<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 29, 2000
REGISTRATION NO. 333-32358
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
WEBRIDGE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7372 93-1211734
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
1925 N.W. AMBERGLEN PARKWAY
BEAVERTON, OREGON 97006
(503) 601-4000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
DAVID L. BRINKER
CHIEF FINANCIAL OFFICER
WEBRIDGE, INC.
1925 N.W. AMBERGLEN PARKWAY
BEAVERTON, OREGON 97006
(503) 601-4000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
ROBERT J. MOORMAN RICHARD R. PLUMRIDGE, ESQ.
STEVEN H. HULL JOHN E. HAYES III, ESQ.
STOEL RIVES LLP DAVID J. KENDALL, ESQ.
900 SW FIFTH AVENUE, SUITE 2600 BROBECK PHLEGER & HARRISON LLP
PORTLAND, OREGON 97204 370 INTERLOCKEN BOULEVARD, SUITE 500
(503) 224-3380 BROOMFIELD, COLORADO 80021
(303) 410-2000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
------------------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ____________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ____________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ____________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) SHARE(2) OFFERING PRICE(2) REGISTRATION FEE(3)
------------------------------------------------------------------------------------------------------------------------------
Common Stock................ 6,325,000 $10.00 $63,250,000 $16,698
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes 825,000 shares of Common Stock that the Underwriters have the
option to purchase solely to cover over-allotments, if any.
(2) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457 based on the estimate of the maximum aggregate
offering price.
(3) A filing fee of $13,200 has previously been paid by Webridge, Inc.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE OR UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH SECTION 8(a),
MAY DETERMINE.
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--------------------------------------------------------------------------------
<PAGE> 2
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 securities and we are not soliciting
offers to buy these securities in any state where the offer or sale is
not permitted.
SUBJECT TO COMPLETION, DATED AUGUST 29, 2000
[WEBRIDGE LOGO]
5,500,000 SHARES
COMMON STOCK
Webridge, Inc. is offering 5,500,000 shares of its common stock. This is
our initial public offering, and no public market currently exists for our
shares. We have applied to have our common stock approved for quotation on the
Nasdaq National Market under the symbol "WEBR." We anticipate that the initial
public offering price will be between $8.00 and $10.00 per share.
-------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
-------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- --------
<S> <C> <C>
Public offering price....................................... $ $
Underwriting discounts and commissions...................... $ $
Proceeds to Webridge........................................ $ $
</TABLE>
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.
We have granted the underwriters a 30-day option to purchase up to an
additional 825,000 shares of our common stock to cover over-allotments.
-------------------------
ROBERTSON STEPHENS
U.S. BANCORP PIPER JAFFRAY
BANC OF AMERICA SECURITIES LLC
The date of this prospectus is , 2000
<PAGE> 3
[INSIDE OF FRONT COVER]
[Graphic depicts a computer monitor with a globe on the screen over which
the following is superimposed: on the top half of the page is the caption
"Commerce -Content -Collaboration - Personalization" under which there is a
picture of two hands shaking with the caption "Customers and Prospects", a
picture of a man holding a large key with the caption "Sales Channel Partners",
a picture of people serving customers at a counter with the caption "Employees",
and a picture of a delivery van with the caption "Suppliers"; on the bottom half
of the page is the Webridge logo over which is the caption "Packaged
Applications for Enterprise Commerce" and under which is a picture of two people
assembling a sphere out of jigsaw pieces with the caption "XML Data Services", a
picture of two people over whom there are word balloons shaped like matching
jigsaw pieces with the caption "Corporate Portals and Marketplaces", a personal
computer, the tower of which is open like a cash drawer showing money inside,
with the caption "B2B - Catalog, Configuration, and Order Management", and a
picture of a man juggling with the caption "Web-based Sales and Marketing
Management". Across the top of the page is the caption "Webridge Private
Exchange" under which is written "Business-to-Business Enterprise Commerce."
Across the bottom of the page is the caption "XML - HTML - JAVA - COM+ - LDAP"
under which is written "Standards-based Architecture".]
