through the date
hereof, including reasonable attorneys' fees not in excess of $5,000 and
expenses, and, after the date hereof, all Bank Expenses, including reasonable
attorneys' fees and expenses, as and when they become due.
2.6 Additional Costs. In case any law, regulation, treaty or official
directive or the interpretation or application thereof by any court or any
governmental authority charged with the administration thereof or the compliance
with any guideline or request of any central bank or other governmental
authority (whether or not having the force of law):
(a) subjects Bank to any tax with respect to payments of
principal or interest or any other amounts payable hereunder by Borrower or
otherwise with respect to the transactions contemplated hereby (except for taxes
on the overall net income of Bank imposed by the United States of America or any
political subdivision thereof);
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(b) imposes, modifies or deems applicable any deposit
insurance, reserve, special deposit or similar requirement against assets held
by, or deposits in or for the account of, or loans by, Bank; or
(c) imposes upon Bank any other condition with respect to its
performance under this Agreement,
and the result of any of the foregoing is to increase the cost to Bank, reduce
the income receivable by Bank or impose any expense upon Bank with respect to
any loans, Bank shall notify Borrower thereof. Borrower agrees to pay to Bank
the amount of such increase in cost, reduction in income or additional expense
as and when such cost, reduction or expense is incurred or determined, upon
presentation by Bank of a statement of the amount and setting forth Bank's
calculation thereof, all in reasonable detail, which statement shall be deemed
true and correct absent manifest error.
2.7 Term. Except as otherwise set forth herein, this Agreement shall
become effective on the Closing Date and, subject to Section 12.7, shall
continue in full force and effect for a term ending on the Maturity Date.
Notwithstanding the foregoing, Bank shall have the right to terminate its
obligation to make Credit Extensions under this Agreement immediately and
without notice upon the occurrence and during the continuance of an Event of
Default. Notwithstanding termination of this Agreement, Bank's lien on the
Collateral shall remain in effect for so long as any Obligations are
outstanding.
3. CONDITIONS OF LOANS
3.1 Conditions Precedent to Initial Advance. The obligation of Bank to
make the initial Advance is subject to the condition precedent that Bank shall
have received, in form and substance satisfactory to Bank, the following:
(a) this Agreement;
(b) a certificate of the Secretary of Borrower with respect to
articles, bylaws, incumbency and resolutions authorizing the execution and
delivery of this Agreement;
(c) the Notes;
(d) the Negative Pledge Agreement;
(d) an opinion of Borrower's counsel;
(e) financing statements (Forms UCC-1);
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(f) insurance certificate;
(g) payment of the fees and Bank Expenses then due specified in
Section 2.5 hereof;
(h) satisfactory audit of Borrower's Accounts; and
(i) such other documents, and completion of such other matters,
as Bank may reasonably deem necessary or appropriate.
3.2 Conditions Precedent to all Advances. The obligation of Bank to
make each Advance, including the initial Advance, is further subject to the
following conditions:
(a) timely receipt by Bank of the Payment/Advance Form as
provided in Section 2.1; and
(b) the representations and warranties contained in Section 5
shall be true and correct in all material respects on and as of the date of such
Payment/Advance Form and on the effective date of each Advance as though made at
and as of each such date, and no Event of Default shall have occurred and be
continuing, or would result from such Advance. The making of each Advance shall
be deemed to be a representation and warranty by Borrower on the date of such
Advance as to the accuracy of the facts referred to in this Section 3.2(b).
4. CREATION OF SECURITY INTEREST
4.1 Grant of Security Interest. Borrower grants and pledges to Bank a
continuing security interest in all presently existing and hereafter acquired or
arising Collateral in order to secure prompt payment of any and all Obligations
and in order to secure prompt performance by Borrower of each of its covenants
and duties under the Loan Documents. Except as set forth in the Schedule, such
security interest constitutes a valid, first priority security interest in the
presently existing Collateral, and will constitute a valid, first priority
security interest in Collateral acquired after the date hereof. Borrower
acknowledges that Bank may place a "hold" on any Deposit Account pledged as
Collateral to secure the Obligations. Notwithstanding termination of this
Agreement, Bank's Lien on the Collateral shall remain in effect for so long as
any Obligations are outstanding.
4.2 Delivery of Additional Documentation Required. Borrower shall from
time to time execute and deliver to Bank, at the request of Bank, all Negotiable
Collateral, all financing statements and other documents that Bank may
reasonably request, in form satisfactory to Bank, to perfect and continue
perfected Bank's security interests in the Collateral and in order to fully
consummate all of the transactions contemplated under the Loan Documents.
4.3 Right to Inspect. Bank (through any of its officers, employees, or
agents) shall have the right, upon reasonable prior notice, from time to time
during Borrower's usual business hours, to inspect Borrower's Books and to make
copies thereof and to check, test, and appraise the Collateral in order to
verify Borrower's financial condition or the amount, condition of, or any other
matter relating to, the Collateral.
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5. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.1 Due Organization and Qualification. Borrower is a corporation duly
existing and in good standing under the laws of its state of incorporation and
qualified and licensed to do business in, and is in good standing in, any state
in which the failure to be so qualified could have a Material Adverse Effect.
5.2 Due Authorization; No Conflict. The execution, delivery, and
performance of the Loan Documents are within Borrower's powers, have been duly
authorized, and are not in conflict with nor constitute a breach of any
provision contained in Borrower's Certificate of Incorporation or Bylaws, nor
will they constitute an event of default under any material agreement to which
Borrower is a party or by which Borrower is bound except to the extent that
certain intellectual property agreements prohibit the assignment of the rights
thereunder to a third party without the Borrower's or other party's consent and
the Loan Documents constitute an assignment. Borrower is not in default under
any agreement to which it is a party or by which it is bound, which default
could have a Material Adverse Effect.
5.3 No Prior Encumbrances. Borrower has good and indefeasible title to
the Collateral, free and clear of Liens, except for Permitted Liens.
5.4 Bona Fide Eligible Accounts. The Eligible Accounts are bona fide
existing obligations. The service or property giving rise to such Eligible
Accounts has been performed or delivered to the account debtor or to the account
debtor's agent for immediate shipment to and unconditional acceptance by the
account debtor. Borrower has not received notice of actual or imminent
Insolvency Proceeding of any account debtor whose accounts are included in any
Borrowing Base Certificate as an Eligible Account.
5.5 [Omitted].
5.6 Intellectual Property. Borrower is the sole owner of the
Intellectual Property, except for non-exclusive licenses granted by Borrower to
its customers in the ordinary course of business. Each of the Patents is valid
and enforceable, and no part of the Intellectual Property has been judged
invalid or unenforceable, in whole or in part, and to the best of Borrower's
knowledge after due inquiry no claim has been made that any part of the
Intellectual Property violates the rights of any third party.
5.7 Name; Location of Chief Executive Office. Except as disclosed in
the Schedule, Borrower has not done business and will not without at least
thirty (30) days prior written notice to Bank do business under any name other
than that specified on the signature page hereof. The chief executive office of
Borrower is located at the address indicated in Section 10 hereof. The Bank
acknowledges that the Borrower has advised it that the Borrower intends to move
its place of business on March 1, 1999 to One Oliver Plaza, 210 Sixth Avenue,
Pittsburgh, Pennsylvania and to change its name to FreeMarkets Corporation
within the next thirty (30) days to FreeMarkets Corporation.
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5.8 Litigation. Except as set forth in the Schedule, there are no
actions or proceedings pending, or, to Borrower's knowledge, threatened by or
against Borrower before any court or administrative agency in which an adverse
decision could have a Material Adverse Effect or a material adverse effect on
Borrower's interest or Bank's security interest in the Collateral
5.9 No Material Adverse Change in Financial Statements. All
consolidated financial statements related to Borrower that have been delivered
by Borrower to Bank fairly present in all material respects Borrower's
consolidated financial condition as of the date thereof and Borrower's
consolidated results of operations for the period then ended. There has not been
a material adverse change in the consolidated financial condition of Borrower
since the date of the most recent of such financial statements submitted to Bank
on or about the Closing Date.
5.10 Solvency. Borrower is able to pay its debts (including trade
debts) as they mature.
5.11 Regulatory Compliance. Borrower has met the minimum funding
requirements of ERISA with respect to any employee benefit plans subject to
ERISA. No event has occurred resulting from Borrower's failure to comply with
ERISA that is reasonably likely to result in Borrower's incurring any liability
that could have a Material Adverse Effect. Borrower is not an "investment
company" or a company "controlled" by an "investment company" within the meaning
of the Investment Company Act of 1940. Borrower is not engaged principally, or
as one of its important activities, in the business of extending credit for the
purpose of purchasing or carrying margin stock (within the meaning of
Regulations G, T and U of the Board of Governors of the Federal Reserve System).
Borrower has complied with all the provisions of the Federal Fair Labor
Standards Act. Borrower has not violated any statutes, laws, ordinances or rules
applicable to it, violation of which could have a Material Adverse Effect.
5.12 Environmental Condition. None of Borrower's properties or assets
has ever been used by Borrower or, to the best of Borrower's knowledge, by
previous owners or operators, in the disposal of, or to produce, store, handle,
treat, release, or transport, any hazardous waste or hazardous substance other
than in accordance with applicable law. To the best of Borrower's knowledge,
none of Borrower's properties or assets has ever been designated or identified
in any manner pursuant to any environmental protection statute as a hazardous
waste or hazardous substance disposal site, or a candidate for closure pursuant
to any environmental protection statute; no lien arising under any environmental
protection statute has attached to any revenues or to any real or personal
property owned by Borrower; and Borrower has not received a summons, citation,
notice, or directive from the Environmental Protection Agency or any other
federal, state or other governmental agency concerning any action or omission by
Borrower resulting in the release, or other disposition of hazardous waste or
hazardous substances into the environment.
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5.13 Taxes. Borrower has filed or caused to be filed all tax returns
required to be filed on a timely basis, and has paid, or has made adequate
provision for the payment of, all taxes reflected therein.
5.14 Subsidiaries. Except for the Borrower's Belgian subsidiary,
Borrower does not own any stock, partnership interest or other equity securities
of any Person, except for Permitted Investments.
5.15 Government Consents. Borrower has obtained all consents, approvals
and authorizations of, made all declarations or filings with, and given all
notices to, all governmental authorities that are necessary for the continued
operation of Borrower's business as currently conducted.
5.16 Full Disclosure. No representation, warranty or other statement
made by Borrower in any certificate or written statement furnished to Bank
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained in such certificates or
statements not misleading.
6. AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, until payment in full of
all outstanding Obligations, and for so long as Bank may have any commitment to
make a Credit Extension hereunder, Borrower shall do all of the following:
6.1 Good Standing. Borrower shall maintain its corporate existence and
good standing in its jurisdiction of incorporation and maintain qualification in
each jurisdiction in which the failure to so qualify could have a Material
Adverse Effect. Borrower shall maintain, to the extent consistent with prudent
management of Borrower's business, in force all licenses, approvals and
agreements, the loss of which could have a Material Adverse Effect.
6.2 Government Compliance. Borrower shall meet the minimum funding
requirements of ERISA with respect to any employee benefit plans subject to
ERISA. Borrower shall comply with all statutes, laws, ordinances and government
rules and regulations to which it is subject, noncompliance with which could
have a Material Adverse Effect or a material adverse effect on the Collateral or
the priority of Bank's Lien on the Collateral.
6.3 Financial Statements, Reports, Certificates. Borrower shall deliver
to Bank:
(a) as soon as available, but in any event within thirty (30)
days after the end of each month, a company prepared consolidated balance sheet
and income statement covering Borrower's consolidated operations during such
period, in a form and certified by an officer of Borrower reasonably acceptable
to Bank;
(b) as soon as available, but in any event within ninety (90)
days after the end of Borrower's fiscal year, audited financial statements of
Borrower prepared in accordance with GAAP, consistently applied, together with
an unqualified opinion on such financial statements of an independent certified
public accounting firm reasonably acceptable to Bank;
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(c) as soon as available, but in any event within thirty (30)
days after the first day of Borrower's fiscal year, annual operating plan and
projections for the current fiscal year;
(d) promptly upon receipt of notice thereof, a report of any
legal actions pending or threatened against Borrower that could result in
damages or costs to Borrower of One Hundred Thousand Dollars ($100,000) or more;
(e) prompt notice of any material change in the composition of
the Intellectual Property, including, but not limited to, any subsequent
ownership right of the Borrower in or to any Copyright, Patent or Trademark not
specified in any intellectual property security agreement between Borrower and
Bank or knowledge of an event that materially adversely effects the value of the
Intellectual Property; and
(f) such budgets, sales projections, operating plans or other
financial information as Bank may reasonably request from time to time.
Within thirty (30) days after the last day of each month, Borrower
shall deliver to Bank a Borrowing Base Certificate signed by a Responsible
Officer in substantially the form of Exhibit C hereto, together with aged
listings of accounts receivable.
Within thirty (30) days after the last day of each month, Borrower
shall deliver to Bank with the monthly financial statements a Compliance
Certificate signed by a Responsible Officer in substantially the form of Exhibit
D hereto.
Bank shall have a right from time to time hereafter to audit Borrower's
Accounts at Borrower's expense, provided that such audits will be conducted no
more often than every six (6) months unless an Event of Default has occurred and
is continuing.
6.4 [Omitted.]
6.5 Taxes. Borrower shall make due and timely payment or deposit of all
material federal, state, and local taxes, assessments, or contributions required
of it by law, and will execute and deliver to Bank, on demand, appropriate
certificates attesting to the payment or deposit thereof; and Borrower will make
timely payment or deposit of all material tax payments and withholding taxes
required of it by applicable laws, including, but not limited to, those laws
concerning F.I.C.A., F.U.T.A., state disability, and local, state, and federal
income taxes, and will, upon request, furnish Bank with proof satisfactory to
Bank indicating that Borrower has
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made such payments or deposits; provided that Borrower need not make any payment
if the amount or validity of such payment is (I) contested in good faith by
appropriate proceedings , (ii) is reserved against (to the extent required by
GAAP) by Borrower and (iii) no lien other than a Permitted Lien results.
6.6 Insurance.
(a) Borrower, at its expense, shall keep the Collateral insured
against loss or damage by fire, theft, explosion, sprinklers, and all other
hazards and risks, and in such amounts, as ordinarily insured against by other
owners in similar businesses conducted in the locations where Borrower's
business is conducted on the date hereof. Borrower shall also maintain insurance
relating to Borrower's ownership and use of the Collateral in amounts and of a
type that are customary to businesses similar to Borrower's.
(b) All such policies of insurance shall be in such form, with
such companies, and in such amounts as are reasonably satisfactory to Bank. All
such policies of property insurance shall contain a lender's loss payable
endorsement, in a form satisfactory to Bank, showing Bank as an additional loss
payee thereof and all liability insurance policies shall show the Bank as an
additional insured, and shall specify that the insurer must give at least twenty
(20) days notice to Bank before canceling its policy for any reason. At Bank's
request, Borrower shall deliver to Bank certified copies of such policies of
insurance and evidence of the payments of all premiums therefor. All proceeds
payable under any such policy shall, at the option of Bank, be payable to Bank
to be applied on account of the Obligations.
6.7 Principal Depository. Borrower shall maintain its principal
operating accounts and partial excess funds with Bank.
6.8 Quick Ratio. Borrower shall maintain, tested as of the last day of
each calendar month, a ratio of Quick Assets to Current Liabilities of at least
1.5 to 1.0.
6.9 Tangible Net Worth. Borrower shall maintain, tested as of the last
day of each calendar month, a Tangible Net Worth of not less than Four Million
Dollars ($4,000,000). From and after the Borrower's next issuance of equity, the
Borrower shall maintain at all times thereafter, Tangible Net Worth in an amount
equal to the sum of Four Million Dollars ($4,000,000) , plus seventy five
percent (75%) of the net amount raised in such equity issuance.
6.10 Debt Service. Borrower shall maintain, tested as of the last day
of each calendar month, a ratio of (i) cash, plus the Borrowing Base, less all
Advances under the Committed Revolving Line, to (ii) the outstanding balance of
the Committed Equipment Line, of not less than 2.0 to 1.0.
6.11 Further Assurances. At any time and from time to time Borrower
shall execute and deliver such further instruments and take such further action
as may reasonably be requested by Bank to effect the purposes of this Agreement.
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<PAGE> 21
7. NEGATIVE COVENANTS
Borrower covenants and agrees that, so long as any Credit Extension
hereunder shall be available and until payment in full of the outstanding
Obligations or for so long as Bank may have any commitment to make any Advances,
Borrower will not do any of the following:
7.1 Dispositions. Without the prior written consent of the Bank,
convey, sell, lease, transfer or otherwise dispose of (collectively, a
"Transfer"), or permit any of its Subsidiaries to Transfer, all or any part of
its business or property, other than Transfers: (i) of Inventory in the ordinary
course of business, (ii) of non-exclusive licenses and similar arrangements for
the use of the property of Borrower or its Subsidiaries in the ordinary course
of business; (iii) that constitute payment of normal and usual operating
expenses in the ordinary course of business; or (iv) of worn-out or obsolete
Equipment. The Bank acknowledges that from time to time the Borrower may enter
into non-ordinary course of business relationships with one or more Persons,
pursuant to which the Borrower may license or otherwise permit such Persons to
use certain Intellectual Property. Prior to entering into any such arrangements,
the Borrower will notify the Bank and obtain the Bank's written consent to the
use or licensing of such Intellectual Property, provided, however, the Bank
agrees that provided the Borrower retains its ownership of such Intellectual
Property (subject to any licenses so granted), such consent will not be
unreasonably withheld or delayed.
7.2 Changes in Business, Ownership, or Management, Business Locations.
Engage in any business, or permit any of its Subsidiaries to engage in any
business, other than the businesses currently engaged in by Borrower and any
business substantially similar or related thereto (or incidental thereto), or
suffer a change in Borrower's ownership or management. Borrower will not,
without at least thirty (30) days prior written notification to Bank, relocate
its chief executive office or add any new offices or business locations. Nothing
contained herein shall prevent the Borrower from raising additional equity
capital or undertaking an initial public offering.
7.3 Mergers or Acquisitions. Merge or consolidate, or permit any of its
Subsidiaries to merge or consolidate, with or into any other business
organization, or acquire, or permit any of its Subsidiaries to acquire, all or
substantially all of the capital stock or property of another Person.
7.4 Indebtedness. Create, incur, assume or be or remain liable with
respect to any Indebtedness other than Permitted Indebtedness.
7.5 Encumbrances. Create, incur, assume or suffer to exist any Lien
with respect to any of its property, or assign or otherwise convey any right to
receive income, including the sale of any Accounts, or permit any of its
Subsidiaries so to do, except for Permitted Liens.
