As filed with the Securities and Exchange Commission on February
11, 2000
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
MAINSPRING COMMUNICATIONS, INC.
(Exact name of Registrant as specified in its
charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
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7389
(Primary Standard Industrial
Classification Code Number)
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04-3314689
(I.R.S. Employer
Identification Number)
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One Main Street
Cambridge, Massachusetts 02142
(617) 588-2300
(Address, including zip code, and telephone number, including area
code,
of Registrants principal executive offices)
John M. Connolly
Chairman, President and Chief Executive Officer
Mainspring Communications, Inc.
One Main Street
Cambridge, Massachusetts 02142
(617) 588-2300
(Name, address, including zip code, and telephone
number,
including area code, of agent for service)
Copies to:
JOHN HESSION,
ESQ.
LOUIS DIPIETRO, ESQ.
TESTA, HURWITZ & THIBEAULT, LLP
125 High Street
Boston, Massachusetts 02110
Tel: (617) 248-7000
Fax: (617) 248-7100
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KEITH F.
HIGGINS, ESQ.
ROPES & GRAY
One International Place
Boston, Massachusetts 02110
Tel: (617) 951-7000
Fax: (617) 951-7050
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Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date hereof.
If any of
the securities being registered on this form are being 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,
please check the following box. ¨
CALCULATION OF REGISTRATION FEE
Title of Each Class of
Securities to be Registered |
|
Proposed Maximum
Aggregate Offering Price |
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Amount of
Registration Fee(1) |
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Common Stock, $.01 par
value per share |
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$58,000,000 |
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$15,312 |
(1)
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Estimated pursuant to
Rule 457(o) solely for the purpose of determining the registration
fee.
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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 this Registration Statement shall
become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
PROSPECTUS (Subject to Completion)
Issued
, 2000
Shares
[LOGO OF MAINSPRING]
COMMON STOCK
Mainspring Communications, Inc. is offering
shares of common
stock. This is our initial public offering and no public market currently
exists for our shares. We anticipate that the initial public offering price
will be between $ and $
per
share.
We have filed an application for our common stock to be quoted
on the Nasdaq National Market under the symbol MSPR.
Investing in our common stock involves risks. See Risk
Factors beginning on page 7.
PRICE $ A
SHARE
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Price to
Public
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Underwriting
Discounts and
Commissions
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Proceeds to
Mainspring
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Per
Share |
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$
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$
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$
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Total |
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$
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$
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$
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Mainspring Communications, Inc. has granted the underwriters the
right to purchase up to an additional
shares of common stock to cover
over-allotments.
The Securities and Exchange Commission and state securities
regulators have not approved or disapproved these securities, or determined
if this prospectus is truthful or complete. Any representation to the
contrary is a criminal offense.
Morgan Stanley & Co. Incorporated expects to deliver the
shares of common stock to purchasers on
, 2000.
MORGAN STANLEY DEAN WITTER
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THOMAS WEISEL PARTNERS
LLC
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, 2000
The information in this prospectus is not complete and may be
changed. We may not sell these securities until the registration statement
filed with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities and we are not
soliciting offers to buy these securities in any state where the offer or
sale is not permitted.
[GATEFOLD ARTWORK]
[Inside Front Cover Artwork]
TABLE OF CONTENTS
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Mainspring Communications, Inc. is a Delaware corporation organized
in 1996. Our principal executive offices are located at One Main Street,
Cambridge, Massachusetts 02142, and our telephone number at that address is
(617) 588-2300. Our World Wide Web site address is
http://www.mainspring.com. The web site is not part of this
prospectus.
In this
prospectus, the terms Mainspring, we, us
and our refer to Mainspring Communications, Inc. and its
subsidiary.
Until
, 2000 (25 days after the
date of this prospectus), all dealers that buy, sell or trade the common
stock, whether or not participating in this offering, may be required to
deliver a prospectus. This delivery requirement is in addition to the
dealers obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or
subscriptions.
You
should read the following summary together with the more detailed
information about Mainspring and our common stock being sold in this
offering and our financial statements and related notes appearing elsewhere
in this prospectus.
MAINSPRING COMMUNICATIONS, INC.
Mainspring is a leading strategy consulting firm that focuses
exclusively on developing actionable Internet strategies primarily for
Fortune 1000 companies. We work with our clients to develop eStrategies,
which we define as strategies designed to enable a company to protect,
evolve and transform its business in the new Internet economy. Our approach
integrates expertise in strategic consulting, the Internet and targeted
vertical markets to help clients redefine fundamental elements of their
business models and achieve a sustained competitive advantage in the new
Internet economy.
We
provide three integrated service offerings: eStrategy Consulting, eStrategy
Direct and eStrategy Executive Council. eStrategy Consulting is our
project-based consulting service through which we work with our clients to
develop and deliver actionable Internet strategies in a rapid timeframe.
eStrategy Direct is our subscription-based, online consulting service that
provides our clients with real-time access to our proprietary market
analyses, as well as limited direct access to our strategy consultants.
eStrategy Executive Council is our membership-based forum in which we bring
together senior executives of Fortune 1000 companies to exchange ideas,
experiences and business practices related to the Internet.
We are
organized into four vertical market practice areas: financial services;
retail and consumer goods; technology, communications and media; and
manufacturing. We are currently working with 38 Fortune 1000 companies. Our
clients include American Express, Chase Manhattan, GE Capital, IBM,
MicroAge and New York Life. We employ over 160 professionals and are
headquartered in Cambridge, Massachusetts with an office in New York
City.
OUR MARKET OPPORTUNITY
The
Internet is fundamentally reshaping the competitive dynamics of business.
As a result, companies today face the complex task of developing effective
Internet strategies that simultaneously protect, evolve and transform their
businesses.
Senior
executives of Fortune 1000 companies face particular challenges in
developing Internet strategies. First, the entry of new competitors with
non-traditional business models has changed the industry landscape around
which strategy must be evaluated and implemented. Second, Internet strategy
requires an integrated and comprehensive view of business planning,
customer experience and technology. Finally, the rapid pace of change has
resulted in a dramatic shortening of the strategic planning process, as
rapid time-to-market is now a critical factor in implementing an Internet
strategy.
Given
the urgency and complexity associated with transforming their businesses in
the Internet economy, senior executives of Fortune 1000 companies
increasingly rely on independent consulting firms to develop Internet
strategies. We believe, however, that few of todays traditional
consulting firms and Internet professional services firms possess the
expertise and focus required to respond to the unique challenges posed by
the Internet economy.
OUR SOLUTION
We
develop and deliver Internet strategies designed to help our clients gain a
competitive advantage in the new Internet economy. The following are the
key elements of the Mainspring solution:
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Pure Internet
Strategy Focus. Our pure Internet focus allows
us to continually develop our Internet expertise and provide our clients
with Internet strategies on an accelerated timeframe. Our focus also
enables us to recruit highly experienced strategy consultants who want to
work on complex Internet-related engagements.
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Actionable
Internet Strategy. We develop eStrategies that
provide our clients with an immediate and specific plan of action. These
eStrategies are comprehensive in scope and not only address strategic
issues related to our clients business, but also ensure that the
solution is technologically feasible and is consistent with their
customer and branding strategies.
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Flexible
Service Offerings. Our three service offerings
allow our clients to choose the scope and delivery method of strategic
advice that are best suited to their needs. These services also enable
our clients to interact with us on a continuous basis while positioning
us as their ongoing strategic advisor.
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Vertical Market
Expertise. Our vertical market focus allows us
to provide highly relevant, insightful and industry-specific advice to
our clients through each of our service offerings. In each of our
vertical markets we have hired industry experts, developed
industry-specific knowledge and created service offerings that address
the critical issues facing companies in these industries.
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Accelerated
Time to Results. Our Internet strategy focus,
disciplined methodologies and vertical market expertise enable us to
provide all of our service offerings in an accelerated timeframe of an
average of four to eight weeks, rather than the several months required
by traditional consulting firms.
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OUR STRATEGY
Our
objective is to be the leading Internet strategy consulting firm for
Fortune 1000 companies. Our strategies for achieving this objective are as
follows:
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continue to create
leverage within our business model through the knowledge we gain in each
of our service offerings;
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develop and expand our
client base;
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attract and retain
high-caliber strategy consultants;
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develop new and further
penetrate existing vertical markets; and
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continue our geographic
expansion.
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THE OFFERING
Common stock
offered |
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shares |
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Common stock to be
outstanding after this offering |
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shares |
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Use of
proceeds |
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For general corporate purposes, including
working
capital and capital expenditures related to the
expansion of our operations |
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Proposed Nasdaq National
Market symbol |
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MSPR |
SUMMARY FINANCIAL DATA
The
following summary historical and pro forma financial data should be read in
conjunction with Managements Discussion and Analysis of
Financial Condition and Results of Operations and our financial
statements and related notes included elsewhere in this
prospectus.
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Year Ended December
31,
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1997
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1998
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1999
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(in thousands, except
per share data) |
Statement of
Operations Data: |
Total revenue |
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$
84 |
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$ 633 |
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$ 7,031 |
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Loss from
operations |
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(5,783 |
) |
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(5,401 |
) |
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(13,049 |
) |
Net loss |
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(5,427 |
) |
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(5,163 |
) |
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(12,694 |
) |
Basic and diluted net
loss per share |
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$ (4.81 |
) |
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$ (3.40 |
) |
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$ (12.44 |
) |
Shares used in computing
basic and diluted net loss per share |
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1,127 |
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1,517 |
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1,578 |
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Unaudited pro forma basic
and diluted net loss per share |
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$ (1.29 |
) |
Shares used in computing
unaudited pro forma basic and diluted net loss
per share |
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9,823 |
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Shares
used in computing the pro forma basic and diluted net loss per share have
been calculated assuming the conversion of all shares of redeemable
convertible preferred stock outstanding as of December 31, 1999 into common
stock as if the shares had converted immediately upon issuance.
The pro
forma column in the balance sheet data below gives effect to the conversion
of all shares of redeemable convertible preferred stock outstanding as of
December 31, 1999 into common stock upon the closing of this offering. The
pro forma as adjusted column also gives effect to the sale of
shares of
common stock in this offering at an assumed initial public offering price
of $
, after deducting the estimated underwriting discounts and
commissions and estimated offering expenses payable by us.
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As of December 31,
1999
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Actual
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Pro Forma
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Pro Forma
As Adjusted
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(in
thousands) |
Balance Sheet
Data: |
Cash, cash equivalents
and short-term investments |
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$ 33,607 |
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$33,607 |
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Working
capital |
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27,405 |
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27,405 |
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Total assets |
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36,529 |
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36,529 |
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Total redeemable
convertible preferred stock |
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57,542 |
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Total stockholders
equity (deficit) |
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(29,147 |
) |
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28,395 |
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ADDITIONAL INFORMATION
Except
as set forth in the financial statements and related notes or as otherwise
indicated, all information in this prospectus:
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assumes no exercise of
the underwriters over-allotment option;
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reflects the conversion
of all outstanding shares of our preferred stock into shares of common
stock; and
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reflects the filing, as
of the closing of the offering, of our amended and restated certificate
of incorporation and the adoption of our amended and restated by-laws
implementing provisions under Description of Capital Stock
Delaware Law and Our Charter and By-Law Provisions; Anti-Takeover
Effects.
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You
should consider carefully the following risks and all of the other
information in this prospectus before you decide to buy our common stock.
The risks and uncertainties described below are not the only ones facing
us. If any of the following risks actually occur, our business, financial
condition or results of operations would likely suffer. In such case, the
trading price of our common stock could decline and you may lose all or
part of your investment.
Risks Related To Our Business
If
we do not recruit and retain experienced strategy professionals, who are
currently in high demand, we may not be able to grow our
business
Our
future success depends in large part on our ability to hire and retain
experienced Internet strategy professionals. There is currently a shortage
of skilled professionals in the Internet professional services industry,
and we expect this shortage to continue. We compete intensely with other
companies to recruit and hire from this limited pool of professionals. We
may also have difficulty attracting and hiring our desired number of
qualified professionals after the offering since some may perceive that the
stock option component of their compensation package is no longer as
valuable. If we cannot hire and retain new personnel, or if a significant
number of our current employees leave, we may be unable to meet our
business plans and may fail to complete existing projects or bid for new
projects of similar scope and revenue. Even if we retain our current
employees, our management must continually recruit talented professionals
in order for our business to grow. Any inability to hire or retain
employees would cause our business to suffer.
We
have a history of operating losses and expect to incur losses in the
future
We
experienced a net loss of $12.7 million for 1999 and a cumulative net loss
of $24.9 million for the period from inception through December 31, 1999.
We expect to continue to incur increasing expenses related to hiring and
training, sales and marketing, infrastructure development and general and
administrative functions as we expand our business. As a result, we will
need to generate significant revenues to achieve profitability. We cannot
be certain whether or when this will occur because of the significant risks
and uncertainties that affect our business. In addition, we have not yet
generated cash from operations and because we plan to continue to expand
and develop our business, we may fail to generate cash from operations in
the future.
The loss of a large client could significantly reduce our
revenues
We
derive a significant portion of our revenues from large clients. In 1999,
our five largest clients collectively accounted for approximately 31% of
our revenues. We may not sustain the volume of work that we currently
perform for these clients, and there is a risk that they may not retain us
in the future. Any cancellation, deferral or significant reduction in the
work performed for these clients or a significant number of our other
smaller clients could materially and adversely affect our
revenues.
Our limited operating history makes it difficult to predict our
future success
Because
we were formed in 1996 and did not offer consulting services until 1998, we
have a limited operating history upon which you can evaluate our business.
The limited amount of information about us and the limited period during
which we have provided our consulting services makes it more difficult for
you to predict whether or not we will be successful. You should evaluate
our chances of financial and operational success in light of the risks,
uncertainties, expenses, delays and difficulties associated with starting a
new business, many of which may be beyond our control. We compete in a
relatively new market known as the Internet professional services market.
Because this market is new and rapidly evolving, we do not know if there
will be sustainable demand for our service offerings and, as a result, we
face many uncertainties.
We depend on our key personnel and their relationships, and the loss
of their services may adversely affect our ability to attract and retain
clients
We
believe that our success will depend on the continued employment of our
senior management team and other key personnel. This dependence is
particularly important to our business because personal relationships are a
critical part of obtaining and maintaining client engagements. If one or
more members of our senior management team or other key personnel were
unable or unwilling to continue in their present positions, our business
could be seriously harmed. In addition, if any of our key personnel join a
competitor or form a competing company, some of our clients might choose to
use the services of that competitor or those of a new company.
Because our market is highly competitive with low barriers to
entry, new entrants could emerge to capture market share from
us
We
compete in the relatively new and intensely competitive Internet
professional services market. We expect competition to intensify as the
market evolves. We compete with large strategic consulting firms, Internet
professional services firms, strategic consulting practices of large
information technology consulting firms, and the in-house information
technology, marketing and design departments of our clients. Many of our
competitors have longer operating histories, larger client bases, longer
relationships with clients, greater brand or name recognition and
significantly greater financial, technical, marketing and public relations
resources than we have. As a result, our competitors may be in a stronger
position to respond quickly to new or emerging technologies and client
requirements.
There
are relatively few barriers preventing competitors from entering our
market. As a result, new market entrants pose a threat to our business.
Existing or future competitors may develop or offer services that are
comparable or superior to ours at a lower price, which could harm our
business.
If
we do not manage our growth effectively, our revenue growth may be
impeded
A key
part of our strategy is to grow rapidly by hiring more personnel and
opening new offices, which may continue to strain our resources. Our recent
growth has placed, and will continue to place, increased demands on our
managerial and operational resources. We cannot assure you that our
managers will be able to manage our growth effectively or open new offices
efficiently. To manage future growth, our management must continue to
improve our operational and financial systems, procedures and controls and
expand, train and manage our employee base. If our systems, procedures and
controls are inadequate to support our operations, our expansion would be
halted, and we could lose our opportunity to gain significant market share.
In addition, if not managed effectively, these increased demands may
adversely affect the services we provide to our existing clients. Any
inability to manage growth effectively could harm our business.
Because our revenues are generated on a project-by-project
basis and are unpredictable, our revenue expectations may not be met and
our stock price may fall
We
derive our revenues primarily from fees for services generated on a
project-by-project basis. These projects vary in size and scope, as well as
in the fee charged for our services. A client that accounts for a
significant portion of our revenues in a given period may not generate a
similar amount of revenues, if any, in subsequent periods. In addition,
after we complete a project, we have no assurance that a client will retain
us in the future. Because our revenues are difficult to estimate, we may
not meet the expectations of securities analysts or investors, and our
stock price may fall.
We
may lose money on fixed-fee projects
We
derive a substantial portion of our revenues from fixed-fee contracts. If
we misjudge the time and resources necessary to complete a project, we may
incur a loss in connection with the project.
Our quarterly revenues and operating results are likely to vary
unpredictably, which may cause the market price of our common stock to
decline
We
expect our quarterly revenues and operating results to be volatile and
difficult to predict from quarter to quarter. Factors that may cause our
results to fluctuate include:
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the amount and timing of
demand by our clients for Internet professional services;
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cancellations or
reductions in the scope of major projects;
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unanticipated variations
in the size, budget, number or progress toward completion of our
engagements;
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the introduction of new
services by us or our competitors;
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changes in our pricing
policies or those of our competitors;
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the efficiency with which
we utilize our employees, including our ability to transition employees
from completed to new engagements;
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the cost of attracting
and retaining experienced personnel;
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our ability to manage our
operating costs; and
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the timing and cost of
new office expansion.
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Because
a high percentage of our expenses, such as employee and facilities costs,
is fixed, any of the factors listed above could cause significant
variations in our operating results in any given quarter. If our results in
any future period fall below the expectations of securities analysts or
investors, the market price of our common stock could fall.
Actual and perceived conflicts of interest may restrict us in
obtaining new clients
Actual
and perceived conflicts of interest are inherent in our industry. We
sometimes decline to accept potential clients because of actual or
perceived conflicts of interest with our existing clients. In addition,
potential clients may choose not to retain us for reasons of actual or
perceived conflicts of interest. Some clients have conditioned their
purchase of our services on our agreement not to perform services for their
competitors for a specified period of time. If we decide not to perform
services for a particular clients competitors, or are restricted from
doing so, or if potential clients in an industry choose not to retain us
because of actual or perceived conflicts, our revenues from that industry
segment may decline significantly.
We
must continue to develop the name recognition of Mainspring to remain
competitive
We
believe that establishing and maintaining strong name recognition is
critical to attracting and expanding our client base as well as attracting
experienced employees. To promote our brand name, we plan to increase our
marketing expenses, which may cause our operating margins to decline.
Moreover, our brand may be closely associated with the business success or
failure of some of our high-profile clients, many of whom are pursuing
unproven business models in competitive markets. As a result, the failure
or difficulties of one of our high-profile clients may damage our brand. If
we fail to successfully promote and maintain our brand name, our operating
margins and rate of growth may decline.
If
we do not protect our knowledge base and intellectual capital, our revenues
may be reduced
We must
preserve our knowledge base and intellectual capital as confidential and
proprietary in order to create and maintain a competitive advantage in the
Internet professional services industry. We cannot guarantee that the steps
we have taken to protect our proprietary rights will be adequate to deter
misappropriation of our intellectual property. In addition, we may not be
able to detect unauthorized use of our intellectual property and
take appropriate steps to enforce our rights. While we generally own all of
the intellectual property we develop in the course of our client
engagements, we cannot assure you that we will not share ownership with
clients in the future in unique circumstances.
If third
parties infringe or misappropriate our trade secrets, copyrights,
trademarks or other proprietary information, our business could be
seriously harmed. In addition, although we believe that our proprietary
rights do not infringe the intellectual property rights of others, other
parties may assert infringement claims against us or claim that we have
violated their intellectual property rights. Such claims, even if not true,
could result in significant legal and other costs and may be a distraction
to management. Further, protection of intellectual property in many foreign
countries is weaker and less reliable than in the United States, so if our
business expands into foreign countries, the risks associated with
protecting our intellectual property will increase.
We
may be subject to lawsuits as a result of our attempts to hire experienced
people, which may result in substantial costs to us
Some
companies have adopted a strategy of suing or threatening to sue former
employees and their new employers. Our strategy of rapid growth often
requires us to hire experienced professionals from our competitors. As we
hire new employees from our current or potential competitors, we have and
may continue to become a party to one or more lawsuits involving the former
employment of one of our employees. Any future litigation against us or our
employees, regardless of the outcome, may result in substantial costs and
expenses to us, may impair our ability to recruit employees, and may divert
managements attention away from the operation of our
business.
Our failure to meet our clients expectations could result
in negative publicity and losses and could subject us to liability for the
services we provide
Many of
the services we provide are critical to the operations of our clients
businesses. As our client engagements become larger and more complex, we
face increased management and consulting challenges and greater risk of
mistakes. Any failure on our part to deliver these services in accordance
with our clients expectations could result in:
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delayed or lost client
revenues;
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adverse client
reactions;
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additional expenditures
to correct the problem; and
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While
our agreements with clients often limit our liability to damages arising
from our rendering of services, we cannot assure you that these provisions
will be enforceable in all instances or would otherwise protect us from
liability. Although we carry general liability insurance coverage, our
insurance may not cover all potential claims to which we are exposed or may
not be adequate to indemnify us for all liability that may be imposed. The
successful assertion of one or more claims against us could harm our
business.
Our business will be negatively affected if we do not keep up
with the Internets rapid technological changes, evolving industry
standards and changing client requirements
The
Internet professional services industry is characterized by rapidly
changing technology, evolving industry standards and changing client needs.
Accordingly, our future success will depend, in part, on our ability to
keep pace with these changes and advise our clients according to the most
up-to-date commercial and
technological information available. We may be unable, for technological or
other reasons, to provide strategic consulting services that keep pace with
these changes. Among the most important challenges facing us is the need
to:
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effectively incorporate
leading technologies in our strategic advice;
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continue to develop our
strategic and technical expertise;
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respond to emerging
industry standards and other technological changes;
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enhance our current
service offerings; and
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develop new services that
meet changing customer needs.
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We
cannot assure you that we will succeed in effectively meeting these
challenges in a timely and cost-effective manner. Any failure to do so
could harm our business.
Our success depends on increased adoption of the Internet as a
means for commerce
Our
future success depends primarily on Fortune 1000 companies needing
strategic advice on conducting business over the Internet. If commerce on
the Internet does not continue to grow, or grows slower than expected, the
Internet would be a less important means of commerce for our existing and
potential clients. As a result, the demand for our consulting services
would decrease, our growth would decline and our business would be
seriously harmed. Consumers and businesses may reject the Internet as a
viable commercial medium for a number of reasons, including:
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potentially inadequate
network infrastructure;
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delays in the development
of Internet enabling technologies and performance
improvements;
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delays in the development
or adoption of new standards and protocols required to handle increased
levels of Internet activity;
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delays in the development
of technology necessary to effect secure transmission of confidential
information;
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|
|
increased government
regulation resulting in material burdens on Internet use;
|
|
|
changes in, or
insufficient availability of, telecommunications services to support the
Internet; and
|
|
|
failure of companies to
meet their customers expectations in delivering goods and services
over the Internet.
|
Risks Related to this Offering
Our stock price may be volatile and may result in substantial
losses for investors purchasing shares in the offering
The
market price of our common stock is likely to be highly volatile. The stock
market in general, and the market for Internet-related stocks in
particular, has been highly volatile. This volatility often has been
unrelated to the operating performance of particular companies. We cannot
assure you that our common stock will trade at the same levels as other
Internet-related stocks or that Internet-related stocks in general will
sustain their current market prices. We also cannot assure you that an
active public market for our securities will develop or continue after this
offering.
In
addition, the trading price of our common stock could be subject to wide
fluctuations in response to:
|
|
our perceived
prospects;
|
|
|
variations in our
operating results and our achievement of key business
targets;
|
|
|
changes in securities
analysts recommendations or earnings estimates;
|
|
|
differences between our
reported results and those expected by investors and securities
analysts;
|
|
|
announcements of new
contracts or service offerings by us or our competitors;
|
|
|
market reaction to any
acquisitions, joint ventures or strategic investments announced by us or
our competitors; and
|
|
|
general economic or stock
market conditions unrelated to our operating performance.
|
In the
past, securities class action litigation has often been instituted against
companies following periods of volatility in the market price of their
securities. This type of litigation could result in substantial costs and a
diversion of management attention and resources.
Concentration of ownership may limit your ability to influence
corporate matters
Immediately following this offering, our executive officers,
directors and significant shareholders collectively will own approximately
%
of the outstanding shares of our common stock. If these shareholders choose
to act or vote together, they will have the power to control the election
of our directors, and the approval of any other action requiring the
approval of our shareholders, including any amendments to our certificate
of incorporation and mergers or sales of substantially all of our assets.
In addition, without the consent of these shareholders, we could be
prevented from entering into transactions that could be beneficial to us or
our other shareholders. Also, third parties could be discouraged from
making a tender offer or bid to acquire us at a price per share that is
above the then-current market price.
We
may need to raise additional capital, which may not be available to us, and
which may, if raised, dilute your ownership interest in
us
We
expect that our net proceeds from this offering will be sufficient to meet
our working capital and capital expenditure needs for at least the next 18
months. After that, we may need to raise additional funds, and we cannot be
certain that we will be able to obtain additional financing on favorable
terms or at all. If we need additional capital and cannot raise it on
acceptable terms, we may not be able to:
|
|
create new service
offerings and expand into new vertical markets;
|
|
|
enhance our
infrastructure;
|
|
|
hire, train and retain
employees;
|
|
|
keep up with
technological advances;
|
|
|
respond to competitive
pressures or unanticipated requirements; or
|
|
|
pursue acquisition
opportunities.
|
Our
failure to do any of these things could restrict our growth, hinder our
ability to compete and seriously harm our financial condition.
Additionally, if we are able to raise additional funds through equity
financings, your ownership interest in us will be diluted.
The sale of a substantial number of shares of our common stock
in the public market could adversely affect the market price, which could
negatively impact your investment in us
Following this offering, a portion of our shares of common stock will
be eligible for sale in the public market. Sales or the expectation of
sales of a large number of shares of our common stock in the public market
could adversely affect the prevailing market price of our common stock. See
Shares Eligible for Future Sale for a more detailed description
of the restrictions on selling shares of our common stock after this
offering.
Our management has broad discretion over the use of the net
proceeds from this offering and you may not agree with how they use
them
Our
management has significant flexibility in applying the net proceeds we
receive in this offering. Because the proceeds are not required to be
allocated to any specific investment or transaction, you cannot determine
the value or appropriateness of our managements application of the
proceeds.