<PAGE> 4
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE
PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF
THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS
PROSPECTUS OR OF ANY SALE OF THE COMMON STOCK. IN THIS PROSPECTUS, REFERENCE TO
"WEBRIDGE," "WE," "US" AND "OUR" REFERS TO WEBRIDGE, INC.
-------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary..................................................... 3
Risk Factors................................................ 6
Cautionary Note Regarding Forward-Looking Statements; Market
Data...................................................... 16
Use of Proceeds............................................. 17
Dividend Policy............................................. 17
Capitalization.............................................. 18
Dilution.................................................... 19
Selected Consolidated Financial Data........................ 20
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 22
Business.................................................... 32
Management.................................................. 48
Related-party Transactions.................................. 57
Principal Stockholders...................................... 59
Description of Capital Stock................................ 61
Shares Eligible for Future Sale............................. 63
Underwriting................................................ 66
Legal Matters............................................... 68
Experts..................................................... 68
Where You Can Find More Information......................... 68
Index to Consolidated Financial Statements.................. F-1
</TABLE>
-------------------------
Webridge's(R) name and logo and the names of products and services offered
by us (including those referred to in "Business") are trademarks, registered
trademarks, service marks or registered service marks of Webridge, Inc. Other
service marks, trademarks and trade names referred to in this prospectus are the
property of their respective owners.
2
<PAGE> 5
SUMMARY
This summary highlights information contained elsewhere in this prospectus.
It contains a summary of the most significant aspects of the offering that you
should consider before investing in our common stock. This summary may not
contain all of the information that is important to you. You should read the
entire prospectus carefully.
WEBRIDGE, INC.
OUR BUSINESS
We provide packaged application software, called Webridge Private Exchange,
for Web-based, business-to-business commerce. Our software products and services
help our customers rapidly and efficiently deploy, maintain and extend a
comprehensive and secure business-to-business commerce solution for interacting
with the business customers, partners, suppliers, distributors, employees and
others that are the constituents of the extended enterprise.
Business worldwide is accelerating and becoming increasingly competitive,
fueled by the Internet and other technologies, shortened product cycles and the
globalization of the economy. However, the fundamental need for businesses to
deliver value, customer focus, competitive differentiation and operational
excellence has changed little. What has changed are the tools available to help
businesses create and manage the collaborative relationships that achieve these
objectives. Business-to-business enterprise commerce is an emerging approach to
conducting online business which exploits the ability of the Internet to
digitally weave the employees and core information systems of disparate
organizations into a rich fabric of collaborative information partnerships. The
goal of business-to-business enterprise commerce is to automate and streamline
the repetitive daily interactions within an online network of sales prospects,
customers, sales channel partners, employees, distributors and suppliers. We
call these online networks "private exchanges." This approach requires
businesses to establish a framework for online relationships with all of their
important constituencies, using formats and protocols that are compatible with
computers and understood by humans.
Businesses are increasingly demanding online business-to-business
enterprise commerce applications in a single, integrated solution. These
applications must be designed to keep up with the growth of the business and
adapt to changes in Internet and other technologies. In this fast-paced
marketplace, businesses are being driven by their customers, partners,
distributors, suppliers and employees to quickly capture the sustainable
competitive advantage that can come through exploiting business-to-business
enterprise commerce technology.
We develop, market and support enterprise commerce packaged application
software for commerce, content management and collaboration, with additional
specialized add-on software applications and software tools to customize and
maintain the solutions built with these products. Our products are built on the
Microsoft operating system and related software. We sell Webridge Private
Exchange and our other software products through a direct sales force.
Our goal is to establish our position as the leading provider of online
business-to-business enterprise commerce solutions. Key elements of our strategy
to achieve this objective include:
- Leveraging our product leadership;
- Building on our network of relationships;
- Licensing to applications service providers; and
- Expanding internationally.
CORPORATE INFORMATION
Webridge, Inc. was incorporated in Oregon in June 1996 and commenced
operations that year. Webridge was reincorporated in Delaware in August 1997.