7.6 Distributions. Pay any dividends or make any other distribution or
payment on account of or in redemption, retirement or purchase of any capital
stock, except for those redemptions or repurchases of shares permitted under
existing agreements with stockholders or Borrower's existing stock option plans
or pursuant to any equity offering of Borrower.
20
<PAGE> 22
7.7 Investments. Directly or indirectly acquire or own, or make any
Investment in or to any Person, or permit any of its Subsidiaries so to do,
other than Permitted Investments. Borrower may establish Subsidiaries (domestic
and foreign) in the ordinary course of business provided Borrower notifies Bank
promptly after the creation of each such Subsidiary, and further provided that
none of the Collateral is in any manner transferred to any such Subsidiary.
7.8 Transactions with Affiliates. Directly or indirectly enter into or
permit to exist any material transaction with any Affiliate of Borrower except
for transactions that are in the ordinary course of Borrower's business, upon
fair and reasonable terms that are no less favorable to Borrower than would be
obtained in an arm's length transaction with a nonaffiliated Person.
7.9 Subordinated Debt. Make any payment in respect of any Subordinated
Debt, or permit any of its Subsidiaries to make any such payment, except in
compliance with the terms of such Subordinated Debt, or amend any provision
contained in any documentation relating to the Subordinated Debt without Bank's
prior written consent.
7.10 [Omitted.]
7.11 Compliance. Become an "investment company" or a company controlled
by an "investment company," within the meaning of the Investment Company Act of
1940, or become principally engaged in, or undertake as one of its important
activities, the business of extending credit for the purpose of purchasing or
carrying margin stock, or use the proceeds of any Advance for such purpose; fail
to meet the minimum funding requirements of ERISA; permit a Reportable Event or
Prohibited Transaction, as defined in ERISA, to occur; fail to comply with the
Federal Fair Labor Standards Act or violate any other law or regulation, which
violation could have a Material Adverse Effect or a material adverse effect on
the Collateral or the priority of Bank's Lien on the Collateral; or permit any
of its Subsidiaries to do any of the foregoing.
8. EVENTS OF DEFAULT
Any one or more of the following events shall constitute an Event of
Default by Borrower under this Agreement:
8.1 Payment Default. If Borrower fails to pay, when due, any of the
Obligations.
8.2 Covenant Default.
(a) If Borrower fails to perform any obligation under Sections
6.3, 6.6, 6.7, 6.8, 6.9, or 6.10, or violates any of the covenants contained in
Article 7 of this Agreement; or
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<PAGE> 23
(b) If Borrower fails or neglects to perform, keep, or observe
any other material term, provision, condition, covenant, or agreement contained
in this Agreement, in any of the Loan Documents, or in any other present or
future agreement between Borrower and Bank and as to any default under such
other term, provision, condition, covenant or agreement that can be cured, has
failed to cure such default within ten (10) days after the occurrence thereof;
provided, however, that if the default cannot by its nature be cured within the
ten (10) day period or cannot after diligent attempts by Borrower be cured
within such ten (10) day period, and such default is likely to be cured within a
reasonable time, then Borrower shall have an additional reasonable period (which
shall not in any case exceed thirty (30) days) to attempt to cure such default,
and within such reasonable time period the failure to have cured such default
shall not be deemed an Event of Default (provided that no Advances will be
required to be made during such cure period);
8.3 Material Adverse Change. If there (i) occurs a material impairment
of the perfection or priority of the Bank's security interest in the Collateral
or the value of such Collateral which is not covered by adequate insurance, or
(ii) if the Bank determines, based upon information available to it and in the
exercise of its reasonable judgment, that there is a reasonable likelihood that
Borrower will fail to comply with one or more of the financial covenants set
forth in Sections 6.8, 6.9 or 6.10 during the next succeeding financial
reporting period;
8.4 Attachment. If any material portion of Borrower's assets is
attached, seized, subjected to a writ or distress warrant, or is levied upon, or
comes into the possession of any trustee, receiver or person acting in a similar
capacity and such attachment, seizure, writ or distress warrant or levy has not
been removed, discharged or rescinded within ten (10) days, or if Borrower is
enjoined, restrained, or in any way prevented by court order from continuing to
conduct all or any material part of its business affairs, or if a judgment or
other claim becomes a lien or encumbrance upon any material portion of
Borrower's assets, or if a notice of lien, levy, or assessment is filed of
record with respect to any of Borrower's assets by the United States Government,
or any department, agency, or instrumentality thereof, or by any state, county,
municipal, or governmental agency, and the same is not paid within ten (10) days
after Borrower receives notice thereof, provided that none of the foregoing
shall constitute an Event of Default where such action or event is stayed or an
adequate bond has been posted pending a good faith contest by Borrower (provided
that no Credit Extensions will be required to be made during such cure period);
8.5 Insolvency. If Borrower becomes insolvent, or if an Insolvency
Proceeding is commenced by Borrower, or if an Insolvency Proceeding is commenced
against Borrower and is not dismissed or stayed within 30 days (provided that no
Advances will be made prior to the dismissal of such Insolvency Proceeding);
8.6 Other Agreements. If there is a default in any agreement to which
Borrower is a party with a third party or parties resulting in a right by such
third party or parties, whether or not exercised, to accelerate the maturity of
any Indebtedness in an amount in excess of Fifty Thousand Dollars ($50,000) or
that could have a Material Adverse Effect;
22
<PAGE> 24
8.7 Subordinated Debt. If Borrower makes any payment on account of
Subordinated Debt, except to the extent such payment is allowed under any
subordination agreement entered into with Bank;
8.8 Judgments. If a judgment or judgments for the payment of money in
an amount, individually or in the aggregate, of at least Fifty Thousand Dollars
($50,000) shall be rendered against Borrower and shall remain unsatisfied and
unstayed for a period of ten (10) days (provided that no Credit Extensions will
be made prior to the satisfaction or stay of such judgment); or
8.9 Misrepresentations. If any material misrepresentation or material
misstatement exists now or hereafter in any warranty or representation set forth
herein or in any certificate or writing delivered to Bank by Borrower or any
Person acting on Borrower's behalf pursuant to this Agreement or to induce Bank
to enter into this Agreement or any other Loan Document.
9. BANK'S RIGHTS AND REMEDIES
9.1 Rights and Remedies. Upon the occurrence and during the continuance
of an Event of Default, Bank may, at its election, without notice of its
election and without demand, do any one or more of the following, all of which
are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this
Agreement, by any of the other Loan Documents, or otherwise, immediately due and
payable (provided that upon the occurrence of an Event of Default described in
Section 8.5 all Obligations shall become immediately due and payable without any
action by Bank);
(b) Cease advancing money or extending credit to or for the
benefit of Borrower under this Agreement or under any other agreement between
Borrower and Bank;
(c) Settle or adjust disputes and claims directly with account
debtors for amounts, upon terms and in whatever order that Bank reasonably
considers advisable;
(d) Without notice to or demand upon Borrower, make such
payments and do such acts as Bank considers necessary or reasonable to protect
its security interest in the Collateral. Borrower agrees to assemble the
Collateral if Bank so requires, and to make the Collateral available to Bank as
Bank may designate. Borrower authorizes Bank to enter the premises where the
Collateral is located, to take and maintain possession of the Collateral, or any
part of it, and to pay, purchase, contest, or compromise any encumbrance,
charge, or lien which in Bank's determination appears to be prior or superior to
its security interest and to pay all expenses incurred in connection therewith.
With respect to any of Borrower's premises, Borrower hereby grants Bank a
license to enter such premises and to occupy the same, without charge;
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<PAGE> 25
(e) Without notice to Borrower set off and apply to the
Obligations any and all (i) balances and deposits of Borrower held by Bank, or
(ii) indebtedness at any time owing to or for the credit or the account of
Borrower held by Bank;
(f) Ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale, and sell (in the manner provided for
herein) the Collateral. Bank is hereby granted a non-exclusive, royalty-free
license or other right, solely pursuant to the provisions of this Section 9.1,
to use, without charge, Borrower's labels, patents, copyrights, mask works,
rights of use of any name, trade secrets, trade names, trademarks, service
marks, and advertising matter, or any property of a similar nature, as it
pertains to the Collateral, in completing production of, advertising for sale,
and selling any Collateral and, in connection with Bank's exercise of its rights
under this Section 9.1, Borrower's rights under all licenses and all franchise
agreements shall inure to Bank's benefit;
(g) Sell the Collateral at either a public or private sale, or
both, by way of one or more contracts or transactions, for cash or on terms, in
such manner and at such places (including Borrower's premises) as Bank
determines is commercially reasonable, and apply the proceeds thereof to the
Obligations in whatever manner or order it deems appropriate;
(h) Bank may credit bid and purchase at any public sale, or at
any private sale as permitted by law; and
(i) Any deficiency that exists after disposition of the
Collateral as provided above will be paid immediately by Borrower.
9.2 Power of Attorney. Effective only upon the occurrence and during
the continuance of an Event of Default, Borrower hereby irrevocably appoints
Bank (and any of Bank's designated officers, or employees) as Borrower's true
and lawful attorney to: (a) send requests for verification of Accounts or notify
account debtors of Bank's security interest in the Accounts; (b) endorse
Borrower's name on any checks or other forms of payment or security that may
come into Bank's possession; (c) sign Borrower's name on any invoice or bill of
lading relating to any Account, drafts against account debtors, schedules and
assignments of Accounts, verifications of Accounts, and notices to account
debtors; (d) make, settle, and adjust all claims under and decisions with
respect to Borrower's policies of insurance; (e) settle and adjust disputes and
claims respecting the accounts directly with account debtors, for amounts and
upon terms which Bank determines to be reasonable; and (f) to file, in its sole
discretion, one or more financing or continuation statements and amendments
thereto, relative to any of the Collateral without the signature of Borrower
where permitted by law. The appointment of Bank as Borrower's attorney in fact,
and each and every one of Bank's rights and powers, being coupled with an
interest, is irrevocable until all of the Obligations have been fully repaid and
performed and Bank's obligation to provide advances hereunder is terminated.
9.3 Accounts Collection. Upon the occurrence and during the continuance
of an Event of Default, Bank may notify any Person owing funds to Borrower of
Bank's security interest in such funds and verify the amount of such Account.
Borrower shall collect all amounts owing to Borrower for Bank, receive in trust
all payments as Bank's trustee, and if requested or required by Bank,
immediately deliver such payments to Bank in their original form as received
from the account debtor, with proper endorsements for deposit.
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<PAGE> 26
9.4 Bank Expenses. If Borrower fails to pay any amounts or furnish any
required proof of payment due to third persons or entities, as required under
the terms of this Agreement, then Bank may do any or all of the following: (a)
make payment of the same or any part thereof; (b) set up such reserves under the
Committed Revolving Line as Bank deems necessary to protect Bank from the
exposure created by such failure; or (c) obtain and maintain insurance policies
of the type discussed in Section 6.6 of this Agreement, and take any action with
respect to such policies as Bank deems prudent. Any amounts so paid or deposited
by Bank shall constitute Bank Expenses, shall be immediately due and payable,
and shall bear interest at the then applicable rate hereinabove provided, and
shall be secured by the Collateral. Any payments made by Bank shall not
constitute an agreement by Bank to make similar payments in the future or a
waiver by Bank of any Event of Default under this Agreement.
9.5 Bank's Liability for Collateral. So long as Bank complies with
reasonable banking practices, Bank shall not in any way or manner be liable or
responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage
thereto occurring or arising in any manner or fashion from any cause; or (c) any
diminution in the value thereof. All risk of loss, damage or destruction of the
Collateral shall be borne by Borrower.
9.6 Remedies Cumulative. Bank's rights and remedies under this
Agreement, the Loan Documents, and all other agreements shall be cumulative.
Bank shall have all other rights and remedies not expressly set forth herein as
provided under the Code, by law, or in equity. No exercise by Bank of one right
or remedy shall be deemed an election, and no waiver by Bank of any Event of
Default on Borrower's part shall be deemed a continuing waiver. No delay by Bank
shall constitute a waiver, election, or acquiescence by it. No waiver by Bank
shall be effective unless made in a written document signed on behalf of Bank
and then shall be effective only in the specific instance and for the specific
purpose for which it was given.
9.7 Demand; Protest. Borrower waives demand, protest, notice of
protest, notice of default or dishonor, notice of payment and nonpayment, notice
of any default, nonpayment at maturity, release, compromise, settlement,
extension, or renewal of accounts, documents, instruments, chattel paper, and
guarantees at any time held by Bank on which Borrower may in any way be liable.
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<PAGE> 27
10. NOTICES
Unless otherwise provided in this Agreement, all notices or demands by
any party relating to this Agreement or any other agreement entered into in
connection herewith shall be in writing and (except for financial statements and
other informational documents which may be sent by first-class mail, postage
prepaid) shall be personally delivered or sent by a recognized overnight
delivery service, by certified mail, postage prepaid, return receipt requested,
or by telefacsimile to Borrower or to Bank, as the case may be, at its addresses
set forth below:
If to Borrower: FreeMarkets OnLine, Inc.
130 Seventh Street, Suite 500
Pittsburgh, Pennsylvania 15222
Attn: Gary Doyle, Director of Finance and Administration
Fax: (412) 434-5607
If to Bank: Silicon Valley Bank
One Central Plaza, Suite 1205
11300 Rockville Pike
Rockville, Maryland 20852
Attn: Ash L. Lilani, Senior Vice President
Fax: (301) 984-6282
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other.
11. CHOICE OF LAW AND VENUE
The Loan Documents shall be governed by, and construed in accordance
with, the internal laws of the Commonwealth of Pennsylvania, without regard to
principles of conflicts of law. Each of Borrower and Bank hereby submits to the
exclusive jurisdiction of the state and Federal courts located in the
Commonwealth of Pennsylvania. BORROWER AND BANK EACH HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED
THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL
OTHER COMMON LAW OR STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND AGREES THAT THE
FOREGOING WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS
AGREEMENT. EACH PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER
WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY
TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
12. GENERAL PROVISIONS
12.1 Successors and Assigns. This Agreement shall bind and inure to the
benefit of the respective successors and permitted assigns of each of the
parties; provided, however, that neither this Agreement nor any rights hereunder
may be assigned by Borrower without Bank's prior written consent, which consent
may be granted or withheld in Bank's sole discretion. Bank shall have the right
without the consent of or notice to Borrower to sell, transfer, negotiate, or
grant participation in all or any part of, or any interest in, Bank's
obligations, rights and benefits hereunder.
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<PAGE> 28
12.2 Indemnification. Borrower shall , indemnify ,defend, protect and
hold harmless Bank and its officers, employees, and agents against: (a) all
obligations, demands, claims, and liabilities claimed or asserted by any other
party in connection with the transactions contemplated by the Loan Documents;
and (b) all losses or Bank Expenses in any way suffered, incurred, or paid by
Bank as a result of or in any way arising out of, following, or consequential to
transactions between Bank and Borrower whether under the Loan Documents, or
otherwise (including without limitation reasonable attorneys fees and expenses),
except for losses caused by Bank's gross negligence or willful misconduct.
12.3 Time of Essence. Time is of the essence for the performance of all
obligations set forth in this Agreement.
12.4 Severability of Provisions. Each provision of this Agreement shall
be severable from every other provision of this Agreement for the purpose of
determining the legal enforceability of any specific provision.
12.5 Amendments in Writing, Integration. This Agreement cannot be
amended or terminated except by a writing signed by Borrower and Bank. All prior
agreements, understandings, representations, warranties, and negotiations
between the parties hereto with respect to the subject matter of this Agreement,
if any, are merged into this Agreement and the Loan Documents.
12.6 Counterparts. This Agreement may be executed in any number of
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, shall be deemed to be an original, and all of
which, when taken together, shall constitute but one and the same Agreement.
12.7 Survival. All covenants, representations and warranties made in
this Agreement shall continue in full force and effect so long as any
Obligations remain outstanding. The obligations of Borrower to indemnify Bank
with respect to the expenses, damages, losses, costs and liabilities described
in Section 12.2 shall survive until all applicable statute of limitations
periods with respect to actions that may be brought against Bank have run.
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<PAGE> 29
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
FREEMARKETS ONLINE, INC.
By: /s/ Glen T. Meakem
------------------------------------
Name: Glen T. Meakem
Title: President and CEO
SILICON VALLEY BANK
By: /s/ Ash Lilani
------------------------------------
Ash R. Lilani
Senior Vice President
SILICON VALLEY BANK
By:
------------------------------------
Name:
Title:
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<PAGE> 30
EXHIBIT A
The Collateral shall consist of all right, title and interest of Borrower in and
to the following:
(a) All goods and equipment now owned or hereafter acquired, including,
without limitation, all machinery, fixtures, vehicles (including motor vehicles
and trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;
(b) All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above, and
Borrower's Books relating to any of the foregoing;
(c) All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, leases, license agreements,
franchise agreements, blueprints, drawings, purchase orders, customer lists,
route lists, claims, literature, reports, catalogs, income tax refunds, payments
of insurance and rights to payment of any kind;
(d) All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Borrower, whether or not earned by performance, and any
and all credit insurance, guaranties, and other security therefor, as well as
all merchandise returned to or reclaimed by Borrower and Borrower's Books
relating to any of the foregoing;
(e) All documents, cash, deposit accounts, securities, letters of
credit, certificates of deposit, instruments and chattel paper now owned or
hereafter acquired and Borrower's Books relating to the foregoing; and
(f) Any and all claims, rights and interests in any of the above and
all substitutions for, additions and accessions to and proceeds thereof.
Notwithstanding the foregoing, the Collateral shall not be deemed to include any
copyright rights, copyright applications, copyright registrations and like
protections in each work of authorship and derivative work thereof, whether
published or unpublished, now owned or hereafter acquired; any patents,
trademarks, servicemarks and applications therefor; any trade secret rights,
including any rights to unpatented inventions, know-how, operating manuals,
license rights and agreements and confidential information, now owned or
hereafter acquired; or any claims for damages by way of any past, present and
future infringement of any of the foregoing.
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<PAGE> 31
EXHIBIT B
LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., E.S.T.
TO: CENTRAL CLIENT SERVICE DIVISION DATE: _______________________
FAX#: (408) __________ TIME: _______________________
FROM:________________________________________________________________________
BORROWER'S NAME
FROM:________________________________________________________________________
AUTHORIZED SIGNER'S NAME
_____________________________________________________________________________
AUTHORIZED SIGNATURE
PHONE:_______________________________________________________________________
FROM ACCOUNT #______________________________ TO ACCOUNT#_____________________
REQUESTED TRANSACTION TYPE REQUEST DOLLAR AMOUNT
-------------------------- ---------------------
PRINCIPAL INCREASE (ADVANCE) $
PRINCIPAL PAYMENT (ONLY) $
INTEREST PAYMENT (ONLY) $
PRINCIPAL AND INTEREST (PAYMENT) $
OTHER INSTRUCTIONS:
All representations and warranties of Borrower stated in the Loan and
Security Agreement are true, correct and complete in all material respects as of
the date of the telephone request for and Advance confirmed by this Advance
Request; provided, however, that those representations and warranties expressly
referring to another date shall be true, correct and complete in all material
respects as of such date.