The value of your investment in our common stock will be
immediately and substantially diluted
If you
purchase common stock in this offering, you will pay more for your shares
than the amount paid by existing stockholders. As a result, the value of
your investment based on the book value of our net tangible assets will be
less than the amount you pay for shares of common stock in this offering.
In addition, the total amount of our capital will be less than what it
would have been had you and all of the existing stockholders and optionees
paid the same amount per share of common stock as you will pay in this
offering.
Our charter documents could make it more difficult for a third
party to acquire us
Our
certificate of incorporation and by-laws are designed to make it difficult
for a third party to acquire control of us, even if a change in control
would be beneficial to stockholders. For example, upon completion of this
offering our certificate of incorporation will authorize our board of
directors to issue up to 25,000,000 shares of undesignated preferred stock.
Without stockholder approval, the board of directors has the authority to
attach special rights, including voting and dividend rights, to this
preferred stock. With these rights, preferred stockholders could make it
more difficult for a third party to acquire our company.
Our
by-laws do not permit any person other than the board of directors or
certain executive officers to call special meetings of the stockholders. In
addition, a stockholders proposal for an annual meeting must be
received within a specified period in order to be placed on the agenda.
Because stockholders do not have the power to call meetings and are subject
to timing requirements in submitting stockholder proposals for
consideration at an annual or special meeting, any third-party takeover not
supported by the board of directors would be subject to significant delays
and difficulties. See Description of Capital Stock for a more
detailed description of the terms of our charter documents that could
hinder a third partys attempt to acquire control of
Mainspring.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
prospectus contains forward-looking statements that involve substantial
known and unknown risks and uncertainties. In some cases you can identify
these statements by forward-looking words such as anticipate,
believe, could, estimate, expect,
intend, may, should, will
and would or similar words. You should read statements
that contain these words carefully because they discuss our future
expectations, contain projections of our future results of operations or of
our financial position or state other forward-looking
information. We believe that it is important to communicate our future
expectations to our investors. However, there may be events in the future
that we are not able to accurately predict or control. The factors listed
above in the section captioned Risk Factors, as well as any
cautionary language in this prospectus, provide examples of risks,
uncertainties and events that may cause our actual results to differ
materially from the expectations we describe in our forward-looking
statements. Before you invest in our common stock, you should be aware that
the occurrence of the events described in these risk factors and elsewhere
in this prospectus could have a material adverse effect on our business,
results of operations and financial position. We are under no duty to
update any of the forward-looking statements after the date of this
prospectus.
We
estimate that the net proceeds from our sale of
shares of common stock in
this offering will be approximately $
million, assuming an initial public offering price of $
per share and after deducting
estimated underwriting discounts and commissions and offering
expenses.
The
principal purposes of this offering are to establish a public market for
our common stock, to increase our visibility in the marketplace, to
facilitate future access to public capital markets, to provide liquidity to
existing stockholders and to obtain additional working capital.
We expect to use the
net proceeds for working capital, capital expenditures and general
corporate purposes, including:
|
|
hiring of additional
personnel;
|
|
|
development of additional
service offerings;
|
|
|
expansion of
facilities;
|
|
|
expansion of sales and
marketing operations; and
|
|
|
improvements to
operational and financial systems.
|
The
amount and timing of these expenditures will vary depending on a number of
factors, including the amount of cash generated by our operations,
competitive and technological developments, future changes in our business
objectives, and the rate of growth of our business. Although we have no
specific acquisitions planned, we may use a portion of the net proceeds to
acquire businesses, products or technologies that are complementary to our
business. Pending these uses, we plan to invest the net proceeds in
short-term, investment grade, interest-bearing securities.
We have
never declared or paid any cash dividends on our common stock and do not
anticipate paying any cash dividends in the foreseeable future. Pursuant to
the terms of our credit facility, we are unable to pay dividends without
first obtaining the written consent of our bank. We currently intend to
retain future earnings, if any, to finance the expansion and growth of our
business. Any decision to pay cash dividends after this offering will be at
the discretion of our board of directors after taking into account such
factors as our financial condition, operating results, current and
anticipated cash needs, plans for expansion and restrictions in our
financing agreements.
This
prospectus includes statistical data regarding our company, the Internet
and the industries in which we compete. Such data are based on our records
or are taken or derived information published or prepared by various
sources, including International Data Corporation, a provider of market and
strategic information for the information technology industry and Forrester
Research, Inc., an independent research firm offering products and services
that assess the effect of technology on businesses.
The
following table sets forth our capitalization as of December 31, 1999. The
pro forma information gives effect to the conversion of our outstanding
redeemable convertible preferred stock upon the closing of this offering.
The pro forma as adjusted information also gives effect to our sale of
shares of common stock in this offering at an assumed initial public
offering price of $ per
share, after deducting estimated underwriting discounts and commissions and
offering expenses payable by us. The outstanding share information
excludes:
|
|
2,655,298 shares of
common stock issuable upon exercise of outstanding options as of December
31, 1999 with a weighted average exercise price of $1.62 per share;
and
|
|
|
230,000 shares of common
stock issuable upon exercise of the outstanding warrant to purchase
shares of Series X convertible preferred stock at an exercise price of
$.01 per share and subsequent conversion into common stock.
|
|
|
December 31,
1999
|
|
|
Actual
|
|
Pro
Forma
|
|
Pro Forma
As Adjusted
|
Redeemable convertible
preferred stock: |
Series A1,205,884 shares issued and outstanding, actual; no
shares issued
or outstanding, pro forma and pro forma as
adjusted |
|
$
6,401,185 |
|
|
$
|
|
|
|
Series B896,159 shares issued and outstanding, actual; no
shares
issued or
outstanding, pro forma and pro forma as adjusted |
|
8,749,579 |
|
|
|
|
|
|
Series C225,103 shares issued and outstanding, actual; no
shares
issued or
outstanding, pro forma and pro forma as adjusted |
|
3,138,168 |
|
|
|
|
|
|
Series D1,315,790 shares issued and outstanding, actual; no
shares issued
or outstanding, pro forma and pro forma as
adjusted |
|
7,486,552 |
|
|
|
|
|
|
Series E4,400,001 shares issued and outstanding, actual; no
shares issued
or outstanding, pro forma and pro forma as
adjusted |
|
31,766,987 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total redeemable
convertible preferred stock |
|
57,542,471 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity
(deficit): |
Series X convertible preferred stock460,000 shares authorized,
actual; no
shares issued or outstanding, actual, pro forma and
pro forma as
adjusted |
|
|
|
|
|
|
|
|
Preferred stockundesignated, $0.01 par value; 6,497,063
shares
authorized, actual, no shares issued or outstanding;
25,000,000
shares authorized, no shares issued or outstanding,
pro forma and
pro forma as adjusted |
|
|
|
|
|
|
|
|
Common stock, $0.01 par value; 25,000,000 shares authorized;
1,895,970
shares issued and 1,891,970 shares outstanding,
actual;
250,000,000 shares authorized, 14,026,809 shares
issued and
14,022,809 shares outstanding, pro forma;
250,000,000
shares authorized,
shares issued and
shares
outstanding, pro forma as adjusted |
|
18,960 |
|
|
140,268 |
|
|
|
Additional paid-in capital |
|
3,713,977 |
|
|
61,135,140 |
|
|
|
Deferred compensation |
|
(7,516,519 |
) |
|
(7,516,519 |
) |
|
|
Treasury stock, at cost |
|
(2,480 |
) |
|
(2,480 |
) |
|
|
Accumulated deficit |
|
(25,361,430 |
) |
|
(25,361,430 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
(deficit) |
|
(29,147,492 |
) |
|
28,394,979 |
|
|
|
|
|
|
|
|
|
|
|
|
Total capitalization |
|
$ 28,394,979 |
|
|
$ 28,394,979 |
|
|
|
|
|
|
|
|
|
|
|
|
At
December 31, 1999, our pro forma net tangible book value was $28.4 million,
or $2.02 per share. Pro forma net tangible book value per share is
determined by dividing our tangible net book value (tangible assets less
total liabilities), by the number of shares of common stock outstanding, in
each case after giving effect to the conversion of all shares of Series A
preferred stock, Series B preferred stock, Series C preferred stock, Series
D preferred stock and Series E preferred stock into common stock. After
giving effect to our sale of the
shares of common stock in this offering at
an assumed initial public offering price of $
per share, and after deducting estimated underwriting
discounts and commissions and offering expenses payable by us, our adjusted
pro forma net tangible book value would have been $
million, or $
per share. This represents an
immediate increase in pro forma net tangible book value of $
per share to
existing stockholders and an immediate dilution of $
per share to new investors
purchasing shares of common stock in this offering. The following table
illustrates this dilution on a per share basis:
Assumed initial public
offering price per share |
|
|
|
$ |
Pro forma net tangible book value per
share as of December 31, 1999 |
|
|
|
|
Increase in pro forma net tangible
book value per share attributable to new investors |
|
|
|
|
|
|
|
|
|
Pro forma net tangible
book value per share after this offering |
|
|
|
|
|
|
|
|
|
Dilution per share to new
investors |
|
|
|
$ |
|
|
|
|
|
The
following table summarizes on a pro forma basis as of December 31, 1999 the
number of shares of common stock purchased from Mainspring, the total
consideration paid, and the average price per share paid by our existing
stockholders and to be paid by new investors in this offering at an assumed
initial public offering price of $
per share, and before deducting estimated
underwriting discounts and commissions and offering expenses payable by
us:
|
|
Shares
Purchased
|
|
Total
Consideration
|
|
Average Price
Per Share
|
|
|
Number
|
|
Percent
|
|
Amount
|
|
Percent
|
Existing
stockholders |
|
14,022,809 |
|
% |
|
$51,861,011 |
|
% |
|
$3.70 |
New investors |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
% |
|
$
|
|
% |
|
$
|
|
|
|
|
|
|
|
|
|
|
|
The
foregoing tables excludes:
|
|
2,655,298 shares of
common stock issuable upon exercise of outstanding options as of December
31, 1999 at a weighted average exercise price of $1.62 per share;
and
|
|
|
230,000 shares of common
stock issuable upon the exercise of the outstanding warrant to purchase
shares of Series X convertible preferred stock at an exercise price of
$.01 per share and subsequent conversion into common stock.
|
|
To the extent these
options or the warrant are exercised, there will be further dilution to
new investors in the net tangible book value of their shares.
|
The
selected financial data set forth below should be read along with our
financial statements and related notes and Managements
Discussion and Analysis of Financial Condition and Results of Operations
included elsewhere in this prospectus. The statement of operations
data for the years ended December 31, 1997, 1998 and 1999, and the balance
sheet data as of December 31, 1998 and 1999, are derived from audited
financial statements that have been audited by PricewaterhouseCoopers LLP,
independent accountants, and are included elsewhere in this prospectus. The
statement of operations data for the period from inception through December
31, 1996, and the balance sheet data as of December 31, 1996 and 1997, have
been derived from audited financial statements that have been audited by
PricewaterhouseCoopers LLP, independent accountants, and are not included
in this prospectus. The historical results are not necessarily indicative
of the operating results to be expected in the future.
|
|
Period from
Inception
through
December 31,
1996
|
|
Year Ended December
31,
|
|
|
|
1997
|
|
1998
|
|
1999
|
|
|
(in thousands, except
share and per share data) |
Statement of
Operations Data: |
Revenue: |
Consulting |
|
$
|
|
|
$
|
|
|
$
178 |
|
|
$
6,277 |
|
Subscriptions |
|
|
|
|
84 |
|
|
455 |
|
|
754 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
|
|
84 |
|
|
633 |
|
|
7,031 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
revenue: |
Consulting (exclusive of $895 of
stock-based
compensation in 1999) |
|
|
|
|
|
|
|
139 |
|
|
3,272 |
|
Subscriptions (exclusive of $154 of
stock-based
compensation in 1999) |
|
|
|
|
784 |
|
|
994 |
|
|
1,366 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue |
|
|
|
|
784 |
|
|
1,133 |
|
|
4,638 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
|
|
(700 |
) |
|
(500 |
) |
|
2,393 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses: |
Research and development (exclusive
of $8 of
stock-based compensation in 1999) |
|
825 |
|
|
2,205 |
|
|
993 |
|
|
1,801 |
|
Selling, general and administrative
(exclusive of
$838 of stock-based compensation in 1999) |
|
1,012 |
|
|
2,878 |
|
|
3,908 |
|
|
11,746 |
|
Stock-based compensation
employees and
consultants |
|
|
|
|
|
|
|
|
|
|
1,895 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
1,837 |
|
|
5,083 |
|
|
4,901 |
|
|
15,442 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from
operations |
|
(1,837 |
) |
|
(5,783 |
) |
|
(5,401 |
) |
|
(13,049 |
) |
Interest income,
net |
|
110 |
|
|
356 |
|
|
238 |
|
|
355 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
(1,727 |
) |
|
(5,427 |
) |
|
(5,163 |
) |
|
(12,694 |
) |
Accretion of preferred
stock to redemption value |
|
|
|
|
|
|
|
|
|
|
(6,941 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to
common stockholders |
|
$(1,727 |
) |
|
$
(5,427 |
) |
|
$
(5,163 |
) |
|
$ (19,635 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net
loss per share |
|
$ (3.35 |
) |
|
$
(4.81 |
) |
|
$
(3.40 |
) |
|
$
(12.44 |
) |
Shares used in computing
basic and diluted net loss per
share |
|
515,119 |
|
|
1,127,348 |
|
|
1,516,656 |
|
|
1,577,881 |
|
|
|
|
As of December
31,
|
|
|
1996
|
|
1997
|
|
1998
|
|
1999
|
|
|
(in
thousands) |
Balance Sheet
Data: |
Cash, cash equivalents
and short-term investments |
|
$ 9,773 |
|
|
$
7,430 |
|
|
$
2,975 |
|
|
$
33,607 |
|
Total assets |
|
10,219 |
|
|
8,404 |
|
|
4,040 |
|
|
36,529 |
|
Total long-term
debt |
|
221 |
|
|
424 |
|
|
148 |
|
|
8 |
|
Redeemable convertible
preferred stock |
|
11,090 |
|
|
13,870 |
|
|
13,870 |
|
|
57,542 |
|
Total stockholders
equity (deficit) |
|
(1,792 |
) |
|
(7,261 |
) |
|
(12,655 |
) |
|
(29,147 |
) |
MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You
should read the following discussion and analysis of our financial
condition and results of operations together with Selected Financial
Data and our financial statements and related notes appearing
elsewhere in this prospectus. This discussion and analysis contains
forward-looking statements that involve risks, uncertainties and
assumptions. Our actual results may differ materially from those
anticipated in these forward-looking statements as a result of factors,
including, but not limited to, those set forth under Risk Factors
and elsewhere in this prospectus.
Overview
Mainspring is a leading eStrategy consulting firm that focuses
exclusively on developing actionable Internet strategies primarily for
Fortune 1000 companies. We provide three integrated service offerings,
eStrategy Consulting, eStrategy Direct and eStrategy Executive Council, to
help companies develop eStrategies that protect, evolve and transform their
businesses to achieve a sustained competitive advantage in the new Internet
economy. From our incorporation on April 2, 1996 through December 31, 1997,
our operating activities consisted primarily of recruiting management and
other personnel, developing marketing materials, establishing a business
and operations plan, developing intellectual capital and raising equity
capital. In 1998, we began providing strategy consulting services, hiring
business development professionals and administrative personnel, and
building an operational infrastructure to support the projected growth of
our business. Our headcount grew from 33 at December 31, 1997 to 139 at
December 31, 1999. Our revenue grew from approximately $84,000 in 1997 to
approximately $7.0 million in 1999.
Each of
our offerings is priced on a stand-alone basis. Our eStrategy Consulting
services are priced on a fixed-time, fixed-fee basis. Revenue for our
eStrategy Consulting services is recognized on a percentage-of-completion
method of accounting based on the ratio of costs incurred to total
estimated costs. We generally base our initial pricing for an engagement on
the size, duration and complexity of the initial project. Given our
relationships with our clients, a typical engagement will extend beyond the
initial project to include additional follow-on projects and each will be
priced separately. Because of the short-term nature of our projects and our
ability to price discrete follow-on projects subsequent to our initial
project, we believe our risks under fixed-fee contracts are limited.
Provisions for estimated losses on uncompleted projects are recognized in
the period in which losses become probable and can be reasonably estimated.
Revenue from eStrategy Consulting services excludes reimbursable expenses
charged to clients. For our eStrategy Consulting service we generally bill
a portion of our fees upon the signing of an agreement and the remainder
upon completion of the engagement.
Our
eStrategy Direct and eStrategy Executive Council services are both
subscription-based offerings. Revenue for our eStrategy Direct and
eStrategy Executive Council services is recognized ratably over the term of
the contract, generally 12 months. For our eStrategy Direct and eStrategy
Executive Council service offerings, we bill our clients in full upon the
signing of an agreement with us.
To date,
our revenue has been derived primarily from providing our eStrategy
Consulting services. During 1999, 89% of our revenue was derived from
eStrategy Consulting, and 11% was derived from our eStrategy Direct and
eStrategy Executive Council offerings. We expect that eStrategy Consulting
will continue to account for a major portion of our total revenue in the
foreseeable future. Our revenue from eStrategy Consulting will be driven
primarily by the number and scope of our eStrategy Consulting engagements
and by our strategy consultant headcount. We also expect that our revenue
from eStrategy Direct and eStrategy Executive Council will increase over
time and will be driven primarily by the number of subscriptions to these
services that we sell.
In 1999,
five clients accounted for approximately 31% of our total revenue, with no
individual client accounting for more than 10% of revenue. Our revenue from
any single client will vary from period to period, however, we expect that
customer concentration will continue for the foreseeable future. To the
extent that any significant client uses less of our services or terminates
its relationship with us, our revenue could decline
substantially. As a result, the loss of any significant client could
seriously harm our business and results of operations. In the year ended
December 31, 1999, substantially all of our revenue was generated within
North America and was denominated in U.S. dollars.
Consulting cost of revenue consists primarily of compensation and
benefits of our employees engaged in the delivery of eStrategy Consulting.
Subscriptions cost of revenue consists primarily of compensation and
benefits of our employees engaged in the delivery of our eStrategy Direct
and eStrategy Executive Council services. Our consulting margins will vary
in the future. These margins are affected by trends in utilization, defined
as the percentage of professional services employees time that is
billed to clients, and by our ability to accurately estimate costs
associated with our fixed price offerings. Any significant decline in fees
billed to clients, the loss of a significant client, inaccurate estimates
of consulting engagement costs or acceleration of hiring in advance of new
business, would materially adversely affect our consulting margins. The
costs associated with our eStrategy Direct and eStrategy Executive Council
do not vary significantly as the number of clients using these services
increases. Accordingly, the margins associated with these services would be
adversely affected if we sell these offerings to fewer clients.
Research
and development expenses primarily relate to the development of new service
offerings, enhancement of our online services and continued expansion of
our intellectual capital. These expenses consist of compensation and
related personnel cost, allocations of facilities and depreciation costs
and third party consulting. We expect these costs to vary in the future
depending on the nature and extent of our activities related to developing
new services and web site features, and the scope of our collaboration
agreements with partners associated with these activities.
Selling,
general and administrative expenses consist of salaries, commissions and
related expenses for personnel in sales, marketing and administrative
functions, professional services fees, occupancy and facilities costs, and
other general corporate expenses. We expect selling, general and
administrative expenses to increase as we expand our direct sales force,
increase investments in our knowledge management and information technology
infrastructure, open new offices, increase our recruiting and training
efforts and incur additional costs related to the growth of our business
and operation as a public company.
Stock-based compensation consists of expenses arising from option
grants. We have recorded aggregate deferred compensation totaling $8.8
million in connection with certain stock option grants through December 31,
1999. We will recognize stock-based compensation expenses over a period
ending December 31, 2003, which is the end of the vesting period for the
related options. Stock-based compensation represents the difference between
the exercise price of options to purchase common stock granted to our
employees and the fair value of these shares as of the date of grant, as
subsequently determined for financial reporting purposes. These expenses
also include the fair value of options granted to non-employees as of the
date of grant, as subsequently determined for financial reporting purposes.
These fair values were determined in accordance with Accounting Principles
Board Opinion No. 25 and Statement of Financial Accounting Standards No.
123.
Results of Operations
Comparison of
1997, 1998 and 1999
Revenue
from consulting services was first recognized in 1998 and totaled $178,000.
This revenue increased to $6.3 million in 1999. The increase in consulting
revenue was the result of growing demand for eStrategy consulting services
and increases in the size and number of our client engagements and in the
number of our billable consultants. Revenue from subscriptions was first
recognized in 1997 and totaled $84,000. Subscriptions revenue increased to
$455,000 in 1998 and to $754,000 in 1999. The increases in subscriptions
revenue were attributable to increases in both the number of eStrategy
Direct subscriptions sold and in the pricing of the service. In 1999, the
increase was also due to the launch of eStrategy Executive Council, our
second subscription-based offering.
In 1997,
we were developing our consulting offerings and therefore had no revenue or
cost of revenue from consulting services. Cost of revenue from consulting
services was $139,000 in 1998 and increased to $3.3 million in 1999. These
increases were due to Mainsprings strategy of increasing the rate of
hiring in anticipation of future growth as well as higher strategy
consultant salaries and benefits. Cost of revenue for subscriptions was
$784,000 in 1997, $994,000 in 1998 and $1.4 million in 1999. These
increases were due to the hiring of additional professionals to support the
eStrategy Direct and eStrategy Executive Council subscription
services.
Research and development. Our research
and development expenses were $2.2 million in 1997 and decreased to
$993,000 in 1998, due to the completion of a significant portion of the
research, design, development and testing activities of our eStrategy
Direct service in 1997. In 1999, our research and development expenses
increased to $1.8 million. This increase was attributable to the
establishment of and costs associated with our strategic alliance with Bain
& Company, Inc., offset by a reduction in the amount of employee
compensation and benefit cost related to product design and development
activities.
Selling, general and administrative.
Selling, general and administrative expenses were $2.9 million in
1997, $3.9 million in 1998 and $11.7 million in 1999. The increase from
1997 to 1998 was attributable to an increase in the number of our sales and
marketing professionals as well as increased facilities, depreciation,
travel and recruiting costs. The increase in selling, general and
administrative cost from 1998 to 1999 was primarily due to approximately
$4.0 million in increased compensation and related personnel cost. We
increased our selling, general and administrative headcount by 250% during
this period. In addition, marketing campaigns and branding expenditures
accounted for approximately $1.5 million of the increase. Other components
of the increase included costs related to expanded facilities,
depreciation, travel, recruiting, technology infrastructure and the
establishment of our knowledge management system.
Stock-based compensation. We did not
incur any stock-based compensation expenses in 1997 or in 1998. Stock-based
compensation expenses were $1.9 million in 1999. Of this amount, the
following amounts were excluded from the respective line items: $895,000
from consulting cost of revenue, $154,000 from subscriptions cost of
revenue, $8,000 from research and development expenses, and $838,000 from
selling, general and administrative expenses. As of December 31, 1999, the
balance in deferred compensation, a component of stockholders equity,
was $7.5 million. This amount is being amortized ratably over the vesting
periods of the applicable stock options, typically four years, with 30%
vesting on the first anniversary of the grant date and the balance vesting
on a monthly basis so that 20% of the options vest in each of years two and
three and 30% in year four. We expect that the average charge to
stock-based compensation expenses for each of 2000, 2001, 2002 and 2003 for
options granted in 1999 will be approximately $1.9 million.
Interest income, net. Interest income,
net is interest earned on our invested cash and cash equivalents, net of
interest expense we incurred on our borrowings. Our interest income, net
was $355,000 in 1997, $238,000 in 1998, and $354,000 in 1999. The increases
and decreases in interest income, net are a result of varying balances of
available funds for investing, offset by interest expense incurred on the
equipment term notes. Our borrowings consist of term notes used to fund
purchases of equipment.
Provision for income taxes. From
inception through December 31, 1999, we incurred net losses for federal and
state tax purposes. We have not recognized any tax provision or benefit. As
of December 31, 1999, we had approximately $21.0 million of federal and
state net operating loss carryforwards to offset future taxable income
which expire in varying amounts beginning in 2001. Given our limited
operating history, losses incurred to date, and the difficulty in
accurately forecasting our future results, we believe it is more likely
than not, as defined by generally accepted accounting principles, that the
net deferred tax asset will not be realized. Accordingly, a 100% valuation
allowance has been recorded.
Quarterly Results of Operations
The
following tables set forth a summary of our unaudited quarterly operating
results for each of the four quarters ended December 31, 1999 in absolute
dollars and as a percentage of our revenue in each quarter. These data have
been derived from our unaudited interim financial statements which, in our
opinion, have been prepared on substantially the same basis as the audited
financial statements contained elsewhere in this prospectus and include all
normal recurring adjustments necessary for a fair presentation of the
financial information for the periods presented. These unaudited quarterly
results should be read along with our financial statements and notes
thereto included elsewhere in this prospectus. The operating results in any
quarter are not necessarily indicative of the results that may be expected
for any future period.
|
|
Three Months
Ended
|
|
|
March 31,
1999
|
|
June 30,
1999
|
|
September 30,
1999
|
|
December 31,
1999
|
Statement of
Operations Data: |
|
(dollars in
thousands) |
Revenue: |
Consulting |
|
$ 632 |
|
|
$ 1,358 |
|
|
$ 1,777 |
|
|
$ 2,510 |
|
Subscriptions |
|
117 |
|
|
160 |
|
|
209 |
|
|
268 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
749 |
|
|
1,518 |
|
|
1,986 |
|
|
2,778 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
revenue: |
Consulting |
|
373 |
|
|
642 |
|
|
764 |
|
|
1,493 |
|
Subscriptions |
|
254 |
|
|
383 |
|
|
214 |
|
|
515 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue |
|
627 |
|
|
1,025 |
|
|
978 |
|
|
2,008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
122 |
|
|
493 |
|
|
1,008 |
|
|
770 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses: |
Research and development |
|
23 |
|
|
81 |
|
|
605 |
|
|
1,092 |
|
Selling, general and
administrative |
|
1,484 |
|
|
1,716 |
|
|
2,919 |
|
|
5,627 |
|
Stock-based compensation
employees and
consultants |
|
27 |
|
|
134 |
|
|
1,040 |
|
|
694 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
1,534 |
|
|
1,931 |
|
|
4,564 |
|
|
7,413 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from
operations |
|
(1,412 |
) |
|
(1,438 |
) |
|
(3,556 |
) |
|
(6,643 |
) |
Interest income,
net |
|
47 |
|
|
65 |
|
|
42 |
|
|
201 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$(1,365 |
) |
|
$(1,373 |
) |
|
$(3,514 |
) |
|
$(6,442 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
As a Percentage of
Revenue: |
Revenue: |
Consulting |
|
84 |
% |
|
89 |
% |
|
89 |
% |
|
90 |
% |
Subscriptions |
|
16 |
|
|
11 |
|
|
11 |
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
100 |
|
|
100 |
|
|
100 |
|
|
100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
revenue: |
Consulting |
|
50 |
|
|
42 |
|
|
38 |
|
|
54 |
|
Subscriptions |
|
34 |
|
|
25 |
|
|
11 |
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue |
|
84 |
|
|
67 |
|
|
49 |
|
|
73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
16 |
|
|
33 |
|
|
51 |
|
|
27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses: |
Research and development |
|
3 |
|
|
5 |
|
|
31 |
|
|
39 |
|
Selling, general and
administrative |
|
198 |
|
|
113 |
|
|
147 |
|
|
202 |
|
Stock-based compensation
employees and
consultants |
|
3 |
|
|
9 |
|
|
52 |
|
|
25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
204 |
|
|
127 |
|
|
230 |
|
|
266 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from
operations |
|
(188 |
) |
|
(94 |
) |
|
(179 |
) |
|
(239 |
) |
Interest income,
net |
|
6 |
|
|
4 |
|
|
2 |
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
(182 |
)% |
|
(90 |
)% |
|
(177 |
)% |
|
(232 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue. Our revenue increased in each of the
quarters presented. These increases were attributable to growing demand for
our services, the increases in the size and number of our client
engagements, the increase in the number of our billable consultants and the
introduction of eStrategy Executive Council in the second quarter of
1999.