Our executive offices are at 1925 N.W. AmberGlen Parkway, Beaverton, Oregon
97006. Our telephone number is (503) 601-4000. Our corporate Internet address is
www.webridge.com. The information contained on our Web site is not a part of
this prospectus.
3
<PAGE> 6
THE OFFERING
Common stock offered by Webridge...... 5,500,000 shares
Common stock outstanding after this
offering.............................. 27,073,471 shares
Nasdaq National Market Symbol......... WEBR
Use of proceeds....................... Working capital and other general
corporate purposes. See "Use of
Proceeds."
The number of shares outstanding after this offering is based on the shares
of our common stock outstanding as of June 30, 2000 and gives effect to the
automatic conversion of all outstanding shares of our convertible preferred
stock into 11,828,816 shares of common stock upon the completion of this
offering. The number of shares excludes:
- 1,513,498 shares issuable upon exercise of options outstanding as of June
30, 2000 at a weighted average exercise price of $2.40 per share;
- 1,635,372 additional shares reserved for issuance under our stock
incentive plans and our stock purchase plan;
- 2,356 shares of convertible preferred stock subject to a warrant
outstanding as of June 30, 2000 at an exercise price of $4.24 per share
convertible into 1,571 shares of common stock; and
- 825,000 shares issuable upon exercise of the underwriters' over-allotment
option.
Except as otherwise noted, all information in this prospectus assumes no
exercise of the underwriters' over-allotment option and gives effect to a
2-for-3 reverse stock split to become effective before the completion of this
offering and the automatic conversion of all outstanding shares of our
convertible preferred stock into 11,828,816 shares of common stock upon the
completion of this offering.
4
<PAGE> 7
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Set forth below are our consolidated summary statement of operations data
for the years ended December 31, 1997, 1998 and 1999 and the six months ended
June 30, 1999 and 2000 and summary consolidated balance sheet data as of June
30, 2000 on an actual basis and as adjusted to give effect to our sale of
5,500,000 shares of common stock in this offering at an assumed initial public
offering price of $9.00 per share, after deducting underwriting discounts and
commissions and the estimated offering expenses payable by us.
This information should be read in conjunction with our financial
statements and related notes appearing elsewhere in this prospectus. See
"Capitalization," "Selected Consolidated Financial Data," and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
----------------------------- ------------------
1997 1998 1999 1999 2000
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Total revenue............................ $ -- $ 323 $ 4,447 $ 872 $ 6,015
Total cost of revenue.................... -- 144 1,332 452 1,877
------- ------- ------- ------- -------
Gross profit............................. -- 179 3,115 420 4,138
Total operating expenses................. 2,268 6,053 11,632 4,772 11,910
Net loss................................. $(2,197) $(5,815) $(8,219) $(4,173) $(7,245)
Basic and diluted net loss per share..... $ (2.30) $ (1.63) $ (1.45) $ (0.81) $ (0.99)
Shares used in computing basic and
diluted net loss per share............. 956 3,571 5,680 5,168 7,307
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 2000
----------------------
ACTUAL AS ADJUSTED
------- -----------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $15,405 $60,315
Working capital............................................. 16,764 61,674
Total assets................................................ 24,055 68,965
Long-term debt and capital lease obligations, net of current
portion................................................... 238 238
Total stockholders' equity.................................. 17,884 62,794
</TABLE>
5
<PAGE> 8
RISK FACTORS
This offering involves a high degree of risk. You should carefully consider
the following risks and all other information contained in this prospectus
before you decide to buy our common stock. If any of the following risks
actually occur, our business, financial condition and results of operations
could be seriously harmed. This could cause the market price of our common stock
to decline, and you could lose all or part of your investment.
RISKS RELATED TO OUR BUSINESS
BECAUSE WE HAVE A SHORT OPERATING HISTORY, THERE IS A LIMITED AMOUNT OF
INFORMATION ABOUT US UPON WHICH YOU CAN EVALUATE OUR BUSINESS AND POTENTIAL FOR
FUTURE SUCCESS.