BANK USE ONLY:
TELEPHONE REQUEST:
The following person is authorized to request the loan payment transfer/loan
advance on the advance designated account and is known to me.
___________________________________
Authorized Requester
______________________________________
Authorized Signature (Bank)
Phone #____________________________
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<PAGE> 32
EXHIBIT C
BORROWING BASE CERTIFICATE
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Borrower: FreeMarkets OnLine, Inc. Bank: Silicon Valley Bank
Commitment Amount: $2,000,000
ACCOUNTS RECEIVABLE
1. Accounts Receivable Book Value as of ________ $__________________
2. Additions (please explain on reverse) $__________________
3. TOTAL ACCOUNTS RECEIVABLE $__________________
ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
4. Amounts over 90 days due $__________________
5. Balance of 50% over 90 day accounts $__________________
6. Concentration Limits $__________________
7. Foreign Accounts $__________________
8. Governmental Accounts $__________________
9. Contra Accounts $__________________
10. Promotion or Demo Accounts $__________________
11. Intercompany/Employee Accounts $__________________
12. Other (please explain on reverse) $__________________
13. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $__________________
14. Eligible Accounts (#3 minus #13) $__________________
15. LOAN VALUE OF ACCOUNTS (75% of #14) $__________________
BALANCES
16. Maximum Loan Amount $ 2,000,000
17. Total Funds Available (Lesser of #16 or #15) $__________________
18. Present balance owing on Line of Credit $__________________
19. RESERVE POSITION (#17 minus #18) $__________________
</TABLE>
The undersigned represents and warrants that the foregoing is true, complete and
correct, and that the information reflected in this Borrowing Base Certificate
complies with the representations and warranties set forth in the Loan and
Security Agreement between the undersigned and Silicon Valley Bank.
COMMENTS:
====================================
BANK USE ONLY
RECEIVED BY:____________________
DATE:________________
REVIEWED BY:____________________
COMPLIANCE STATUS: YES / NO
====================================
FreeMarkets OnLine, Inc.
By: ________________________________
Authorized Signer
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<PAGE> 33
EXHIBIT D
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
FROM: FREEMARKETS ONLINE, INC.
The undersigned authorized officer of FREEMARKETS ONLINE, INC. hereby
certifies that in accordance with the terms and conditions of the Loan and
Security Agreement between Borrower and Bank (the "Agreement"), (i) Borrower is
in complete compliance for the period ending with all required covenants except
as noted below and (ii) all representations and warranties of Borrower stated in
the Agreement are true and correct in all material respects as of the date
hereof. Attached herewith are the required documents supporting the above
certification. The Officer further certifies that these are prepared in
accordance with Generally Accepted Accounting Principles (GAAP) and are
consistently applied from one period to the next except as explained in any
accompanying letter or footnotes. The Officer expressly acknowledges that no
borrowings may be requested by the Borrower at any time or date of determination
that Borrower is not in compliance with any of the terms of the Agreement, and
that such compliance is determined not just at the date this certificate is
delivered.
PLEASE INDICATE COMPLIANCE STATUS BY CIRCLING YES/NO UNDER "COMPLIES" COLUMN.
<TABLE>
<CAPTION>
REPORTING COVENANT REQUIRED COMPLIES
- ------------------ -------- --------
<S> <C> <C>
Monthly financial statements Monthly within 30 days Yes No
Annual (CPA Audited) FYE within 90 days Yes No
Annual Operating Plan & Projections Within 30 days of beginning of fiscal year Yes No
A/R Agings Monthly within 30 days Yes No
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
- ------------------ -------- ------ --------
Maintain on a Monthly Basis:
Minimum Quick Ratio 1.5:1.0 _____:1.0 Yes No
Minimum Debt Service 2.0:1.0 _____:1.0 Yes No
Minimum Tangible Net Worth $4,000,000 $________ Yes No
After Equity Issuance $4,000,000 plus 75% $________ Yes No
of Equity Raised
</TABLE>
====================================
BANK USE ONLY
RECEIVED BY:____________________
DATE:________________
REVIEWED BY:____________________
COMPLIANCE STATUS: YES / NO
====================================
COMMENTS REGARDING EXCEPTIONS:
Sincerely,
_______________________ Date:_______________
SIGNATURE
_______________________
TITLE
32
<PAGE> 1
Exhibit 10.4(b)
FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIS FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT (this
"Agreement") made as of September 3, 1999, by and between SILICON VALLEY BANK, a
California-chartered bank ("Bank") with its principal place of business at 3003
Tasman Drive, Santa Clara, California 95054 and with a loan production office
located at 5 Radnor Corporate Center, Suite 555, 100 Matsonford Road, Radnor,
Pennsylvania 19187 and FREEMARKETS, INC., a corporation organized and in good
standing under the laws of the State of Delaware (the "Borrower").
RECITALS.
A. Borrower and Bank have entered into that certain Loan and Security
Agreement dated February 5, 1999 (as thereafter amended from time to time, the
"Loan Agreement"), pursuant to which Bank has agreed to establish certain loans
in favor of Borrower.
B. Borrower has requested that Bank increase the Committed Revolving
Line described therein, provide a supplemental committed equipment line of
credit and modify certain provisions of the Loan Agreement, and the Bank has
agreed to the foregoing on the condition, among others, that this Agreement be
executed and delivered by Borrower to Bank.
C. Unless otherwise defined herein, capitalized terms used herein shall
have the respective meanings set forth in the Loan Agreement.
<PAGE> 2
NOW, THEREFORE, in consideration of the foregoing, and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Borrower and Bank do hereby agree as follows:
1. Recitals. The parties hereto acknowledge and agree that the above
Recitals are true and correct in all material respects and that the same are
incorporated herein and made a part hereof by reference.
2. Definitions. From and after the date hereof, the definitions of
"Advance", "Advances", Committed Revolving Line", "Eligible Accounts", "Loan
Documents", "Note", "Revolving Maturity Date" and "Revolving Promissory Note"
set forth in Section 1.1 of the Loan Agreement are hereby amended and restated
in its entirety as follows:
"Advance" or "Advances" means a loan advance under
the Committed Revolving Line, the Committed Equipment Line or
the Committed Supplemental Equipment Line.
"Committed Revolving Line" means prior to closing on
the Private Placement, a credit extension of up to Two Million
Dollars ($2,000,000) and after closing on the Private
Placement, a credit extension of up to Five Million Dollars
($5,000,000).
"Eligible Accounts" "Eligible Accounts" means those
Accounts that arise in the ordinary course of Borrower's
business that comply with all of Borrower's representations
and warranties to Bank set forth in Section 5.4. Unless
otherwise agreed to by Bank in writing, Eligible Accounts
shall not include the following:
(a) Accounts that the account debtor has
failed to pay within ninety (90) days of invoice date;
(b) Accounts with respect to an account
debtor, fifty percent (50%) of whose Accounts the account
debtor has failed to pay within ninety (90) days of invoice
date;
(c) Accounts with respect to an account
debtor, including Affiliates, whose total obligations to
Borrower exceed twenty five percent (25%)
2
<PAGE> 3
of all Accounts, unless otherwise approved by Bank in writing,
except with respect to General Motors Corporation and United
Technology Corporation, as to which the percentage shall be
fifty percent (50%), to the extent such obligations exceed the
aforementioned percentage, except as approved in writing by
Bank;
(d) Accounts with respect to which the
account debtor does not have its principal place of business
in the United States;
(e) Accounts with respect to which the
account debtor is a federal, state, or local governmental
entity or any department, agency, or instrumentality thereof,
unless the Borrower has taken all steps required by Bank to
comply with the Federal Assignment of Claims Act of 1940 and
any comparable law with respect to state or local government
agencies;
(f) Accounts with respect to which Borrower
is liable to the account debtor, but only to the extent of any
amounts owing to the account debtor (sometimes referred to as
"contra" accounts, e.g. accounts payable, customer deposits,
credit accounts etc.);
(g) Accounts generated by demonstration or
promotional equipment, or with respect to which goods are
placed on consignment, guaranteed sale, sale or return, sale
on approval, bill and hold, or other terms by reason of which
the payment by the account debtor may be conditional;
(h) Accounts with respect to which the
account debtor is an Affiliate, officer, employee, or agent of
Borrower;
(i) Accounts with respect to which the
account debtor disputes any material amount of liability or
makes any claim with respect thereto as to which Bank
believes, in its sole discretion, that there may be a basis
for dispute (but only to the extent of the amount subject to
such dispute or claim), or is subject to any Insolvency
Proceeding, or becomes insolvent, or goes out of business; and
(j) Accounts the collection of which Bank
reasonably determines after reasonable inquiry and reasonable
consultation with Borrower to be doubtful.
"Loan Documents" means collectively, this Agreement,
the Negative Pledge Agreement, the Notes, and any other
present or future agreement entered into between Borrower
and/or for the benefit of Bank in connection with this
Agreement, all as amended, extended or restated from time to
time.
3
<PAGE> 4
"Note" means the Revolving Promissory Note, an
Equipment Term Note or a Supplemental Equipment Term Note, and
"Notes" means the Revolving Promissory Note, the Equipment
Term Notes and the Supplemental Equipment Term Notes.
"Revolving Maturity Date" means September 2, 2000.
"Revolving Promissory Note" means that certain
Amended and Restated Revolving Promissory Note dated September
3, 1999 in substantially the form of Exhibit E attached hereto
in the maximum principal amount of Five Million Dollars
($5,000,000) from the Borrower in favor of the Bank, together
with all renewals, amendments, modifications and substitutions
therefore.
From and after the date hereof, the following definitions are added to
Section 1.1 of the Loan Agreement:
"Committed Supplemental Equipment Line" means a
credit extension of up to Three Million Dollars ($3,000,000).
"Committed Supplemental Equipment Line Maturity Date"
means September 5, 2003.
"Initial Public Offering" means a public offering of
stock in the Borrower.
"Private Placement" means a private placement that
closes after September 1, 1999 and raises a net amount of not
less than Twenty Five Million Dollars ($25,000,000) and which
closes not later than September 30, 1999.
"Supplemental Equipment Advance" has the meaning set
forth in Section 2.1.3(a).
"Supplemental Equipment Availability End Date One"
has the meaning set forth in Section 2.1.3(a).
"Supplemental Equipment Availability End Date Two"
has the meaning set forth in Section 2.1.3(b).
"Supplemental Equipment Term Note" means one of the
two (2) supplemental equipment term notes now or hereafter
delivered by the Borrower to the Bank in connection with the
Supplemental Committed Equipment Line in substantially the
form of Exhibit G and "Supplemental Equipment Term Notes"
means collectively, the equipment term notes which may now or
hereafter be
4
<PAGE> 5
delivered by the Borrower to Bank in connection with the
Supplemental Committed Equipment Line, together with all
renewals, amendments, modifications and substitutions
therefore.
3. The Supplemental Equipment. The following provisions are added to
the Loan Agreement immediately after Section 2.1.2 as Section 2.1.3:
2.1.3 Supplemental Equipment Advances.
(a) Subject to and upon the terms and conditions of
this Agreement, at any time from and after the Private
Placement through March 5, 2000 (the "Supplemental Equipment
Availability End Date One"), Borrower may from time to time
request advances (each together with the advances described in
subsection (b) below, an "Supplemental Equipment Advance" and
collectively, the "Supplemental Equipment Advances") to
Borrower in an aggregate outstanding amount not to exceed the
Committed Supplemental Equipment Line. Amounts borrowed
pursuant to this Section 2.1.3(a) may not be readvanced.
All Supplemental Equipment Advances made prior to the
Supplemental Equipment Availability End Date One shall be
evidenced by a Supplemental Equipment Term Note ("Supplemental
Equipment Term Note No. 1") to be executed and delivered by
the Borrower to Bank on the Closing Date. All Supplemental
Equipment Advances made prior to the Supplemental Equipment
Availability End Date One shall be repaid in accordance with
the terms of Supplemental Equipment Term Note No. 1.
(b) At any time after the Private Placement and March
5, 2000 through September 5, 2000 (the "Supplemental Equipment
Availability End Date Two"), Borrower may from time to time
request Supplemental Equipment Advances from Bank in an
aggregate amount not to exceed the Committed Supplemental
Equipment Line less Supplemental Equipment Advances made under
2.1.3(a) hereof. Amounts borrowed pursuant to this Section
2.1.3(b) may not be readvanced.
All Supplemental Equipment Advances made after the
Supplemental Equipment Availability End Date One, but prior to
the Supplemental Equipment Availability End Date Two shall be
evidenced by a Supplemental Equipment Term Note ("Supplemental
Equipment Term Note No. 2") to be executed and delivered by
Borrower to Bank on the Closing Date. All Supplemental
Equipment Advances made after the Supplemental Equipment
Availability End Date One, but prior to the Supplemental
Equipment Availability End Date Two
5
<PAGE> 6
shall be repaid in accordance with the terms of Supplemental
Equipment Term Note No. 2.
(c) Borrower shall deliver to Bank, at the time of
each Supplemental Equipment Advance request, an invoice for
the Equipment to be purchased. The Supplemental Equipment
Advances shall be used only to purchase domestic Equipment
purchased within the past ninety (90) days or thereafter and
shall not exceed One Hundred Percent (100%) of the invoice
amount of such equipment approved from time to time by Bank,
excluding taxes, shipping, warranty charges, freight discounts
and installation expense. Software may, however, constitute up
to twenty-five percent (25%) of aggregate Supplemental
Equipment Advances. At no time shall Bank make any
Supplemental Equipment Advances if after giving effect to such
request the aggregate amount then outstanding would exceed the
Committed Supplemental Equipment Line.
(d) Interest shall accrue from the date of each
Supplemental Equipment Advance at the rate as set forth in the
Supplemental Equipment Term Notes and shall be payable monthly
in accordance with the Supplemental Equipment Term Notes.
(e) Borrower may not prepay any Supplemental
Equipment Advances with less than ten (10) days prior notice
and further provided that any such prepayment is accompanied
by a prepayment fee in the amount of one percent (1.0%) of the
Supplemental Equipment Advance being prepaid.
4. Principal Depository. Section 6.7 of the Loan Agreement is amended
and restated in its entirety as follows:
6.7 Principal Depository. Borrower shall maintain its
principal operating accounts with Bank. Prior to the Initial
Public Offering, Borrower shall at all times maintain not less
than Two Million Five Hundred Thousand Dollars ($2,500,000) in
a money market mutual fund maintained with Bank. From and
after the Initial Public Offering, Borrower shall at all times
maintain not less than Five Million Dollars ($5,000,000) in a
money market mutual fund maintained with Bank.
5. Tangible Net Worth. Section 6.9 of the Loan Agreement is amended and
restated in its entirety as follows:
6.9 Tangible Net Worth. Borrower shall maintain,
tested as of the last day of each calendar month, a Tangible
Net Worth of not less than Eight Million
6
<PAGE> 7
Dollars ($8,000,000) through and including August 31, 1999.
From and after September 30, 1999, the Borrower shall maintain
at all times thereafter, Tangible Net Worth in an amount equal
to not less than Twenty Five Million Dollars ($25,000,000).
6. Compliance Certificate. From and after the date hereof, Exhibit D to
the Loan Agreement is replaced in its entirety with Exhibit D attached hereto.
7. Fees. In consideration of the Bank's agreement to enter into this
Agreement Borrower has agreed to pay Bank on the date hereof the following non
refundable fees (the "Fees"):
(a) a commitment fee for the Committed Revolving Line
in the amount of Twelve Thousand Five Hundred Dollars
($12,500);
(b) a success fee for the Committed Revolving Line in
the amount of Twelve Thousand Five Hundred Dollars ($12,500);
(c) a commitment fee for the Committed Supplemental
Equipment Line in the amount of Seven Thousand Five Hundred
Dollars ($7,500); and
(d) a success fee for the Committed Supplemental
Equipment Line in the amount of Seven Thousand Five Hundred
Dollars ($7,500).
8. Conditions Precedent. This Agreement shall not become effective
until Bank receives the following, each of which shall be satisfactory in form
and substance to Bank:
(a) an Amended and Restated Revolving Promissory Note
(the "Restated Note") issued and delivered by the Borrower in
the form attached hereto and incorporated herein by reference,
payable to the order of Bank in the principal amount of Five
Million Dollars ($5,000,000) and otherwise duly completed; and
7
<PAGE> 8
(b) proof that Borrower has paid the Fees and all
fees, costs and expenses to Bank in connection with this
Agreement, including but not limited to all Bank's attorneys
fees and expenses; and
(c) such other information, instruments, opinions,
documents, certificates and reports as Bank may deem
necessary.
9. Restated Note. Borrower shall execute and deliver to Bank on the
date hereof the Restated Note, in substitution for and not satisfaction of, the
issued and outstanding revolving promissory note, and the Restated Note shall be
the "Revolving Promissory Note" for all purposes of the Loan Documents.
10. Counterparts. This Agreement may be executed in any number of
duplicate originals or counterparts, each of which duplicate original or
counterpart shall be deemed to be an original and all taken together shall
constitute one and the same instrument.
11. Loan Documents; Governing Law; Etc. This Agreement is one of the
Loan Documents defined in the Loan Agreement and shall be governed and construed
in accordance with the laws of the Commonwealth of Pennsylvania. The headings
and captions in this Agreement are for the convenience of the parties only and
are not a part of this Agreement.
12. Acknowledgments. Borrower hereby confirms to Bank the
enforceability and validity of each of the Loan Documents. In addition, Borrower
hereby agrees to the execution and delivery of this Agreement and the terms and
provisions, covenants or agreements contained in this Agreement shall not in any
manner release, impair, lessen, modify, waive or otherwise limit the liability
and obligations of Borrower under the terms of any of the Loan Documents,
8
<PAGE> 9
except as otherwise specifically set forth in this Agreement. Borrower issues,
ratifies and confirms the representations, warranties and covenants contained in
the Loan Documents, except for such representations and/or warranties which, by
their nature, covered specific facts and events as they existed as of the date
they were originally made under the Loan Agreement, in which case Borrower
issues, ratifies and confirms such representations and/or warranties as of the
date they were originally made under the Loan Agreement.
13. Modifications. This Agreement may not be supplemented, changed,
waived, discharged, terminated, modified or amended, except by written
instrument executed by the parties.
[SIGNATURES ARE ON THE FOLLOWING PAGE]
9
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
FREEMARKETS, INC.