Cost
of Revenue. Our cost of revenue generally
increased due to increases in consulting cost of revenue. As a percentage
of revenue, however, cost of revenue fluctuated significantly, reflecting
the fact that new strategy consultants are often not billable, and
therefore do not generate revenue, in the same quarter in which they are
hired. For example, in the fourth quarter, our consulting cost of revenue
increased significantly relating to the hiring of additional strategy
consultants in anticipation of future revenue.
Operating Expenses. Our operating
expenses increased in absolute dollars in each of the quarters presented.
The increase in research and development costs in the fourth quarter were
attributable to the establishment of and costs associated with our
strategic alliance with Bain. Selling, general and administrative expenses
increased during the quarters presented as a result of increased costs
related to compensation, marketing and branding initiatives, technology
infrastructure and the establishment of our knowledge management system.
These costs were more significant in the third and fourth quarters. In
addition, our selling, general and administrative expenses increased as a
result of additional costs related to expanded facilities, depreciation,
travel and recruiting. Stock-based compensation expenses fluctuate from
quarter to quarter depending on the number of stock options vested each
quarter as compared to the prior quarter.
Liquidity and Capital Resources
From
inception through December 31, 1999, we funded our operations primarily
through the private sale of equity securities and borrowings. Net proceeds
from the sale of redeemable convertible preferred stock from inception
through December 31, 1999 totaled $50.6 million.
As of
December 31, 1999, we had approximately $33.6 million in cash, cash
equivalents and short-term investments.
We have
term notes related to the purchase of capital equipment with Silicon Valley
Bank. Borrowings under these notes bear interest at the banks prime
rate plus .5%. These agreements require that we maintain certain financial
ratios and levels of tangible net worth and liquidity. As of December 31,
1999, borrowings under these notes were approximately $140,000.
Cash
used in operations for 1997, 1998 and 1999 was $(5.0) million, $(3.9)
million and $(5.2) million, respectively. Cash used in operations decreased
from 1997 to 1998 as a result of a lower net loss and increases primarily
in accounts payable, accrued expenses and deferred revenue that more than
offset increases in accounts receivable. Cash used in operations increased
from 1998 to 1999 principally as a result of increased investments in
infrastructure, branding and personnel costs which resulted in a higher net
loss, as well as increases in accounts receivable and unbilled revenue.
These increases were offset by increases in accrued expenses and accounts
payable.
Cash
provided by (used in) investing activities for 1997, 1998 and 1999 was
$(2.0) million, $2.2 million and $(28.3) million, respectively, which
included purchases of property and equipment of $640,000, $92,000 and
$797,000 in 1997, 1998 and 1999, respectively. Cash flow provided by
investing activities increased from 1997 to 1998 primarily as a result of
proceeds from the sale of short-term investments exceeding purchases of
short-term investments in 1998. From 1998 to 1999, cash used in investing
activities increased as a result of purchases of short-term investments
exceeding proceeds from the sale of short-term investments in
1999.
Cash
flows provided by (used in) financing activities for 1997, 1998 and 1999
were $3.2 million, $(513,000) and $36.7 million, respectively. Cash flows
from financing activities decreased from 1997 to 1998 as a result of our
issuance of redeemable convertible preferred stock and long-term debt in
1997, offset by the repayments of
long-term debt. The increase from 1998 to 1999 reflects the receipt of net
proceeds from the sale of redeemable convertible preferred stock offset by
the repayments of long-term debt.
We
believe that the net proceeds from this offering, together with our current
cash, cash equivalents and short-term investments, will be sufficient to
meet our anticipated cash needs for working capital and capital
expenditures for at least the next 18 months. If cash generated from
operations is insufficient to satisfy our liquidity requirements, we may
seek to sell additional equity or debt securities. If additional funds are
raised through the issuance of debt securities, these securities could have
rights, preferences and privileges senior to those accruing to holders of
common stock, and the term of this debt could impose restrictions on our
operations. The sale of additional equity or convertible debt securities
could result in additional dilution to our stockholders. We cannot be
certain that additional financing will be available in amounts or on terms
acceptable to us, if at all. If we are unable to obtain this additional
financing, we may be required to reduce the scope of our planned service
offerings, sales and marketing efforts, which could harm our business,
financial condition and operating results.
Market Risk Disclosure
We do
not currently use derivative financial instruments. At December 31, 1999,
we had an investment portfolio of fixed income securities, excluding those
classified as cash and cash equivalents, of $27.7 million. These
securities, like all fixed income instruments, are subject to interest rate
risk and will fall in value if market interest rates increase. The
portfolio consisted of U.S. Treasury bills with a weighted-average maturity
of less than one year. These available-for-sale securities are subject to
interest rate risk and will fall in value if market interest rates
increase. If market interest rates were to increase immediately and
uniformly by 10% from levels at December 31, 1999, the fair market value of
the portfolio would decline by an immaterial amount. We would not expect
our operating results or cash flows to be affected to any significant
degree by the effect of a sudden change in market interest rates on our
securities portfolio.
Recently Issued Relevant Accounting
Pronouncements
In June
1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards, or SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities. The new standard
establishes accounting and reporting standards for derivative instruments,
including derivative instruments embedded in other contracts, and for
hedging activities. SFAS No. 133, as amended, is effective for Mainspring
beginning January 1, 2001. We do not expect SFAS No. 133 to have a material
effect on our consolidated financial position or results of
operations.
Year 2000 Impact
We have
not experienced any problems with our computer systems relating to
distinguishing twenty-first century dates from twentieth century dates,
which generally are referred to as year 2000 problems. We are also not
aware of any material year 2000 problems with our clients or vendors.
Accordingly, we do not anticipate incurring material expenses or
experiencing any material operational disruptions as a result of any year
2000 problems.
Overview
Mainspring is a leading strategy consulting firm that focuses
exclusively on developing actionable Internet strategies primarily for
Fortune 1000 companies. We work with our clients to develop eStrategies,
which we define as strategies designed to enable a company to protect,
evolve and transform its business and achieve a sustained competitive
advantage in the new Internet economy. Our approach integrates expertise in
strategic consulting, the Internet and targeted vertical markets to help
clients redefine fundamental elements of their business models including
product and service offerings, distribution channels, organizational
structures and branding strategies.
We
provide three integrated service offerings: eStrategy Consulting, eStrategy
Direct and eStrategy Executive Council. eStrategy Consulting is our
project-based consulting service through which we work with our clients to
develop and deliver actionable Internet strategies in a rapid timeframe. In
providing our eStrategy Consulting services, we use a proprietary approach
that focuses on building business models, creating customer experiences,
defining technology solution architectures and commercializing eStrategy
plans. By working with our clients to understand and integrate each of
these dimensions within the context of their business, we help them address
the complex strategic issues they face in the new Internet economy.
eStrategy Direct is our subscription-based, online consulting service that
provides our clients with real-time access to our proprietary market and
business model analyses, case studies and interactive forums, as well as
limited direct access to our strategy consultants. eStrategy Executive
Council is our membership-based, online and in-person forum in which we
bring together senior executives of Fortune 1000 companies to exchange
ideas, experiences and business practices related to the Internet. As part
of this service, we develop and deliver specific proprietary analyses on
emerging Internet business issues. Because each of our offerings relates to
developing and evaluating Internet strategies, we can capitalize on the
expertise and knowledge we gain in one service offering to provide our
other services more rapidly and effectively. In addition, these service
offerings provide us with a unique way of continually interacting with our
clients and allow us to develop and maintain long term relationships with
them.
Industry Background
The
Internet is fundamentally reshaping the competitive dynamics of business.
Companies today face the complex task of developing effective Internet
strategies that simultaneously protect, evolve and transform their
businesses. In particular, companies must rethink the way they interact
with their customers and suppliers and develop strategies that leverage
their traditional assets and capitalize on the Internets ability to
provide a competitive advantage, deliver operating efficiencies, enhance
customer satisfaction and increase market penetration.
Senior
executives of Fortune 1000 companies face particular challenges in
developing Internet strategies. First, the entry of new competitors with
non-traditional business models has changed the industry landscape around
which strategy is evaluated and implemented. Second, Internet strategy
requires an integrated and comprehensive view of business planning,
customer experience and technology. Finally, the rapid pace of change has
resulted in a dramatic shortening of the strategic planning process, as
rapid time-to-market is now a critical factor in implementing an Internet
strategy.
Given
the urgency and complexity associated with transforming their businesses in
the Internet economy, senior executives of Fortune 1000 companies
increasingly rely on independent consulting firms to develop Internet
strategies. International Data Corporation estimates that spending on
Internet consulting services will grow from $425 million in 1998 to $4.4
billion in 2003. We believe, however, that few of todays traditional
consulting firms possess the expertise and focus required to respond to the
unique challenges posed by the Internet economy. For example, at a time
when rapid delivery times are required, traditional strategy consulting
firms continue to engage in lengthy consulting projects often lasting
several months. The typical outcome of these engagements is generally a
report that focuses on industry dynamics and broad strategic trends, but
lacks
immediately actionable strategies for implementation. Although the emerging
class of Internet professional services firms offers Internet strategy
consulting as part of an end-to-end solution, they are often more focused
on technology or creative design and lack the strategic and industry
specific expertise demanded by clients. A recent survey by Forrester
Research interviewed vice presidents and directors of Global 2500 companies
and found that 72% chose their vendors because they were best of breed
rather than end-to-end service providers. Further, Internet
professional services firms often cannot give objective Internet strategy
advice as they are motivated to sell large scale implementation
projects.
To
address the business challenges of the new Internet economy, we believe
that senior executives of Fortune 1000 companies need a strategy consulting
firm that combines expertise in Internet strategy development with a
comprehensive, industry-specific understanding of how the Internet affects
traditional business models. These executives also need strategic advice
that can be delivered quickly, and an advisor with whom they can interact
on a continuous basis.
The Mainspring Solution
We
develop and deliver Internet strategies designed to help our clients gain a
competitive advantage in the new Internet economy. The following are the
key elements of the Mainspring solution:
Pure
Internet Strategy Focus. We focus exclusively on
strategy consulting relating to the Internet. Our pure Internet focus
allows us to continually develop and enhance our expertise in and knowledge
of the Internet economy. As a result, we believe we provide our clients
with Internet strategies that are best suited to their needs and delivered
to them on an accelerated timeframe. We also believe our exclusive strategy
focus allows us to develop objective solutions without a bias towards
implementing any particular technology. Finally, our focus enables us to
recruit highly experienced strategy consultants who want to work with
senior executives on complex Internet-related engagements and seek the
energy and excitement of a new company with innovative
approaches.
Actionable Internet Strategy. Our
objective in each engagement is to create a comprehensive eStrategy that
provides our clients with an immediate and specific plan of action. Our
clients demand Internet strategies that can be rapidly deployed rather than
voluminous reports and analyses that may be difficult to implement. The
Internet strategies we develop are comprehensive in scope and not only
address strategic issues related to a clients organizational
structure, operations and financial model, but also ensure that the
solution is technologically feasible and is consistent with the client
s customer and branding strategies. A key point of differentiation
relative to our competitors is our ability to deliver an eStrategy that
makes specific recommendations for immediate implementation.
Flexible Service Offerings. Our three
distinct service offerings allow our clients to choose the scope and
delivery method of strategic advice that are best suited to their needs.
Our eStrategy Consulting services allow clients to engage us for complex
projects that will provide them with extensive and dedicated interaction
with our strategy consultants. Our eStrategy Direct service allows our
clients to access strategic advice on a real-time basis through online
access to our in-depth knowledge base of Internet strategy analysis and
through direct interaction with our strategy consultants. Finally, our
eStrategy Executive Council allows our clients to share ideas and
experiences and discuss emerging Internet business issues with a group of
their peers. These services enable our clients to interact with us on a
continuous basis while positioning us as their ongoing strategic
advisor.
Vertical Market Expertise. Our vertical
market focus allows us to provide highly relevant, insightful and
industry-specific advice to our clients through each of our service
offerings. We currently focus on the following vertical markets: financial
services; retail and consumer goods; technology, media and communications;
and manufacturing. In each of these vertical markets we have hired industry
experts, developed industry-specific knowledge and created service
offerings that address the critical issues facing companies in these
industries. We have also structured our direct sales and marketing
organizations to promote our service offerings in these target vertical
markets. By taking a vertical market approach, we have developed a
substantive base of industry-specific expertise that can be accessed by our
strategy consultants and our clients.
Accelerated Time to Results. Our Internet
strategy focus, disciplined methodologies and vertical market expertise
enable us to provide all of our service offerings in an accelerated
timeframe. By leveraging the intellectual capital we gain in each of our
service offerings, we are able to deliver Internet strategies in an average
of four to eight weeks, rather than the several months required by
traditional consulting firms. In addition, our eStrategy Direct and
eStrategy Executive Council provide our clients with ongoing real-time
strategic advice that enables them to accelerate decision making on
specific Internet strategy issues.
The Mainspring Strategy
Our
objective is to be the leading Internet strategy consulting firm for
Fortune 1000 companies. Our strategies for achieving this objective are as
follows:
Continue to Create Leverage within Our Business Model.
Our ability to capture and leverage the knowledge we gain
through each of our integrated eStrategy service offerings allows us to
continuously expand our knowledge base, build our intellectual capital and
improve the quality and speed of services we provide our clients. In
addition, our eStrategy Direct service and eStrategy Executive Council
provide us with an effective way of introducing potential clients to
Mainspring through the initial sale of lower-priced, subscription-based
offerings. With the investments we have already made in our eStrategy
Direct service and eStrategy Executive Council, we believe we can rapidly
gain new clients and sell additional services to our existing clients while
minimizing additional investments in personnel and technology
infrastructure.
Develop and Expand Our Client Base. We
currently serve 38 Fortune 1000 companies and expect to continue developing
this existing client base by expanding the scope of current engagements and
generating additional follow-on engagements. We believe that as we deliver
successful consulting engagements for particular clients and as their
strategies evolve, we are able to obtain follow-on engagements to address
new issues and additional lines of business within the clients
organizations. In addition, we intend to expand our client base by
targeting new clients and increasing our investment in our direct sales
model, including the addition of new sales professionals. We also intend to
continue to build Mainsprings brand awareness and reputation as the
partner of choice in Internet business strategy through aggressive and
innovative marketing.
Attract and Retain High-Caliber Strategy Consultants.
We focus on creating and maintaining a culture that
encourages innovation, creativity, teamwork, growth, integrity and quality.
We intend to continue to attract, develop, and retain a diverse, talented
work force through significant internal growth. Consulting professionals
have joined Mainspring from traditional strategy consulting firms, Internet
professional services firms and the targeted vertical industries in which
we have expertise. We believe that professionals are attracted to
Mainspring because of our exclusive focus on actionable Internet business
strategy and the opportunity to work on engagements where they can see the
immediate application of their work. To enhance professional development,
we provide in-depth orientation and training, conduct ongoing workshops,
and offer career development forums that sharpen skills and foster the
exchange of knowledge and experience.
Develop New and Further Penetrate Existing Vertical Markets.
We intend to expand our business by developing
intellectual capital and industry expertise in new vertical markets. In
addition, we plan to further segment our current vertical markets to
increase the depth, quality and relevancy of our services. For example, we
have segmented our financial services practice to focus on commercial
banking, insurance, brokerage and consumer finance. In deciding on which
market segments to focus, we conduct substantial upfront market analysis
and research and hire professionals with relevant expertise and
relationships. These activities allow us to identify key business issues
and opportunities within these industries, and develop a base of
intellectual capital. Following our initial work, our business development
team uses our base of knowledge to establish credibility and begin building
relationships with potential target accounts.
Continue Our Geographic Expansion. We
intend to offer our services through a network of offices located
throughout the United States. We are currently headquartered in Cambridge,
Massachusetts and have an office in New York City. We plan to open offices
in Chicago and San Francisco within the next 12 months. We also plan
to open an office in Europe in the near future. We intend to staff our new
offices with strategy consultants, as well as sales and marketing personnel
and recruiting professionals. We believe our geographic expansion will
allow us to better serve the local needs of our existing and potential
clients, focus our sales and marketing efforts and reduce the travel
required of our consulting professionals.
Services
We
believe our three integrated service offerings, eStrategy Consulting,
eStrategy Direct and eStrategy Executive Council, offer our clients the
broadest and most comprehensive range of Internet strategy consulting
services available. These offerings provide us with access to a broad
client base in which we can identify clients strategic needs and
provide them with considerable flexibility in selecting the eStrategy
consulting services they want. Because of the integrated nature of our
services, the use of one service typically creates opportunities for us to
provide the other two services. Each of our offerings is priced on a
stand-alone basis. Our eStrategy Consulting services are priced on a
fixed-time, fixed-fee basis while our eStrategy Direct and eStrategy
Executive Council are subscription-based offerings.
eStrategy Consulting is our project-based consulting service. In
delivering this service, we utilize a team of highly experienced
consultants who currently have an average of six years of Internet and/or
strategic consulting experience. The experience of our consultants is
further enhanced by our proprietary market analyses, Internet business
frameworks and vertical market expertise. Our goal on each project is to
develop and deliver actionable Internet strategies in a rapid timeframe and
our consulting projects typically last six to eight weeks.
Mainsprings approach to eStrategy provides the fundamental
basis for all our consulting work. Our approach is comprehensive and is
focused on building business models, creating customer experiences,
defining technology solution architectures and commercializing eStrategy
plans. This approach enables our clients to address complex strategy issues
that span new business, customer and technology requirements. The following
highlights the key elements of our eStrategy approach:
Building the Business Model: Building
the business model includes defining the business opportunity, estimating
the necessary investment required, building a preliminary launch plan and
defining key business metrics. In building the business model,
we:
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perform an assessment to
review current Internet capabilities and identify organizational
constraints;
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execute a competitive
market assessment, identify market opportunity by analyzing customer and
market segments;
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develop new product and
service offerings, incorporating market, price, distribution channels,
and differentiation;
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identify sources of
revenue, cost models and capital investment needed to support the
business model; and
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document operational
model including business process flows, target organizational structure
and criteria for selection of strategic partners.
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Creating the Customer Experience: As
the business strategy drives the future direction of the business, there
must also be a complementary creative strategy that defines the customer
experience. In creating the customer experience, we:
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create customer segment
profiles and model how changes in these profiles result in new
opportunities;
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establish an online brand
by identifying new and existing brand issues and principles and
establishing core business values;
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identify customer needs
beyond an initial web site transaction by addressing evolving
requirements;
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lay the visual foundation
of the user interface based on the online branding principles, customer
profile, and existing offline look-and-feel of a clients business;
and
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analyze the impact of the
online brand on the offline brand to understand how the customer
experience may change.
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Defining the Technology Solution Architecture:
The business model in the Internet economy is enabled and
potentially altered by a set of technologies that form the technology
solution architecture for the model. This interdependence requires that the
technology solution architecture be defined while the eStrategy is being
developed. In defining the technology solution architecture,
we:
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develop an understanding
of the features and limits of a clients existing technology
infrastructure to determine feasibility of implementation;
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define the technology
solution architecture including the application, data and technology
requirements necessary to support the business model; and
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build a cost model that
reflects technology-related expenses associated with implementing the
business model.
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Commercializing the eStrategy Plan: The
successful commercialization of an eStrategy plan requires defining the
appropriate organizational structure, marketing plan, success metrics,
launch plans and key partnerships. In commercializing the eStrategy plan,
we:
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develop a rollout
strategy that includes a business risk mitigation plan, technical
timelines, market communications strategies, and a technology
plan;
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refine the financial
approach and success metrics including target profit model, economics of
the business model, and summary cost models;
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evaluate capability gaps
and identify, screen, and perform due diligence on potential partners;
and
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develop organizational
structure by identifying organizational characteristics, including
governance, roles and responsibilities.
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eStrategy Direct is a subscription-based service that provides
clients with ongoing access to Mainsprings analysis and, on a select
basis, industry-focused strategy consultants. Clients purchase the service
for their particular vertical market and receive online access to over 15
in-depth industry- or issue-focused studies per year. Each study typically
includes analysis of customer needs, industry competitors, technologies and
vendors, economic models and strategic decision-making frameworks. Clients
also receive 12 to 18 articles per year on current industry events, known
as Executive Briefings, or on innovative business models of
other companies, known as Cases-in-Point. All studies and
articles are delivered electronically via Mainsprings web site or
e-mail. Clients also receive up to 25 hours of interaction with eStrategy
Direct consultants by phone, e-mail, or in-person.
We
believe the eStrategy Direct service supplements our clients Internet
strategy development work by providing continuous support in evaluating
Internet business issues, changing customer needs, and new competitive
trends. The eStrategy Direct continuous service model also allows
Mainspring to build strong client relationships and maintain and enhance
brand and service awareness with clients.
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eStrategy Executive
Council
|
Through
membership in our eStrategy Executive Council, we bring together senior
executives of Fortune 1000 companies in an exclusive online and in-person
forum for exchanging ideas and experiences in support of
accelerating their Internet business readiness. We work with Council members
to identify key Internet business issues and develop proprietary surveys
and analyses. We also sponsor online and quarterly face-to-face meetings of
Council members to exchange leading business practices and pragmatic,
experience-based advice. The Councils agenda for these meetings is
largely driven by the members themselves. Recent topics have included
selecting the appropriate organizational models, managing distribution
channel conflict issues and structuring partnership
arrangements.
To
support the ability for Council members to make timely decisions,
Mainspring has implemented a proprietary knowledge sharing process that
allows Council members to request advice from other members on an ad hoc
basis. Members make their requests directly to Mainspring, which in turn
distributes the request anonymously to other Council members by e-mail.
Members with relevant experience respond to the request and, if
appropriate, communicate directly with the originating member. Council
members join on an annual basis for a membership fee of $30,000. As of
February 10, 2000, there were 62 eStrategy Executive Council
members.
Clients
We have
performed eStrategy services for 123 companies. Our clients are primarily
Fortune 1000 companies in four vertical markets. We launched our financial
services practice in the second quarter of 1998, our retail and consumer
goods practice in the third quarter of 1999, our technology, communications
and media practice in the fourth quarter of 1999 and our manufacturing
practice in the first quarter of 2000. To date, a majority of our clients
have been in the financial services market. Because of the strategic nature
of the engagements that we perform for many of our clients, we have agreed
to keep some clients identities confidential. Accordingly, the
following is a partial list of our clients that we believe is
representative of our overall client base:
ABN AMRO Bank
N.V.
Automated Data Processing, Inc.
The Advest Group, Inc.
American Century Services Corporation
American Express Company
Capital Resource Partners
Caterpillar Inc.
The Chase Manhattan Corporation
Dain Rauscher Incorporated
The Dime Savings Bank of New York, FSB
EC Cubed, Inc.
Ernst & Young LLP
First Albany Corporation
First Union Corporation
FleetBoston Financial
GE Capital Corporation
Guitar Center, Inc.
IBM Corporation
Integrated Process Technologies, LLC
JC Penney Direct Marketing
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John Wiley & Sons,
Inc.
Landmark Communications, Inc.
The McGraw-Hill Companies, Inc.
Merrill Lynch & Co., Inc.
MicroAge, Inc.
Morgan Stanley Dean Witter
National Penn Bank
New York Life Insurance Company
Ohio Casualty Corporation
PepsiCo, Inc.
Phoenix Investment Partners, Ltd.
Putnam Mutual Funds Corp.
Royal Bank of Canada
Summit Bancorp
Sun Life Assurance Company of Canada
The Upper Deck Company
U.S. Bancorp
Wachovia Corporation
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Case Studies
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Client Description.
New York Life is a Fortune 100 company and a
worldwide leader in life insurance. New York Lifes core products
are life, annuities, long-term care and asset management. New York Life
s goal is to project these strengths into the high growth
international markets.
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Client Challenge.
Mainspring was engaged to help develop a
broad-based Internet strategy to better position New York Life in the
Internet economy. Although New York Life has had an Internet presence
since 1996, the newyorklife.com site needed to be upgraded to reflect
emerging strategies and services. In addition, the companys various
existing Internet initiatives needed to be fully integrated across all
the companys business units to produce a cohesive look to the many
different audiences that visit the Company sites.
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Mainspring Approach
and Deliverable. In the course of 90 days,
Mainspring used the eStrategy approach and worked with a company wide
work group to develop an overall strategic business vision as well as
identify specific initiatives that would protect and enhance the company
s strategic position. The key Internet-based initiatives identified
ranged from improving customer self-service on the web to enhancing the
interaction and lead generation of the career agency force. We are
currently assisting in the development of a roll out across the company.
In addition, Mainspring is working with New York Life to identify, select
and begin negotiations with a variety of strategic partners to drive
traffic to New York Lifes site.
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Key Outcomes.
We believe New York Lifes eStrategy will
enable it to deliver significant flexibility, convenience and value to
customers while enhancing its career agents ability to more
effectively sell and manage client relationships. Following our initial
engagement, we continue to work with New York Life on further developing
e-commerce initiatives that will help transform the business, decrease
costs and address new online customer segments and product demands. In
addition, we are helping to develop strategies to enhance the company
s internal Internet capabilities.