We began operating in June 1996 and have only a limited operating history
upon which you can evaluate our business and prospects. Our business will not be
successful unless companies widely undertake online business-to-business
activities and they choose our applications to implement those activities. The
market for online business-to-business applications software and services is
new, and accordingly you should consider the risks and uncertainties frequently
encountered by early stage companies in new and rapidly evolving markets. If we
are unsuccessful in addressing these risks and uncertainties, our business and
operations and our ability to execute our business plan will be seriously
harmed.
OUR FUTURE RESULTS OF OPERATIONS WILL VARY FROM QUARTER TO QUARTER AND, AS A
RESULT, WE MAY FAIL TO MEET THE EXPECTATIONS OF OUR INVESTORS AND FINANCIAL
ANALYSTS, WHICH COULD CAUSE OUR STOCK PRICE TO FLUCTUATE.
Our revenue and results of operations have fluctuated significantly in the
past and could fluctuate significantly in the future due to a variety of
factors, many of which are outside of our control. Due to these factors, our
quarterly revenue and operating results are difficult to forecast accurately. It
is likely that in some future periods our results of operations will be below
the expectations of financial market analysts and investors, which could cause
our stock price to decline. We believe period-to-period comparisons of our
operating results may not be meaningful and you should not rely upon them as a
reliable indication of future performance. For a more detailed description of
possible factors that could result in fluctuations in our results of operations,
see "Management's Discussion and Analysis of Financial Conditions and Results of
Operations -- Quarterly Results of Operations".
OUR QUARTERLY RESULTS OFTEN DEPEND ON A SMALL NUMBER OF LARGE ORDERS, AND OUR
REVENUE AND OPERATING RESULTS COULD BE LOWER THAN EXPECTED IF WE ARE UNABLE TO
COMPLETE ONE OR MORE SUBSTANTIAL SALES IN A PARTICULAR QUARTER.
We anticipate that a significant portion of our revenue in each quarter
will be derived from a limited number of orders. Individual purchase orders have
been as large as $1.5 million and could be larger in the future. We expect the
timing of receipt and fulfillment of large orders will cause our quarterly
operating results to fluctuate. Our three largest customers accounted for 96% of
our total revenue in 1998 and 45% of our total revenue in 1999.
EXISTING AND POTENTIAL COMPETITORS COULD MAKE IT MORE DIFFICULT FOR US TO
ACQUIRE AND RETAIN CUSTOMERS.
The market for online business-to-business applications is rapidly evolving
and intensely competitive. Our customers' requirements and the technology
available to satisfy those requirements continually change. We expect
competition in this market to increase in the future. Our primary competition
includes:
- in-house development by prospective customers or partners, which may be
encouraged by providers of single-purpose products;
6
<PAGE> 9
- other vendors of applications software or applications development
platforms and tools directed at interactive commerce, such as Art
Technology Group, BroadVision and Vignette;
- portal solution providers such as Plumtree Software;
- marketing solutions providers such as ChannelWave and MarketSoft; and
- Web site developers that develop custom software or integrate other
application software into custom solutions.
In addition, companies that produce software products with broad market
penetration, such as IBM, Microsoft and Oracle, could enter the market for
online business-to-business applications by bundling their products to create a
product that is competitive with ours, which could discourage users from
purchasing our products. Compared to us, many of these and other existing and
potential competitors have longer operating histories and significantly greater
financial, technical, marketing and other resources. As a result, they may be
able to respond more quickly to new opportunities, technologies and customer
requirements. Many existing and potential competitors may also use their greater
name recognition and more extensive customer base to gain market share at our
expense. Competitors may be able to undertake more extensive promotional
activities, adopt more aggressive pricing policies and offer more attractive
terms to purchasers than we can, which may adversely affect the pricing of our
products and could cause our revenue to decline. In addition, some of our
competitors have established or may establish cooperative relationships among
themselves or with others to sell, distribute or enhance their products.