By: /s/ Glen T. Meakem
-------------------------------------
Name: Glen T. Meakem
Title: Chairman, President & CEO
SILICON VALLEY BANK
By: /s/ Ash Lilani
-------------------------------------
Ash Lilani, Senior Vice President
SILICON VALLEY BANK
By:
-------------------------------------
Name:
Title:
10
<PAGE> 11
EXHIBIT D
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
FROM: FREEMARKETS, INC.
The undersigned authorized officer of FREEMARKETS, INC. hereby
certifies that in accordance with the terms and conditions of the Loan and
Security Agreement between Borrower and Bank (the "Agreement"), (i) Borrower is
in complete compliance for the period ending _____________ with all required
covenants except as noted below and (ii) all representations and warranties of
Borrower stated in the Agreement are true and correct in all material respects
as of the date hereof. Attached herewith are the required documents supporting
the above certification. The Officer further certifies that these are prepared
in accordance with Generally Accepted Accounting Principles (GAAP) and are
consistently applied from one period to the next except as explained in any
accompanying letter or footnotes. The Officer expressly acknowledges that no
borrowings may be requested by the Borrower at any time or date of determination
that Borrower is not in compliance with any of the terms of the Agreement, and
that such compliance is determined not just at the date this certificate is
delivered.
PLEASE INDICATE COMPLIANCE STATUS BY CIRCLING YES/NO UNDER "COMPLIES" COLUMN.
<TABLE>
<CAPTION>
REPORTING COVENANT REQUIRED COMPLIES
- ------------------ -------- --------
<S> <C> <C>
Monthly financial statements Monthly within 30 days Yes No
Annual (CPA Audited) FYE within 90 days Yes No
Annual Operating Plan & Projections Within 30 days of beginning of fiscal year Yes No
A/R Agings Monthly within 30 days Yes No
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
- ------------------ -------- ------ --------
Maintain on a Monthly Basis:
Minimum Quick Ratio 1.5:1.0 _____:1.0 Yes No
Minimum Debt Service 2.0:1.0 _____:1.0 Yes No
Minimum Tangible Net Worth:
August 31, 1999 $8,000,000 $________ Yes No
September 30, 1999 and
thereafter $25,000,000 $________ Yes No
</TABLE>
===================================
BANK USE ONLY
RECEIVED BY:____________________
DATE:________________
REVIEWED BY:____________________
COMPLIANCE STATUS: YES / NO
===================================
COMMENTS REGARDING EXCEPTIONS:
Sincerely,
Date:
- ------------------------ --------------------
SIGNATURE
- ------------------------
TITLE
11
<PAGE> 1
Exhibit 10.5
FREEMARKETS ONLINE, INC.
1996 STOCK INCENTIVE PLAN
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C> <C>
1. Purpose..............................................................1
2. Definitions..........................................................1
3. Scope of the Plan....................................................5
4. Administration.......................................................6
5. Eligibility..........................................................8
6. Conditions to Grants.................................................8
(a) General Conditions..........................................8
(b) Grant of Options and Option Price...........................8
(c) Grant of Incentive Stock Options............................8
(d) Grant of Stock Appreciation Rights.........................10
7. No Employment Rights................................................10
8. Non-transferability.................................................10
(a) Exercise of Options........................................10
(b) Exercise of Stock Appreciation Rights......................11
(c) Special Rules for Section 16 Persons.......................12
(d) Full Vesting upon Change of Control........................12
10. Termination.........................................................12
(a) For Cause..................................................12
(b) On Account of Death or Disability..........................12
(c) On Account of Retirement...................................12
(d) Any Other Reason...........................................12
(e) Extension of Term..........................................13
11. Securities Law Matters..............................................13
12. Funding.............................................................13
13. Rights as a Stockholder.............................................13
14. Nature of Payments..................................................13
15. Adjustments.........................................................14
16. Amendment of the Plan...............................................14
17. Termination of the Plan.............................................14
18. No Illegal Transactions.............................................14
19. Controlling Law.....................................................15
20. Severability........................................................15
21. Effective Date......................................................15
</TABLE>
<PAGE> 3
FREEMARKETS ONLINE, INC.
1996 STOCK INCENTIVE PLAN
Introduction.
FreeMarkets OnLine, Inc., a Delaware corporation (the "Company"),
hereby establishes the FreeMarkets OnLine, Inc. 1996 Stock Incentive Plan (the
"Plan").
1. Purpose.
The purpose of the Plan is to advance the interest of the Company by
encouraging and enabling the acquisition of a larger personal financial interest
in the Company, thereby strengthening the commitment to the success of the
Company and the desire to remain employed or retained by the Company and its
Subsidiaries, by those employees, independent contractors, directors and others
upon whose judgment and efforts the Company is largely dependent for the
successful conduct of its operations. It is anticipated that the acquisition of
such financial interest will stimulate the efforts of such persons on behalf of
the Company and encourage stockholder and entrepreneurial perspectives through
stock ownership. It is also anticipated that the opportunity to obtain such
financial interest will prove attractive to promising new employees and will
assist the Company in attracting such employees.
2. Definitions.
As used in the Plan, terms defined parenthetically immediately after
their use shall have the respective meanings provided by such definitions, and
the terms set forth below shall have the following meanings (such meanings to be
equally applicable to both the singular and plural forms of the terms defined):
(a) "Award" means options and/or stock appreciation rights granted
under the Plan.
(b) "Award Agreement" has the meaning specified in Section 4(c)(ii).
(c) "Board" means the Board of Directors of the Company.
(d) "Cause" means
(i) conviction of the Grantee of a felony which is, in the
opinion of the Committee, likely to result in injury of a material
nature to the Company or a Subsidiary;
(ii) the material violation by the Grantee of written policies
of the Company or a Subsidiary;
(iii) the gross and habitual negligence by the Grantee in the
performance of the Grantee's duties to the Company or its Subsidiaries;
or
-1-
<PAGE> 4
(iv) the willful and intentional action or omission to act in
connection with the Grantee's duties to the Company or a Subsidiary
resulting, in the opinion of the Committee, in injury of a material
nature to the Company or a Subsidiary.
(e) "Change of Control" means any of the following:
(i) the acquisition, after the date of the adoption of the
Plan by the Board, directly or indirectly, by any person, entity or
"group" within the meaning of Section 1 3(d)(3) or 14(d)(2) of the 1934
Act (other than by the Company or any of its Subsidiaries or any
employee benefit plan of the Company or any of its Subsidiaries) of
beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the 1934 Act) of 50% or more of either the then-outstanding
shares of Stock or the combined voting power of the Company's
then-outstanding voting securities entitled to vote generally in the
election of directors ("Voting Power"); except that, for purposes
hereof, no such person, entity or group shall be deemed to have
acquired (1) any securities acquired by the Company or a Subsidiary or
any employee benefit plan (or any related trust) of the Company or any
Subsidiary, (2) any securities acquired pursuant to a benefit plan of
the Company or a Subsidiary, (3) any securities issuable pursuant to an
option, warrant or right owned by such person, entity or group as of
the close of business on the business day immediately preceding the
date of the adoption of the Plan by the Board, (4) any securities that
were otherwise beneficially owned by such person, entity or group as of
the close of business on the business day immediately preceding the
date of the adoption of the Plan by the Board and (5) any securities
issued in connection with either (x) a stock split, stock dividend or
similar recapitalization or reorganization with respect to shares owned
immediately prior to the date of the adoption of the Plan by the Board
and (y) any shares covered by the foregoing exceptions; provided,
however, that no Change of Control shall be deemed to have occurred
solely by reason of any such acquisition by a corporation with respect
to which, after such acquisition, more than 50% of both the
then-outstanding common shares of such corporation and the Voting Power
of such corporation are then- beneficially owned, directly or
indirectly, by the persons who were the beneficial owners of the Stock
and voting securities of the Company immediately before such
acquisition in substantially the same proportions as their respective
ownership, immediately before such acquisition, of the then-outstanding
shares of Stock or the Voting Power of the Company, as the case may be;
or
(ii) individuals who, as of the Effective Date, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at
least a majority of the Board; provided, however, that any individual
who becomes a director after the Effective Date whose election or
nomination for election by the Company's stockholders was approved by
at least a majority of the Incumbent Board (other than an election or
nomination of' an
-2-
<PAGE> 5
individual whose initial assumption of office is in connection with an
actual or threatened election contest relating to the election of the
directors of the Company (as such terms are used in Rule 14a-11 under
the 1934 Act)) shall be deemed to be members of the Incumbent Board; or
(iii) the approval by the stockholders of the Company of (A) a
merger, reorganization or consolidation with respect to which persons
who were the respective beneficial owners of the Stock and Voting Power
of the Company immediately before such merger, reorganization or
consolidation do not, immediately thereafter, beneficially own,
directly or indirectly, more than 50% of, respectively, the
then-outstanding common shares and the Voting Power of the corporation
resulting from such merger, reorganization or consolidation, (B) a
liquidation or dissolution of the Company or (C) the sale or other
disposition of all or substantially all of the assets of the Company;
provided, however, that for the purposes of this clause (iii) the votes
of all Section 16 Persons shall be disregarded in determining whether
stockholder approval has been obtained.
Notwithstanding the foregoing, (a) a Change of Control shall be deemed not to
have occurred with respect to any Section 16 Person if such Section 16 Person
is, by agreement (written or otherwise), a participant on such Section 16
Person's own behalf in a transaction which causes the Change of Control to occur
and (b) an IPO shall not be deemed to be a Change of Control.
(f) "Change of Control Value" means the Fair Market Value of a share of
Stock on the date of a Change of Control.
(g) "Code" means the Internal Revenue Code of 1986, as amended, and
regulations and rulings thereunder. References to a particular section of the
Code shall include references to successor provisions.
(h) "Committee" means the committee of the Board appointed pursuant to
Section 4(a).
(i) "Company" has the meaning ascribed to such term in the introductory
paragraph.
(j) "Disability" means, for purposes of the exercise of an incentive
stock option after termination of employment, a permanent and total disability
within the meaning of Section 422(e)(3) of the Code, and for all other purposes,
a mental or physical condition which, in the opinion of the Committee, renders a
Grantee unable or incompetent to carry out the job responsibilities which such
Grantee held or the tasks to which such Grantee was assigned at the time the
disability was incurred, which condition is expected to be permanent or for an
indefinite duration exceeding one year.
(k) "Effective Date" has the meaning ascribed to such term in
Section 21.
-3-
<PAGE> 6
(l) "Fair Market Value" with respect to the Stock means,
(i) as of any applicable date (other than on the IPO Date):
(A) if the security is listed for trading on the New
York Stock Exchange, the closing price, regular way, of the
security as reported on the New York Stock Exchange Composite
Tape, or if no such reported sale of the security shall have
occurred on such date, on the next preceding date on which
there was such a reported sale, or
(B) if the security is not so listed, but is listed
on another national securities exchange or authorized for
quotation on the National Association of Securities Dealers
Inc.'s NASDAQ National Market System ("NASDAQ/NMS"), the
closing price, regular way, of the security on such exchange
or NASDAQ/NMS, as the case may be, or if no such reported sale
of the security shall have occurred on such date, on the next
preceding date on which there was such a reported sale, or
(C) if the security is not listed for trading on a
national securities exchange or authorized for quotation on
NASDAQ/NMS, the average of the closing bid and asked prices as
reported by the National Association of Securities Dealers
Automated Quotation System ("NASDAQ") or, if no such prices
shall have been so reported for such date, on the next
preceding date for which such prices were so reported, or
(D) if the security is not listed for trading on a
national securities exchange or is not authorized for
quotation on NASDAQ/NMS or NASDAQ, the fair market value of
the security as determined in good faith by the Board; and
(ii) as of the IPO Date, the price to the public pursuant to
the form of final prospectus used in connection with the IPO, as
indicated on the cover page of such prospectus or otherwise.
(m) "Grant Date" means the date as determined in accordance with
Section 6(a)(i).
(n) "Grantee" means an individual who has been granted an Award.
(o) "including" or "includes" means "including, without limitation," or
"includes, without limitation", respectively.
(p) "IPO" means an initial public offering of Stock.
(q) "IPO Date" means the effective date of the underwriting agreement
between the Company and the underwriters of the IPO.
(r) "Minimum Consideration" means $.01 per share of Stock or such other
amount that is from time to time considered to be capital for purposes of
Section 154 of the Delaware General Corporation Law.
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(s) "1934 Act" means the Securities Exchange Act of 1934, as amended,
and regulations and rulings thereunder. References to a particular section or,
or rule under, the 1934 Act shall include references to successor provisions.
(t) "Option Price" means the per share purchase price of Stock subject
to an option.
(u) "Plan" has the meaning ascribed to such term in the introductory
paragraph.
(v) "Retirement" means a termination of employment with the Company and
its Subsidiaries, other than for Cause, at any time after attaining age 60.
(w) "SEC" means the Securities and Exchange Commission.
(x) "Section 16 Person" means a person, whether or not a Grantee, who
is potentially subject to liability under Section 16(b) of the 1934 Act with
respect to transactions involving equity securities of the Company, irrespective
of whether such person was subject to such liability at the time of the grant of
any particular Award.
(y) "Stock" means the common stock, $.01 par value, of the Company.
(z) "Subsidiary" means, for purposes of grants of incentive stock
options, a corporation as defined in Section 424(f) of the Code (with the
Company being treated as the employer corporation for purposes of such
definition) and, for all other purposes, a corporation with respect to which the
Company owns, directly or indirectly, 25% or more of the then-outstanding common
shares.
(aa) 10% Owner" means a person who owns stock (including stock treated
as owned under Section 424(d) of the Code) possessing more than 10% of the total
combined voting power of all classes of stock of the Company.
(bb) "Termination" has the meaning ascribed to such term in
Section 4(c)(iv).
3. Scope of the Plan.
(a) Subject to Section 15, the aggregate number of shares of Stock
which may be issued or delivered and as to which stock options may be granted
under the plan is 2,200 shares. Such shares may be treasury shares or
newly-issued shares, as may be determined from time to time by the Board or the
Committee.
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(b) If and to the extent that an Award shall expire or terminate for
any reason without having been exercised in full, or shall be forfeited,
without, in either case, the Grantee having enjoyed any of the benefits of stock
ownership (other than dividends that are likewise forfeited or voting rights),
the shares of Stock associated with such Award shall become available for other
Awards.
4. Administration.
(a) Subject to Section 4(b), the Plan shall be administered by a the
Compensation Committee of the Board (the "Committee") which shall consist of not
less than three persons who are directors of the Company. Membership on the
Committee shall from time to time (A) be increased or decreased and (B) shall be
subject to such limitations, in each case as the Board deems appropriate to
permit transactions in Stock pursuant to the Plan to be exempt from potential
liability under Section 16(b) of the 1934 Act pursuant to Rule 16b-3 thereunder.
(b) The Board may reserve to itself or delegate to another committee of
the Board any or all of the authority and responsibility of the Committee with
respect to Awards to Grantees who are not Section 16 Persons at the time any
such delegated authority or responsibility is exercised. Such other committee
may consist of two or more directors who may, but need not be, officers or
employees of the Company or of any of its Subsidiaries. To the extent that the
Board has reserved to itself or delegated to such other committee the authority
and responsibility of the Committee, all references to the Committee in the Plan
shall be to the Board or such other committee.
(c) The Committee or the Board or other committee of the Board, as the
case may be, shall have full and final authority and sole discretion, but
subject to the express provisions of the Plan, as follows:
(i) to grant Awards and determine the Grant Date and term
thereof;
(ii) to determine (A) when and to whom Awards may be granted,
and (B) the terms and conditions applicable to each Award, including
the Option Price of an option, whether an option shall qualify as an
incentive stock option, the benefit payable under any stock
appreciation right and any limits on the percentage of Awards which may
from time to time be exercised by a Grantee, all of which shall be set
forth in the written agreements by which all Awards shall be evidenced
("Award Agreements") which need not be identical;
(iii) to interpret the Plan and to make all determinations
necessary or advisable for the administration of the Plan;
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(iv) to prescribe, amend, and rescind rules relating to the
Plan, including rules with respect to the exercisability and
nonforfeitability of Awards upon a Grantee's termination of employment
or other separation from the Company or any of its Subsidiaries (a
"Termination");
(v) to determine any restrictions or conditions (including (A)
imposing restrictions with respect to stock acquired upon exercise of
an option, which restrictions may continue beyond the Grantee's
Termination and (B) requiring the Grantee to grant to one or more
persons an irrevocable proxy to vote, to execute and deliver written
consents or otherwise act with respect to stock acquired upon exercise
of an option) of the Award Agreements;
(vi) to cancel, with the consent of the Grantee, outstanding
Awards and to grant new Awards in substitution therefor;
(vii) to accelerate the exercisability (including
exercisability with a period of less than one year after the Grant
Date) of, and to accelerate or waive any or all of the restrictions and
conditions applicable to, any Award or any group of Awards for any
reason and at any time, including in connection with a Termination
(other than Termination for Cause) or a Change of Control;
(viii) to extend the time during which any Award or group of
Awards may be exercised;
(ix) to amend, with the consent of the Grantee, Award
Agreements in respect of Awards which have not been exercised;
provided, however, that the consent of the Grantee shall not be
required for any amendment which (A) does not adversely affect the
rights of the Grantee, or (B) is necessary or advisable (as determined
by the Committee) to carry out the purpose of the Award as a result of
any new or change in existing applicable law, regulation, ruling or
judicial decision;
(x) to take any action at any time before the exercise of an
option (whether or not an incentive stock option), without the consent
of the Grantee, to prevent such option from being treated as an
incentive stock option;
(xi) to impose such additional conditions, restrictions, and
limitations upon the grant, exercise or retention of Awards as the
Committee may, before or concurrently with the grant thereof, deem
appropriate;
(xii) to approve the manner of payment and determine the terms
related thereto by a Grantee in connection with an Award;
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(xiii) to require written investment representations by a
Grantee as provided in Section 12;
(xiv) to make equitable adjustment of Awards as provided in
Section 15;
(xv) to cancel stock appreciation rights; and
(xvi) to take any other action with respect to any matters
relating to the Plan for which it is responsible.
The determination of the Committee on all matters relating to the Plan or any
Award Agreement shall be conclusive and final. No member of the Committee shall
be liable for any action or determination made in good faith with respect to the
Plan or any Award.
5. Eligibility.
Awards may be granted to any full-time employee (including any
officer), part-time employee, independent contractor or director employed or
retained by the Company or any of its Subsidiaries. In selecting the individuals
to whom Awards may be granted, as well as in determining the number of shares of
Stock subject to, and the other terms and conditions applicable to, each Award,
the Committee shall take into consideration such factors as it deems relevant in
promoting the purposes of the Plan.
6. Conditions to Grants.
(a) General Conditions.
(i) The Grant Date of an Award shall be the date on which the
Committee grants the Award or such later date as specified in advance
by the Committee.