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Client Description.
MicroAge, Inc. is a Fortune 500 company and a
global provider of efficient technology solutions. MicroAge has a
portfolio of information technology companies that deliver technology
solutions through multi-vendor integration services and distribute
computing solutions to large organizations and computer resellers
worldwide. MicroAge does business in more than 46 countries and offers
over 20,000 products from more than 500 suppliers backed by a suite of
technical, financial, logistics, and account management
services.
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Client Challenge.
MicroAge had been experiencing a dramatic decline
in market capitalization due to intense competition and the emergence of
Internet-based distribution models in its industry. New entrants were
altering the traditional relationship MicroAge had with its customers. As
a result, the CEO and his senior management team saw the need to
transform the company to maintain and improve its position in the new
competitive environment.
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Mainspring Approach
and Deliverable. Mainspring utilized the
eStrategy approach and conducted an eight-week, two-phase engagement
designed to assess MicroAges capabilities, refine their e-commerce
strategy and clarify specific product directions. The initial phase
focused on exploring a number of high-growth opportunities and on
building high-level business cases for two types of virtual
distribution
businesses. For each of these opportunities, Mainspring led the effort to
quantify the market opportunity, evaluate the competitive environment,
define the value proposition, and demonstrate the economic impact on
MicroAge customers business processes. Following this initial
phase, MicroAge then selected one area of focus and Mainspring created an
in-depth business execution plan and financial model.
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Key Outcomes.
As a result of working with Mainspring, MicroAge
chose to develop an Internet-based, portal solution for facilitating core
business processes. MicroAges board of directors has also decided
to fund this new Internet portal initiative and we continue to work with
the company to implement the plan.
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Sales and Marketing
We have
developed a direct sales model that is comprised of dedicated business
development and marketing professionals that market and sell our services
primarily to Fortune 1000 companies. Our business development professionals
are organized into teams along each of our four vertical markets and are
primarily responsible for making sales calls to potential clients. Our
marketing professionals focus on creating brand recognition for Mainspring
broadly, as well as within our vertical industry markets.
Our
sales and marketing process is structured to maximize the efforts of our
business development and marketing professionals and strategy consultants
to more effectively penetrate a targeted pipeline of key prospects and
clients. Our sales process starts with our business development
professionals who identify prospects, initiate contact, qualify leads,
determine who key decision makers are, set up initial meetings and assist
in the development of project proposals. Our senior strategy consultants
are deployed typically at the end of the process and meet with executives
at pre-qualified prospect companies to determine their needs and define the
appropriate approach. Our typical sales cycle is eight to ten weeks.
Ongoing client interaction and account growth is managed by both the
business development professionals and consultants.
Our
marketing function is fully integrated with and supports our direct sales
model. During 1999 our marketing organization successfully tested several
marketing initiatives in an effort to develop our brand recognition and
increase our ability to generate business leads. As a result of our
success, we will further expand and roll-out some of these initiatives in
2000 including:
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Mainspring events that
expose potential and existing clients to our vertical market and Internet
expertise;
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industry forum speaking
opportunities;
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online briefings that
enable potential and existing clients to interact online with Mainspring
strategy consultants focused on key Internet business issues;
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media relations efforts
with industry press, business press, and analysts;
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advertising programs that
run nationally and regionally in targeted media outlets; and
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direct mail programs
targeted at industry executives offering our insights into their business
and industries.
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We
maintain our client contacts and corresponding business development and
marketing information in a central database management system. Our
marketing and business development professionals use this information to
identify new opportunities for sales, monitor renewal dates of subscription
offerings, measure marketing program return on investment and project
monthly, quarterly and annual sales.
Strategic Relationship with Bain
On
September 2, 1999, we entered into a strategic alliance with Bain &
Company to jointly develop intellectual capital that we expect will allow
us to more quickly penetrate new vertical markets. We have worked together
on specific research and analysis projects focused on the challenges that
companies face within specific vertical markets in the new Internet
economy. For example, together we recently completed a broad
study of the apparel, consumer electronics, and groceries retailing markets
from which we have developed strategic recommendations on how retailers can
build successful business models that integrate offline and online
capabilities. In addition, E-Squam Investors I, L.P., an affiliate of Bain
responsible for making e-commerce investments for partners of Bain &
Company, has made a less than 1% equity investment in us.
Competition
The
Internet professional services market includes many participants and is
intensely competitive. We compete against:
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large strategic
management consulting firms such as McKinsey & Company, Boston
Consulting Group and Booz, Allen & Hamilton;
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Internet professional
services firms such as Diamond Technology Partners, Scient, Viant,
Sapient and USWeb/CKS;
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strategic consulting
practices of large information technology consulting firms such as
Andersen Consulting, PricewaterhouseCoopers and KPMG;
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Internet professional
services groups of large technology companies such as IBM;
and
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internal strategy
management and information technology departments.
|
Many of
our competitors have longer operating histories, larger installed client
bases, greater brand recognition and significantly greater financial,
technical, marketing and public relations resources than us.
We
believe the principal competitive factors in our industry are:
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quality of services and
strategic expertise;
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vertical market
knowledge;
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reputation and experience
of professionals delivering services;
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time required to deliver
Internet strategies;
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effectiveness of sales
and marketing efforts;
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value of our services
compared to the price of such services;
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project management
capabilities; and
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ability to provide
services on a broad geographic basis.
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There
are relatively low barriers to entry into our business. We have no patented
or other proprietary technology that would preclude or inhibit competitors
from entering the Internet strategy consulting market. Therefore, we must
rely on the skill of our personnel and the quality of our client service to
differentiate us from our potential competitors. We expect to face
additional competition from new entrants into the market in the future. We
cannot be sure that existing or future competitors will not develop or
offer superior services or services that have greater customer acceptance
than the services we offer.
We
believe that we presently compete successfully in these areas but may be
unable to compete successfully in the future due to the evolution of the
market for our services. In addition, some of our competitors may develop
superior services that have greater customer acceptance than the services
we offer.
Mainspring People
We
recognize that our success is critically linked to our ability to attract,
develop and retain talented and motivated people who want to influence the
impact of the Internet on businesses. As such, we view a strong
human resource function as an important strategic component. We believe that
the combination of intellectual challenge, Fortune 1000 clients and a
dynamic work environment enhance our ability to build an outstanding
professional team.
Recruiting. We have developed an internal recruiting staff of
ten which focuses on recruiting professionals from other firms as well as
from top universities and graduate schools. To supplement our recruiting
staff, we have developed an internal affiliate program that rewards
employees who are successful in recruiting experienced professionals with
cash or common stock options.
Training. We have a formal assimilation and training program
for all new employees that addresses our culture, methodologies and
business processes. To supplement our training program, we are forming an
online and in-person learning forum for all employees. We have also
developed a performance management and development system, a mentorship
program and a 360-degree performance evaluation program.
Culture. Our sole focus on Internet strategy allows us to
offer employees a platform for developing as Internet business
professionals. Working in focused teams, our professionals provide services
that have a significant impact on our clients businesses.
Consequently, we are able to offer challenging career opportunities and
exposure to the experiences and skill sets required to build successful
Internet businesses. We also have an environment that encourages teamwork,
fosters creativity, and supports employee growth and flexible working
conditions.
To
reinforce our overarching human resource strategy, we are building a
culture based on a common set of corporate values:
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Acuity. The
ability to see the competitive environment clearly and thus to anticipate
and respond to evolving needs.
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Agility.
The ability to adapt simultaneously to differing business
environments.
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Unity.
Teamwork, knowledge sharing, and communication.
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Integrity.
Open, honest and direct communication.
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Balance. A
work environment that provides employees with career challenges while
respecting the necessary balance between work and home.
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Knowledge Management
We
continue to develop knowledge management systems and processes to
efficiently capture, organize and deliver our intellectual capital.
Knowledge management capabilities are a fundamental part of our strategy
for accelerating the delivery of eStrategy consulting services. Our
knowledge management systems and staff provide the link among our services
that ensures project teams have easy access to the knowledge they need,
when they need it. Our knowledge management is also responsible for
ensuring the confidentiality of proprietary client information generated
through our consulting work.
Our
knowledge management systems are designed to archive a wide range of
information, including:
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Consulting
Deliverables. Consulting project documents and deliverables,
proposals, eStrategy Direct analyses, eStrategy Executive Council
reports.
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External
Resources. Market data, web site links, library holdings and
third-party research.
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Internal
Resources. Methodologies and tools, document templates, training
materials, sales contacts and research contacts, competitive
intelligence, policies and procedures, people and projects.
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Our
knowledge management staff works as a team to develop our core knowledge
management systems and processes. Each knowledge management specialist is
also affiliated with a specific vertical industry practice
and works closely with the strategy consultants in that practice to capture
the knowledge gained, properly and consistently archive new information,
and ensure project teams can efficiently find the knowledge
required.
Intellectual Property
We seek
to protect our intellectual property through a combination of trademark,
patent, service mark, copyright and trade secret laws. We enter into
confidentiality agreements with all employees and use our best efforts to
limit access to and distribution of confidential information generated from
within our business or disclosed by third parties. In addition, we have
entered into non-competition agreements with all employees which prohibit
them from working for a competitor of Mainspring for a period of one year
following termination of employment.
We
consider the frameworks, methodologies and expertise generated through our
three service offerings to be our intellectual property. Our contracts with
clients generally provide that we retain ownership of all intellectual
property developed in our client engagements and that our clients may use
this intellectual capital for internal business purposes only. Although we
believe that our intellectual property has significant value, we also
believe that due to the rapid business changes that characterize the
Internet economy, the innovative skills, strategy expertise and creativity
of our personnel may be more important than our intellectual
property.
We
pursue the protection of our trademarks in the United States and in several
foreign jurisdictions. We have registered trademarks in the U.S. and in
several foreign jurisdictions for the MAINSPRING mark and the COIL SPRING
logo, and we have pending registration applications in other foreign
jurisdictions. We have filed a U.S. provisional patent application covering
our invention of a computerized knowledge brokerage system which is used to
deliver consulting online in our eStrategy Executive Council and eStrategy
Direct service offerings.
Policing
unauthorized use of our copyrighted material and marks is difficult and
expensive. In addition, it is possible that our competitors will adopt
product or service names similar to ours, thereby impeding our ability to
build brand identity and possibly leading to customer confusion. We may be
subject to legal proceedings and claims from time to time relating to the
intellectual property of others in the ordinary course of our business. We
may incur substantial expenses in defending against these third party
infringement claims, regardless of their merit.
Facilities
We are
headquartered in Cambridge, Massachusetts. We have leased approximately
63,000 square feet, of which we currently occupy approximately 19,000
square feet. Our lease expires five years from the date the landlord
delivers the additional 44,000 square feet, which we currently expect to be
July 1, 2000. We have also leased and currently occupy office space in New
York City totaling 22,000 square feet. This lease expires in January
2010.
Employees
As of
February 9, 2000, we had a total of 160 employees, of which 145 were based
at our headquarters in Cambridge, Massachusetts. Our future success will
depend in part on our ability to attract, retain, and motivate highly
qualified strategy consulting and management personnel, for whom
competition is intense. Our employees are not represented by any collective
bargaining unit. We believe our relations with our employees are
good.
Legal Proceedings
We are
not currently a party to any material legal proceedings.
As is
typical for companies in our business, we are from time to time the subject
of lawsuits. These legal proceedings may be covered under insurance
policies or indemnification agreements. Based upon information presently
available, we believe that the final outcome of such proceedings should not
materially and adversely affect our business, financial condition or
results of operations.
Executive Officers, Directors and Other Key
Employees
The
executive officers, directors and other key employees of Mainspring and
their ages and positions as of February 1, 2000 are as follows:
Name
|
|
Age
|
|
Position
|
Executive Officers and
Directors |
John M.
Connolly |
|
47 |
|
Chairman of the Board, President and
Chief Executive
Officer |
Mark A. Verdi |
|
33 |
|
Chief Financial Officer, Senior Vice
President, Finance
and Operations, Secretary, Treasurer and Director |
Joseph L.
Gagnon |
|
39 |
|
Senior Vice President, eStrategy
Consulting and New
York Office General Manager |
Ruth M. Habbe |
|
44 |
|
Senior Vice President,
Marketing |
Randall S.
Hancock |
|
34 |
|
Senior Vice President, eStrategy Direct
and eStrategy
Executive Council |
Eric R.
Pelander |
|
43 |
|
Senior Vice President, Business
Development and
Industry Practices |
S. Ming Tsai |
|
38 |
|
Senior Vice President, eStrategy
Consulting |
Bruce A. Barnet
(1)(2) |
|
54 |
|
Director |
Anthony P. Brenner
(2) |
|
42 |
|
Director |
Jerome D. Colonna
(1) |
|
36 |
|
Director |
William S. Kaiser
(1)(2) |
|
44 |
|
Director |
Paul A. Maeder
(2) |
|
46 |
|
Director |
Brian Nairn |
|
50 |
|
Director |
|
Other Key
Employees |
|
|
|
|
Ellen G.
Carberry |
|
39 |
|
Senior Vice President, Business
Development |
Julie M.
Donahue |
|
41 |
|
Senior Vice President,
eStrategy |
Mark J. Hernon |
|
36 |
|
Vice President and General Manager,
Manufacturing
Practice |
George T.
Kivel |
|
40 |
|
Vice President, eStrategy Financial
Services |
George E.
Pohle |
|
37 |
|
Vice President and General Manager,
Technology,
Communications and Media Practice |
Lee A. Spirer |
|
33 |
|
Vice President and General Manager,
Financial
Services Practice |
(1)
|
Member of the Audit
Committee
|
(2)
|
Member of Compensation
Committee
|
|
Executive Officers
and Directors
|
John
M. Connolly founded Mainspring and has served as its Chairman,
President and Chief Executive Officer since its inception in April 1996.
From 1993 to 1996, Mr. Connolly served as Chairman, Chief Executive Officer
and President of ITP Media Group. From 1989 to 1992, Mr. Connolly served as
President and CEO of Course Technology, Inc., a leading publisher of
educational materials that he co-founded in 1989; Course Technology, Inc.
was acquired by the Thomson Corporation in December 1992. Mr. Connolly
received a Bachelor of Arts from St. Norberts College. Mr. Connolly
serves as a director of Student Advantage, Inc.
Mark
A. Verdi joined Mainspring in August 1996 as its Chief Financial
Officer, Senior Vice President, Finance and Operations, Secretary and
Treasurer. In 1999, Mr. Verdi was elected to its board of directors. From
1994 to 1996, Mr. Verdi attended Harvard Business School. From 1988 to
1994, Mr. Verdi worked in the
Entrepreneurial Services Center for the Price Waterhouse High Technology
Group, serving as senior manager in 1994. Mr. Verdi received a Bachelor of
Science from the University of Vermont and graduated from the Harvard
Business School as a Baker Scholar. Mr. Verdi is a Certified Public
Accountant.
Joseph L. Gagnon joined Mainspring in October 1999 as Senior
Vice President, eStrategy Consulting and New York Office General Manager.
From 1989 to 1999, Mr. Gagnon worked at Ernst & Young, most recently as
a partner in Ernst & Youngs global eCommerce practice from 1996
to 1999. From 1992 to 1996, Mr. Gagnon held numerous leadership positions
in Ernst & Youngs Center for Technology Enablement. Mr. Gagnon
received a Bachelor of Arts from Fordham University.
Ruth
M. Habbe joined Mainspring in October 1997 as Senior Vice President,
Marketing. From 1994 to 1997, Ms. Habbe served as Vice President, Marketing
of Forrester Research, a technology research firm. For 1993, Ms. Habbe
served as Vice President, Marketing of Imagery Software. Ms. Habbe received
a Bachelor of Arts from the University of Massachusetts.
Randall S. Hancock joined Mainspring in September 1998 as
Senior Vice President, eStrategy Direct and eStrategy Executive Council.
From 1994 to 1998, Mr. Hancock served as director of the Gemini Strategic
Research Group, a unit of Gemini Consulting, formerly known as the MAC
Group, which he founded in 1994. From 1991 to 1993, Mr. Hancock served as a
strategy consultant at Gemini Consulting. Mr. Hancock received a Bachelor
of Arts from Harvard University and an MBA with distinction from the J.L.
Kellogg School at Northwestern University.
Eric
R. Pelander joined Mainspring in January 2000 as Senior Vice President,
Business Development and Industry Practices. From 1991 to 1999, Mr.
Pelander was a partner at Ernst & Young, most recently as managing
director of Strategic Advisory Services from 1996 to 1999. Mr. Pelander
received a Bachelor of Arts from the College of William and Mary and an MBA
from the Harvard Business School.
S.
Ming Tsai joined Mainspring in October 1999 as Senior Vice President,
eStrategy Consulting. From 1997 to 1999, Mr. Tsai was a partner at Ernst
& Young, leading its eCommerce strategy practice. From 1987 to 1997,
Mr. Tsai was a senior manager with the Boston Consulting Group where he
focused on general business and eCommerce strategies. From 1982 to 1987,
Mr. Tsai was a senior consultant with Andersen Consulting, working as a
technology specialist in online transaction systems. Mr. Tsai received a
Bachelor of Science from Yale University and an MBA with honors from
Columbia Business School.
Bruce
A. Barnet has served as a director of Mainspring since December 1996.
Mr. Barnet is currently a private investor and advisor in Internet
businesses. From 1996 to 1999, Mr. Barnet was President and CEO of Cahners
Business Information. From 1990 to 1996, Mr. Barnet was the President and
CEO of Cowles Enthusiast Media. Mr. Barnet completed his undergraduate work
at Yale University and received an MBA from Columbia University. Mr. Barnet
serves as a director for General Cigar Co.
Anthony P. Brenner has served as a director of Mainspring
since November 1999. Since 1998, Mr. Brenner has been a managing director
and partner at Crosslink Capital, Inc., formerly Omega Ventures of
Robertson Stephens & Company. From 1994 to 1997, Mr. Brenner also
served as senior managing director of Advanta Partners, a venture capital
firm affiliated with Advanta Corporation, a financial services company. Mr.
Brenner received a Bachelor of Arts from Yale University and an MBA from
Stanford University. Mr. Brenner currently serves as a director for
Careside, Inc.
Jerome D. Colonna has served as a director of Mainspring since
December 1996. Since 1996, Mr. Colonna has served as a partner at Flatiron
Partners, LLC, a venture capital firm that he co-founded in 1996. From 1995
to 1996, Mr. Colonna served as a partner at CMG@Ventures, a venture capital
investment firm that he co-founded in 1995. From 1985 to 1995, Mr. Colonna
served in various positions with CMP Media, Inc., a technology publishing
firm, including Editorial Director, Interactive Media Group. Mr. Colonna
received a Bachelor of Arts degree from Queens College, City University of
New York. Mr. Colonna currently serves on the boards of directors at
TheStreet.com and iXL Inc.
William S. Kaiser has served as a director of Mainspring since June
1996. Mr. Kaiser has been a general partner of Greylock Equity Limited
Partnership since 1994. Mr. Kaiser received a Bachelor of Science from the
Massachusetts Institute of Technology and an MBA from the Harvard Business
School. Mr. Kaiser currently serves on the boards of Clarus Corporation,
Open Market Inc., Red Hat, Inc. and Student Advantage, Inc.
Paul
A. Maeder has served as a director of Mainspring since June 1996. Mr.
Maeder is Managing General Partner of Highland Capital Partners, a venture
capital firm that he co-founded in 1988. From 1984 to 1987, Mr. Maeder was
a General Partner at Charles River Ventures. Mr. Maeder received a Bachelor
of Science from Princeton University, a Masters in Mechanical Engineering
from Stanford University, and an MBA from the Harvard Business
School.
Brian
Nairn has served as a director of Mainspring since September 1999. Mr.
Nairn currently serves as President and Chief Operating Officer of Cahners
Business Information. He joined Cahners in 1996 as Executive Vice President
in charge of Business Publications. From 1991 to 1996, Mr. Nairn held a
number of senior positions at Advanstar Communications, most recently as
president of the Publishing Division from 1994 to 1996.
Ellen
G. Carberry joined Mainspring in September 1996 as Senior Vice
President, Business Development. From 1994 to 1996, Ms. Carberry was
director of business development at AT&T New Media Services, formerly
Interchange and Ziff-Davis Interactive. Ms. Carberry was senior manager of
Electronic Publishing Franchises for AT&T from 1994 to 1995. From 1993
to 1994, Ms. Carberry was the assistant to the President and CEO of
Production Group International, Inc., an event and communications agency.
Ms. Carberry received a Bachelor of Arts from Georgetown
University.
Julie
M. Donahue joined Mainspring in June 1998 as Senior Vice President,
eStrategy. From 1997 to 1998, Ms. Donahue was CEO of Venture Forward, a
Division of The Chasm Group which she founded in 1997. From 1995 to 1997,
Ms. Donahue was a principal consultant with The Chasm Group, an education
consulting firm focused on helping high tech companies achieve market
leadership. Ms. Donahue received a Bachelor of Science in Economics from
the University of Pennsylvania.
Mark
J. Hernon joined Mainspring in January 2000 as Vice President and
General Manager, Manufacturing Practice. From 1987 to 1999, Mr. Hernon was
employed by Deloitte Consulting, most recently as a partner in 1999. Mr.
Hernon received a Bachelor of Science, a Masters in Industrial Engineering,
and an MBA from Rensselaer Polytechnic Institute.
George T. Kivel joined Mainspring in February 1998 as Vice
President, eStrategy Financial Services. From 1995 to 1998, Mr. Kivel
served as director of consulting services for The Tower Group, an
international taxation and information technology consulting firm. Mr.
Kivel received a Bachelor of Arts from Harvard University.
George E. Pohle joined Mainspring in October 1999 as Vice
President and General Manager, Technology, Communications and Media
Practice. From 1998 to 1999, Mr. Pohle was senior director, strategy and
business development at Lucent Technologies. From 1994 to 1998, Mr. Pohle
was a principal with Gemini Consulting, serving as its head of U.S.
strategy from 1997 to 1998. Mr. Pohle received a Bachelor of Science from
The Johns Hopkins University and an MBA from INSEAD.
Lee
A. Spirer joined Mainspring in November 1999 as Vice President and
General Manager, Financial Services Practice. From 1994 to 1999, Mr. Spirer
was employed by Booz-Allen and Hamilton, most recently as a principal since
1996. Mr. Spirer received a Bachelor of Arts from Brandeis University and
an MBA from The Wharton School.
Election Of Executive Officers And Directors
Our
executive officers are elected by the board of directors on an annual basis
and serve until their successors are duly elected and qualified or their
earlier resignation or removal. All of the current directors were elected
as our directors under a shareholders agreement which will terminate
upon the closing of this offering. There are no family relationships among
any of our executive officers or directors.
Board Committees
The
board of directors has appointed a compensation committee consisting of
Messrs. Barnet, Brenner, Kaiser and Maeder. The compensation committee
reviews and evaluates the compensation and benefits of all our officers,
reviews general policy matters relating to compensation and benefits of our
employees and makes recommendations concerning these matters to the board
of directors. The compensation committee also administers our stock option
and incentive and stock purchase plans. Please turn to the section titled
Equity Plans for more information on our stock option and
incentive and stock purchase plans.
The
board of directors has also appointed an audit committee consisting of
Messrs. Barnet, Colonna and Kaiser. The audit committee reviews, with our
independent auditors, the scope and timing of their audit services and any
other services they are asked to perform, the auditors report on our
consolidated financial statements following completion of their audit, and
our policies and procedures with respect to internal accounting and
financial controls. In addition, the audit committee will make annual
recommendations to the board of directors for the appointment of
independent auditors for the ensuing year.
Director Compensation
Our
directors do not currently receive any cash compensation for their services
as members of our board of directors, although directors are reimbursed for
reasonable out-of-pocket expenses incurred in connection with their
attendance at board of directors and committee meetings. Directors are
currently eligible to participate in Mainsprings 1996 Omnibus Stock
Plan and will be eligible to participate in Mainsprings 2000
Non-Employee Director Stock Option Plan. For additional information about
options, please turn to the headings titled Equity Plans
and Certain Transactions.
Compensation Committee Interlocks And Insider
Participation
The
compensation committee is comprised of Messrs. Barnet, Brenner, Kaiser and
Maeder. Messrs. Barnet, Brenner, Kaiser and Maeder are not and have never
been employees of Mainspring. Messrs. Brenner, Kaiser and Maeder are
managing members and/or general partners of affiliates of Mainspring that
have made significant equity investments in Mainspring. See Certain
Transactions for more information on these investments. No executive
officer of Mainspring serves as a member of the board of directors or
compensation committee of any entity that has one or more executive
officers serving as a member of Mainsprings board of directors or
compensation committee. No such interlocking relationship has existed in
the past. Prior to the formation of the compensation committee in January
1997, Mainsprings full board of directors (which included Mr.
Connolly, chief executive officer of Mainspring) was responsible for the
functions of a compensation committee and made decisions concerning
executive officer compensation.
Executive Compensation
The
following table sets forth the compensation information for our Chief
Executive Officer and our four other highest-paid executive officers, whose
total salary and bonus exceeded $100,000, for services rendered in all
capacities to us during the year ended December 31, 1999.
|
|
|
|
Long Term
Compensation
|
|
|
Annual
Compensation
|
|
Securities
Underlying
Options
|
Name and Principal
Position
|
|
Salary
|
|
Bonus
|
John M. Connolly
Chairman, President and Chief Executive Officer |
|
$172,290 |
|
|
$100,000 |
|
350,000 |
Joseph L. Gagnon
Senior Vice President, eStrategy Consulting and New York Office
General Manager |
|
75,000 |
(1) |
|
200,000 |
|
172,500 |
Ruth M. Habbe
Senior Vice President, Marketing |
|
163,913 |
|
|
107,500 |
|
10,000 |
Randall S. Hancock
Senior Vice President, eStrategy Direct and eStrategy Executive
Council |
|
147,451 |
|
|
105,000 |
|
41,084 |
Mark A. Verdi
Chief Financial Officer, Senior Vice President, Finance and Operations,
Secretary and Treasurer |
|
144,863 |
|
|
125,000 |
|
10,000 |
(1)
|
Reflects salary paid to
Mr. Gagnon from October 1, 1999, his first day of employment, through
December 31, 1999.
|
|
|
Option Grants in
Last Fiscal Year
|
The
following table sets forth each grant of stock options during 1999 to each
of the named executive officers. No stock appreciation rights were granted
during the fiscal year. Upon a change of control of Mainspring, 50% of the
unvested stock options of Messrs. Connolly, Gagnon, Hancock and Ms. Habbe
become immediately exercisable and all of Mr. Verdis unvested stock
options become immediately exercisable. Each of the options has a ten-year
term, except for certain incentive stock options granted to Mr. Connolly,
subject to earlier termination in the event the holder ceases providing
services to us.