Accordingly, it is possible that new competitors or alliances among competitors
may emerge and rapidly acquire significant market share. Competitive pressures
may make it difficult for us to acquire and retain customers, and it may require
us to reduce the price of our products which in turn could reduce our revenue.
OUR REPUTATION AND REVENUE WOULD BE HARMED IF WE EXPERIENCE ANY IMPLEMENTATION
DIFFICULTIES OR OTHER PROBLEMS WITH OUR WEBRIDGE PRIVATE EXCHANGE APPLICATION
PRODUCTS AND ASSOCIATED SERVICES.
To date, all of our revenue has been attributable to sales of our Webridge
Private Exchange application products and associated services. We expect these
products and services to account for most of our future revenue. If any of our
customers are unable to successfully develop and deploy their online
business-to-business initiatives using our Webridge Private Exchange application
product, our reputation could be damaged, which would harm our business.
WE EXPECT TO SUBSTANTIALLY EXPAND OUR BUSINESS AND OPERATIONS, AND OUR BUSINESS
WILL BE HARMED IF WE ARE UNABLE TO EFFECTIVELY MANAGE AND SUPPORT THIS
EXPANSION.
We have substantially expanded our business and operations since our
inception in 1996. We expect to continue to experience periods of rapid change
and growth. Our past expansion has placed, and any future expansion would place,
significant demands on our managerial, administrative, operational, financial
and other resources. If we are unable to support this growth effectively, we
will need to divert resources from expanding our business and toward operational
systems, procedures and controls. We expect operating expenses and staffing
levels to increase substantially in the future. In particular, we intend to
continue hiring a significant number of employees this year and in later years.
We also expect to expend resources on expanding accounting and internal
management systems and implementing a variety of new systems and procedures. If
our revenue does not increase in proportion to our operating expenses, our
management systems do not expand to meet increasing demands or our management
otherwise fails to support our expansion effectively, our business will be
harmed.
7
<PAGE> 10
OUR EXECUTIVE OFFICERS AND KEY EMPLOYEES ARE CRITICAL TO OUR BUSINESS, BUT THEY
MAY NOT REMAIN WITH US IN THE FUTURE, AND WE MAY NOT BE ABLE TO RECRUIT AND
RETAIN QUALIFIED EMPLOYEES NECESSARY FOR OUR GROWTH.
Our performance substantially depends on the performance of our executive
officers and key employees, particularly Gary Fielland, our Chief Executive
Officer, and Mark Anastas, our Chief Operating Officer. We rely on our ability
to attract, retain and motivate highly qualified personnel, especially our
management and highly skilled development teams. The loss of the services of any
of our executive officers or key employees could cause us to incur increased
operating expenses and divert senior management resources to search for
replacements. The loss of their services could also harm our reputation if our
customers become concerned about our future operations as the result of employee
departures. We do not have key person life insurance policies on any of our
employees. Our future success also depends on our ability to identify, hire,
train and retain additional highly qualified technical and managerial personnel.
Competition for these personnel is especially intense in the software industry.
We have experienced difficulty hiring and retaining sufficient numbers of highly
skilled employees and we expect this difficulty to continue. If we fail to
recruit and retain sufficient qualified employees our business will be harmed.
IF WE FAIL TO EXPAND OUR DIRECT SALES FORCE AND BUSINESS RELATIONSHIPS, OUR
REVENUE GROWTH AND BUSINESS MAY BE HARMED.
If we fail to expand our direct sales force or business relationships, our
revenue may not grow or it may decline and as a result our business will be
seriously harmed. To date, we have sold our products primarily through our
direct sales force. Our ability to achieve significant revenue growth will
largely depend on our success recruiting and training sufficient direct sales
personnel and establishing and maintaining relationships with consultants and
third-party integration service providers. Our products and services require a
sophisticated sales effort targeted at the senior management of our prospective
customers. New hires require training and take time to achieve full
productivity. Our recent hires may not become as productive as necessary, and we
may be unable to hire sufficient numbers of qualified individuals in the future.