(ii) A Grantee may, if otherwise eligible, be granted
additional Awards.
(iii) To the extent not set forth in the Plan, the terms and
conditions of each Award shall be set forth in an Award Agreement.
(b) Grant of Options and Option Price.
(i) No later than the Grant Date of any option, the Committee
shall determine the Option Price of such option: provided, however,
that the Option Price for incentive stock options issued pursuant to
Section 6(c) shall not be less than 100% of the Fair Market Value of
the Stock on the Grant Date.
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(ii) The Committee may, in its discretion, permit a person
eligible to receive Awards under Section 5 of the Plan to elect, prior
to earning compensation, to be granted an option or options under the
Plan in lieu of receiving such compensation. Subject to the express
terms of the Plan, such options shall have such terms and conditions as
the Committee in its discretion specifies; provided, however, that, in
the judgment of the Committee, the value of such options on the Grant
Date equals the amount of compensation foregone by such person; and
provided, further, that except to the extent such condition may be
waived by the securities law counsel to the Company, a Section 16
Person must irrevocably elect to forego such compensation and acquire
such option at least six months prior to the Grant Date of such option.
(c) Grant of Incentive Stock Options. At the time of the grant of any
option, the Committee may designate that such option shall be made subject to
additional restrictions to permit it to qualify as an "incentive stock option"
under the requirements of Section 422 of the Code. Any option designated as an
incentive stock option:
(i) shall, if granted to a 10% Owner, provide for an Option
Price of not less than 110% of the Fair Market Value of the Stock on
the Grant Date;
(ii) shall not have an aggregate Fair Market Value (determined
for each incentive stock option at its Grant Date) of Stock with
respect to which incentive stock options are exercisable for the first
time by such Grantee during any calendar year (under the Plan and any
other employee stock option plan of the Company or any parent or
Subsidiary thereof ("Other Plans"), determined in accordance with the
provisions of Section 422 of the Code) which exceeds $100,000 (the
"$100,000 Limit");
(iii) shall, if the aggregate Fair Market Value of Stock
(determined on the Grant Date) with respect to the portion of such
grant which is exercisable for the first time during any calendar year
("Current Grant") and all incentive stock options previously granted
under the Plan and any Other Plans which are exercisable for the first
time during a calendar year ("Prior Grants") would exceed the $100,000
Limit, be exercisable as follows:
(A) the portion of the Current Grant which would,
when added to any Prior Grants, be exercisable with respect to
Stock which would have an aggregate Fair Market Value
(determined as of the respective Grant Date for such options)
in excess of the $100,000 Limit shall, notwithstanding the
terms of the Current Grant, be exercisable for the first time
by the Grantee in the first subsequent calendar year or years
in which it could be exercisable for the first time by the
Grantee when added to all Prior Grants without exceeding the
$100,000 Limit; and
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(B) if, viewed as of the date of the Current Grant,
any portion of a Current Grant could not be exercised under
the preceding provisions of this Section 6(c)(iii) during any
calendar year commencing with the calendar year in which it is
first exercisable through and including the last calendar year
in which it may by its terms be exercised, such portion of the
Current Grant shall not be an incentive stock option, but
shall be exercisable as a separate option at such date or
dates as are provided in the Current Grant;
(iv) shall be granted within 10 years from the earlier of the
date the Plan is adopted or the date the Plan is approved by the
stockholders of the Company;
(v) shall require the Grantee to notify the Committee of any
disposition of any Stock issued pursuant to the exercise of the
incentive stock option under the circumstances described in Section
421(b) of the Code (relating to certain disqualifying dispositions)
within 10 days of such disposition; and
(vi) shall not be granted to any director or independent
contractor of the Company or any of its Subsidiaries.
(d) Grant of Stock Appreciation Rights. When granted, stock
appreciation rights shall be identified with shares of Stock subject to a
specific option in a number equal to or different from the number of stock
appreciation rights so granted. Unless otherwise provided in the applicable
Award Agreement, the Grantee's stock appreciation rights shall terminate upon
(i) the expiration, termination, forfeiture or cancellation of the option with
which it is associated, or (ii) the exercise of such option.
7. No Employment Rights.
Neither the establishment of the Plan nor the granting of any Award
shall be construed to (a) give any Grantee the right (i) to remain employed or
retained by the Company or any of its Subsidiaries or (ii) to any benefits not
specifically provided by the Plan or (b) in any manner modify the right of the
Company or any of its Subsidiaries to modify, amend, or terminate any of its
employee benefit plans.
8. Non-transferability.
Except as may be set forth in an Award Agreement, each Award granted
hereunder shall not be assignable or transferable other than by will or the laws
of descent and distribution or pursuant to a "qualified domestic relations
order" (as that term is defined by the Code or Title I of the Employee
Retirement Income Security Act of 1974, as amended, and the rules and
regulations promulgated thereunder) and may be exercised, during the Grantee's
lifetime, only by the Grantee; provided, however, that a Grantee may in a manner
specified by the Committee and to the extent provided in the Plan (a) designate
in writing a beneficiary to exercise his Award after the Grantee's death and (b)
transfer an option (other than an incentive stock option) or stock appreciation
right to a revocable, inter vivos trust as to which the Grantee is both the
settlor and trustee, but in no event shall any transfer to such a trust by or on
behalf of a Section 16 Person be effective unless the Company shall have
received an opinion of counsel, or the staff of the SEC shall have issued an
interpretive or "no action" letter, in either case to the effect that such a
transfer is not inconsistent with the requirements of Rule 16b-3 under the 1934
Act.
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9. Exercise.
(a) Exercise of Options. Each option shall be exercised by delivery to
the Company of written notice of intent to purchase a specific number of shares
of Stock subject to the option. The Option Price of any shares of Stock as to
which an option is exercised shall be paid in full at the time of the exercise.
Payment may, at the election of the Grantee, be made in any one or any
combination of the following:
(i) cash;
(ii) shares of Stock held by the Grantee for at least 6 months
prior to exercise of the option, valued at its Fair Market Value on the
date of exercise;
(iii) with the approval of the Committee, shares of restricted
Stock held by the Grantee for at least 6 months prior to exercise of
the option, valued at its Fair Market Value on the date of exercise; or
(iv) through simultaneous sale through a broker of shares
acquired upon exercise, as permitted under Regulation T of the Federal
Reserve Board.
If restricted Stock ("Tendered Restricted Stock") is to be used to pay
the Option Price for Stock, the Committee may, but need not, specify that (i)
all the shares of Stock acquired upon the exercise of the option shall be
subject to the same restrictions as the Tendered Restricted Stock, determined as
of the date of exercise of the option, or (ii) a number of shares of Stock
acquired upon the exercise of the option which is equal to the number of shares
of Tendered Restricted Stock shall be subject to the same restrictions as the
Tendered Restricted Stock, determined as of the date of exercise of the option.
(b) Exercise of Stock Appreciation Rights. Subject to such terms and
conditions as the Committee may impose, each stock appreciation right shall be
deemed to have been exercised upon the exercise of the option with which it is
affiliated.
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The benefit for each share of Stock in respect of which a
stock appreciation right is exercised shall be equal to:
(i) the Fair Market Value of a share of Stock on the date of
such exercise, reduced by
(ii) an amount equal to the Option Price of such option,
unless the Committee in the grant of the stock appreciation right
specified a higher amount;
provided, however, that the Committee may provide that the benefit for any stock
appreciation right shall not exceed such amount or such percentage of the Fair
Market Value of a share of Stock on such Grant Date as the Committee shall
specify. The benefit upon the exercise of a stock appreciation right shall be
payable in cash. Notwithstanding the foregoing, if the Committee in its
discretion determines that the exercise of stock appreciation rights would
preclude the use of pooling of interests accounting following a sale of the
Company which is reasonably likely to occur and that such preclusion of pooling
would have a material adverse effect on the sale of the Company, the Committee,
in its discretion may either unilaterally preclude stock appreciation rights
from being exercised upon the occurrence of a Change of Control by canceling the
stock appreciation rights prior to the Change of Control or, subject to Section
3(a), cause the Company to pay the stock appreciation rights benefit in Stock if
it determines that such payment would not cause the transaction to be ineligible
for pooling.
(c) Special Rules for Section 16 Persons. No option or stock
appreciation right shall be exercisable by a Section 16 Person during the first
six months after its Grant Date, except as exempted from Section 16 of the 1934
Act under Rule 16a-2(d) under the 1934 Act or as may from time to time be
permitted by the Committee.
(d) Full Vesting upon Change of Control. In the event of a Change of
Control, all unvested Awards held by Grantees who have been employed by the
Company for at least three (3) years on the occurrence of such Change of Control
shall become immediately vested and exercisable; provided, however, that in such
event the Board or Committee, as the case may be, may exercise its authority
under Section 4 (c)(vii) to accelerate vesting in respect of Grantees who are
not employees or have been employed by the Company for less than three (3)
years.
10. Termination.
Except as provided by the Committee in the Award Agreement or otherwise
and except as otherwise required to maintain the status of an incentive stock
option as such:
(a) For Cause. If a Grantee has a Termination for Cause, any
unexercised Award shall thereupon terminate.
(b) On Account of Death or Disability. If a Grantee has a Termination
on account of the Grantee's death or Disability, then any unexercised option and
stock appreciation right, whether or not exercisable on the date of such
Termination on account of death or Disability may be exercised, in whole or in
part, at any time within 360 days after such Termination by the Grantee, or
after the Grantee's death, by (A) his personal representative or by the person
to whom the option is transferred by will or the applicable laws of descent and
distribution, (B) the Grantee's beneficiary designated in accordance with
Section 8, or (C) the then-acting trustee of the trust described in Section 8.
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(c) On Account of Retirement. If a Grantee has a Termination on account
of Retirement, any unexercised Award may be exercised, in whole or in part, at
any time within 360 days after such Retirement (90 days in the case of an award
of an incentive stock option).
(d) Any Other Reason. If a Grantee has a Termination for a reason other
than for Cause, death, Disability, or Retirement, any unexercised Award, to the
extent exercisable on the date of the Grantee's Termination, may be exercised in
whole or in part, not later than the 10th day following the Grantee's
Termination (90th day in the case of an award of an incentive stock option);
provided, however, that if the Grantee has entered into an agreement with the
Company not to sell any shares of Stock (or the capital stock of a successor to
the Company) for a specified period following the consummation of a business
combination between the Company and another corporation or entity (the
"Specified Period"), such Award may be exercised in whole or in part until the
later of such 90th day or 10 business days following the expiration of the
Specified Period.
(e) Extension of Term. In the event of Termination other than for
Cause, the term of any Award (whether or not exercisable on the date of the
Grantee's Termination) which by its terms would otherwise expire after the
Grantee's Termination but prior to the end of the period following the Grantee's
Termination described in Sections 10(b), (c) and (d) above for exercise of
Awards may, in the discretion of the Committee and except as to incentive stock
options, be extended so as to permit any unexercised portion thereof to be
exercised at any time within such period. Except as to incentive stock options,
the Committee may further extend the period of exercisability to permit any
unexercised portion thereof to be exercised within a specified period provided
by the Committee. However, in no event may the term of any Award expire more
than 10 years after the Grant Date of such Award.
11. Securities Law Matters.
(a) If the Committee deems necessary to comply with the Securities Act
of 1933, the Committee may require written investment intent representations by
the Grantee and may require that a restrictive legend be affixed to certificates
for shares of Stock.
(b) If, based upon the opinion of counsel for the Company, the
Committee determines that the exercise or nonforfeitability of, or delivery of
benefits pursuant to, any Award would violate any applicable provision of (i)
federal or state securities laws or (ii) the listing requirements of any
national securities exchange or national market system on which are listed any
of the Company's equity securities, then the Committee may postpone any such
exercise, nonforfeitability or delivery, as the case may be, but the Company
shall use its best efforts to cause such exercise, nonforfeitability or delivery
to comply with all such provisions at the earliest practicable date.
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12. Funding.
Benefits payable under the Plan to any person shall be paid directly by
the Company. The Company shall not be required to fund, or otherwise segregate
assets to be used for payment of, benefits under the Plan.
13. Rights as a Stockholder.
A Grantee shall not, by reason of any Award have any right as a
stockholder of the Company with respect to the shares of Stock which may be
deliverable upon exercise of an option until such shares have been delivered to
him.
14. Nature of Payments.
Any and all grants, payments of cash, or deliveries of shares of Stock
hereunder shall constitute special incentive payments to the Grantee and shall
not be taken into account in computing the amount of salary or compensation of
the Grantee for the purposes of determining any pension, retirement, death or
other benefits under (a) any pension, retirement, profit-sharing, bonus, life
insurance or other employee benefit plan of the Company or any of its
Subsidiaries or (b) any agreement between the Company or any Subsidiary, on the
one hand, and the Grantee, on the other hand, except as such plan or agreement
shall otherwise expressly provide.
15. Adjustments.
The Committee shall make equitable adjustment of:
(a) the number of shares of Stock available under Section 3(a);
(b) the number of shares of Stock covered by an Award;
(c) the Option Price of all outstanding options; and
(d) the Fair Market Value of Stock to be used to determine the
amount of the benefit payable in respect of stock appreciation rights;
in each case to reflect a stock dividend, stock split, reverse stock split,
share combination, recapitalization, merger, consolidation, acquisition of
property or shares, asset spin-off, split-off, reorganization, stock rights
offering, liquidation or similar event, of or by the Company.
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16. Amendment of the Plan.
The Board may from time to time in its discretion amend or modify the
Plan without the approval of the stockholders of the Company, except as such
stockholder approval may be required (a) to permit the grant of Awards under,
and the issuance of Stock pursuant to, the Plan to be exempt from potential
liability under Section 16(b) of the 1934 Act or (b) under the listing
requirements of any national securities exchange or national market system on
which are listed any of the Company's equity securities.
17. Termination of the Plan.
The Plan shall terminate on the tenth (10th) anniversary of the
Effective Date or at such other time as the Board may determine. Any
termination, whether in whole or in part, shall not affect any Award then
outstanding under the Plan.
18. No Illegal Transactions.
The Plan and all Awards granted pursuant to it are subject to all laws
and regulations of any governmental authority which may be applicable thereto;
and notwithstanding any provision of the Plan or any Award, Grantees shall not
be entitled to exercise Awards or receive the benefits thereof, and the Company
shall not be obligated to deliver any Stock or pay any benefits to a Grantee, if
such exercise, delivery, receipt or payment would constitute a violation by the
Grantee or the Company of any such law or regulation.
19. Controlling Law.
The law of Delaware, except its law with respect to choice of law,
shall be controlling in all matters relating to the Plan.
20. Severability.
If all or any part of the Plan is declared by any court or governmental
authority to be unlawful or invalid, such unlawfulness or invalidity shall not
serve to invalidate any portion of the Plan not declared to be unlawful or
invalid. Any Section or part of a Section so declared to be unlawful or invalid
shall, if possible, be construed in a manner which will give effect to the terms
of such Section or part of a Section to the fullest extent possible while
remaining lawful and valid.
21. Effective Date.
Subject to the approval of the Plan by majority vote of the Company's
stockholders, the Plan shall become effective as of the date (the "Effective
Date") hereof.
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Executed as of January 25, 1996.
FREEMARKETS ONLINE, INC.
By: /s/ Glen T. Meakem
--------------------------------
Name: Glen T. Meakem
-------------------------------
Title: President
------------------------------
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<PAGE> 1
Exhibit 10.6
FREEMARKETS ONLINE, INC.
AMENDED AND RESTATED STOCK INCENTIVE PLAN
1. PURPOSE OF THE PLAN.
The purpose of the FreeMarkets OnLine, Inc. Amended and Restated Stock
Incentive Plan (originally named the FreeMarkets OnLine, Inc. 1998 Stock Option
Plan) (the "Plan") is to promote the interests of FreeMarkets OnLine, Inc.
(together with its subsidiaries, the "Company") and its stockholders by (i)
attracting and retaining employees, officers, directors, consultants and
advisors of outstanding ability, (ii) motivating such persons, by means of
performance-related incentives, to achieve longer-range performance goals, and
(iii) enabling such persons to participate in the long-term growth and financial
success of the Company. The original effective date of the Plan was March 2,
1998 ("Effective Date"). The effective date of this amendment and restatement is
June 30, 1999 ("Restated Effective Date"). Except as otherwise specifically
provided herein, and subject to Section 22 hereof, the Plan as amended and
restated shall apply generally to Options (as defined in Section 3) granted
prior to, as well as Options and Restricted Stock (as defined in Section 3)
granted on and after, the Restated Effective Date.
2. ADMINISTRATION.
(a) Subject to the following paragraphs, the Plan shall be administered
by the Board of Directors of the Company (the "Board") or by a Compensation
Committee of the Board (the "Compensation Committee"). If the Board delegates to
the Compensation Committee the authority to administer the Plan, the
Compensation Committee shall be empowered to take all actions reserved to the
Board under the Plan. The Board is authorized to interpret the Plan, to
prescribe, amend and rescind rules and regulations to further the purposes of
the Plan, and to make all other determinations necessary for the administration
of the Plan. All such actions by the Board shall be conclusive, final and
binding on all participants.
(b) Following the registration by the Company of its Common Stock, par
value $.01 per share ("Common Stock"), under Section 12 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), should the Board delegate
to the Compensation Committee the authority to administer the Plan, then such
Compensation Committee shall consist solely of members of the Board who qualify
as (i) "Non-Employee Directors" as defined under Rule 16b-3 under the Exchange
Act and (ii) "outside directors" as defined under Section 162(m) or any
successor provision of the Internal Revenue Code of 1986, as amended (the
"Code") and applicable Treasury regulations thereunder, if and to the extent
such qualification is necessary so that the grant or the exercise of awards made
under the Plan will qualify for any tax or other material benefit to
participants or the Company under applicable law.
(c) Notwithstanding the foregoing, the Board may, subject to any
limitations or restrictions the Board may impose from time to time, delegate to
the Chief Executive Officer the authority to administer the Plan, including the
authority to make grants of Options (as hereinafter defined) to employees of the
Company and its subsidiaries who are not subject to the requirements of Section
16 of the Exchange Act and who are not expected to be subject to the limitations
of Section 162(m) of the Code.
<PAGE> 2
3. AWARDS.
Awards under the Plan may be in the form of options which qualify as
"incentive stock options" within the meaning of Section 422 or any successor
provision of the Code ("Incentive Stock Options"), options which do not so
qualify ("Nonqualified Options" and, collectively with Incentive Stock Options,
"Options"), and stock which is subject to certain forfeiture risks and
restrictions on transferability ("Restricted Stock"). Incentive Stock Options
may be granted only to employees of the Company. Each award of an Option shall
be designated in the applicable Option grant certificate as an Incentive Stock
Option or a Nonqualified Option, as appropriate. If, notwithstanding its
designation as an Incentive Stock Option, all or a portion of any Option does
not qualify under the Code as an Incentive Stock Option, the portion which does
not so qualify shall be treated for all purposes hereunder as a Nonqualified
Option.