The
percentage numbers are based on options to purchase an aggregate of
1,938,234 shares of common stock granted to our employees under our 1996
Omnibus Stock Plan during 1999. The exercise price was equal to the fair
market value of our common stock as valued by the board of directors on the
date of grant. The exercise price may be paid in cash, in shares of our
common stock valued at fair market value on the exercise date or through a
cashless exercise procedure as long as this procedure would not cause us to
recognize compensation expense for financial reporting purposes. We may
also finance the option exercise by accepting a full recourse note from the
optionee equal to the exercise price for the purchased shares, together
with any federal and state income tax liability incurred by the optionee in
connection with such exercise.
The
potential realizable value is calculated based on a ten-year term of the
option at the time of grant, except with respect to certain incentive stock
options granted to Mr. Connolly, which is calculated based on a five-year
term. Stock price appreciation of 5% and 10% is assumed because of SEC
rules and does not represent our prediction of our stock price performance.
The potential realizable values at 5% and 10% appreciation are calculated
by assuming that the exercise price on the date of grant appreciates at the
indicated rate for the entire term of the option and that the option is
exercised at the exercise price and sold on the last day of its term at the
appreciated price.
|
|
Individual
Grants
|
|
Potential
Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation for
Option Term
|
Name
|
|
Number of
Securities
Underlying
Options
Granted
|
|
% of Total
Options
Granted to
Employees
in 1999
|
|
Exercise
Price
($/Sh)
|
|
Expiration
Date
|
|
|
|
|
|
5%
|
|
10%
|
|
John M.
Connolly |
|
221,425 |
|
11.4 |
% |
|
$2.20 |
|
10/1/04 |
|
$ 78,066 |
|
$226,079 |
|
|
128,575 |
|
6.6 |
|
|
2.00 |
|
10/1/09 |
|
161,720 |
|
409,831 |
Joseph L.
Gagnon |
|
172,500 |
|
8.9 |
|
|
2.00 |
|
9/13/09 |
|
216,969 |
|
549,841 |
Ruth M. Habbe |
|
10,000 |
|
0.5 |
|
|
2.00 |
|
7/27/09 |
|
12,578 |
|
31,875 |
Randall S.
Hancock |
|
1,600 |
|
* |
|
|
2.50 |
|
12/21/09 |
|
2,516 |
|
6,375 |
|
|
39,484 |
|
2.0 |
|
|
5.00 |
|
12/31/09 |
|
124,156 |
|
314,637 |
Mark A. Verdi |
|
10,000 |
|
0.5 |
|
|
2.00 |
|
7/27/09 |
|
12,578 |
|
31,875 |
|
Option Exercises
and Year-End Holdings
|
The
following table sets forth information concerning stock option exercises
during 1999 by each of the named executive officers and the number and
value of unexercised options held by them as of December 31, 1999. The
heading Vested refers to shares no longer subject to repurchase
by us, and the heading Unvested refers to shares subject to
repurchase by us, in each case as of December 31, 1999.
Aggregate Option Exercises In 1999 And Fiscal Year-End Option
Values
|
|
Shares
Acquired
on Exercise
|
|
Value
Realized(1)
|
|
Number of Securities
Underlying Unexercised
Options at Year-End
|
|
Value of Unexercised
in-the-Money Options at
Year-End(2)
|
Name
|
|
|
|
Vested
|
|
Unvested
|
|
Vested
|
|
Unvested
|
John M.
Connolly |
|
|
|
$
|
|
50,000 |
|
300,000 |
|
$140,000 |
|
$865,715 |
Joseph L.
Gagnon |
|
|
|
|
|
50,000 |
|
122,500 |
|
150,000 |
|
367,500 |
Ruth M. Habbe |
|
74,036 |
|
139,188 |
|
|
|
93,908 |
|
|
|
397,517 |
Randall S.
Hancock |
|
|
|
|
|
56,754 |
|
141,912 |
|
245,575 |
|
448,635 |
Mark A. Verdi |
|
96,118 |
|
155,753 |
|
9,062 |
|
77,950 |
|
41,972 |
|
333,402 |
(1)
|
These values have been
calculated by determining the difference between the exercise price per
share and the fair market value on the date of exercise.
|
(2)
|
These values have been
calculated by determining the difference between the exercise price per
share and the fair market value on December 31, 1999.
|
Equity Plans
1996
Omnibus Stock Plan. Mainsprings 1996
Omnibus Stock Plan was adopted by the board of directors and approved by
the stockholders on June 7, 1996. A total of 3,926,908 shares of common
stock have been reserved for issuance under the 1996 Stock Plan. Under the
1996 Stock Plan, Mainspring was authorized to grant options to purchase
shares of common stock intended to qualify as incentive stock options as
defined under Section 422 of the Internal Revenue Code of 1986 to employees
and non-qualified stock options and restricted stock to directors, officers
and other employees and consultants of Mainspring. Options granted under
the 1996 Stock Plan are exercisable within ten years of the grant date or,
in the case of incentive stock options granted to an employee owning stock
possessing more than 10% of the total combined voting power of all classes
of stock of Mainspring, not more than five years after the grant date.
Options granted under the 1996 Stock Plan generally become exercisable
according to the following schedule: 30% by the first anniversary of the
date of grant, then monthly such that an additional 20% become exercisable
by the second anniversary, 20% by the third anniversary
and 30% by the fourth anniversary. As of December 31, 1999, options to
purchase 4,259,046 shares had been granted under the 1996 Stock Plan. Of
that amount, options to purchase 2,655,298 shares of Mainspring common
stock remain outstanding as of December 31, 1999 are exercisable at prices
ranging from $.17 to $5.00 per share.
2000
Stock Option and Incentive Plan. Mainspring
s 2000 Stock Option and Incentive Plan, or 2000 Option Plan, was
adopted by the Board of Directors on February 9, 2000, subject to
stockholder approval and becomes effective on the date on which Mainspring
s common stock is registered under the Securities Exchange Act. A
total of 5,000,000 shares of common stock have initially been reserved for
issuance under the 2000 Option Plan. The 2000 Option Plan provides that the
number of shares authorized for issuance will automatically increase
annually by 8% of the outstanding number of shares of common stock, and the
number of shares of common stock issuable pursuant to the exercise of
outstanding options, up to a maximum of an additional 5,000,000 shares of
common stock per year. Under the terms of the 2000 Option Plan, Mainspring
is authorized to grant incentive stock options, non-qualified options,
stock awards or direct purchases of common stock available for employees,
officers, directors and consultants of Mainspring.
The 2000
Option Plan is administered by the Mainspring compensation committee. The
committee selects the individuals to whom options will be granted and
determines the option exercise price and other terms of each award, subject
to the provisions of the 2000 Option Plan. No options may be exercised
following termination of employment for cause. The term of the 2000 Option
Plan is ten years, unless sooner terminated by vote of the board of
directors. As of February 11, 2000, no options had been granted under the
2000 Option Plan.
Change in Control Provisions. The 2000
Option Plan and the 1996 Stock Plan (as amended on February 9, 2000)
provide for the acceleration of vesting in the event of a change in control
of Mainspring. Generally, upon a change in control, vesting of options or
other awards will accelerate by one year if:
|
|
the acquiring company
neither assumes or substitutes the option or award nor replaces it with a
similar award; or
|
|
|
the holder is discharged
within 12 months after the change in control, other than for
cause.
|
For this purpose, holder is also treated as having been discharged
other than for cause if the holder resigns after being asked to relocate,
after suffering a reduction in compensation or after being
demoted.
2000
Non-Employee Director Stock Option Plan.
Mainsprings 2000 Non-Employee Director Stock Option Plan, or
Director Plan, was adopted by the Board of Directors on February 9, 2000,
subject to stockholder approval, and becomes effective on the date on which
Mainsprings common stock is registered under the Securities Exchange
Act. A total of 200,000 shares of common stock have been authorized for
issuance under the Director Plan.
The
Director Plan is administered by the Mainspring compensation committee.
Under the Director Plan, each non-employee director who is or becomes a
member of the board of directors is automatically granted on the date on
which the common stock becomes registered under the Exchange Act or, if not
a director on that date, the date first elected to the board of directors,
an initial option to purchase 20,000 shares of common stock, which will
vest quarterly in equal installments over four years. In addition, provided
that the director continues to serve as a member of the board of directors,
each non-employee director will be automatically granted on the first
anniversary of his or her initial option grant date and each year
thereafter an option to purchase 3,000 shares of common stock, which will
vest quarterly in equal installments over that year. All options granted
under the Director Plan will have an exercise price equal to the fair
market value of the common stock on the date of grant and a term of ten
years from the date of grant. Unexercisable options terminate when the
director ceases to be a director for any reason other than death or
permanent disability. Vested options may be exercised at any time during
the option term. The term of the Director Plan is ten years, unless sooner
terminated by vote of the board of directors. No options have been granted
under the Director Plan.
2000
Employee Stock Purchase Plan. The 2000 Employee
Stock Purchase Plan, or Stock Purchase Plan, was adopted by the board of
directors on February 9, 2000, subject to stockholder approval, and becomes
effective on the date on which Mainsprings common stock is registered
under the Securities Exchange Act.
The Stock Purchase Plan provides for the issuance of up to an aggregate of
1,000,000 shares of common stock to participating employees. The Stock
Purchase Plan provides that the number of shares authorized for issuance
under the Stock Purchase Plan will automatically increase annually by 2% of
the outstanding number of shares of common stock, up to a maximum of an
additional 1,000,000 shares of common stock per year.
The
Stock Purchase Plan is administered by the Mainspring compensation
committee. All employees who have completed three months of employment with
Mainspring and whose customary employment is more than 20 hours per week
and for more than five months in any calendar year are eligible to
participate in the Stock Purchase Plan. The right to purchase common stock
under the Stock Purchase Plan will be made available through a series of
offerings. On the first day of an offering period, Mainspring will grant to
each eligible employee who has elected in writing to participate in the
Stock Purchase Plan an option to purchase shares of common stock. The
employee will be required to authorize an amount, between 1% and 10% of the
employees compensation, to be deducted from the employees pay
during the offering period. On the last day of the offering period, the
employee will be deemed to have exercised the option, at the option
exercise price, to the extent of accumulated payroll deductions. Under the
terms of the Stock Purchase Plan, the option exercise price is an amount
equal to 85% of the fair market value of one share of common stock on
either the first or last day of the offering period, whichever is lower. No
employee may be granted an option that would permit the employees
rights to purchase common stock to accrue in excess of $25,000 in any
calendar year. The first offering period under the Stock Purchase Plan will
commence upon the initial offering of the common stock to the public and
continues through September 30, 2001. Thereafter, the offering periods will
begin on October 1 and April 1 of each year. Options granted under the
Stock Purchase Plan terminate upon an employees voluntary withdrawal
from the plan at any time or upon termination of employment. No options
have been granted to date under the Stock Purchase Plan.
401(k) Plan
Mainspring has established a tax-qualified 401(k) Retirement Savings
Plan. All employees of Mainspring are eligible to participate in the 401(k)
Plan. Employees may generally elect to defer up to 20% of their pre-tax
compensation and Mainspring may make matching contributions on an annual
basis to the employees. To date, we have not made any matching
contributions to the 401(k) Plan.
Limitation Of Liability And Indemnification Of Officers And
Directors
Mainsprings amended and restated certificate of incorporation
provides that the directors and officers of Mainspring shall be indemnified
by Mainspring to the fullest extent authorized by Delaware law against all
expenses and liabilities reasonably incurred in connection with their
service for or on behalf of Mainspring. The amended and restated
certificate of incorporation also provides that the directors of Mainspring
will not be personally liable for monetary damages to Mainspring for
breaches of their fiduciary duty as directors, unless they violated their
duty of loyalty to Mainspring or its stockholders, acted in bad faith,
knowingly or intentionally violated the law, authorized illegal dividends
or redemptions or derived an improper personal benefit from their action as
directors. Mainspring intends to increase its insurance which insures the
directors and officers of Mainspring against specified losses and which
insures Mainspring against specific obligations to indemnify its directors
and officers.
Since
our incorporation in April 1996, we have issued and sold shares of
preferred stock to the following persons and entities who are our executive
officers, directors or principal stockholders. For more detail on shares
held by these purchasers, see Principal Stockholders on page
45. Four of our directors, Anthony Brenner, Brian Nairn, William Kaiser and
Paul Maeder, are affiliates of holders of greater than five percent of our
common stock.
Preferred Stock Issuances
Investor
|
|
Series A
Preferred
Stock
|
|
Series B
Preferred
Stock
|
|
Series C
Preferred
Stock
|
|
Series D
Preferred
Stock
|
|
Series E
Preferred
Stock
|
|
Aggregate
Purchase Price
|
Highland Capital Partners
II,
Limited Partnership |
|
551,471 |
|
90,145 |
|
20,243 |
|
436,011 |
|
430,148 |
|
$7,711,085 |
Greylock Equity Limited
Partnership |
|
551,471 |
|
90,145 |
|
20,243 |
|
436,011 |
|
430,148 |
|
7,711,085 |
Reed Elsevier
Inc. |
|
|
|
384,616 |
|
|
|
|
|
|
|
3,000,005 |
Chase Venture Capital
Associates, L.P. |
|
|
|
151,976 |
|
18,674 |
|
191,163 |
|
273,542 |
|
4,194,021 |
Crosslink(1) |
|
|
|
|
|
|
|
|
|
1,066,667 |
|
8,000,003 |
Bruce A.
Barnet |
|
|
|
|
|
|
|
26,316 |
|
20,202 |
|
251,516 |
Ruth M. Habbe |
|
|
|
|
|
|
|
|
|
13,333 |
|
99,998 |
S. Ming Tsai |
|
|
|
|
|
|
|
|
|
6,667 |
|
50,003 |
(1)
|
Comprised of Crosslink
Omega Ventures III, L.L.C., Crosslink Offshore Omega Ventures III (a
Cayman Islands unit trust), Omega Bayview, L.L.C. and Crosslink Crossover
Fund III, L.P.
|
Series A Financing. On June 14, 1996,
we issued an aggregate of 1,205,884 shares of Series A preferred stock to
six investors, including Highland and Greylock. The per share purchase
price for our Series A preferred stock was $3.40.
Series B Financing. On December 4,
1996, we issued an aggregate of 896,159 shares of Series B preferred stock
to ten investors, including Highland, Greylock, Reed Elsevier and Chase.
The per share purchase price for our Series B preferred stock was
$7.80.
Series C Financing. On October 3, 1997,
we issued an aggregate of 225,103 shares of Series C preferred stock to six
investors, including Highland, Greylock and Chase. The per share purchase
price for our Series C preferred stock was $12.35.
Series D Financing. On February 8,
1999, we issued an aggregate of 1,315,790 shares of Series D preferred
stock to ten investors, including Highland, Greylock, Chase and Bruce
Barnet. The per share purchase price for our Series D preferred stock was
$3.80.
Series E Financing. On November 18,
1999, December 29, 1999 and February 10, 2000, we issued an aggregate of
4,426,668 shares of Series E preferred stock to 23 investors, including
Crosslink, Highland, Greylock, Chase, Bruce Barnet, Ruth Habbe, Ming Tsai
and E-Squam Investors I, L.P. The per share purchase price for our Series E
preferred stock was $7.50.
In
connection with the issuances of each series of preferred stock, we have
also granted registration rights to the securityholders listed above under
the terms of the Series E Preferred Stock Purchase Agreement. See
Description of Capital StockRegistration Rights.
Common Stock Issuances
In
February 1998, one of our founders terminated his employment with
Mainspring. This founders shares of common stock were subject to a
stock restriction agreement. Under the terms of this stock restriction
agreement, we repurchased shares of his unvested common stock at a purchase
price of $.005 per share. On August 12, 1998, we repurchased an additional
379,160 shares of common stock at $.62 per share, which was the fair market
value of our common stock on August 12, 1998. Also on August 12, 1998, this
founder sold
415,408 shares of common stock to certain of our investors and employees at a
price of $.62 per share, including Highland, Greylock, Reed Elsevier, John
Connolly, Bruce Barnet, Mark Verdi and Ruth Habbe.
Loans to Executive Officers
On
August 31, 1999, Ming Tsai borrowed $200,000 from Mainspring. The loan is
evidenced by a full recourse promissory note and bears interest at a rate
of 8.0%. Principal of $100,000 and accrued interest on $100,000 will be
forgiven if we continue to employ Mr. Tsai for one year. The remaining
principal and interest is due on August 31, 2001.
We
believe that all of the transactions set forth above were made on terms no
less favorable to us than could have been obtained from unaffiliated third
parties. We agreed to the material terms of each of the preferred stock
issuances set forth above after arms-length negotiations with
previously unaffiliated persons. All future transactions, including loans
between us and our officers, directors, principal stockholders and their
affiliates will be approved by a majority of the board of directors,
including a majority of the independent and disinterested directors on the
board of directors, and will continue to be on terms no less favorable to
us than could be obtained from unaffiliated third parties.
The
following table sets forth information regarding beneficial ownership of
our common stock as of December 31, 1999, and as adjusted to reflect the
sale of the shares of common stock in this offering, by:
|
|
each person who we know
to own beneficially more than 5% of our common stock;
|
|
|
each executive officer
(named in the summary compensation table under Management
Executive Compensation); and
|
|
|
all current executive
officers and directors as a group.
|
Beneficial ownership is determined in accordance with the rules of
the Securities and Exchange Commission, and includes voting or investment
power with respect to shares. Shares of common stock issuable under stock
options that are exercisable within 60 days after February 1, 2000 are
deemed outstanding for computing the percentage ownership of the person
holding the options, but are not deemed outstanding for computing the
percentage ownership of any other person. Unless otherwise indicated below,
to our knowledge, all persons named in the table have sole voting and
investment power with respect to their shares of common stock, except to
the extent authority is shared by spouses under applicable law. Unless
otherwise indicated, the address of each person owning more than 5% of the
outstanding shares of common stock is c/o Mainspring Communications, Inc.,
One Main Street, Cambridge, Massachusetts 02142.
|
|
Shares Beneficially
Owned
Prior to Offering
|
|
Shares Beneficially
Owned
After Offering
|
Name and Address of Beneficial
Owner
|
|
Number
|
|
Percent
|
|
Number
|
|
Percent
|
Executive Officers and
Directors |
John M.
Connolly(1) |
|
1,154,434 |
|
8.2 |
% |
|
1,154,434 |
|
% |
Mark A.
Verdi(2) |
|
122,527 |
|
* |
|
|
122,527 |
|
|
Bruce A. Barnet
5 Crooked Mile Road
Westport, CT 06880 |
|
112,320 |
|
* |
|
|
112,320 |
|
|
Anthony P. Brenner(3)
Crosslink Capital
555 California Street, Suite 2350
San Francisco, CA 94104 |
|
1,066,667 |
|
7.6 |
|
|
1,066,667 |
|
|
Jerome D. Colonna(4)
Flatiron Partners
257 Park Avenue South, 12th Floor
New York, NY 10010 |
|
225,147 |
|
1.6 |
|
|
225,147 |
|
|
William S. Kaiser(5)
Greylock Management
One Federal Street
Boston, MA 02110 |
|
2,717,750 |
|
19.4 |
|
|
2,717,750 |
|
|
Paul A. Maeder(6)
Highland Capital
2 International Place
Boston, MA 02110 |
|
2,717,750 |
|
19.4 |
|
|
2,717,750 |
|
|
Brian Nairn |
|
|
|
* |
|
|
|
|
|
Cahners Business Information
350 Hudson Street
New York, NY 10014 |
|
|
|
|
|
|
|
|
|
Joseph L.
Gagnon(7) |
|
57,500 |
|
* |
|
|
57,500 |
|
|
Ruth M.
Habbe(8) |
|
131,137 |
|
* |
|
|
131,137 |
|
|
Randall S.
Hancock(9) |
|
106,743 |
|
* |
|
|
106,743 |
|
|
|
|
Shares Beneficially
Owned
Prior to Offering
|
|
Shares Beneficially
Owned
After Offering
|
Name and Address of Beneficial
Owner
|
|
Number
|
|
Percent
|
|
Number
|
|
Percent
|
Principal
Stockholders |
Highland Capital Partners
II, Limited Partnership
2 International Place
Boston, MA 02110 |
|
2,717,750 |
|
19.4 |
% |
|
2,717,750 |
|
% |
Greylock Equity Limited
Partnership
One Federal Street
Boston, MA 02110 |
|
2,717,750 |
|
19.4 |
|
|
2,717,750 |
|
|
Reed Elsevier Inc.
275 Washington Street
Newton, MA 02158 |
|
937,531 |
|
6.7 |
|
|
937,531 |
|
|
Chase Venture Capital
Associates, L.P.
257 Park Avenue South, 12th Floor
New York, NY 10010 |
|
1,062,378 |
|
7.6 |
|
|
1,062,378 |
|
|
Crosslink(10)
555 California Street, Suite 2350
San Francisco, CA 94104 |
|
1,066,667 |
|
7.6 |
|
|
1,066,667 |
|
|
All executive officers
and directors as a group (13 persons)(11) |
|
8,504,925 |
|
59.4 |
|
|
8,504,925 |
|
|
*
|
Less than 1% of the
outstanding common stock
|
(1)
|
Includes 10,000 shares
owned by Mr. Connollys minor children. Also includes 50,000 shares
issuable upon the exercise of options that become exercisable within 60
days of February 1, 2000.
|
(2)
|
Includes 22,909 shares
issuable upon the exercise of options that become exercisable within 60
days of February 1, 2000. Does not include 36,000 shares owned by Mr.
Verdis parents. Mr. Verdi has voting power over such 36,000 shares
which terminates upon the completion of this offering.
|
(3)
|
Comprised of 1,066,667
shares owned by the Crosslink entities. Mr. Brenner is a managing member
of Crosslink Omega III Holdings, L.L.C. and Crossover Fund III
Management, L.L.C. Crosslink Omega III Holdings, L.L.C. is the investment
manager of Crosslink Omega Ventures III, L.L.C. and Crosslink Offshore
Omega Ventures III (a Cayman Islands unit trust). Crossover Fund III
Management, L.L.C. is the general partner of Crosslink Crossover Fund
III, L.P. Mr. Brenner is a member of Omega Bayview, L.L.C. Mr. Brenner
disclaims beneficial ownership of such shares except to the extent of his
proportionate pecuniary interest therein.
|
(4)
|
Comprised of 225,147
shares owned by the Flatiron Fund LLC 98/99, Flatiron Fund, LLC and
Flatiron Associates, LLC. Mr. Colonna is a managing partner of the
managing members of the Flatiron Fund LLC 98/99 and Flatiron Fund, LLC.
He is a managing member of Flatiron Associates, LLC. Mr. Colonna
disclaims beneficial ownership of such shares except to the extent of his
proportionate pecuniary interest therein.
|
(5)
|
Comprised of 2,717,750
shares owned by Greylock Equity Limited Partnership. Mr. Kaiser is a
general partner of Greylock Equity GP Limited Partnership, the general
partner of Greylock Equity Limited Partnership. Mr. Kaiser disclaims
beneficial ownership of such shares except to the extent of his
proportionate pecuniary interest therein.
|
(6)
|
Comprised of 2,717,750
shares owned by Highland Capital Partners II, Limited Partnership. Mr.
Maeder is a general partner of Highland Management Partners II Limited
Partnership, the general partner of Highland Capital Partners Limited
Partnership. Mr. Maeder disclaims beneficial ownership of such shares
except to the extent of his proportionate pecuniary interest
therein.
|
(7)
|
Includes 57,500 shares
issuable upon the exercise of options that become exercisable within 60
days of February 1, 2000.
|
(8)
|
Includes 12,508 shares
issuable upon the exercise of options that become exercisable within 60
days of February 1, 2000.
|
(9)
|
Includes 67,259 shares
issuable upon the exercise of options that become exercisable within 60
days of February 1, 2000.
|
(10)
|
Comprised of Crosslink
Omega Ventures III, L.L.C., Crosslink Offshore Omega Ventures III (a
Cayman Islands unit trust), Omega Bayview, L.L.C. and Crosslink Crossover
Fund III, L.P. Crosslink Omega III Holdings, L.L.C. is the investment
manager of Crosslink Omega Ventures III, L.L.C. and Crosslink Offshore
Omega Ventures III. Crossover Fund III Management, L.L.C. is the general
partner of Crosslink Crossover Fund III, L.P.
|
(11)
|
Includes an aggregate of
303,126 shares issuable upon the exercise of options that become
exercisable within 60 days of February 1, 2000.
|
DESCRIPTION OF CAPITAL STOCK
After
the closing of this offering, the authorized capital stock of Mainspring
will consist of 250,000,000 shares of common stock, par value $.01 per
share, and 25,000,000 shares of preferred stock, par value $.01 per
share.
The
following summary description of Mainsprings capital stock is not
intended to be complete and is qualified by reference to the provisions of
applicable law and to Mainsprings amended and restated certificate of
incorporation and amended and restated by-laws, filed as exhibits to the
registration statement of which this prospectus is a part.
Common Stock
As of
December 31, 1999, there were 1,891,970 shares of common stock outstanding
held by 55 stockholders of record. Based upon the number of shares
outstanding as of that date and giving effect to the following
transactions, there will be
shares of common stock outstanding after this
offering:
|
|
the issuance of the
shares
of common stock offered by Mainspring in this offering
|
|
|
the conversion of all
shares of Series A preferred stock, Series B preferred stock, Series C
preferred stock, Series D preferred stock and Series E preferred stock
into common stock
|
In
addition, as of December 31, 1999, there were outstanding stock options for
the purchase of a total of 2,655,298 shares of common stock and an
outstanding warrant for the purchase of 230,000 shares of Series X
preferred stock.
Holders
of common stock are entitled to one vote for each share held on all matters
submitted to a vote of stockholders. Holders of common stock do not have
cumulative voting rights. Directors are elected by a plurality of the votes
of the shares present in person or by proxy at the meeting and entitled to
vote in such election. Holders of common stock are entitled to receive
ratably dividends, if any, as may be declared by the board of directors out
of funds legally available for payment of dividends, subject to any
preferential dividend rights of outstanding preferred stock. Upon the
liquidation, dissolution or winding up of Mainspring, the holders of common
stock are entitled to receive ratably the net assets of Mainspring
available after the payment of all debts and other liabilities of
Mainspring, subject to the prior rights of any outstanding preferred stock.