We have business relationships with third-party integration service providers
and Internet consulting companies. These companies have provided us with sales
leads and increased the market acceptance of our products. We do not assure you
that these companies will continue to refer sales prospects to us or look at our
products favorably or that these relationships will continue.
IF WE ARE UNABLE TO TRAIN A SUFFICIENT NUMBER OF THIRD-PARTY INTEGRATION SERVICE
PROVIDERS OR IF OUR PRODUCTS FALL OUT OF FAVOR WITH THESE INTEGRATORS, OUR
BUSINESS COULD BE HARMED.
In many cases, we rely on third-party integration service providers to help
deploy and maintain our products. If we are unable to adequately train a
sufficient number of third-party integration service providers or if for any
reason a large number of these integrators adopt a different product or
technology instead of our Webridge Private Exchange application products, our
business could be seriously harmed.
WE HAD AN ACCUMULATED DEFICIT OF $23.7 MILLION AS OF JUNE 30, 2000, AND WE
EXPECT TO INCUR OPERATING LOSSES FOR THE FORESEEABLE FUTURE.
If our revenue fails to grow at anticipated rates or our operating expenses
increase without a commensurate increase in our revenue, our business and
financial condition will be harmed. We have had substantial losses since our
inception and our operating losses may continue and even increase in the future.
We expect our operating expenses to increase significantly, especially in the
areas of sales, marketing, research and development and recruiting, and, as a
result, we will need to generate increased revenue to become profitable.
Accordingly, we may never become profitable. The growth rates we have
experienced in recent periods may not continue.
8
<PAGE> 11
OUR PRODUCTS ARE NOT COMPATIBLE WITH MANY EXISTING MAJOR PLATFORMS, WHICH WILL
LIMIT OUR REVENUE.
Our products now operate only on the Microsoft Windows NT and Windows 2000
operating systems. We must continually modify and enhance our products to keep
pace with changes in these operating systems. Most businesses do not use the
Windows NT and Windows 2000 operating systems and therefore are not potential
customers for our products. If our products are incompatible with a new
operating system or Internet business application that becomes widely accepted,
or if the Microsoft Windows NT and Windows 2000 operating systems become less
popular, our business would be harmed. In addition, uncertainties related to the
timing and nature of new product announcements, introductions or modifications
by vendors of operating systems, browsers, back-office applications, and other
Internet-related applications, could also seriously harm our business.
THE MARKET FOR THE WINDOWS NT OPERATING SYSTEM OR ITS SUCCESSOR VERSION, WINDOWS
2000, MAY FAIL TO DEVELOP FULLY, DEVELOP MORE SLOWLY THAN WE EXPECT OR OTHERWISE
BE HARMED.
Windows NT and its successor version, Windows 2000, are two of several
operating systems developed for computers, and their future acceptance is
uncertain. Because all of our revenue has been from products and services
dependent on the Windows NT operating system, if the market for Windows NT or
Windows 2000 fails to develop fully or develops more slowly than we expect, our
business and operating results will be seriously harmed. Market acceptance of
Windows NT and Windows 2000 will depend on many factors, all of which are beyond
our control. If Windows NT and Windows 2000 do not gain wide market acceptance
for any reason, potential customers could select competing operating systems,
which would reduce the demand for our products and services.
Our products use the Microsoft Windows NT and Windows 2000 operating
systems and related software as a platform and interact with it during
operation. If Microsoft discontinues production or support of any of these
programs, it would cause significant delays in deployment of our products and in
introduction of new products and services until equivalent technology, if
available, is identified and integrated. Delays in deploying products or in
introducing new products and services could seriously harm our business.
MICROSOFT IS ENGAGED IN LITIGATION WITH THE UNITED STATES GOVERNMENT, THE
EUROPEAN COMMISSION AND SUN MICROSYSTEMS, AND RULINGS IN ANY OF THOSE CASES
ADVERSE TO MICROSOFT COULD SERIOUSLY HARM OUR BUSINESS.