4. SHARES SUBJECT TO THE PLAN.
Subject to adjustment as provided in Section 9, the maximum aggregate
number of shares of Common Stock that may be awarded under the Plan is
15,450,000 shares (plus any shares of Common Stock covered by any unexercised
portion of terminated stock options granted under the FreeMarkets OnLine, Inc.
1996 Stock Incentive Plan (the "1996 Plan")), plus an automatic annual increase
on the first day of each fiscal year of the Company beginning on or after
January 1, 2001 and ending on or before December 31, 2008 equal to the lesser of
(i) 1,500,000 shares, (ii) three percent of the shares outstanding on the last
day of the immediately preceding fiscal year or (iii) such lesser number of
shares as is determined by the Board. The Common Stock to be offered under the
Plan shall be authorized and unissued Common Stock, or issued Common Stock which
shall have been reacquired by the Company and held in its treasury. The Common
Stock covered by any unexercised portion of terminated stock options granted
under the Plan or under the 1996 Plan, or by any award of Restricted Stock which
is forfeited, may again be subject to new awards under the Plan. In the event
the purchase price of an Option is paid in whole or in part through the delivery
of Common Stock, only the net number of shares of Common Stock issuable in
connection with the exercise of the Option shall be counted against the number
of shares remaining available for the grant of awards under the Plan. At any
time following the registration by the Company of its Common Stock under Section
12 of the Exchange Act, no participant shall be granted awards in respect of
more than 2,000,000 shares of Common Stock in any calendar year (subject to
adjustment as provided in Section 9).
5. PARTICIPANTS.
The Board shall determine and designate from time to time those
employees, directors, consultants and advisors of the Company or its
subsidiaries who shall be awarded Options or Restricted Stock under the Plan and
the number of shares of Common Stock to be covered by each such Option or
Restricted Stock award, provided that any such consultants or advisors render
bona fide services which are not in connection with the offer or sale of
securities in a capital-raising transaction. In making its determinations, the
Board shall take into account the present and potential contributions of the
respective individuals to the success of the Company, and such other factors as
the Board shall deem relevant in connection with accomplishing the purposes of
the Plan. Each award shall be evidenced by a written Option or Restricted Stock
agreement or grant form ("Grant Instrument") as the Board shall approve from
time to time.
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6. FAIR MARKET VALUE.
For all purposes under the Plan, the term "Fair Market Value" shall
mean, as of any applicable date, (i) if the principal securities market on which
the Common Stock is traded is a national securities exchange or The Nasdaq
National Market ("NNM"), the closing price of the Common Stock on such exchange
or NNM, as the case may be, or if no sale of the Common Stock shall have
occurred on such date, on the next preceding date on which there was a reported
sale; (ii) if the Common Stock is not traded on a national securities exchange
or NNM, the closing price on such date as reported by The Nasdaq SmallCap
Market, or if no sale of the Common Stock shall have occurred on such date, on
the next preceding date on which there was a reported sale; (iii) if the
principal securities market on which the Common Stock is traded is not a
national securities exchange, NNM or The Nasdaq SmallCap Market, the average of
the bid and asked prices reported by the National Quotation Bureau, Inc.; or
(iv) if the price of the Common Stock is not so reported, the Fair Market Value
of the Common Stock as determined in good faith by the Board.
7. GRANTS OF OPTIONS.
(a) Exercise Price of Options. Incentive Stock Options shall be granted
at an exercise price of not less than 100% of the Fair Market Value on the date
of grant; provided, however, that Incentive Stock Options granted to a
participant who at the time of such grant owns (within the meaning of Section
424(d) of the Code) more than ten percent of the voting power of all classes of
stock of the Company (a "10% Holder") shall be granted at an exercise price of
not less than 110% of the Fair Market Value on the date of grant. Nonqualified
Options shall be granted at an exercise price determined in each case by the
Board.
(b) Term and Termination of Options.
(1) The Board shall determine the term within which each
Option may be exercised, in whole or in part, provided that (i) such term shall
not exceed ten years from the date of grant; (ii) the term of an Incentive Stock
Option granted to a 10% Holder shall not exceed five years from the date of
grant; and (iii) the aggregate Fair Market Value (determined on the date of
grant) of Common Stock with respect to which Incentive Stock Options granted to
a participant under the Plan or any other plan of the Company and its
subsidiaries become exercisable for the first time in any single calendar year
shall not exceed $100,000.
(2) Unless otherwise determined by the Board, all rights to
exercise Options shall terminate on the first to occur of (i) the scheduled
expiration date as set forth in the applicable Grant Instrument, (ii) sixty days
following the date of termination of employment or provision of services for any
reason other than the death or permanent disability (as defined in the Code) of
the participant, (iii) one year following the date of termination of employment
or provision of services by reason of the participant's death or permanent
disability, or (iv) as may be otherwise provided in the event of a Change of
Control as defined in Section 11; provided, however, that in the event that an
employee ceases to be employed by the Company due to a termination for "cause"
(as defined in Section 7(b)(3)), all rights to exercise Options held by such
employee shall terminate immediately as of the date such employee ceases to be
employed by the Company.
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<PAGE> 4
(3) As used in this Plan, the term "cause" shall mean a
finding by the Board that the employee has engaged in conduct that is
fraudulent, disloyal, criminal or injurious to the Company, including, without
limitation, embezzlement, theft, commission of a felony or dishonesty in the
course of his or her employment or service, or the disclosure of trade secrets
or confidential information of the Company to persons not entitled to receive
such information.
(c) Payment for Shares. Full payment for shares purchased upon exercise
of Options granted under the Plan shall be made at the time the award is
exercised in whole or in part. Payment of the purchase price shall be made in
cash or in such other form as the Board may approve, including, without
limitation, (i) by the delivery to the Company by the participant of a
promissory note containing such terms as the Board may determine, (ii) by the
delivery to the Company by the participant of shares of Common Stock that have
been held by the participant for at least six months prior to exercise of the
award, valued at the Fair Market Value of such shares on the date of exercise,
or (iii) if the Common Stock is publicly traded, pursuant to a cashless exercise
arrangement with a broker on such terms as the Board may determine; provided,
however, that if payment is made pursuant to clause (i), the then par value of
the purchased shares shall be paid in cash. No shares of Common Stock shall be
issued to the participant until such payment has been made, and a participant
shall have none of the rights of a stockholder with respect to Options held by
such participant.
(d) Other Terms and Conditions. The Board shall have the discretion to
determine terms and conditions, consistent with the Plan, that will be
applicable to Options, including, without limitation, performance-based criteria
for acceleration of the date on which certain Options shall become exercisable.
Options granted to the same or different participants, or at the same or
different times, need not contain similar provisions.
(e) Substitution of Options. Options may be granted under the Plan from
time to time in substitution for stock options of other entities ("Acquired
Companies") in connection with the merger or consolidation of the Acquired
Company with the Company, the acquisition by the Company of all or a portion of
the assets of the Acquired Company, or the acquisition of stock of the Acquired
Company such that the Acquired Company becomes a subsidiary of the Company.
8. GRANTS OF RESTRICTED STOCK.
The Board may issue or transfer shares of Common Stock to employees,
directors, consultants or advisors under a grant of Restricted Stock, upon such
terms as the Board deems applicable, including the provisions set forth below:
(a) General Requirements. Shares of Common Stock issued or transferred
pursuant to Restricted Stock grants may be issued or transferred for
consideration or for no consideration, and subject to restrictions or no
restrictions, as determined by the Board. The Board may establish conditions
under which restrictions on shares of Restricted Stock shall lapse over a period
of time or according to such other criteria (including performance-based
criteria) as the Board deems appropriate. The period of time during which the
Restricted Stock will remain subject to restrictions will be designated in the
Grant Instrument as the "Restriction Period."
(b) Number of Shares. The Board shall determine the number of shares of
Common Stock to be issued or transferred pursuant to a Restricted Stock grant
and the restrictions applicable to such shares.
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<PAGE> 5
(c) Requirement of Employment or Service. If the recipient of a
Restricted Stock grant ("Grantee") ceases to be employed by, or to provide
service to, the Company during the Restriction Period, or if other specified
conditions are not met, the Restricted Stock grant shall terminate as to all
shares covered by the grant as to which the restrictions have not lapsed, and
those shares of Common Stock shall be canceled in exchange for the purchase
price, if any, paid by the Grantee for such shares. The Board may, however,
provide for complete or partial exceptions to this requirement as it deems
appropriate.
(d) Restrictions on Transfer and Legend on Stock Certificate. During
the Restriction Period, a Grantee may not sell, assign, transfer, donate, pledge
or otherwise dispose of the shares of Restricted Stock. Each certificate for a
share of Restricted Stock shall contain a legend giving appropriate notice of
the applicable restrictions. The Grantee shall be entitled to have the legend
removed from the stock certificate covering the shares of Restricted Stock
subject to restrictions when all restrictions on such shares have lapsed. The
Board may determine that the Company will not issue certificates for shares of
Restricted Stock until all restrictions on such shares have lapsed, or that the
Company will retain possession of certificates for shares of Restricted Stock
until all restrictions on such shares have lapsed.
(e) Right to Vote and to Receive Dividends. During the Restriction
Period, the Grantee shall have the right to vote shares of Restricted Stock and
to receive any dividends or other distributions paid on such shares, subject to
any restrictions deemed appropriate by the Board.
(f) Lapse of Restrictions. All restrictions imposed on Restricted Stock
shall lapse upon the expiration of the applicable Restriction Period and the
satisfaction of all conditions imposed by the Board. The Board may determine, as
to any or all Restricted Stock grants, that the restrictions shall lapse without
regard to any Restriction Period.
9. ADJUSTMENTS TO REFLECT CAPITAL CHANGES.
The number and kind of shares subject to outstanding awards, the
exercise price applicable to Options previously awarded, and the number and kind
of shares available subsequently to be granted under the Plan shall be
appropriately adjusted to reflect any stock dividend, stock split, combination
or exchange of shares or other change in capitalization with a similar
substantive effect upon the Plan or the awards granted under the Plan. The Board
shall have the power and sole discretion to determine the nature and amount of
the adjustment to be made in each case. The adjustment so made shall be final
and binding on all participants.
10. RIGHT OF FIRST REFUSAL; RIGHT TO REPURCHASE.
(a) At any time prior to the registration by the Company of its Common
Stock under Section 12 of the Exchange Act, the Company shall have a right of
first refusal with respect to any proposed sale or other disposition by
participants (and their successors in interest by purchase, gift or other mode
of transfer) of any shares of Common Stock issued to them under the Plan which
are transferable. Such right shall be exercisable by the Company in accordance
with the terms and conditions established by the Board.
(b) At any time prior to the registration by the Company of its Common
Stock under Section 12 of the Exchange Act, in the event that an employee is
terminated for cause (as defined in Section 7(b)(3)), the Company shall have the
right, exercisable within ninety (90) days following such termination, to
repurchase any shares of Common Stock issued to such terminated employee under
the Plan for the purchase price paid by such terminated employee for such shares
of Common Stock.
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<PAGE> 6
11. DEFINITION OF CHANGE OF CONTROL.
For purposes of this Plan, a "Change of Control" shall mean the
occurrence of any of the following events:
(a) the acquisition, other than from the Company, by any individual,
entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the
Exchange Act) (other than the Company or an employee benefit plan of the
Company) of beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of more than 50% of the combined voting power of the
then outstanding voting securities of the Company entitled to vote generally in
the election of directors (the "Voting Securities"); or
(b) the approval by the shareholders of the Company of a
reorganization, merger, consolidation or recapitalization of the Company (a
"Business Combination"), other than a Business Combination in which more than
50% of the combined voting power of the outstanding voting securities of the
surviving or resulting entity immediately following the Business Combination is
held by the persons who, immediately prior to the Business Combination, were the
holders of the Voting Securities; or
(c) the approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company, or a sale of all or substantially all
of the assets of the Company; or
(d) individuals who, as of the Restated Effective Date, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board, provided that any individual becoming a director
subsequent to such date whose election or nomination for election by the
Company's shareholders was approved by a vote of at least a majority of the
directors when comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board.
12. CONSEQUENCES OF A CHANGE OF CONTROL.
(a) Upon a Change of Control, (i) each outstanding Option shall be
assumed by the Acquiring Corporation (as defined below) or parent thereof or
replaced with a comparable option or right to purchase shares of the capital
stock, or equity equivalent instrument, of the Acquiring Corporation or parent
thereof, or other comparable rights (such assumed and comparable options and
rights, together, the "Replacement Options"), and (ii) each share of Restricted
Stock shall be converted to a comparable restricted grant of capital stock, or
equity equivalent instrument, of the Acquiring Corporation or parent thereof or
other comparable restricted property (such assumed and comparable restricted
grants, together, the "Replacement Restricted Stock"), provided, however, that
if the Acquiring Corporation or parent thereof does not agree to grant
Replacement Options and Replacement Restricted Stock, then all outstanding
Options which have been granted under the Plan and which are not exercisable as
of the effective date of the Change of Control shall automatically accelerate
and become exercisable immediately prior to the effective date of the Change of
Control, and all restrictions
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<PAGE> 7
and conditions on any Restricted Stock which has been granted under the Plan
shall lapse upon the effective date of the Change of Control. The term
"Acquiring Corporation" means the surviving, continuing, successor or purchasing
corporation, as the case may be. The Board may determine in its discretion (but
shall not be obligated to do so) that in lieu of the issuance of Replacement
Options, all holders of outstanding Options which are exercisable immediately
prior to a Change of Control (including those that become exercisable under this
Section 12(a) and any that become exercisable under Section 12(b)) will be
required to surrender them in exchange for a payment by the Company, in cash or
Common Stock as determined by the Board, of an amount equal to the amount (if
any) by which the then Fair Market Value of Common Stock subject to unexercised
Options exceeds the exercise price of those Options, with such payment to take
place as of the date of the Change of Control or such other date as the Board
may prescribe.
(b) In the event that Replacement Options and Replacement Restricted
Stock are granted pursuant to Section 12(a) hereof, then 50% of the outstanding
Options granted under the Plan after the Restated Effective Date ("New Options")
which are not exercisable immediately prior to the effective date of the Change
of Control shall automatically accelerate and become exercisable immediately
prior to the effective date of the Change of Control, and the restrictions and
conditions on 50% of any Restricted Stock granted under the Plan which have not
lapsed immediately prior to the effective date of the Change of Control shall
lapse immediately upon the effective date of the Change of Control. For purposes
of this provision, the 50% acceleration and lapse provisions shall be applied
pro rata to all unvested New Options, and to all Restricted Stock, respectively,
held by each participant, regardless of when granted.
(c) Any Options that are not assumed or replaced by Replacement
Options, exercised or cashed out prior to or concurrent with a Change of Control
will terminate effective upon the Change of Control or at such other time as the
Board deems appropriate.
(d) Notwithstanding anything in the Plan to the contrary, in the event
of a Change of Control, no action described in the Plan shall be taken
(including, without limitation, actions described in subsections (a), (b) and
(c) above) if such actions would make the Change of Control ineligible for
"pooling of interests" accounting treatment or would make the Change of Control
ineligible for desired tax treatment if, in the absence of such actions, the
Change of Control would qualify for such treatment and the Company intends to
use such treatment with respect to such Change of Control.
13. TRANSFERABILITY OF OPTIONS.
Unless otherwise determined by the Board with respect to Nonqualified
Options, Options granted under the Plan shall not be transferable other than by
will or the laws of descent and distribution and are exercisable during a
participant's lifetime only by the participant.
14. WITHHOLDING.
The Company shall have the right to deduct any taxes required by law to
be withheld in respect of awards granted under the Plan from amounts paid to a
participant in cash as salary, bonus or other compensation. In the Board's
discretion, a participant may be permitted to elect to have withheld from the
shares otherwise issuable to the participant, or to tender to the Company, a
number of shares of Common Stock the aggregate Fair Market Value of which does
not exceed the applicable withholding rate for federal (including FICA), state
and local tax liabilities. Such election must be in a form and manner prescribed
by the Board.
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15. CONSTRUCTION OF THE PLAN.
The validity, construction, interpretation, administration and effect
of the Plan and of its rules and regulations, and rights relating to the Plan,
shall be determined solely by the Board. Any determination by the Board shall be
final and binding on all participants. The Plan shall be governed in accordance
with the laws of the State of Delaware, without regard to the conflict of law
provisions of such laws.
16. NO RIGHT TO AWARD; NO RIGHT TO EMPLOYMENT.
No person shall have any claim of right to be granted an Option or
Restricted Stock under the Plan. Neither the Plan nor any action taken hereunder
shall be construed as giving any employee any right to be retained in the employ
of the Company or any of its subsidiaries or as giving any consultant, advisor
or director any right to continue to serve in such capacity.
17. AWARDS NOT INCLUDABLE FOR BENEFIT PURPOSES.
Income recognized by a participant pursuant to the provisions of the
Plan shall not be included in the determination of benefits under any employee
pension benefit plan (as such term is defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974) or group insurance or other benefit
plans applicable to the participant which are maintained by the Company or any
of its subsidiaries, except as may be provided under the terms of such plans or
determined by resolution of the Board.
18. NO STRICT CONSTRUCTION.
No rule of strict construction shall be implied against the Company,
the Board or any other person in the interpretation of any of the terms of the
Plan, any award granted under the Plan or any rule or procedure established by
the Board.
19. CAPTIONS.
All Section headings used in the Plan are for convenience only, do not
constitute a part of the Plan, and shall not be deemed to limit, characterize or
affect in any way any provisions of the Plan, and all provisions of the Plan
shall be construed as if no captions have been used in the Plan.
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20. SEVERABILITY.
Whenever possible, each provision in the Plan and every award at any
time granted under the Plan shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision of the Plan or
any award at any time granted under the Plan shall be held to be prohibited by
or invalid under applicable law, then such provision shall be deemed amended to
accomplish the objectives of the provision as originally written to the fullest
extent permitted by law, and all other provisions of the Plan and every other
award at any time granted under the Plan shall remain in full force and effect.
21. LEGENDS.
All certificates for Common Stock delivered under the Plan shall be
subject to such transfer and other restrictions as the Board may deem advisable
under the rules, regulations and other requirements of the Securities and
Exchange Commission, any stock exchange or quotation system upon which the
Common Stock is then listed or quoted and any applicable federal or state
securities laws, and the Board may cause a legend or legends to be put on any
such certificates to make appropriate references to such restrictions.