Holders of the common stock have no preemptive, subscription, redemption or
conversion rights, nor are they entitled to the benefit of any sinking
fund. The outstanding shares of common stock are, and the shares offered by
Mainspring in this offering will be, when issued and paid for, validly
issued, fully paid and nonassessable. The rights, powers, preferences and
privileges of holders of common stock are subject to, and may be adversely
affected by, the rights of the holders of shares of any series of preferred
stock which Mainspring may designate and issue in the future.
Preferred Stock
Our
board of directors will be authorized, subject to any limitations
prescribed by law and without further stockholder approval, to issue from
time to time up to an aggregate of 25,000,000 shares of preferred stock, in
one or more series. Each series of preferred stock shall have the number of
shares, designations, preferences, voting powers, qualifications and
special or relative rights or privileges as shall be determined by the
board of directors, which may include, among others, dividend rights,
voting rights, redemption and sinking fund provisions, liquidation
preferences, conversion rights and preemptive rights.
The
stockholders of Mainspring have granted the board of directors authority to
issue the preferred stock and to determine its rights and preferences in
order to eliminate delays associated with a stockholder vote on specific
issuances. The rights of the holders of common stock will be subject to the
rights of holders of any preferred stock issued in the future. The issuance
of preferred stock provides desirable flexibility in connection
with possible acquisitions and other corporate purposes. However, the
preferred stock, if issued, could adversely affect the voting power or
other rights of the holders of common stock, and could make it more
difficult for a third-party to acquire, or discourage a third-party from
attempting to acquire, a majority of the outstanding voting stock of
Mainspring. Mainspring has not, to date, issued any shares of such
preferred stock and has no present plans to issue any shares of preferred
stock.
Delaware Law And Our Charter And By-Law Provisions; Anti-Takeover
Effects
Upon
completion of this offering, Mainspring will be subject to the provisions
of Section 203 of the General Corporation Law of Delaware. Section 203
prohibits a publicly-held Delaware corporation from engaging in a
business combination with an interested stockholder
for a period of three years after the date of the transaction in which the
person became an interested stockholder, unless the business combination is
approved in a prescribed manner. A business combination
includes mergers, asset sales and other transactions resulting in a
financial benefit to the interested stockholder. Subject to exceptions, an
interested stockholder is a person who, together with
affiliates and associates, owns, or within the prior three years did own,
15% or more of Mainsprings outstanding voting stock.
Mainsprings amended and restated certificate of incorporation
and by-laws to be effective on the closing of this offering provide
that
|
|
directors may be removed
only for cause by the vote of the holders of at least two-thirds of the
shares of our capital stock entitled to vote; and
|
|
|
any vacancy on the board
of directors, however occurring, including a vacancy resulting from an
enlargement of the board, may be filled by vote of a majority of the
directors then in office.
|
The
limitations on the removal of directors and the procedures for the filling
of vacancies could make it more difficult for a third party to acquire, or
discourage a third party from acquiring, Mainspring.
The
certificate of incorporation and by-laws to be effective on the closing of
this offering also provide that, after the closing of the
offering:
|
|
any action required or
permitted to be taken by the stockholders at an annual meeting or special
meeting of stockholders may only be taken if it is properly brought
before such meeting and may not be taken by written action in lieu of a
meeting; and
|
|
|
special meetings of the
stockholders may only be called by the Chairman of the board of
directors, the President, or by the board of directors. Our by-laws will
also provide that, in order for any matter to be considered
properly brought before a meeting, a stockholder must comply
with the requirements regarding advance notice to us.
|
The
foregoing provisions could have the effect of delaying until the next
stockholders meeting stockholder actions which are favored by the holders
of a majority of the outstanding voting securities of Mainspring. These
provisions may also discourage another person or entity from making a
tender offer for Mainsprings common stock. As a result, such person
or entity, even if it acquired a majority of the outstanding voting
securities of Mainspring, would be able to take action as a stockholder,
such as electing new directors or approving a merger, only at a duly called
stockholders meeting, and not by written consent.
The
General Corporation Law of Delaware provides that the affirmative vote of a
majority of the shares entitled to vote on any matter is required to amend
a corporations certificate of incorporation or by-laws, unless a
corporations certificate of incorporation or by-laws, as the case may
be, requires a greater percentage. Mainsprings amended and restated
certificate of incorporation requires the affirmative vote of the holders
of at least 75% of the shares of capital stock of Mainspring issued and
outstanding and entitled to vote to amend or repeal any of the foregoing
provisions of the amended and restated certificate of incorporation.
Mainsprings amended and restated by-laws may be amended or repealed
by a majority vote of the board of directors except
for provisions relating to the board of directors which may only be amended
or repealed by the affirmative vote of the holders of at least two-thirds
of the shares of capital stock issued and outstanding and entitled to vote.
The amended and restated by-laws may also be amended or repealed by the
affirmative vote of the holders of at least two-thirds of the shares of
capital stock of Mainspring issued and outstanding and entitled to vote.
This two-thirds stockholder vote would be in addition to any separate class
vote that might in the future be required in accordance with the terms of
any series of preferred stock that might be outstanding at the time any
such amendments are submitted to stockholders.
Registration Rights
After
this offering, the holders of approximately 12,563,907 shares of
outstanding common stock will be entitled to rights with respect to the
registration of these shares under the Securities Act. The holders of
registration rights are those investors that purchased or exercise their
right to purchase shares of our Series A, Series B, Series C, Series D,
Series E and Series X preferred stock. Under the terms of the agreements
between us and the holders of these registrable securities, if we propose
to register any of our securities under the Securities Act, either for our
own account or for the account of other security holders exercising
registration rights, the holders are entitled to notice of the registration
and are entitled to include these shares in the registration. Some of the
stockholders benefiting from these rights may also require us to file a
registration statement under the Securities Act at our expense with respect
to their shares of common stock, and we are required to use reasonable
efforts to effect a registration. Further, holders may require us to file
additional, short-form registration statements on Form S-3 at our expense.
These rights are subject to conditions and limitations, including the right
of the underwriters of an offering to limit the number of shares included
in that registration and our right not to effect a requested registration
more than once in any six-month period.
Transfer Agent And Registrar
The
transfer agent and registrar for the common stock will be
.
SHARES ELIGIBLE FOR FUTURE SALE
Upon
completion of this offering, based on the number of shares outstanding as
of December 31, 1999, Mainspring will have
shares of common stock
outstanding, and outstanding options and warrants for an additional
shares
of common stock. Of these shares, the
shares, and
shares if the
over-allotment option is exercised in full, to be sold in this offering
will be freely tradable without restriction or further registration under
the Securities Act, except that any shares purchased by affiliates of
Mainspring may generally be sold in compliance with the limitations of Rule
144 described below.
Sales Of Restricted Shares
The
remaining
shares of common stock outstanding upon completion of this offering
are deemed restricted shares under Rule 144 or Rule 701 under
the Securities Act. Of these shares
shares will be subject to lock-up
agreements described below on the effective date of this offering.
Upon expiration of the lock-up agreements,
shares will become eligible for
sale subject to the limitations of either Rule 144 or Rule 701.
Days After Date of
This Prospectus
|
|
Approximate
Shares
Eligible for
Future Sale
|
|
Comment
|
On
effectiveness |
|
|
|
Freely tradable sold in offering or
salable
under Rule 144(k) |
90 days after
effectiveness |
|
|
|
Shares salable under Rule 144 or
701 |
180 days after
effectiveness
(expiration of lock-up) |
|
|
|
Shares salable under Rule 144, 144(k) or
701 |
More than 180 days after
effectiveness |
|
|
|
Salable under Rule 144 or 144(k) on
various dates |
Certain
of the shares listed in the foregoing table as not salable until 180 days
after effectiveness may become salable earlier as described below under
Lock-up Agreements.
In
general, under Rule 144, a person (or persons whose shares are aggregated),
including an affiliate, who has beneficially owned shares for at least one
year, is entitled to sell, within any three-month period, a number of such
shares that does not exceed the greater of (1) 1% of the then outstanding
shares of common stock (approximately
shares immediately after this
offering), or (2) the average weekly trading volume in the common stock in
the over-the-counter market during the four calendar weeks preceding the
date on which notice of such sale is filed, provided that the company
satisfies the requirements concerning available of public information,
manner of sale and notice of sale. In addition, our affiliates must comply
with the requirements of Rule 144, other than the one-year holding period
requirement, in order to sell shares of common stock which are not
restricted securities.
Under
Rule 144(k), a person who is not an affiliate and has not been an affiliate
for at least three months prior to the sale, and who has beneficially owned
shares for at least two years, may resell such shares without compliance
with the foregoing requirements. In meeting the one-and two-year holding
periods described above, a holder of shares can include the holding periods
of a prior owner who was not an affiliate. The one-and two-year holding
periods described above do not begin to run until the full purchase price
or other consideration is paid by the person acquiring the shares from the
issuer or any affiliate of the issuer. Rule 701 provides that currently
outstanding shares of common stock acquired under our employee stock plans,
and shares of common stock acquired upon exercise of presently outstanding
options granted under these plans, may be resold beginning 90 days after
the date of this prospectus:
|
|
by persons, other than
affiliates, subject only to the manner-of-sale provisions of Rule 144,
and
|
|
|
by affiliates under Rule
144 without compliance with its one-year minimum holding period
requirement, subject to some limitations.
|
Options
Rule 701
under the Securities Act also provides that the shares of common stock
acquired upon the exercise of currently outstanding options or pursuant to
other rights granted under Mainsprings stock plans may be resold by
persons, other than affiliates, beginning 90 days after the date of this
prospectus, subject only to the manner of sale provisions of Rule 144, and
by affiliates under Rule 144, without compliance with its one-year minimum
holding period. As of the date of this prospectus, the board of directors
has authorized an aggregate of up to 9,126,908 shares of common stock for
issuance pursuant to Mainsprings stock option plans. At December 31,
1999, 546,627 shares of common stock were issuable pursuant to outstanding
vested options or pursuant to other rights granted under Mainsprings
various stock option plans, of which approximately 4,000 shares are not
subject to lock-up agreements with the underwriters and will be eligible
for sale in the public market in accordance with Rule 701 beginning 90 days
after the date of this prospectus; 2,108,671 shares of common stock are
issuable pursuant to outstanding options that are not yet exercisable; and
7,061,466 shares of common stock are available for future grants under
Mainsprings stock option and stock purchase plans.
Mainspring intends to file one or more registration statements on
Form S-8 under the Securities Act approximately 90 days after the date of
this prospectus to register all shares of common stock which are issuable
pursuant to Mainsprings stock option and stock purchase plans. These
registration statements are expected to become effective upon filing.
Shares covered by the registration statements will be eligible for sale in
the public markets.
Lock-Up Agreements
Mainspring, its executive officers and directors, and
stockholders have agreed not to sell or transfer
their shares of common stock, or to engage in hedging transactions with
respect to the common stock, without the prior written consent of Morgan
Stanley & Co. Incorporated for a period of 180 days from the date of
this prospectus. In addition, for a period of 180 days from the date of
this prospectus, Mainspring has agreed that its Board of Directors will not
consent to any offer for sale, sale or other disposition, or any
transaction which is designed or could be expected to result in the
disposition by any person, directly or indirectly, of any shares of common
stock without the prior written consent of Morgan Stanley & Co.
Incorporated. Morgan Stanley & Co. Incorporated in its sole discretion
may release for sale in the public market all or any portion of the shares
subject to the lock-up agreements. Please turn to the section titled
Underwriters for more information on the lock-up
agreements.
Registration Rights
Upon
completion of this offering, the holders of approximately 12,563,907 shares
of common stock will be entitled to various rights with respect to the
registration of these shares under the Securities Act. Registration of
these shares under the Securities Act would result in these shares becoming
freely tradable without restriction under the Securities Act immediately
upon the effectiveness of the registration, except for shares purchased by
affiliates. For additional information on registration rights, please turn
to the section titled Description of Capital StockRegistration
Rights.
Effects of Sales of Shares
Prior to
this offering, there has been no public market for the common stock of
Mainspring. We can make no predictions as to the effect, if any, that
market sales of shares of common stock prevailing from time to time, or the
availability of shares for future sale, may have on the market price for
our common stock. Sales of substantial amounts of common stock, or the
perception that these sales could occur, could adversely affect prevailing
market prices for our common stock and could impair our future ability to
obtain capital through an offering of equity securities.
Under
the terms and subject to the conditions contained in an underwriting
agreement dated the date of this prospectus, the underwriters named below
for whom Morgan Stanley & Co. Incorporated, Chase Securities Inc,
Thomas Weisel Partners LLC and FAC/Equities, a division of First Albany
Corporation, are acting as representatives, have severally agreed to
purchase, and Mainspring has agreed to sell to them, the respective number
of shares of common stock set forth opposite the names of the underwriters
below:
Name
|
|
Number
of Shares
|
Morgan Stanley & Co.
Incorporated |
|
|
Chase Securities Inc.
|
|
|
Thomas Weisel Partners
LLC |
|
|
FAC/Equities, a division
of First Albany Corporation |
|
|
|
|
|
Total |
|
|
|
|
|
The
underwriters are offering the shares of common stock subject to their
acceptance of the shares from us and subject to prior sale. The
underwriting agreement provides that the obligations of the several
underwriters to pay for and accept delivery of the shares of common stock
offered in this offering are subject to the approval of various legal
matters by their counsel and to various other conditions. The underwriters
are obligated to take and pay for all of the shares of common stock offered
in this offering, other than those covered by the over-allotment option
described below, if any such shares are taken.
The
underwriters initially propose to offer part of the shares of common stock
directly to the public at the initial public offering price set forth on
the cover page of this prospectus and part to dealers at a price that
represents a concession not in excess of $ a share
under the public offering price. Any underwriter may allow, and such
dealers may reallow, a concession not in excess of $
a share to other underwriters or to other dealers. After the initial
offering of the shares of common stock, the offering price and other
selling terms may from time to time be varied by the
representatives.
Mainspring has granted to the underwriters an option, exercisable for
30 days from the date of this prospectus, to purchase up to an aggregate of
additional shares of common stock at the initial public offering price set
forth on the cover page of this prospectus, less underwriting discounts and
commissions. The underwriters may exercise such option solely for the
purpose of covering over-allotments, if any, made in connection with the
offering of the shares of common stock offered in this offering. To the
extent the option is exercised, each underwriter will become obligated to
purchase approximately the same percentage of the additional shares of
common stock as the number set forth next to that underwriters name
in the preceding table bears to the total number of shares of common stock
set forth next to the names of all underwriters in the preceding table. If
the underwriters over-allotment option is exercised in full, the
total price to public would be $
, the total underwriters discounts and
commissions would be $
, and the total proceeds to us would be $
.
We
estimate expenses payable by us in connection with this offering, other
than underwriting discounts and commissions referred to above, will be
approximately $
million.
The
underwriters have informed us that they do not intend sales to
discretionary accounts to exceed five percent of the total number of shares
of common stock offered by them.
At our
request, the underwriters have reserved for sale, at the initial public
offering price, up to 10% of the shares of common stock offered in this
offering for our directors, officers, employees and related persons. The
number of shares of common stock available for sale to the general public
will be reduced to the extent those individuals purchase the reserved
shares. Any reserved shares which are not so purchased will be offered by
the underwriters to the general public on the same basis as the other
shares offered by this prospectus.
We
have applied for the quotation of our common stock on the Nasdaq National
Market under the symbol MSPR.
Mainspring, our directors and executive officers and other
securityholders have each agreed that, without the prior written consent of
Morgan Stanley & Co. Incorporated on behalf of the underwriters, during
the period ending 180 days after the date of this prospectus, it will not
directly or indirectly:
|
|
offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant to
purchase, lend, or otherwise transfer or dispose of, directly or
indirectly, any shares of common stock or any securities convertible into
or exercisable or exchangeable for Mainsprings common stock;
or
|
|
|
enter into any swap or
other arrangement that transfers to another, in whole or in part, any of
the economic consequences of ownership of Mainsprings common
stock;
|
whether any transaction described above is to be settled by delivery
of shares of common stock or such other securities, in cash or
otherwise.
The
restrictions described in the previous paragraph do not apply
to:
|
|
the sale of the shares to
the underwriters;
|
|
|
the issuance by
Mainspring of restricted stock awards under Mainsprings existing
employee benefit plans or of shares of common stock upon the exercise of
an option or a warrant or the conversion of a security outstanding on the
date of this prospectus of which the underwriters have been advised in
writing; or
|
|
|
the grant of options to
officers, directors, employees, consultants or advisors provided such
options are not exercisable prior to the end of the lock-up
period.
|
In
addition, our officers, directors and stockholders have agreed that,
without the prior written consent of Morgan Stanley & Co. Incorporated
on behalf of the underwriters, neither he, she, nor it will, during the
period ending 180 days after the date of the prospectus, make any demand
for, or exercise any right with respect to, the registration of any shares
of common stock or any security convertible into or exercisable or
exchangeable for common stock.
In order
to facilitate the offering of the common stock, the underwriters may engage
in transactions that stabilize, maintain or otherwise affect the price of
the common stock. Specifically, the underwriters may over-allot in
connection with the offering, creating a short position in the common stock
for their own account. In addition, to cover over-allotments or to
stabilize the price of the common stock, the underwriters may bid for, and
purchase, shares of common stock in the open market. Finally, the
underwriting syndicate may reclaim selling concessions allowed to an
underwriter or a dealer for distributing the common stock in the offering,
if the syndicate repurchases previously distributed shares of common stock
in transactions to cover syndicate short positions, in stabilization
transactions or otherwise. Any of these activities may stabilize or
maintain the market price of the common stock above independent market
levels. The underwriters are not required to engage in these activities and
may end any of these activities at any time.
We and
the underwriters have agreed to indemnify each other against liabilities in
connection with this offering, including liabilities under the Securities
Act.
We
issued to Morgan Stanley Dean Witter Equity Funding, Inc., an affiliate of
Morgan Stanley & Co. Incorporated, 26,667 shares of our Series E
preferred stock as payment for placement services provided by Morgan
Stanley to us in connection with the private placement of shares of our
Series E preferred stock. The shares issued to Morgan Stanley are
convertible into an aggregate of 26,667 shares of common stock.
Pricing of the Offering
Prior to
this offering, there has been no public market for the shares of our common
stock. Consequently, the initial public offering price for the shares of
our common stock was determined by negotiations among us and the
representatives. Among the factors to be considered in determining the
initial public offering price are:
|
|
our future prospects and
the future prospects of our industry in general;
|
|
|
our record of operations
and our current financial position;
|
|
|
the experience of our
management;
|
|
|
our revenue, earnings and
other financial and operating information in recent periods;
and
|
|
|
the price-earnings
ratios, price-revenue ratios, market prices of securities and financial
and operating information of companies engaged in activities similar to
ours.
|
The
estimated initial public offering price range set forth on the cover page
of this prospectus is subject to change as a result of market conditions
and other factors.
Due to
the fact that one of the representatives of the underwriters was organized
within the last three years, we are providing you the following
information. Thomas Weisel Partners LLC, one of the representatives of the
underwriters, was organized and registered as a broker-dealer in December
1998. Since December 1998, Thomas Weisel Partners has been named as lead or
co-manager of, or as a syndicate member in, numerous public offerings of
equity securities. Thomas Weisel Partners does not have any material
relationship with us or any of our officers, directors or other controlling
persons, except with respect to its contractual relationship with us
pursuant to the underwriting agreement entered into in connection with this
offering.
The
validity of the issuance of the shares of common stock to be issued in this
offering will be passed upon for Mainspring by Testa, Hurwitz &
Thibeault, LLP, Boston, Massachusetts. Legal matters for the underwriters
will be passed upon by Ropes & Gray, Boston, Massachusetts.
The
financial statements as of December 31, 1998 and 1999 and for each of the
three years in the period ended December 31, 1999 included in this
prospectus and the financial statement schedules included in the
Registration Statement have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority
of said firm as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We have
filed with the SEC a registration statement, including exhibits, schedules
and amendments. This prospectus is a part of the registration statement and
includes all of the information which we believe is material to an investor
considering whether to make an investment in our common stock. We refer you
to the registration statement for additional information about us, our
common stock and this offering, including the full texts of the exhibits,
some of which have been summarized in this prospectus. After this offering,
we will be subject to the informational requirements of the Securities
Exchange Act. We will be required to file annual and quarterly reports,
proxy statements and other information with the SEC.
You can
inspect and copy our registration statement, reports and other information
at the SECs Public Reference Room at 450 Fifth Street, N.W.,
Washington D.C. 20549. You may obtain information about the operation of
the Public Reference Room by calling the SEC at 1-800-SEC-0330. In
addition, the SEC maintains an Internet site that contains our registration
statement, reports and other information. The address of the SECs
Internet site is http://www.sec.gov.
We
intend to furnish our stockholders annual reports containing financial
statements audited by our independent accountants.
MAINSPRING COMMUNICATIONS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
Page
|
Report of Independent
Accountants |
|
F-2 |
|
|
Consolidated Balance
Sheet at December 31, 1998 and 1999 |
|
F-3 |
|
|
Consolidated Statement of
Operations for the years ended December 31, 1997, 1998 and
1999 |
|
F-4 |
|
|
Consolidated Statement of
Redeemable Convertible Preferred Stock and Stockholders Equity
(Deficit)
for the years ended December 31, 1997, 1998
and 1999 |
|
F-5 |
|
|
Consolidated Statement of
Cash Flows for the years ended December 31, 1997, 1998 and
1999 |
|
F-6 |
|
|
Notes to Consolidated
Financial Statements |
|
F-7 |
Report of Independent Accountants
To the Board of Directors and Stockholders of
Mainspring Communications, Inc.:
In our
opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of changes in redeemable convertible
preferred stock and stockholders equity (deficit) and of cash flows
present fairly, in all material respects, the financial position of
Mainspring Communications, Inc. and its subsidiary at December 31, 1998 and
1999, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States. These
financial statements are the responsibility of the Companys
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements
in accordance with auditing standards generally accepted in the United
States 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.
PRICEWATERHOUSE
COOPERS
LLP
Boston, Massachusetts
February 10, 2000
MAINSPRING COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEET
|
|
December
31,
|
|
Pro forma
December 31,
|
|
|
1998
|
|
1999
|
|
1999
|
|
|
|
|
|
|
(unaudited) |
Assets |
Current
assets: |
Cash and cash equivalents |
|
$ 2,725,447 |
|
|
$ 5,859,379 |
|
|
$ 5,859,379 |
|
Short-term investments |
|
249,834 |
|
|
27,747,396 |
|
|
27,747,396 |
|
Accounts receivable, net of allowance for doubtful accounts of
$90,000 and $84,000 at
December 31, 1998 and
1999, respectively |
|
550,959 |
|
|
1,238,528 |
|
|
1,238,528 |
|
Unbilled revenue on contracts |
|
|
|
|
169,205 |
|
|
169,205 |
|
Prepaid expenses and other current assets |
|
93,545 |
|
|
517,233 |
|
|
517,233 |
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
3,619,785 |
|
|
35,531,741 |
|
|
35,531,741 |
|
Property and equipment,
net |
|
396,204 |
|
|
825,823 |
|
|
825,823 |
|
Other assets |
|
24,490 |
|
|
171,627 |
|
|
171,627 |
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ 4,040,479 |
|
|
$36,529,191 |
|
|
$36,529,191 |
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities,
Redeemable Convertible Preferred Stock and Stockholders Equity
(Deficit) |
Current
liabilities: |
Current portion of long-term debt |
|
$
268,512 |
|
|
$
132,149 |
|
|
$
132,149 |
|
Accounts payable |
|
258,483 |
|
|
1,318,628 |
|
|
1,318,628 |
|
Accrued expenses |
|
1,109,352 |
|
|
4,962,128 |
|
|
4,962,128 |
|
Deferred revenue |
|
1,040,950 |
|
|
1,713,426 |
|
|
1,713,426 |
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
2,677,297 |
|
|
8,126,331 |
|
|
8,126,331 |
|
Long-term debt |
|
147,911 |
|
|
7,881 |
|
|
7,881 |
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
2,825,208 |
|
|
8,134,212 |
|
|
8,134,212 |
|
|
|
|
|
|
|
|
|
|
|
Commitments and
contingencies (Note 10) |
Redeemable convertible
preferred stock, $0.01 par value |
|
13,870,068 |
|
|
57,542,471 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity
(deficit): |
Series X convertible preferred stock, $0.01 par value |
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value; Authorized: 25,000,000 shares;
Issued: 1,472,368 and
1,895,970 shares at
December 31, 1998 and 1999, respectively, and 14,026,809
shares at December
31,1999 pro forma (unaudited); Outstanding: 1,468,368 and
1,891,970 shares at
December 31, 1998 and 1999, respectively, and 14,022,809
shares at December
31, 1999 pro forma (unaudited) |
|
14,724 |
|
|
18,960 |
|
|
140,268 |
|
Additional paid-in capital |
|
|
|
|
3,713,977 |
|
|
61,135,140 |
|
Deferred compensation |
|
|
|
|
(7,516,519 |
) |
|
(7,516,519 |
) |
Treasury stock, at cost |
|
(2,480 |
) |
|
(2,480 |
) |
|
(2,480 |
) |
Accumulated deficit |
|
(12,667,041 |
) |
|
(25,361,430 |
) |
|
(25,361,430 |
) |
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
(deficit) |
|
(12,654,797 |
) |
|
(29,147,492 |
) |
|
28,394,979 |
|
|
|
|
|
|
|
|
|
|
|
Total liabilities, redeemable convertible
preferred stock and stockholders equity
(deficit) |
|
$ 4,040,479 |
|
|
$36,529,191 |
|
|
$36,529,191 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated
financial statements.