22. AMENDMENT.
The Board may, by resolution, amend or revise the Plan, except that
such action shall not be effective without stockholder approval if such
stockholder approval is required to maintain the compliance of the Plan and/or
awards granted to directors, executive officers or other persons with Rule 16b-3
promulgated under the Exchange Act or any successor rule. The Board may not
modify any Options previously granted under the Plan in a manner adverse to the
holders thereof without the consent of such holders, except in accordance with
the provisions of Sections 9, 12 or 23.
23. MODIFICATION FOR GRANTS OUTSIDE THE U.S.
The Board may, without amending the Plan, modify grants of Options or
Restricted Stock to participants who are foreign nationals or employed outside
the United States in order to recognize differences in local law or regulations,
tax policies or customs.
24. EFFECTIVE DATE; TERMINATION OF PLAN.
The Plan was effective on March 2, 1998. The Restated Effective Date is
June 30, 1999, provided the stockholders of the Company approve the Plan at the
Annual Meeting of Stockholders held on such date. The Plan shall terminate on
March 1, 2008, unless it is earlier terminated by the Board. Termination of the
Plan shall not affect awards previously granted under the Plan.
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Exhibit 10.7
FREEMARKETS, INC.
EMPLOYEE STOCK PURCHASE PLAN
<PAGE> 2
FREEMARKETS, INC.
EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the FreeMarkets, Inc.
Employee Stock Purchase Plan.
I. Purpose and History
1.1 The purpose of the Plan is to provide employees of the Company and its
Designated Subsidiaries with an opportunity to purchase Common Stock of
the Company. It is the intention of the Company to have the Plan
qualify as an "Employee Stock Purchase Plan" under Code Section 423.
Accordingly, the provisions of the Plan shall be construed so as to
extend and limit participation in a manner consistent with the
requirements of that Code Section.
II. Definitions
The following words and phrases, when used in this Plan, unless their
context clearly indicates otherwise, shall have the following meanings:
2.1 "Administrator" means the individual(s), committee or entity as may be
appointed by the Board, with such authority and power as the Board may
determine, to administer the terms of the Plan. The Administrator may,
in turn, delegate all or a portion of its authority to one or more
individuals to perform administrative functions under the terms of the
Plan.
2.2 "Board" means the Board of Directors of the Company.
2.3 "Change in Control" means the occurrence of any of the following
events:
(a) the acquisition, other than from the Company, by any
individual, entity or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Exchange Act) (other than the
Company or an employee benefit plan of the Company) of
beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of more than 50% of the
combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the
election of directors (the "Voting Securities"); or
(b) the approval by the shareholders of the Company of a
reorganization, merger, consolidation or recapitalization of
the Company (a "Business Combination"), other than a Business
Combination in which more than 50% of the combined voting
power of the outstanding voting securities of the surviving or
resulting entity immediately following the Business
Combination is held by the persons
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<PAGE> 3
who, immediately prior to the Business Combination, were the
holders of the Voting Securities; or
(c) the approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company, or a sale of all or
substantially all of the assets of the Company; or
(d) individuals who, as of the effective date of the Plan,
constitute the Board (the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board,
provided that any individual becoming a director subsequent to
such date whose election or nomination for election by the
Company's shareholders was approved by a vote of at least a
majority of the directors when comprising the Incumbent Board
shall be considered as though such individual were a member of
the Incumbent Board.
2.4 "Code" means the Internal Revenue Code of 1986, as amended.
2.5 "Common Stock" means the Common Stock of the Company.
2.6 "Company" means FreeMarkets, Inc., a Delaware corporation.
2.7 "Compensation" means all cash compensation paid to an Employee by the
Company and includes commissions, bonuses, overtime, incentive
compensation, incentive payments, and other forms of cash compensation
as determined by the Administrator.
2.8 "Continuous Status as an Employee" means the absence of any
interruption or termination of service as an Employee. Continuous
Status as an Employee shall not be considered interrupted in the case
of: (i) sick leave; (ii) military leave; (iii) any other leave of
absence approved by the Administrator; provided, that such leave is for
a period of not more than ninety (90) days, unless reemployment upon
the expiration of such leave is guaranteed by contract or statute, or
unless provided otherwise pursuant to Company policy adopted from time
to time; or (iv) in the case of transfers between locations of the
Company or between the Company and its Designated Subsidiaries.
2.9 "Contributions" means all amounts credited to the account of a
participant pursuant to the Plan.
2.10 "Designated Subsidiaries" means the Subsidiaries that have been
designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan (as set forth on Appendix A);
provided, however, that the Board shall only have the discretion to
designate a Subsidiary if the issuance of options to such Subsidiary's
Employees under the Plan would not cause the Company to incur adverse
accounting charges or cause the Plan not to qualify under Code Section
423.
2.11 "Employee" means any person, including an Officer, who is customarily
employed for at least twenty (20) hours per week and more than five (5)
months in a calendar year by the Company or one of its Designated
Subsidiaries.
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2.12 "Exchange Act" means the Securities Exchange Act of 1934, as amended.
2.13 "Offering Date" means the first business day of each Offering Period of
the Plan.
2.14 "Offering Period" means a period of twenty-four (24) months commencing
on May 1 and November 1 of each year, except for the first Offering
Period as set forth in Section 4.1.
2.15 "Officer" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
2.16 "Plan" means the FreeMarkets, Inc. Employee Stock Purchase Plan.
2.17 "Purchase Date" means the last day of each Purchase Period of the Plan.
2.18 "Purchase Period" means a period of six (6) months within an Offering
Period, except for the first Purchase Period as set forth in Section
4.2.
2.19 "Purchase Price" means with respect to a Purchase Period an amount
equal to 85% of the Fair Market Value (as defined in Section 7.2 below)
of a Share of Common Stock on the Offering Date or on the Purchase
Date, whichever is lower; provided, however, that in the event (i) of
any increase in the number of Shares available for issuance under the
Plan (including without limitation an automatic increase pursuant to
Section 13.1 below or as a result of a stockholder-approved amendment
to the Plan), and (ii) all or a portion of such additional Shares are
to be issued with respect to one or more Offering Periods that are
underway at the time of such increase ("Additional Shares"), and (iii)
the Fair Market Value of a Share of Common Stock on the date of such
increase (the "Approval Date Fair Market Value") is higher than the
Fair Market Value on the Offering Date for any such Offering Period,
then in such instance the Purchase Price with respect to Additional
Shares shall be 85% of the Approval Date Fair Market Value or the Fair
Market Value of a Share of Common Stock on the Purchase Date, whichever
is lower.
2.20 "Share" means a share of Common Stock, as adjusted in accordance with
Article 19 of the Plan.
2.21 "Subsidiary" means a corporation, domestic or foreign, of which not
less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter
organized or acquired by the Company or a Subsidiary.
III. Eligibility
3.1 Eligible Employees. Any person who is an Employee as of the Offering
Date of a given Offering Period shall be eligible to participate in
such Offering Period under the
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Plan, subject to the requirements of Section 5.1 and the limitations
imposed by Code Section 423(b); provided, however, that eligible
Employees may not participate in more than one Offering Period at a
time.
3.2 Excluded Employees. Any provisions of the Plan to the contrary
notwithstanding, no Employee shall be granted an option under the Plan
if: (i) immediately after the grant, such Employee (or any other person
whose stock would be attributed to such Employee pursuant to Code
Section 424(d)) would own capital stock of the Company and/or hold
outstanding options to purchase stock possessing five percent (5%) or
more of the total combined voting power or value of all classes of
stock of the Company or of any subsidiary of the Company; or (ii) such
option would permit his or her rights to purchase stock under all
employee stock purchase plans (described in Code Section 423) of the
Company and its Subsidiaries to accrue at a rate which exceeds
twenty-five thousand dollars ($25,000) of the Fair Market Value (as
defined in Section 7.2 below) of such stock (determined at the time
such option is granted) for each calendar year in which such option is
outstanding at any time.
IV. Offering Periods and Purchase Periods
4.1 Offering Periods. The Plan shall be implemented by a series of Offering
Periods of twenty-four (24) months' duration, with new Offering Periods
commencing on or about November 1 and May 1 of each year (or at such
other time or times as may be determined by the Board). The first
Offering Period shall commence on the beginning of the effective date
of the Registration Statement on Form S-1 for the initial public
offering of the Company's Common Stock (the "IPO Date") and continue
until October 31, 2001. The Board shall have the power to change the
duration and/or the frequency of Offering Periods with respect to
future offerings without stockholder approval if such change is
announced at least five (5) days prior to the scheduled beginning of
the first Offering Period to be affected.
4.2 Purchase Periods. Each Offering Period shall consist of four (4)
consecutive Purchase Periods of six (6) months' duration. The last day
of each Purchase Period shall be the Purchase Date for such Purchase
Period. A Purchase Period commencing on November 1 shall end on the
next April 30. A Purchase Period commencing on May 1 shall end on the
next October 31. The first Purchase Period shall commence on the IPO
Date and shall end on April 30, 2000. The Board shall have the power to
change the duration and/or frequency of Purchase Periods with respect
to future purchases without stockholder approval if such change is
announced at least five (5) days prior to the scheduled beginning of
the first Purchase Period to be affected.
V. Participation
5.1 Employee Participation. An eligible Employee may become a participant
in the Plan by completing a subscription agreement on the form provided
by the Company and filing it with the Administrator prior to the
applicable Offering Date, unless a later time
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<PAGE> 6
for filing the subscription agreement is set by the Administrator for
all eligible Employees with respect to a given Offering Period. The
subscription agreement shall set forth the percentage of the
participant's Compensation (subject to Section 6.1 below) to be paid as
Contributions under the Plan.
5.2 Payroll Deductions. Payroll deductions shall commence as of the first
payroll following the Offering Date and shall end on the last payroll
paid on or prior to the last Purchase Date of the Offering Period to
which the subscription agreement is applicable, unless sooner
terminated by the participant as provided in Section 10.
VI. Method of Payment of Contributions
6.1 Amount of Payroll Deductions. A participant shall elect to have payroll
deductions made on each payday during the Offering Period in an amount
not less than one percent (1%) and not more than twenty percent (20%)
(or such lesser or greater percentage as the Board may establish from
time to time before an Offering Date) of such participant's
Compensation on each payday during the Offering Period. All payroll
deductions made by a participant shall be credited to his or her
account under the Plan. A participant may not make any additional
payments into such account.
6.2 Change and Discontinuation of Payroll Deduction Election. A participant
may discontinue his or her participation in the Plan as provided in
Article 10, or, on one occasion only during an Offering Period may
increase and on one occasion only during such Offering Period may
decrease the rate of his or her Contributions with respect to the
Offering Period by completing and filing a new subscription agreement
with the Administrator. Any such change in the payroll deduction rate
shall be effective as soon as administratively practicable after the
Administrator receives the new subscription agreement from the
participant.
6.3 Limit on Payroll Deductions. Notwithstanding the foregoing, to the
extent necessary to comply with Code Section 423(b)(8) and Section 3.2
herein, a participant's payroll deductions may be decreased during any
Offering Period scheduled to end during the current calendar year to 0%
at such time that the aggregate of all payroll deductions accumulated
with respect to such Offering Period and any other Offering Period
ending within the same calendar year equal $21,250. Payroll deductions
shall resume at the elected rate set forth in such participant's
subscription agreement at the beginning of the first Offering Period
that is scheduled to end in the following calendar year, unless
terminated by the participant as provided in Article 10.
Notwithstanding the foregoing, to the extent necessary to comply with
Section 423(b)(8) of the Code and Section 3.2 hereof, a participant's
payroll deductions may be decreased to zero percent (0%) at any time
during a Purchase Period. Payroll deductions shall recommence at the
rate provided in such participant's subscription agreement at the
beginning of the first Purchase Period which is scheduled to end in the
following calendar year, unless terminated by the participant as
provided in Article 10.
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VII. Grant of Option
7.1 Grant of Option. On the Offering Date of each Offering Period, each
eligible Employee participating in such Offering Period shall be
granted an option to purchase on each Purchase Date a number of Shares
of the Company's Common Stock determined by dividing such Employee's
Contributions accumulated prior to such Purchase Date and retained in
the participant's account as of the Purchase Date by the applicable
Purchase Price. There is no limit on the number of Shares that a
participant may purchase under the Plan; provided, however, that the
Board may impose a limit on the number of Shares a participant may
purchase under the Plan at any time, and provided further that such
purchase shall be subject to the limitations set forth in Section 3.2
and Article 13.
7.2 Fair Market Value of Options. For all purposes under the Plan, the term
"Fair Market Value" shall mean, as of any applicable date, (i) if the
principal securities market on which the Common Stock is traded is a
national securities exchange or The Nasdaq National Market ("NNM"), the
closing price of the Common Stock on such exchange or NNM, as the case
may be, or if no sale of the Common Stock shall have occurred on such
date, on the next preceding date on which there was a reported sale;
(ii) if the Common Stock is not traded on a national securities
exchange or NNM, the closing price on such date as reported by The
Nasdaq SmallCap Market, or if no sale of the Common Stock shall have
occurred on such date, on the next preceding date on which there was a
reported sale; (iii) if the principal securities market on which the
Common Stock is traded is not a national securities exchange, NNM or
The Nasdaq SmallCap Market, the average of the bid and asked prices
reported by the National Quotation Bureau, Inc.; or (iv) if the price
of the Common Stock is not so reported, the Fair Market Value of the
Common Stock as determined in good faith by the Board.
VIII. Exercise of Option
8.1 Exercise of Option. Unless a participant withdraws from the Plan as
provided in Article 10, his or her option for the purchase of Shares
will be exercised automatically on each Purchase Date of an Offering
Period, and the maximum number of full Shares subject to the option
will be purchased at the applicable Purchase Price with the accumulated
Contributions in his or her account. No fractional Shares shall be
issued under the Plan. The Shares purchased upon exercise of an option
hereunder shall be deemed to be transferred to the participant on the
Purchase Date. During his or her lifetime, a participant's option to
purchase Shares hereunder is exercisable only by him or her.
IX. Delivery
9.1 Delivery of Shares. As soon as administratively practicable after each
Purchase Date of each Offering Period, the Administrator shall arrange
the delivery to each participant, as appropriate, of a certificate
representing the Shares purchased upon
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<PAGE> 8
exercise of his or her option. Any payroll deductions accumulated in a
participant's account which are not sufficient to purchase a full Share
shall be retained in the participant's account for the subsequent
Purchase Period or Offering Period, subject to earlier withdrawal by
the participant as provided in Article 10 below. Any other amounts left
over in a participant's account after a Purchase Date shall be returned
to the participant.
X. Withdrawal and Termination of Employment
10.1 Voluntary Withdrawal of Participation. A participant may withdraw all
(partial withdrawals are not permitted) Contributions credited to his
or her account under the Plan at any time prior to each Purchase Date
by giving written notice to the Administrator. All of the participant's
Contributions credited to his or her account will be paid to him or her
as soon as administratively practicable after receipt of his or her
withdrawal notice and his or her option for the current period will be
automatically terminated. In addition, no further Contributions for the
purchase of Shares will be made during the Offering Period on the
participant's behalf.
10.2 Withdrawal Upon Termination of Employment. Upon termination of the
participant's Continuous Status as an Employee prior to the Purchase
Date of an Offering Period for any reason, including retirement or
death, the Contributions credited to his or her account will be
returned to him or her or, in the case of his or her death, to the
person or persons entitled thereto under Article 14, and his or her
option will terminate automatically.
10.3 Involuntary Withdrawal of Participation. In the event an Employee fails
to remain in Continuous Status as an Employee of the Company for at
least twenty (20) hours per week during the Offering Period in which
the Employee is a participant, he or she will be deemed to have elected
to withdraw from the Plan and the Contributions credited to his or her
account will be returned to him or her and his or her option will be
terminated.
10.4 Effect of Withdrawal. A participant's withdrawal from an offering will
not have any effect upon his or her eligibility to participate in a
succeeding offering or in any similar plan which may hereafter be
adopted by the Company.
XI. Automatic Withdrawal
11.1 Automatic Withdrawal. If the Fair Market Value of the Shares on any
Purchase Date of an Offering Period is less than the Fair Market Value
of the Shares on the Offering Date for such Offering Period, then every
participant shall automatically: (i) be withdrawn from such Offering
Period at the close of such Purchase Date and after the acquisition of
Shares for such Purchase Period; and (ii) be enrolled in the Offering
Period commencing on the first business day subsequent to such Purchase
Period. Participants shall automatically be withdrawn as of April 30,
2000 from the Offering
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<PAGE> 9
Period beginning on the IPO Date and re-enrolled in the Offering Period
beginning on May 1, 2000 if the Fair Market Value of the Shares on the
Offering Date of the first Offering Period is greater than the Fair
Market Value of the Shares on April 30, 2000, unless a participant
notifies the Administrator prior to April 30, 2000 that he or she does
not wish to be withdrawn and re-enrolled.
XII. Interest
12.1 Interest Accrual. No interest shall accrue on the Contributions of a
Plan participant.
XIII. Shares
13.1 Shares Available Under the Plan. Subject to adjustment as provided in
Section 19, the maximum number of Shares which initially shall be made
available for sale under the Plan shall be 500,000 Shares. In addition,
on the first day of each of the Company's fiscal years, the aggregate
number of Shares reserved for issuance under the Plan shall be
increased automatically by the number of Shares purchased under the
Plan in the preceding fiscal year; provided, that the aggregate number
of Shares reserved under the Plan shall not exceed 2,000,000 Shares. If
the Board determines that, on a given Purchase Date, the number of
Shares with respect to which options are to be exercised may exceed:
(i) the number of Shares of Common Stock that were available for sale
under the Plan on the Offering Date of the applicable Offering Period;
or (ii) the number of Shares available for sale under the Plan on such
Purchase Date, the Board may in its sole discretion provide: (x) that
the Company shall make a pro rata allocation of the Shares of Common
Stock available for purchase on such Offering Date or Purchase Date, as
applicable, in as uniform a manner as shall be practicable and as it
shall determine in its sole discretion to be equitable among all
participants exercising options to purchase Common Stock on such
Purchase Date, and continue all Offering Periods then in effect; or (y)
that the Company shall make a pro rata allocation of the shares
available for purchase on such Offering Date or Purchase Date, as
applicable, in as uniform a manner as shall be practicable and as it
shall determine in its sole discretion to be equitable among all
participants exercising options to purchase Common Stock on such
Purchase Date, and terminate any or all Offering Periods then in effect
pursuant to Section 20 below. Notwithstanding any authorization of
additional Shares for issuance under the Plan by the Company's
stockholders subsequent to such Offering Date, the Company may make pro
rata allocation of the Shares available on the Offering Date of any
applicable Offering Period pursuant to the preceding sentence.
13.2 Voting of Shares. The participant shall have no interest or voting
right in Shares covered by his or her option until such option has been
exercised.
13.3 Registration of Shares. Shares to be delivered to a participant under
the Plan will be registered in the name of the participant or in the
name of the participant and his or her spouse.
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<PAGE> 10
XIV. Administration
14.1 Plan Administration. The Board shall supervise and administer the Plan
and shall have full power to adopt, amend and rescind any rules deemed
desirable and appropriate for the administration of the Plan and not
inconsistent with the Plan, to construe and interpret the Plan, and to
make all other determinations necessary or advisable for the
administration of the Plan. In its sole discretion, the Board may
appoint an Administrator and delegate all or a portion of its authority
to such Administrator to administer the terms of the Plan.
XV. Designation of Beneficiary
15.1 Beneficiary Designation. A participant may file a written beneficiary
designation with the Administrator designating the beneficiary who is
to receive any Shares and cash, if any, from the participant's account
under the Plan in the event of such participant's death subsequent to
the end of a Purchase Period but prior to delivery to him or her of
such Shares and cash. In addition, a participant may file a beneficiary
designation with the Administrator who is to receive any cash from the
participant's account under the Plan in the event of such participant's
death prior to the Purchase Date of an Offering Period. If a
participant is married and the designated beneficiary is not the
participant's spouse, spousal consent shall be required for such
designation to be effective.
15.2 Change of Beneficiary Designation. Such beneficiary designation may be
changed by the participant (and his or her spouse, if any) at any time
by written notice. In the event of the death of a participant and in
the absence of a valid beneficiary designation who is living at the
time of such participant's death, the Administrator shall deliver such
Shares and/or cash to the executor or administrator of the estate of
the participant, or if no such executor or administrator has been
appointed (to the knowledge of the Administrator), the Administrator,
in its discretion, may deliver such Shares and/or cash to the spouse or
to any one or more dependents or relatives of the participant, or if no
spouse, dependent or relative is known to the Administrator, then to
such other person as the Administrator may designate.
XVI. Transferability
16.1 Transfer of Plan Benefits. Neither Contributions credited to a
participant's account nor any rights with regard to the exercise of an
option or to receive Shares under the Plan may be assigned,
transferred, pledged or otherwise disposed of in any way (other than by
will, the laws of descent and distribution, or as provided in Article
15) by the participant. Any such attempt at assignment, transfer,
pledge or other disposition shall be without effect, except that the
Company may treat such act as a voluntary election to withdraw funds in
accordance with Article 10.
XVII. Use of Contributions
17.1 Use of Contributions. All Contributions received or held by the Company
under the Plan may be used by the Company for any corporate purpose,
and the Company shall not be obligated to segregate such Contributions.
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XVIII. Reporting of Accounts
18.1 Reporting of Accounts. Individual accounts will be maintained for each
participant in the Plan. Statements of account will be given to
participating Employees at least annually, which statements will set
forth the amounts of Contributions, the per Share Purchase Price, the
number of Shares purchased and the remaining cash balance, if any.
XIX. Adjustments Upon Changes in Capitalization;
Change in Control
19.1 Adjustment. Subject to any required action by the stockholders of the
Company, the number of Shares covered by each option under the Plan
which has not yet been exercised and the number of Shares which have
been authorized for issuance under the Plan but have not yet been
placed under option (collectively, the "Reserves"), as well as the
maximum number of shares of Common Stock which may be purchased by a
participant in a Purchase Period, the number of shares of Common Stock
set forth in Section 13.1 above, and the price per Share of Common
Stock covered by each option under the Plan which has not yet been
exercised, shall be appropriately adjusted to reflect any stock
dividend, stock split, combination or exchange of shares or other
change in capitalization with a similar substantive effect upon the
Plan or the awards granted under the Plan. The Board shall have the
power and sole discretion to determine the nature and amount of the
adjustment to be made in each case. The adjustment so made shall be
final and binding on all participants.
19.2 Change in Control. Upon a Change of Control, each outstanding option
shall be assumed by the "Acquiring Corporation" (as defined below) or
parent thereof or replaced with a comparable option or right to
purchase shares of the capital stock, or equity equivalent instrument,
of the Acquiring Corporation or parent thereof, or other comparable
rights (such assumed and comparable options and rights, together, the
"Replacement Options"); provided, however, that if the Acquiring
Corporation or parent thereof does not agree to grant Replacement
Options, then all outstanding Options which have been granted under the
Plan and which are not exercisable as of the effective date of the
Change of Control shall automatically accelerate and become exercisable
immediately prior to the effective date of the Change of Control as
described below. The term "Acquiring Corporation" means the surviving,
continuing, successor or purchasing corporation, as the case may be. In
the event that the successor corporation refuses to assume or
substitute for outstanding options, each Purchase Period and Offering
Period then in progress shall be shortened and a new
Purchase Date shall be set (the "New Purchase Date"), as of which date
any Purchase Period and Offering Period then in progress will
terminate. The New Purchase Date shall be on or before the date of
consummation of the Change in Control and the Board shall notify each
participant in writing, at least ten (10) days prior to the New
Purchase Date, that the Purchase Date for his or her option has been
changed to the New Purchase Date and that his or her option will be
exercised automatically on the New Purchase Date, unless prior to such
date he or she has withdrawn from the Offering Period as provided in
Article 10. For purposes of this Article 19, an option granted under
the Plan shall be deemed to be assumed, without limitation, if, at the
time of issuance of the stock or other consideration upon a Change in
Control, each holder of an option under the Plan would be entitled to
receive upon exercise of the option the same number and kind of shares
of stock or the same amount of property, cash or securities as such
holder would have been entitled to receive upon the occurrence of the
Change in Control if the holder had been, immediately prior to the
transaction, the holder of the number of Shares of Common Stock covered
by the option at such time (after giving effect to any adjustments in
the number of Shares covered by the option as provided for in this
Article 19); provided, however, that if the consideration received in
the transaction is not solely common stock of the Acquiring
Corporation, the Board may, with the consent of the Acquiring
Corporation, provide for the consideration to be received upon exercise
of the option to be solely common stock of the Acquiring Corporation or
its parent equal in Fair Market Value to the per Share consideration
received by holders of Common Stock in the transaction.
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19.3 Liquidation and Dissolution. In the event of a dissolution or
liquidation of the Company, any Purchase Period and Offering Period
then in progress will terminate immediately prior to the consummation
of such action, unless otherwise provided by the Board.
XX. Amendment or Termination
20.1 Authority to Amend or Terminate Plan. The Board may at any time and for
any reason terminate or amend the Plan. Except as provided in Article
19, no such termination of the Plan may affect options previously
granted; provided, that the Plan or an Offering Period may be
terminated by the Board on a Purchase Date or by the Board's setting a
new Purchase Date with respect to an Offering Period and Purchase
Period then in progress if the Board determines that termination of the
Plan and/or the Offering Period is in the best interests of the Company
and the stockholders or if continuation of the Plan and/or the Offering
Period would cause the Company to incur adverse accounting charges as a
result of a change after the effective date of the Plan in the
generally accepted accounting rules applicable to the Plan. Except as
provided in Section 19 and in this Section 20, no amendment to the Plan
shall make any change in any option previously granted which adversely
affects the rights of any participant. In addition, to the extent
necessary to comply with Rule 16b-3 under the Exchange Act, or under
Code Section 423 (or any successor rule or provision or any applicable
law or regulation), the Company shall obtain stockholder approval in
such a manner and to such a degree as so required.
20.2 Amendment of Plan Provisions. Without stockholder consent and without
regard to whether any participant rights may be considered to have been
adversely affected, the Board shall be entitled to change the Offering
Periods and Purchase Periods, limit the frequency and/or number of
changes in the amount withheld during an Offering Period, establish the
exchange ratio applicable to amounts withheld in a currency other than
U.S. dollars, permit payroll withholding in excess of the amount
designated by a participant in order to adjust for delays or mistakes
in the Company's processing of properly completed withholding
elections, establish reasonable waiting and adjustment periods and/or
accounting and crediting procedures to ensure that amounts applied
toward the purchase of Common Stock for each participant properly
correspond with amounts withheld from the participant's Compensation,
and establish such other limitations or procedures as the Board, in its
sole discretion, determines to be advisable.
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XXI. Notices
21.1 Notices. All notices or other communications by a participant to the
Company under or in connection with the Plan shall be deemed to have
been duly given when received in the form specified by the Company at
the location, or by the person, designated by the Company for the
receipt thereof.
XXII. Conditions Upon Share Issuance
22.1 Conditions Upon Share Issuance. Shares shall not be issued with respect
to an option unless the exercise of such option and the issuance and
delivery of such Shares pursuant thereto shall comply with all
applicable provisions of law, domestic or foreign, including, without
limitation, the Securities Act of 1933, as amended, the Exchange Act,
the rules and regulations promulgated thereunder, applicable state
securities laws and the requirements of any stock exchange upon which
the Shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance. As
a condition to the exercise of an option, the Company may require the
person exercising such option to represent and warrant at the time of
any such exercise that the Shares are being purchased only for
investment and without any present intention to sell or distribute such
Shares if, in the opinion of counsel for the Company, such a
representation is required by any of the aforementioned applicable
provisions of law.
XXIII. Miscellaneous
23.1 Term of Plan and Effective Date. The Plan shall become effective upon
the IPO Date. It shall continue in effect for a term of twenty (20)
years unless sooner terminated under Article 20.
23.2 Additional Restrictions. The terms and conditions of options granted
hereunder to, and the purchase of Shares by, persons subject to Section
16 of the Exchange Act shall comply with the applicable provisions of
Rule 16b-3. This Plan shall be deemed to contain, and such options
shall contain, and the Shares issued upon exercise thereof shall be
subject to, such additional conditions and restrictions as may be
required by Rule 16b-3 to qualify for the maximum exemption from
Section 16 of the Exchange Act with respect to Plan transactions.
23.3 Withholding. The Company shall have the right to deduct from all
amounts paid to a participant in cash as salary, bonus or other
compensation any taxes required by law to be withheld in respect of
awards granted under the Plan. In the Administrator's discretion, a
participant may be permitted to elect to have withheld from the shares
otherwise issuable to the participant, or to tender to the Company, the
number of shares of Common Stock whose Fair Market Value equals the
amount required to be withheld.
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23.4 Construction of the Plan. The validity, construction, interpretation,
administration and effect of the Plan and of its rules and regulations,
and rights relating to the Plan, shall be determined solely by the
Board. Any determination by the Board shall be final and binding on all
participants. The Plan shall be governed in accordance with the laws of
the State of Delaware, without regard to the conflict of law provisions
of such laws.
23.5 No Right to Option; No Right to Employment. No person shall have any
claim of right to be granted an option under the Plan. Neither the Plan
nor any action taken hereunder shall be construed as giving any
employee any right to be retained in the employ of the Company or any
of its subsidiaries or as giving any consultant, advisor or director
any right to continue to serve in such capacity.
23.6 Awards Not Includable for Benefit Purposes. Income recognized by a
participant pursuant to the provisions of the Plan shall not be
included in the determination of benefits under any "employee benefit
plan" (as such term is defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974) or such other benefit plan,
policy or arrangement applicable to the participant that are maintained
by the Company or any of its subsidiaries, except as may be provided
under the terms of such plans or determined by resolution of the Board.
23.7 No Strict Construction. No rule of strict construction shall be implied
against the Company, the Board, or any other person in the
interpretation of any of the terms of the Plan, any award granted under
the Plan or any rule or procedure established by the Board.
23.8 Captions. All Section headings used in the Plan are for convenience
only, do not constitute a part of the Plan, and shall not be deemed to
limit, characterize or affect in any way any provisions of the Plan,
and all provisions of the Plan shall be construed as if no captions
have been used in the Plan.
23.9 Severability. Whenever possible, each provision in the Plan and every
option at any time granted under the Plan shall be interpreted in such
manner as to be effective and valid under applicable law, but if any
provision of the Plan or any option at any time granted under the Plan
shall be held to be prohibited by or invalid under applicable law, then
such provision shall be deemed amended to accomplish the objectives of
the provision as originally written to the fullest extent permitted by
law, and all other provisions of the Plan and every other option at any
time granted under the Plan shall remain in full force and effect.
23.10 Legends. All certificates for Common Stock delivered under the Plan
shall be subject to such transfer and other restrictions as the Board
may deem advisable under the rules, regulations and other requirements
of the Securities and Exchange Commission, any stock exchange or
quotation system upon which the Common Stock is then listed or quoted
and any applicable federal or state securities law, and the Board may
cause a legend or legends to be put on any such certificates to make
appropriate references to such restrictions.
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APPENDIX A
DESIGNATED SUBSIDIARIES PARTICIPATING UNDER THE PLAN
15
<PAGE> 16
FREEMARKETS, INC.
EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
New Election ______
Change of Election ______
1. I, ________________________, hereby elect to participate in the
FreeMarkets, Inc. Employee Stock Purchase Plan (the "Plan") for the Offering
Period ______________, ____ to _______________, ____, and subscribe to purchase
shares of the Company's Common Stock in accordance with this Subscription
Agreement and the Plan.
2. I elect to have Contributions in the amount of ____% of my
Compensation, as those terms are defined in the Plan, applied to this purchase.
I understand that this amount must not be less than 1% and not more than 20% of
my Compensation during the Offering Period. (Please note that no fractional
percentages are permitted).
3. I hereby authorize payroll deductions from each paycheck during the
Offering Period at the rate stated in Item 2 of this Subscription Agreement. I
understand that all payroll deductions made by me shall be credited to my
account under the Plan and that I may not make any additional payments into such
account. I understand that all payments made by me shall be accumulated for the
purchase of shares of Common Stock at the applicable purchase price determined
in accordance with the Plan. I further understand that, except as otherwise set
forth in the Plan, shares will be purchased for me automatically on the Purchase
Date of each Offering Period unless I otherwise withdraw from the Plan by giving
written notice to the Company for such purpose.
4. I understand that I may discontinue at any time prior to the
Purchase Date my participation in accordance with the Plan's terms. I also
understand that I can increase or decrease the rate of my Contributions on one
occasion only with respect to any increase and one occasion only with respect to
any decrease during any Offering Period by completing and filing a new
Subscription Agreement with such increase or decrease taking effect as soon as
administratively practicable following the date of filing of the new
Subscription Agreement with the Administrator. Further, I may change the rate of
deductions for future Offering Periods by filing a new Subscription Agreement,
and any such change will be effective as of the beginning of the next Offering
Period. In addition, I acknowledge that, unless I discontinue my participation
in the Plan, my election will continue to be effective for each successive
Offering Period.
5. I have received a copy of the complete "FreeMarkets, Inc. Employee
Stock Purchase Plan." I understand that my participation in the Plan is in all
respects subject to the terms of the Plan.
6. Shares purchased for me under the Plan should be issued in the
name(s) of (name of employee or employee and spouse only):
_______________________________________
_______________________________________
<PAGE> 17
7. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due to me under the Plan:
NAME: (Please print) ___________________________________________________________
(First) (Middle) (Last)
(Relationship) ___________________________________________________________
(Address) ___________________________________________________________
___________________________________________________________
___________________________________________________________
8. I understand that if I dispose of any shares received by me pursuant
to the Plan within 2 years after the Offering Date (the first day of the
Offering Period during which I purchased such shares) or within 1 year after the
Purchase Date, I will be treated for federal income tax purposes as having
received ordinary compensation income at the time of such disposition in an
amount equal to the excess of the fair market value of the shares on the
Purchase Date over the price which I paid for the shares, regardless of whether
I disposed of the shares at a price less than their fair market value at the
Purchase Date. The remainder of the gain or loss, if any, recognized on such
disposition will be treated as capital gain or loss.
I HEREBY AGREE TO NOTIFY THE COMPANY IN WRITING WITHIN 30 DAYS AFTER
THE DATE OF ANY SUCH DISPOSITION, AND I WILL MAKE ADEQUATE PROVISION FOR
FEDERAL, STATE OR OTHER TAX WITHHOLDING OBLIGATIONS, IF ANY, WHICH ARISE UPON
THE DISPOSITION OF THE COMMON STOCK. The Company may, but will not be obligated
to, withhold from my compensation the amount necessary to meet any applicable
withholding obligation including any withholding necessary to make available to
the Company any tax deductions or benefits attributable to the sale or early
disposition of Common Stock by me.
9. If I dispose of such shares at any time after expiration of the
2-year and 1-year holding periods, I understand that I will be treated for
federal income tax purposes as having received compensation income only to the
extent of an amount equal to the lesser of (1) the excess of the fair market
value of the shares at the time of such disposition over the purchase price
which I paid for the shares under the option, or (2) 15% of the fair market
value of the shares on the Offering Date. The remainder of the gain or loss, if
any, recognized on such disposition will be treated as capital gain or loss.
I UNDERSTAND THAT THIS TAX SUMMARY IS ONLY A SUMMARY AND IS SUBJECT TO
CHANGE. I further understand that I should consult a tax advisor concerning the
tax implications of the purchase and sale of stock under the Plan.
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<PAGE> 18
10. I hereby agree to be bound by the terms of the Plan. The
effectiveness of this Subscription Agreement is dependent upon my eligibility to
participate in the Plan.
SIGNATURE:
_____________________________
SOCIAL SECURITY #
_____________________________
DATE:
_____________________________
SPOUSE'S SIGNATURE (necessary only
if beneficiary is not spouse):
_____________________________
(Signature)
_____________________________
(Print name)
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<PAGE> 19
FREEMARKETS, INC.
EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
I, __________________________, hereby elect to withdraw my
participation in the FreeMarkets, Inc. Employee Stock Purchase Plan (the "Plan")
for the Offering Period that began on ____________, _____. This withdrawal
covers all Contributions credited to my account and is effective on the date
designated below.
I understand that all Contributions credited to my account will be paid
to me as soon as administratively practicable following receipt by the
Administrator of this Notice of Withdrawal and that my option for the current
period will automatically terminate, and that no further Contributions for the
purchase of shares can be made by me during the Offering Period.
The undersigned further understands and agrees that he or she shall be
eligible to participate in succeeding offering periods only by delivering to the
Company a new Subscription Agreement.
Dated: ______________ ___________________________________________
Signature of Employee
___________________________________________
Social Security Number
4
<PAGE> 1
Exhibit 21.1
Subsidiaries
1. FreeMarkets S.A./N.V., a Belgian corporation.
2. FreeMarkets OnLine Investment Co., a Delaware corporation
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of
our reports dated July 30, 1999, except for Notes 2 and 9 as to which the date
is September 8, 1999, relating to the financial statements and financial
statement schedule of FreeMarkets, Inc. and Subsidiaries, which appear in such
Registration Statement. We also consent to the references to us under the
headings "Selected Consolidated Financial Data" and "Experts" in such
Registration Statement.
/s/ PricewaterhouseCoopers LLP
Pittsburgh, Pennsylvania
September 8, 1999
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