MAINSPRING COMMUNICATIONS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
|
|
Year Ended
December 31,
|
|
|
1997
|
|
1998
|
|
1999
|
Revenue: |
Consulting |
|
$
|
|
|
$
177,769 |
|
|
$ 6,276,488 |
|
Subscriptions |
|
84,049 |
|
|
455,031 |
|
|
754,383 |
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
84,049 |
|
|
632,800 |
|
|
7,030,871 |
|
|
|
|
|
|
|
|
|
|
|
Cost of
revenue: |
Consulting (exclusive of $895,125 of
stock-based
compensation for the year ended December 31,
1999) |
|
|
|
|
139,047 |
|
|
3,272,232 |
|
Subscriptions (exclusive of $154,104
of stock-based
compensation for the year ended December 31,
1999) |
|
784,052 |
|
|
994,230 |
|
|
1,365,788 |
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue |
|
784,052 |
|
|
1,133,277 |
|
|
4,638,020 |
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
(700,003 |
) |
|
(500,477 |
) |
|
2,392,851 |
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses: |
Research and development (exclusive
of $8,146 of stock-
based compensation for the year ended December 31,
1999) |
|
2,204,883 |
|
|
992,805 |
|
|
1,800,696 |
|
Selling, general and administrative
(exclusive of $837,799 of
stock-based compensation for the year ended December 31,
1999) |
|
2,877,862 |
|
|
3,907,541 |
|
|
11,745,504 |
|
Stock-based compensation
employees and consultants |
|
|
|
|
|
|
|
1,895,174 |
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
5,082,745 |
|
|
4,900,346 |
|
|
15,441,374 |
|
|
|
|
|
|
|
|
|
|
|
Loss from
operations |
|
(5,782,748 |
) |
|
(5,400,823 |
) |
|
(13,048,523 |
) |
Interest income,
net |
|
355,275 |
|
|
237,673 |
|
|
354,134 |
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
(5,427,473 |
) |
|
(5,163,150 |
) |
|
(12,694,389 |
) |
Accretion of preferred
stock to redemption value |
|
|
|
|
|
|
|
(6,940,941 |
) |
|
|
|
|
|
|
|
|
|
|
Net loss attributable to
common stockholders |
|
$(5,427,473 |
) |
|
$(5,163,150 |
) |
|
$(19,635,330 |
) |
|
|
|
|
|
|
|
|
|
|
Basic and diluted net
loss per share |
|
$
(4.81 |
) |
|
$
(3.40 |
) |
|
$
(12.44 |
) |
Shares used in computing
basic and diluted net loss per share |
|
1,127,348 |
|
|
1,516,656 |
|
|
1,577,881 |
|
Unaudited pro forma basic
and diluted net loss per share |
|
|
|
|
|
|
|
$
(1.29 |
) |
Shares used in computing
unaudited pro forma basic and diluted
net loss per share |
|
|
|
|
|
|
|
9,822,755 |
|
The accompanying notes are an integral part of these consolidated
financial statements.
MAINSPRING COMMUNICATIONS, INC.
CONSOLIDATED STATEMENT OF REDEEMABLE CONVERTIBLE PREFERRED
STOCK
AND STOCKHOLDERS EQUITY (DEFICIT)
|
|
Redeemable
Convertible
Preferred Stock
|
|
Stockholders
Equity (Deficit)
|
|
|
|
Common
Stock
|
|
Additional
Paid-in
Capital
|
|
Deferred
Compensation
|
|
Accumulated
Deficit
|
|
Treasury
Stock
|
|
Total
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
Balance at December 31,
1996 |
|
2,102,043 |
|
$11,090,046 |
|
2,207,648 |
|
|
$22,078 |
|
|
$
|
|
|
$
|
|
|
$ (1,814,558 |
) |
|
$
|
|
|
$ (1,792,480 |
) |
Issuance of common stock
pursuant to stock option
exercises |
|
|
|
|
|
17,014 |
|
|
170 |
|
|
2,942 |
|
|
|
|
|
|
|
|
|
|
|
3,112 |
|
Cancellation of treasury
stock |
|
|
|
|
|
(145,780 |
) |
|
(1,458 |
) |
|
1,458 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Series C
redeemable convertible
preferred stock |
|
225,103 |
|
2,780,022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(37,727 |
) |
|
|
|
|
(37,727 |
) |
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,427,473 |
) |
|
|
|
|
(5,427,473 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31,
1997 |
|
2,327,146 |
|
13,870,068 |
|
2,078,882 |
|
|
20,790 |
|
|
4,400 |
|
|
|
|
|
(7,279,758 |
) |
|
|
|
|
(7,254,568 |
) |
Issuance of common stock
pursuant to stock option
exercises |
|
|
|
|
|
9,012 |
|
|
90 |
|
|
1,572 |
|
|
|
|
|
|
|
|
|
|
|
1,662 |
|
Repurchase of common
stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(238,741 |
) |
|
(238,741 |
) |
Cancellation of treasury
stock |
|
|
|
|
|
(615,526 |
) |
|
(6,156 |
) |
|
(5,972 |
) |
|
|
|
|
(224,133 |
) |
|
236,261 |
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,163,150 |
) |
|
|
|
|
(5,163,150 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31,
1998 |
|
2,327,146 |
|
13,870,068 |
|
1,472,368 |
|
|
14,724 |
|
|
|
|
|
|
|
|
(12,667,041 |
) |
|
(2,480 |
) |
|
(12,654,797 |
) |
Issuance of common stock
pursuant to stock option
exercises |
|
|
|
|
|
384,118 |
|
|
3,841 |
|
|
186,273 |
|
|
|
|
|
|
|
|
|
|
|
190,114 |
|
Issuance of Series D
redeemable convertible
preferred stock |
|
1,315,790 |
|
4,964,508 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common
stock |
|
|
|
|
|
39,484 |
|
|
395 |
|
|
137,799 |
|
|
|
|
|
|
|
|
|
|
|
138,194 |
|
Issuance of warrants for
Series X convertible
preferred stock |
|
|
|
|
|
|
|
|
|
|
|
966,200 |
|
|
|
|
|
|
|
|
|
|
|
966,200 |
|
Issuance of Series E
redeemable convertible
preferred stock and
beneficial conversion
feature |
|
4,400,001 |
|
31,766,954 |
|
|
|
|
|
|
|
66,667 |
|
|
|
|
|
|
|
|
|
|
|
66,667 |
|
Accretion of preferred
stock
to redemption value |
|
|
|
6,940,941 |
|
|
|
|
|
|
|
(6,940,941 |
) |
|
|
|
|
|
|
|
|
|
|
(6,940,941 |
) |
Deferred compensation
related to grant of stock
options to employees |
|
|
|
|
|
|
|
|
|
|
|
8,839,431 |
|
|
(8,839,431 |
) |
|
|
|
|
|
|
|
|
|
Stock-based compensation
associated with stock
option grants |
|
|
|
|
|
|
|
|
|
|
|
458,548 |
|
|
1,322,912 |
|
|
|
|
|
|
|
|
1,781,460 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,694,389 |
) |
|
|
|
|
(12,694,389 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31,
1999 |
|
8,042,937 |
|
$57,542,471 |
|
1,895,970 |
|
|
$18,960 |
|
|
$3,713,977 |
|
|
$(7,516,519 |
) |
|
$(25,361,430 |
) |
|
$ (2,480 |
) |
|
$(29,147,492 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated
financial statements.
MAINSPRING COMMUNICATIONS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
|
|
Year Ended
December 31,
|
|
|
1997
|
|
1998
|
|
1999
|
Increase (Decrease) in
Cash and Cash Equivalents |
Cash flows from
operating activities: |
Net loss |
|
$(5,427,473 |
) |
|
$(5,163,150 |
) |
|
$(12,694,389 |
) |
Adjustments to reconcile net loss to net cash used in operating
activities: |
Depreciation |
|
412,694 |
|
|
314,520 |
|
|
367,866 |
|
Loss on disposal of property and
equipment |
|
3,382 |
|
|
|
|
|
|
|
Realized gain on maturities of
short-term investments |
|
(144,199 |
) |
|
(11,217 |
) |
|
(5,902 |
) |
Services received in exchange for
preferred stock warrants |
|
|
|
|
|
|
|
1,669,617 |
|
Stock-based compensation
expense |
|
|
|
|
|
|
|
1,895,174 |
|
Changes in operating assets and
liabilities: |
Accounts receivable |
|
(145,166 |
) |
|
(405,793 |
) |
|
(687,569 |
) |
Unbilled revenue on contracts |
|
|
|
|
|
|
|
(169,205 |
) |
Prepaid expenses and other assets |
|
(159,043 |
) |
|
91,451 |
|
|
(570,825 |
) |
Accounts payable |
|
(266,256 |
) |
|
208,423 |
|
|
1,060,145 |
|
Accrued expenses |
|
260,225 |
|
|
529,122 |
|
|
3,216,026 |
|
Deferred revenue |
|
465,344 |
|
|
575,606 |
|
|
672,476 |
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities |
|
(5,000,492 |
) |
|
(3,861,038 |
) |
|
(5,246,586 |
) |
|
|
|
|
|
|
|
|
|
|
Cash flows from
investing activities: |
Purchases of property and
equipment |
|
(640,001 |
) |
|
(91,693 |
) |
|
(797,484 |
) |
Purchases of short-term
investments |
|
(43,694,833 |
) |
|
(1,756,634 |
) |
|
(30,992,969 |
) |
Proceeds from sale of short-term
investments |
|
42,300,000 |
|
|
4,004,797 |
|
|
3,501,308 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing
activities |
|
(2,034,834 |
) |
|
2,156,470 |
|
|
(28,289,145 |
) |
|
|
|
|
|
|
|
|
|
|
Cash flows from
financing activities: |
Proceeds from issuance of long-term
debt |
|
499,025 |
|
|
|
|
|
|
|
Repayments of long-term
debt |
|
(90,909 |
) |
|
(276,394 |
) |
|
(276,393 |
) |
Proceeds from issuance of redeemable
convertible preferred
stock |
|
2,742,295 |
|
|
|
|
|
36,731,462 |
|
Proceeds from issuance of common
stock |
|
|
|
|
|
|
|
24,480 |
|
Repurchase of common stock |
|
|
|
|
(238,741 |
) |
|
|
|
Proceeds from exercise of stock
options |
|
3,112 |
|
|
1,662 |
|
|
190,114 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing
activities |
|
3,153,523 |
|
|
(513,473 |
) |
|
36,669,663 |
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease)
in cash and cash equivalents |
|
(3,881,803 |
) |
|
(2,218,041 |
) |
|
3,133,932 |
|
Cash and cash
equivalents, beginning of year |
|
8,825,291 |
|
|
4,943,488 |
|
|
2,725,447 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents, end of year |
|
$4,943,488 |
|
|
$2,725,447 |
|
|
$ 5,859,379 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated
financial statements.
MAINSPRING COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of the Business
Mainspring Communications, Inc. (Mainspring) is a leading
eStrategy consulting firm that focuses exclusively on developing actionable
Internet strategies primarily for Fortune 1000 companies. Mainspring
provides three integrated service offerings, eStrategy Consulting,
eStrategy Direct and eStrategy Executive Council, to help companies develop
eStrategies that protect, evolve and transform their businesses to achieve
a sustained competitive advantage in the new Internet economy. Mainspring
operated in one business segment through December 31, 1999.
2. Summary of Significant Accounting
Policies
Principles of Consolidation
The
consolidated financial statements include the accounts of Mainspring and
its wholly-owned subsidiary, Mainspring Securities Corporation. All
intercompany transactions have been eliminated.
Financial Instruments
The
carrying value of Mainsprings financial instruments, which include
cash and cash equivalents, short-term investments, accounts receivable,
accounts payable, accrued expenses and long-term debt, approximate their
fair values.
Cash, Cash Equivalents and Short-Term Investments
Mainspring considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Mainspring invests excess cash primarily in money market funds of major
financial institutions and U.S. Treasury securities. These investments are
subject to minimal credit and market risk.
At
December 31, 1998 and 1999, cash equivalents were comprised of money market
funds totaling approximately $660,000 and $4,843,000, respectively, and
U.S. Treasury bills totaling approximately $2,648,000 and $27,747,000,
respectively. Short-term investments consist of U.S. Treasury bills having
a weighted-average remaining contractual maturity of 1.5 months and 6.7
months at December 31, 1998 and 1999, respectively. At December 31, 1998
and 1999, cash equivalents and short-term investments are classified as
available-for-sale and recorded at amortized cost, which approximates fair
value.
Revenue Recognition
Mainsprings service offerings are priced on a stand-alone
basis. eStrategy Consulting services are priced on a fixed fee basis.
eStrategy Direct and eStrategy Executive Council are both annually
renewable subscription-based offerings.
Revenue
pursuant to eStrategy Consulting services is recognized as services are
rendered on the percentage-of-completion method of accounting (based on the
ratio of costs incurred to total estimated costs). Provisions for estimated
losses on uncompleted contracts are made on a contract-by-contract basis
and are recognized in the period in which losses become probable and can be
reasonably estimated. To date, such losses have been insignificant. Revenue
pursuant to eStrategy Direct and eStrategy Executive Council subscriptions
is recognized ratably over the term of the contract, generally 12 months.
Revenue under arrangements where multiple services are sold together is
allocated to each element based on their relative fair values, with fair
value being the price charged when that element is sold separately. Revenue
excludes reimbursable expenses charged to and collected from clients. The
unearned portion of customer billings is included in deferred revenue in
the accompanying consolidated balance sheet.
MAINSPRING COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Accounts Receivable, Concentration of Credit Risk and Major
Customers
Financial instruments which potentially expose Mainspring to
concentrations of credit risk consist primarily of trade accounts
receivable. Management believes its credit policies are prudent and reflect
normal industry terms and business risk. Mainspring performs ongoing credit
evaluations of customers financial condition but does not require
collateral. Credit losses have not been significant to date.
At
December 31, 1998, 25%, 18%, 18% and 11% of Mainsprings accounts
receivable were due from four customers. At December 31, 1999, 12%, 11% and
11% of Mainsprings accounts receivable were due from three
customers.
Revenue
from three customers represented 37%, 26% and 25% of total revenue during
the year ended December 31, 1997. Revenue from two customers represented
33% and 20% of total revenue during the year ended December 31, 1998. No
customer represented more than 10% of total revenue during the year ended
December 31, 1999.
Property and Equipment
Property
and equipment are recorded at cost and depreciated using the straight-line
method over their estimated useful lives. Repair and maintenance costs are
expensed as incurred.
Stock-Based Compensation
Mainspring accounts for stock-based awards to employees using the
intrinsic value method as prescribed by Accounting Principles Board (
APB) Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations. Mainspring applies the
provisions of SFAS No. 123, Accounting for Stock-Based Compensation,
through disclosure only (Note 7). Stock-based awards to nonemployees
are accounted for at their fair value in accordance with SFAS No. 123 and
the Emerging Issues Task Force (EITF) Issue No. 96-18,
Accounting for Equity Investments That Are Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling, Goods or Services.
Advertising Costs
Advertising costs are charged to operations as incurred. Advertising
costs were insignificant for the years ended December 31, 1997 and 1998,
and were approximately $1,000,000 for the year ended December 31,
1999.
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 disclosure
of contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the
reporting period. Actual amounts could differ from those
estimates.
Unaudited Pro Forma Balance Sheet
Upon the
closing of Mainsprings anticipated initial public offering, all
shares of redeemable convertible preferred stock outstanding at December
31, 1999 (Note 6) will automatically convert into 12,130,839 shares of
common stock. This conversion has been reflected in the unaudited pro forma
balance sheet as of December 31, 1999.
MAINSPRING COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Net Loss per Share and Unaudited Pro Forma Net Loss per
Share
Net loss
per share is computed in accordance with SFAS No. 128, Earnings Per
Share. Basic net loss per share is computed by dividing net loss
attributable to common stockholders by the weighted average number of
shares of common stock outstanding, excluding shares of common stock
subject to repurchase. Diluted net loss per share does not differ from
basic net loss per share since potential common shares from conversion of
preferred stock, exercise of stock options and warrants and the lapsing of
restrictions on common stock subject to repurchase are antidilutive for all
periods presented. Unaudited pro forma basic and diluted net loss per share
has been calculated assuming the conversion of all outstanding shares of
preferred stock into common shares, as if the shares had converted
immediately upon their issuance.
Internal Use Software
On
January 1, 1999, Mainspring adopted American Institute of Certified Public
Accountants Statement of Position 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use (SOP
98-1). Accordingly, Mainspring capitalizes costs associated with the
design and implementation of its internally developed software. To date,
internal costs eligible for capitalization under SOP 98-1 have not been
significant.
Recently Issued Accounting Pronouncements
In June
1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. The new standard establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts (collectively
referred to as derivatives), and for hedging activities. SFAS No. 133, as
amended, is effective for Mainspring beginning January 1, 2001. Mainspring
does not expect SFAS No. 133 to have a material effect on its financial
position or results of operations.
3. Property and Equipment
Property
and equipment consists of the following:
|
|
|
|
December
31,
|
|
|
Useful life
in years
|
|
1998
|
|
1999
|
Computer equipment and
software |
|
3 |
|
$844,129 |
|
$1,591,828 |
Furniture and
fixtures |
|
5 |
|
55,582 |
|
93,329 |
Leasehold
improvements |
|
2 |
|
89,605 |
|
101,644 |
|
|
|
|
|
|
|
|
|
|
|
989,316 |
|
1,786,801 |
Lessaccumulated
depreciation |
|
|
|
593,112 |
|
960,978 |
|
|
|
|
|
|
|
|
|
|
|
$396,204 |
|
$
825,823 |
|
|
|
|
|
|
|
Depreciation expense on property and equipment was $412,694, $314,520
and $367,866 in 1997, 1998 and 1999, respectively.
MAINSPRING COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
4. Accrued Expenses
Accrued
expenses consist of the following:
|
|
December
31,
|
|
|
1998
|
|
1999
|
Professional
fees |
|
$
514,655 |
|
$ 1,446,934 |
Compensation and
benefits |
|
500,482 |
|
1,943,775 |
Accrued compensation
related to unvested Series X warrants |
|
|
|
636,750 |
Other accrued
expenses |
|
94,215 |
|
934,669 |
|
|
|
|
|
|
|
$1,109,352 |
|
$ 4,962,128 |
|
|
|
|
|
5. Long-Term Debt
Long-term debt consists of the following:
|
|
December
31,
|
|
|
1998
|
|
1999
|
Term loan payable to bank
in monthly principal installments of $15,152 plus
accrued interest at prime rate plus 0.5%
(9.0% at December 31, 1999) through
March 2000 |
|
$227,273 |
|
$45,455 |
Term loan payable to bank
in monthly principal installments of $7,881 plus accrued
interest at prime rate plus 0.5% (9.0% at
December 31, 1999) through January
2001 |
|
189,150 |
|
94,575 |
|
|
|
|
|
|
|
416,423 |
|
140,030 |
Less current
portion |
|
268,512 |
|
132,149 |
|
|
|
|
|
|
|
$147,911 |
|
$ 7,881 |
|
|
|
|
|
All
borrowings under the aforementioned term loans are collateralized by
substantially all of Mainsprings assets and are subject to certain
minimum working capital and tangible net worth requirements and other
nonfinancial covenants, including restrictions on Mainsprings ability
to pay dividends. At December 31, 1999, future aggregate principal payments
on long-term debt are as follows:
Year ending December
31, |
2000 |
|
$132,149 |
2001 |
|
7,881 |
|
|
|
|
|
$140,030 |
|
|
|
Mainspring paid $53,950, $51,190 and $24,705 in the years ended
December 31, 1997, 1998 and 1999, respectively, for interest.
MAINSPRING COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
6. Redeemable Convertible Preferred Stock
and Stockholders Equity (Deficit)
Preferred Stock
Mainsprings preferred stock is comprised of the
following:
|
|
December
31,
|
|
|
1998
|
|
1999
|
Redeemable Convertible
Preferred Stock: |
Series A: |
1,205,884 shares authorized, issued
and outstanding at December 31, 1998
and
1999 |
|
$ 4,100,006 |
|
$ 6,401,185 |
Series B: |
896,159 shares authorized, issued and
outstanding at December 31, 1998
and
1999 |
|
6,990,040 |
|
8,749,579 |
Series C: |
225,103 shares authorized, issued and
outstanding at December 31, 1998
and
1999 |
|
2,780,022 |
|
3,138,168 |
Series D: |
1,315,790 shares authorized, issued
and outstanding at December 31,
1999 |
|
|
|
7,486,552 |
Series E: |
4,400,001 shares authorized, issued
and outstanding at December 31,
1999 |
|
|
|
31,766,987 |
|
|
|
|
|
Total Redeemable Convertible Preferred
Stock |
|
13,870,068 |
|
57,542,471 |
Convertible Preferred
Stock: |
Series X: |
460,000 shares authorized; no shares
issued and outstanding at December
31, 1998 and
1999 |
|
|
|
|
Preferred
Stock: |
Undesignated: |
1,172,854 and 6,497,063 shares
authorized at December 31, 1998 and 1999;
no shares
issued and outstanding at December 31, 1998 and 1999 |
|
|
|
|
|
|
|
|
|
|
|
$ 13,870,068 |
|
$57,542,471 |
|
|
|
|
|
The
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock and Series E Preferred Stock (collectively,
the Senior Redeemable Preferred Stock) and Series X Preferred
Stock (together with the Senior Redeemable Preferred Stock, the
Preferred Stock) have the following
characteristics:
Dividend Rights
Holders
of the Preferred Stock are not entitled to receive dividends unless
declared by Mainsprings Board of Directors. Any dividends declared
must be distributed to the holders of each series of the Senior Redeemable
Preferred Stock equally and no dividends may be paid on the common stock
until any and all dividends declared on the Senior Redeemable Preferred
Stock have been paid in full. The Series X Preferred Stock has no dividend
rights. Through December 31, 1999, no dividends have been declared or paid
by Mainspring.
MAINSPRING COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Liquidation Preferences
In the
event of any liquidation, dissolution or winding up of Mainspring, the
holders of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and
Series X Preferred Stock shall be entitled to receive, in preference to the
common stockholders, per share amounts equal to $3.40, $7.80, $12.35,
$3.80, $7.50 and $4.35, respectively, plus any declared but unpaid
dividends.
The
holders of the Series E Preferred Stock shall be entitled to receive, in
preference to the holders of the Series A, Series B, Series C, Series D and
Series X Preferred Stock and the common stock, an amount equal to $7.50 per
share. Once the distribution to the holders of the Series E Preferred Stock
has been made in full, the holders of the Series D Preferred Stock shall be
entitled to receive, in preference to the holders of the Series A, Series
B, Series C and Series X Preferred Stock and the common stock, an amount
equal to $3.80 per share. Once the distributions to the holders of the
Series E and Series D Preferred Stock have been made in full, the holders
of Series A, Series B and Series C Preferred Stock, in preference to the
holders of the Series X Preferred Stock and the common stock, shall share
ratably in any distribution of assets in proportion to their respective
preference amounts of $3.40, $7.80 and $12.35 per share, respectively. Once
the distributions to the holders of the Senior Redeemable Preferred Stock
have been made in full, the holders of Series X Preferred Stock shall be
entitled to receive, in preference to the holders of common stock, an
amount equal to $4.35 per share.
Any
assets remaining following the full distributions to the holders of the
Preferred Stock will be distributed ratably among the common
stockholders.
Conversion
Each
share of Series A, Series B, Series C, Series D, Series E and Series X
Preferred Stock may be converted at any time, at the option of the
stockholder, into approximately 2.00, 2.36, 2.53, 2.00, 1.00 and 1.00
shares of common stock, respectively, subject to certain antidilution
adjustments for the Senior Redeemable Preferred Stock. Upon the closing of
a public offering of Mainspring common stock involving aggregate proceeds
to Mainspring of at least $15 million and a per share price of not less
than $11.70, all shares of Preferred Stock will automatically convert into
common stock. Upon the conversion of at least 60% of the Series A, Series
B, Series C, Series D and Series X Preferred Stock, taken together as a
class, into common stock by its holders, all remaining shares of such
series of Preferred Stock will automatically convert into common stock.
Upon the conversion of at least 76% of the Series E Preferred Stock, all
remaining shares of such series of Preferred Stock will automatically
convert into common stock.
At
December 31, 1999, Mainspring has reserved 12,590,839 shares of its common
stock for issuance upon conversion of the Preferred Stock.
Redemption
At the
request of at least 60% of the holders of the Senior Redeemable Preferred
Stock, Mainspring will redeem all outstanding shares of the Senior
Redeemable Preferred Stock in three equal annual installments beginning in
December 2002. The redemption rights are cumulative, such that any shares
subject to redemption not redeemed may be carried forward. In the event of
redemption, each holder of the Series A, Series B, Series C, Series D and
Series E Preferred Stock would be entitled to receive the greater of $3.40,
$7.80, $12.35, $3.80 and $7.50 per share, respectively, plus all declared
but unpaid dividends, or the fair market value of each series as mutually
agreed by a majority of the independent members of Mainsprings Board
of Directors and the holders
of a majority of each series of the Senior Redeemable Preferred Stock, or as
otherwise defined in Mainsprings charter. The Senior Redeemable
Preferred Stock is being accreted, using the interest method and a current
estimate of fair value, over the redemption period.
Voting Rights
Each
holder of the Preferred Stock is entitled to the number of votes equal to
the number of shares of Mainsprings common stock into which such
holders shares are convertible at the record date for such
vote.
Warrants to Purchase Series X Convertible Preferred
Stock
In
September 1999, Mainspring entered into an alliance agreement with Bain
& Company, Inc. (Bain). Pursuant to the terms of this
agreement, Bain agreed to provide consulting resources in exchange for
warrants to purchase up to 230,000 shares of Series X Preferred Stock at an
exercise price of $0.01 per share. The warrants vest as follows: 30,000
shares upon signing of the agreement; 100,000 upon completion of three
months of service, as defined in the agreement; and 100,000 upon completion
of six months of service, as defined in the agreement. At December 31,
1999, 130,000 warrants have vested pursuant to the agreement. In accordance
with EITF No. 96-18, Mainspring measures the value of the services provided
by calculating the fair value of the warrants on the vesting dates. For
periods prior to vesting, an estimate of fair value is used based upon the
current fair value at the balance sheet date. The resulting charge is
recorded over the service period in accordance with FASB Interpretation No.
28, Accounting for Stock Appreciation Rights and Other Variable Stock
Option or Award Plans. Mainspring has recorded $1,602,950 in research
and development expenses for the year ended December 31, 1999 pursuant to
these warrants.
Beneficial Conversion Feature
In
December 1999, Mainspring issued 66,667 shares of Series E Preferred Stock
to E-Squam Investors I, L.P., an affiliate of Bain at $7.50 per share. When
issued, each share of Series E Preferred Stock, was convertible into one
share of common stock, which represents a discount from the fair value of
common stock on the date of issuance of $8.50 per share. The value
attributable to this conversion right represents an incremental yield, or a
beneficial conversion feature. Since Bain is performing consulting services
for Mainspring as described above, the value attributable to this
conversion right of $66,667 was recorded as research and development
expense during the year ended December 31, 1999.
Undesignated Preferred Stock
At
December 31, 1999, Mainspring was authorized to issue up to 6,497,063
shares of preferred stock (the Undesignated Preferred Stock).
Issuances of the Undesignated Preferred Stock may be made at the discretion
of the Board of Directors of Mainspring (without stockholder approval) with
designations, rights and preferences as the Board of Directors may
determine from time to time which may be more expansive than the rights of
the holders of the Preferred Stock and the common stock.
Common Stock
In
September 1997, an aggregate of 145,780 unvested common shares were
contributed to Mainspring by its two founders. These shares were
immediately canceled and a corresponding increase in the number of shares
available for issuance pursuant to the 1996 Omnibus Stock Plan was
authorized (Note 7).
In
connection with the resignation of one of its founders, Mainspring
repurchased 236,366 shares of unvested common stock held by that individual
at a price of $.005 per share in March 1998. In August 1998,
Mainspring repurchased 379,160 shares of vested common stock from the same
individual at a price of $0.62 per share. These shares were immediately
canceled and a corresponding increase in the number of shares available for
issuance pursuant to the 1996 Omnibus Stock Plan was authorized (Note
7).
In
connection with the resignation of one of its employees, Mainspring
repurchased 4,000 shares of common stock held by that individual at a price
of $0.62 per share. These shares are held in treasury and carried at cost
at December 31, 1998 and 1999.
7. 1996 Stock Plan
During
1996, Mainspring adopted the 1996 Omnibus Stock Plan (the 1996 Plan
). The 1996 Plan provides for the granting of incentive and
nonqualified stock options to employees, consultants and directors of
Mainspring. As amended, the total number of shares of common stock that may
be issued pursuant to the exercise of options granted under the 1996 Plan
is 3,926,908 at December 31, 1999. The exercise price of each stock option
shall be specified by the Board of Directors at the time of grant. However,
incentive stock options may not be granted at less than the fair market
value of Mainsprings common stock at the date of grant or for a term
in excess of ten years. For holders of more than 10% of Mainsprings
total combined voting power of all classes of stock, incentive stock
options may not be granted at less than 110% of the fair market value of
Mainsprings common stock at the date of grant or for a term greater
than five years. Options granted under the 1996 Plan to date generally vest
either over a four-year period for employees or over the service period for
nonemployees and generally expire ten years from the date of
grant.
Mainspring applies APB Opinion No. 25 in accounting for its Stock
Plan for stock options granted to employees. Had Mainspring determined
compensation cost based on the fair value at the grant date for employee
stock options under SFAS No. 123, Mainsprings net loss and net loss
per share would have been increased to the pro forma amounts indicated
below:
|
|
Year ended
December 31,
|
|
|
1997
|
|
1998
|
|
1999
|
Net loss |
As reported |
|
$(5,427,473 |
) |
|
$(5,163,150 |
) |
|
$(12,694,389 |
) |
Pro forma |
|
(5,448,395 |
) |
|
(5,220,988 |
) |
|
(13,779,432 |
) |
Basic and diluted net
loss per share |
As reported |
|
$
(4.81 |
) |
|
$
(3.40 |
) |
|
$
(12.44 |
) |
Pro forma |
|
(4.83 |
) |
|
(3.44 |
) |
|
(13.13 |
) |
Because
the determination of the fair value of all options granted after Mainspring
becomes a public entity will include an expected volatility factor,
additional option grants are expected to be made subsequent to December 31,
1999 and most options vest over several years, the above pro forma effects
are not necessarily indicative of the pro forma effects on future
years.
Under
SFAS No. 123, the fair value of each employee option grant is estimated on
the date of grant using the Black-Scholes option pricing model to apply the
minimum value method with the following weighted-average assumptions used
for grants made during the years ended December 31, 1997, 1998 and
1999:
|
|
Year ended
December 31,
|
|
|
1997
|
|
1998
|
|
1999
|
Expected option term
(years) |
|
5 |
|
|
5 |
|
|
5 |
|
Risk-free interest
rate |
|
6.2 |
% |
|
5.2 |
% |
|
5.7 |
% |
Dividend yield |
|
0.0 |
% |
|
0.0 |
% |
|
0.0 |
% |
MAINSPRING COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
A
summary of the status of Mainsprings stock options as of December 31,
1997, 1998 and 1999, and changes during the years then ended is presented
below:
|
|
1997
|
|
1998
|
|
1999
|
|
|
Number
of
shares
|
|
Weighted-
average
exercise
price
|
|
Number
of
shares
|
|
Weighted-
average
exercise
price
|
|
Number
of
shares
|
|
Weighted-
average
exercise
price
|
Outstanding at beginning
of year |
|
414,376 |
|
|
$.17 |
|
900,330 |
|
|
$.40 |
|
1,365,242 |
|
|
$ .55 |
Granted |
|
816,796 |
|
|
.47 |
|
1,022,664 |
|
|
.62 |
|
1,938,234 |
|
|
2.06 |
Exercised |
|
(17,014 |
) |
|
.19 |
|
(9,012 |
) |
|
.18 |
|
(384,118 |
) |
|
.49 |
Canceled |
|
(313,828 |
) |
|
.30 |
|
(548,740 |
) |
|
.45 |
|
(264,060 |
) |
|
1.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of
year |
|
900,330 |
|
|
$.40 |
|
1,365,242 |
|
|
$.55 |
|
2,655,298 |
|
|
$1.62 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at
end of year |
|
145,072 |
|
|
$.22 |
|
269,484 |
|
|
$.38 |
|
546,627 |
|
|
$1.35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average fair
value of options
granted during the year (all granted at
fair value for 1997 and 1998 and all
granted below fair value for 1999) |
|
$
.12 |
|
|
|
|
$
.14 |
|
|
|
|
$
5.31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options available for
future grant |
|
263,628 |
|
|
|
|
405,230 |
|
|
|
|
861,466 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
following table summarizes information about stock options outstanding at
December 31, 1999:
Exercise
price
|
|
Options
outstanding
|
|
Weighted-
average
remaining
contractual life
(in years)
|
|
Options
exercisable
|
$0.17
$0.62 |
|
1,000,439 |
|
8.4 |
|
275,952 |
$2.00
$2.20 |
|
1,136,600 |
|
8.7 |
|
225,600 |
$2.50
$5.00 |
|
518,259 |
|
9.9 |
|
45,075 |
|
|
|
|
|
|
|
|
|
2,655,298 |
|
|
|
546,627 |
|
|
|
|
|
|
|
Deferred Compensation
During
the year ended December 31, 1999, Mainspring granted stock options to
employees for the purchase of 180,350 shares of its common stock with an
exercise price of $0.62 per share; 913,925 shares of its common stock with
an exercise price of $2.00 per share; 221,425 shares of its common stock
with an exercise price of $2.20 per share; 495,050 shares of its common
stock with an exercise price of $2.50 per share and 39,484 shares of its
common stock with an exercise price of $5.00 per share. Mainspring recorded
deferred compensation relating to these options totaling $8,839,431,
representing the differences between the estimated fair market value of the
common stock on the date of grant and the exercise price. Compensation
expense related to these options is being amortized over the related
vesting periods.
MAINSPRING COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
8. Income Taxes
Net
deferred tax assets consist of the following:
|
|
December
31,
|
|
|
1998
|
|
1999
|
Net operating loss
carryforwards |
|
$4,706,000 |
|
|
$ 8,462,000 |
|
Research and development
credit carryforwards |
|
115,000 |
|
|
87,000 |
|
Accrued
expenses |
|
203,000 |
|
|
439,000 |
|
Other |
|
16,000 |
|
|
287,000 |
|
|
|
|
|
|
|
|
Gross deferred tax
assets |
|
5,040,000 |
|
|
9,275,000 |
|
Deferred tax asset
valuation allowance |
|
(5,040,000 |
) |
|
(9,275,000 |
) |
|
|
|
|
|
|
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
Realization of deferred tax assets is dependent upon the generation
of future taxable income. Mainspring has provided a valuation allowance for
the full amount of its deferred tax assets since it is more likely than not
these future benefits will not be realized. If Mainspring achieves future
profitability, these deferred tax assets could be available to offset
future income taxes.
At
December 31, 1999, Mainspring has federal and state net operating loss
carryforwards of approximately $21,062,000 and $20,750,000, respectively,
available to reduce future taxable income which expire at various dates
between 2001 and 2019. The Company also has federal and state research and
development tax credit carryforwards of approximately $74,000 and $35,000,
respectively, available to reduce future tax liabilities which expire at
various dates between 2011 and 2013.
Under
the Internal Revenue Code, certain substantial changes in Mainsprings
ownership could result in an annual limitation on the amount of net
operating loss and tax credit carryforwards which can be utilized in future
years to offset future taxable income and tax liabilities.
9. Employee Savings Plan
In 1999,
Mainspring established a 401(k) Retirement/Savings Plan (the 401(k)
plan) which covers all full-time employees. The 401(k) plan allows
eligible employees to make contributions up to a specified annual maximum
contribution, as defined. Under the 401(k) plan, Mainspring may, but is not
obligated to, match a portion of the employee contributions up to a defined
maximum. Mainspring did not contribute to the 401(k) plan in
1999.
MAINSPRING COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
10. Commitments and
Contingencies
Operating Leases
Mainspring leases its facilities and certain equipment under
noncancelable operating leases which expire at various dates through
September 2009. Future minimum lease payments due under operating leases
are as follows:
2000 |
|
$ 2,451,000 |
2001 |
|
3,423,000 |
2002 |
|
3,485,000 |
2003 |
|
3,564,000 |
2004 |
|
3,580,000 |
2005 and
Thereafter |
|
6,404,000 |
|
|
|
|
|
$22,907,000 |
|
|
|
Rent
expense under operating leases (net of related sublease income) totaled
approximately $339,000, $285,000 and $446,900 for the years ended December
31, 1997, 1998 and 1999, respectively.
Legal Proceedings
Mainspring is from time to time subject to legal proceedings and
claims which arise in the normal course of its business. In the opinion of
management, the amount of ultimate liability with respect to these actions
will not have a material adverse effect on Mainsprings financial
position or results of operations.
11. Subsequent Events
2000 Stock Option and Incentive Plan
Mainsprings 2000 Stock Option and Incentive Plan (2000
Option Plan) was adopted by the Board of Directors on February 9,
2000, subject to stockholder approval, becomes effective on the date on
which Mainsprings common stock is registered under the Exchange Act.
. A total of 5,000,000 shares of common stock have initially been reserved
for issuance under the 2000 Option Plan. The 2000 Option Plan provides that
the number of shares authorized for issuance will automatically increase
annually by 8% of the outstanding number of shares of common stock and the
number of shares of common stock issuable pursuant to the exercise of
outstanding options, up to a maximum of an additional 5,000,000 shares of
common stock per year. Under the terms of the 2000 Option Plan, Mainspring
is authorized to grant incentive stock options as defined under the
Internal Revenue Code, nonqualified options, stock awards or opportunities
to make direct purchases of common stock to employees, officers, directors,
consultants and advisors of Mainspring and its subsidiaries.
2000 Non-Employee Director Stock Option Plan
Mainsprings 2000 Non-Employee Director Stock Option Plan (
Director Plan) was adopted by the Board of Directors on
February 9, 2000, subject to stockholder approval, and becomes effective on
the date on which Mainsprings common stock is registered under the
Exchange Act. A total of 200,000 shares of common stock have been
authorized for issuance under the Director Plan.
Under
the Director Plan, each nonemployee director who is or becomes a member of
the Board of Directors is automatically granted on the date on which the
common stock becomes registered under the Exchange Act or, if not a
director on that date, the date first elected to the Board of Directors, an
initial option to purchase 20,000 shares of common stock which will vest
quarterly over four years in equal installments. Thereafter, each
nonemployee director will automatically be granted an annual option to
purchase 3,000 shares of common stock, which will vest quarterly over that
year in equal installments. All options granted under the Director Plan
will have an exercise price equal to the fair market value of the common
stock on the date of grant and a term of ten years from the date of grant.
Unexercisable options terminate when the director ceases to be a director
for any reason other than death or permanent disability. Vested options may
be exercised at any time during the option term. The term of the Director
Plan is ten years, unless sooner terminated by a vote of the Board of
Directors.
2000 Employee Stock Purchase Plan
The 2000
Employee Stock Purchase Plan (Stock Purchase Plan) was adopted
by the Board of Directors on February 9, 2000, subject to stockholder
approval, becomes effective on the date on which Mainsprings common
stock is registered under the Exchange Act. The Stock Purchase Plan
provides for the issuance of up to an aggregate of 1,000,000 shares of
common stock to participating employees. The Stock Purchase Plan provides
that the number of shares authorized for issuance under the Stock Purchase
Plan will automatically increase annually by 2% of the outstanding number
of shares of common stock, up to a maximum of an additional 1,000,000
shares of common stock per year.
All
employees who have completed three months of employment with Mainspring and
whose customary employment is more than 20 hours per week and for more than
five months in any calendar year are eligible to participate in the Stock
Purchase Plan. The right to purchase common stock under the Stock Purchase
Plan will be made available through a series of offerings. On the first day
of an offering period, Mainspring will grant to each eligible employee who
has elected in writing to participate in the Stock Purchase Plan an option
to purchase shares of common stock. The employee will be required to
authorize an amount, between 1% and 10% of the employees
compensation, to be deducted from the employees pay during the
offering period. On the last day of the offering period, the employee will
be deemed to have exercised the option, at the option exercisable price, to
the extent of accumulated payroll deductions. Under the terms of the Stock
Purchase Plan, the option exercise price is an amount equal to 85% of the
fair market value of one share of common stock on either the first or last
day of the offering period, whichever is lower. No employee may be granted
an option that would permit the employees rights to purchase common
stock to accrue in excess of $25,000 in any calendar year. The first
offering period under the Stock Purchase Plan will commence upon the
initial offering of the common stock to the public and continues through
September 30, 2001. Thereafter, the offering periods will begin on October
1 and April 1 of each year. Options granted under the Stock Purchase Plan
terminate upon an employees voluntary withdrawal from the plan at any
time or upon termination of employment.
[Inside Back Cover Artwork]
[LOGO]
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and
Distribution.
Estimated expenses payable in connection with the sale of the common
stock in this offering are as follows:
SEC registration
fee |
|
$ 15,312 |
NASD filing
fee |
|
6,300 |
Nasdaq National Market
listing fee |
|
5,000 |
Printing and engraving
expenses |
|
100,000 |
Legal fees and
expenses |
|
* |
Accounting fees and
expenses |
|
* |
Transfer agent and
registrar fees and expenses |
|
* |
Miscellaneous |
|
* |
|
|
|
Total |
|
$
|
|
|
|
* To be
provided by amendment
Mainspring will bear all of the expenses shown above.
Item 14. Indemnification of Directors and
Officers.
The
Delaware General Corporation Law and the Companys charter provide for
indemnification of the Companys directors and officers for
liabilities and expenses that they may incur in such capacities. In
general, directors and officers are indemnified with respect to actions
taken in good faith in a manner reasonably believed to be in, or not
opposed to, the best interests of the Company, and with respect to any
criminal action or proceeding, actions that the indemnitee had no
reasonable cause to believe were unlawful. Reference is made to the Company
s corporate charter and by-laws filed as Exhibits 3.1 and 3.4 hereto,
respectively.
The
Underwriting Agreement provides that the Underwriters are obligated, under
certain circumstances, to indemnify directors, officers and controlling
persons of the Company against certain liabilities, including liabilities
under the Securities Act. Reference is made to the form of Underwriting
Agreement filed as Exhibit 1.1 hereto.
The
Company currently carries a directors and officers insurance
policy and intends to increase its coverage amounts under this
policy.
Item 15. Recent Sales of Unregistered
Securities.
In the
three years preceding the filing of this registration statement, the
Company has issued the following securities that were not registered under
the Securities Act:
On
September 26, 1997, we issued an aggregate of 225,103 shares of its Series
C Preferred Stock for aggregate consideration of $2,780,022.05 to a group
of investors.
On
February 8, 1999, we issued an aggregate of 1,315,790 shares of its Series
D Preferred Stock for aggregate consideration of $5,000,002 to a group of
investors.
On
November 18, 1999, December 23, 1999 and February 10, 2000, we issued an
aggregate of 4,426,668 shares of its Series E Preferred Stock for aggregate
consideration of $33,200,010 to a group of investors.
On
September 2, 1999, we issued a warrant to purchase 230,000 shares of Series
X Preferred Stock to a strategic partner.
From
January 1, 1997 to December 31, 1999, the Company has issued options to
purchase an aggregate of 3,777,694 shares of common stock under the 1996
Omnibus Stock Plan, exercisable at a weighted average price of $1.33 per
share. From January 1, 1997 through December 31, 1999, options to purchase
410,144 shares had been exercised.
No
underwriters were involved in the foregoing sales of securities. Such sales
were made in reliance upon the exemption provided by Section 4(2) of the
Securities Act for transactions not involving a public offering and/or
Rules 506 and 701 under the Securities Act.
Item 16. Exhibits and Financial Statement
Schedules.
(a)
Exhibits:
Exhibit
No
|
|
Exhibit
|
1.1 |
|
Form of Underwriting
Agreement |
3.1 |
|
Fourth Amended and
Restated Certificate of Incorporation of Mainspring currently in
effect |
3.2 |
|
Form of Fifth Amended and
Restated Certificate of Incorporation of Mainspring to be filed with the
Secretary of State of Delaware and effective upon the effectiveness of the
registration statement |
3.3 |
|
By-laws of Mainspring
currently in effect |
3.4 |
|
Form of Amended and
Restated By-Laws of the Company to be effective upon the effectiveness of
the offering |
3.5 |
|
Form of Certificate of
Amendment to Fourth Amended & Restated Certificate of Incorporation of
Mainspring |
4.1 |
|
Specimen certificate for
shares of Mainsprings common stock |
5.1 |
|
Legal opinion of Testa,
Hurwitz & Thibeault, LLP |
10.1 |
|
Mainspring
Communications, Inc. 1996 Omnibus Stock Plan, as amended |
10.2 |
|
Mainspring
Communications, Inc. 2000 Stock Plan |
10.3 |
|
Mainspring
Communications, Inc. 2000 Employee Stock Purchase Plan |
10.4 |
|
Mainspring
Communications, Inc. 2000 Non-Employee Director Stock Option
Plan |
10.5 |
|
Full Recourse Promissory
Note, dated August 31, 1999, between the Company, as lender, and Ming
Tsai |
10.6 |
|
Lease Agreement, dated as
of July 31, 1996, between the Company and River Front Office Park
Associates II Limited Partnership for office space located at One Main
Street, Cambridge,
Massachusetts 02142 |
10.7 |
|
Amendment No. 1 to
Agreement of Lease, dated September 1998, between the Company and
Riverfront Office Park Associates II Limited Partnership for office space
located at One Main Street,
Cambridge, Massachusetts 02142 |
10.8 |
|
Amendment No. 2 to
Agreement of Lease, dated November 30, 1998, between the Company and
Riverfront Office Park Associates II Limited Partnership for office space
located at One Main Street,
Cambridge, Massachusetts 02142 |
10.9 |
|
Amendment No. 3 to
Agreement of Lease, dated January 31, 2000, between the Company and BRE
Riverfront LLC for office space located at One Main Street, Cambridge,
Massachusetts 02142 |
10.10 |
|
Lease Agreement, dated
January 2000, between the Company and 404 Fifth LLC for office space
located at 404 Fifth Avenue, New York, New York 10018 |
10.11 |
|
Series E Preferred Stock
Purchase Agreement, dated November 18, 1999, between the Company and
the several Purchasers set forth on Schedule 1.1 thereto |
10.12 |
|
Amendment to 1996 Omnibus
Stock Plan |
11.1 |
|
Statement re: computation
of per share earnings |
21.1 |
|
Subsidiaries of the
Company |
Exhibit
No
|
|
Exhibit
|
23.1 |
|
Consent of Testa, Hurwitz
& Thibeault, LLP (included in Exhibit 5.01) |
23.2 |
|
Consent of
PricewaterhouseCoopers LLP |
24.1 |
|
Power of Attorney
(contained on signature page on II-4) |
27.1 |
|
Financial Data
Schedule |
|
To be filed by
amendment
|
(b)
Financial Statement Schedules
Schedule II-Valuation and Qualifying Accounts
Description
|
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Balance at
beginning of
period
|
|
Charged to
operations
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|
Deductions
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Balance at
end of period
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Year ended December 31,
1997 |
|
|
|
|
|
|
|
|
Reserves and allowances
deducted from asset accounts |
|
|
|
|
|
|
|
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Allowance for doubtful accounts |
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$
|
|
10,000 |
|
|
|
$10,000 |
|
Year ended December 31,
1998 |
|
|
|
|
|
|
|
|
Reserves and allowances
deducted from asset accounts |
|
|
|
|
|
|
|
|
Allowance for doubtful accounts |
|
$10,000 |
|
80,000 |
|
|
|
$90,000 |
|
Year ended December 31,
1999 |
|
|
|
|
|
|
|
|
Reserves and allowances
deducted from asset accounts |
|
|
|
|
|
|
|
|
Allowance for doubtful accounts |
|
$90,000 |
|
|
|
6,000 |
|
$84,000 |
All
other schedules are omitted because they are not applicable or the required
information is shown in the other Financial Statements or Notes
thereto.
Item 17. Undertakings.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of the Company
pursuant to provisions described in Item 14 above, or otherwise, the
Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
by the Company of expenses incurred or paid by a director, officer or
controlling person of the Company 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 Company
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The
Company hereby undertakes: (1) 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; (2) that for purposes of
determining any liability under the Securities Act, the information omitted
from the form of prospectus filed as part of a registration statement in
reliance upon Rule 430A and contained in the form of prospectus filed by
the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of this registration statement as
of the time it was declared effective; and (3) that for the purpose of
determining any liability under the Securities Act, each post-effective
amendment that contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, the registrant has duly
caused this registration statement on Form S-1 to be signed on its behalf
by the undersigned, thereunto duly authorized, in Cambridge, Massachusetts
on this 11th day of February, 2000.
|
MAINSPRING
COMMUNICATIONS, INC.
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|
Chairman, President and
Chief Executive Officer
|
POWER OF ATTORNEY AND SIGNATURES
The
undersigned officers and directors of Mainspring Communications, Inc.,
hereby constitute and appoint John Connolly and Mark Verdi, and each of
them singly, with full power of substitution, our true and lawful
attorneys-in-fact and agents to take any actions to enable Mainspring
Communications, Inc. to comply with the Securities Act, and any rules,
regulations and requirements of the Securities and Exchange Commission, in
connection with this registration statement, including the power and
authority to sign for us in our names in the capacities indicated below any
and all amendments to this registration statement and any other
registration statement filed pursuant to the provisions of Rule 462 under
the Securities Act.
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.
Signature
|
|
Title
|
|
Date
|
|
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/S
/ JOHN
CONNOLLY
John Connolly |
|
Chairman, President and Chief
Executive Officer (principal
executive officer) |
|
February 11, 2000 |
|
|
/S
/ MARK
VERDI
Mark Verdi |
|
Chief Financial Officer, Senior
Vice President, Finance and
Operations, Treasurer and
Director (principal financial
officer and principal accounting
officer) |
|
February 11, 2000 |
|
|
/S
/ BRUCE
BARNET
Bruce Barnet |
|
Director |
|
February 11, 2000 |
|
|
/S
/ ANTHONY
BRENNER
Anthony Brenner |
|
Director |
|
February 11, 2000 |
|
|
/S
/ JEROME
COLONNA
Jerome Colonna |
|
Director |
|
February 11, 2000 |
|
|
/S
/ WILLIAM
S. KAISER
William S. Kaiser |
|
Director |
|
February 11, 2000 |
|
|
/S
/ PAUL
A. MAEDER
Paul A. Maeder |
|
Director |
|
February 11,
2000 |
|
|
/S
/ BRIAN
NAIRN
Brian Nairn |
|
Director |
|
February 11,
2000 |
Exhibit Index
Exhibit
No
|
|
Exhibit
|
1.1 |
|
Form of
Underwriting Agreement |
3.1 |
|
Fourth Amended
and Restated Certificate of Incorporation of Mainspring currently
in effect |
3.2 |
|
Form of Fifth
Amended and Restated Certificate of Incorporation of Mainspring
to be filed with the
Secretary of State of Delaware and effective upon the effectiveness
of the registration statement |
3.3 |
|
By-laws of
Mainspring currently in effect |
3.4 |
|
Form of Amended
and Restated By-Laws of the Company to be effective upon the
effectiveness of
the offering |
3.5 |
|
Form of
Certificate of Amendment to Fourth Amended & Restated
Certificate of Incorporation of
Mainspring |
4.1 |
|
Specimen
certificate for shares of Mainsprings common
stock |
5.1 |
|
Legal opinion of
Testa, Hurwitz & Thibeault, LLP |
10.1 |
|
Mainspring
Communications, Inc. 1996 Omnibus Stock Plan, as
amended |
10.2 |
|
Mainspring
Communications, Inc. 2000 Stock Plan |
10.3 |
|
Mainspring
Communications, Inc. 2000 Employee Stock Purchase Plan |
10.4 |
|
Mainspring
Communications, Inc. 2000 Non-Employee Director Stock Option
Plan |
10.5 |
|
Full Recourse
Promissory Note, dated August 31, 1999, between the Company, as
lender, and Ming
Tsai |
10.6 |
|
Lease Agreement,
dated as of July 31, 1996, between the Company and River Front
Office Park
Associates II Limited Partnership for office space located at One
Main Street, Cambridge,
Massachusetts 02142 |
10.7 |
|
Amendment No. 1
to Agreement of Lease, dated September 1998, between the Company
and
Riverfront Office Park Associates II Limited Partnership for office
space located at One Main Street,
Cambridge, Massachusetts 02142 |
10.8 |
|
Amendment No. 2
to Agreement of Lease, dated November 30, 1998, between the
Company and
Riverfront Office Park Associates II Limited Partnership for office
space located at One Main Street,
Cambridge, Massachusetts 02142 |
10.9 |
|
Amendment No. 3
to Agreement of Lease, dated January 31, 2000, between the
Company and BRE
Riverfront LLC for office space located at One Main Street,
Cambridge, Massachusetts 02142 |
10.10 |
|
Lease Agreement,
dated January 2000, between the Company and 404 Fifth LLC for
office space
located at 404 Fifth Avenue, New York, New York 10018 |
10.11 |
|
Series E
Preferred Stock Purchase Agreement, dated November 18, 1999,
between the Company and
the several Purchasers set forth on Schedule 1.1 thereto |
10.12 |
|
Amendment to 1996
Omnibus Stock Plan |
11.1 |
|
Statement re:
computation of per share earnings |
21.1 |
|
Subsidiaries of
the Company |
23.1 |
|
Consent of Testa,
Hurwitz & Thibeault, LLP (included in Exhibit
5.01) |
23.2 |
|
Consent of
PricewaterhouseCoopers LLP |
24.1 |
|
Power of Attorney
(contained on signature page on II-4) |
27.1 |
|
Financial Data
Schedule |
|
To be
filed by amendment
|