The United States government in conjunction with 19 states has sued
Microsoft for alleged violations of anti-trust laws. The trial court has ruled
that Microsoft violated anti-trust laws and is to be divided into multiple
entities. Microsoft has appealed this ruling. The European Commission has also
filed suit against Microsoft alleging that it abused its dominant market
position in PC operating systems software in the European Community. If as a
result of these lawsuits businesses are less willing to purchase the Windows NT
operating system, Microsoft is prohibited from shipping its Internet Explorer
product or Microsoft delays releasing new products, for some of which we have
already created new applications, our business and operating results will be
seriously harmed.
Microsoft is engaged in litigation with Sun Microsystems relating to
Microsoft's rights with respect to the Java programming language. We use the
version of Java copyrighted by Microsoft. If Sun prevails, we may need to obtain
the right to use Java from Sun or another vendor. This right might not be
available to us on reasonable terms or at all. The loss of our ability to use
Java could cause delays in introducing our products and services until
replacement language, if available, is identified, licensed, if necessary, and
integrated, which could seriously harm our business.
IF WE DO NOT MAINTAIN OUR RELATIONSHIP WITH MICROSOFT, WE WILL HAVE DIFFICULTY
MARKETING OR PRODUCING OUR SOFTWARE PRODUCTS AND SERVICES AND MAY NOT RECEIVE
DEVELOPER RELEASES OF WINDOWS NT AND WINDOWS 2000, WHICH WILL SERIOUSLY HARM OUR
BUSINESS.
We work closely with Microsoft on joint marketing efforts to promote the
benefits of the Windows NT and Windows 2000 operating systems for
Internet-related functions. If our relationship with Microsoft
9
<PAGE> 12
deteriorates, our efforts to market and sell our products and services could be
adversely affected and our business would be seriously harmed. Microsoft has
great influence over the development plans and buying decisions of businesses
using Windows NT and Windows 2000 for their computers. Some of our customers are
referred to us by Microsoft and we expect this referral source to increase in
the future. Microsoft has no obligation to refer customers to us or to undertake
joint marketing efforts with us. Moreover, Microsoft controls the marketing
campaigns related to Windows NT and Windows 2000. Microsoft's marketing
activities, including trade shows, direct mail campaigns and print advertising,
are important to the continued promotion and market acceptance of Windows NT and
Windows 2000 and, consequently, of our software products and services. We must
maintain a satisfactory relationship with Microsoft, including participating
with Microsoft at trade shows and listing our services on Microsoft's Website,
to receive referrals from Microsoft. If we are unable to continue our joint
marketing efforts with Microsoft or fail to receive referrals from Microsoft, we
could be required to devote substantial additional resources and incur
additional expenses to market our software products and services directly to
potential customers. Furthermore, Microsoft may refer potential customers to our
competitors or otherwise support products and services that compete with our
own.
In addition, we depend on receiving from Microsoft developer releases of
new versions of, and upgrades to, Windows NT, Windows 2000 and related Microsoft
software in order to timely develop and deploy our products and provide
services. If we are unable to receive these developer releases, our business
will be seriously harmed.
THE MARKET FOR OUR PRODUCTS AND SERVICES IS NEW AND MAY NOT CONTINUE TO DEVELOP
OR BE SUSTAINED.
Our products and services facilitate online commerce and communication over
public and private networks. The market for packaged online business-to-business
enterprise commerce applications and related services is new and rapidly
evolving, and a viable market may fail to emerge or be sustainable. It is
difficult to accurately predict the level of demand and market acceptance for
our products and services, especially because the deployment of our products and
services requires a significant commitment of capital, technology, human and
other resources from customers.
Adoption of online business-to-business enterprise commerce applications,
particularly by parties that have previously relied on traditional means of
commerce and communication, will require a broad acceptance of new methods of
conducting business and exchanging information. Our future revenue and profits
will substantially depend on the acceptance and wide use of the Internet for
commerce and communication. Furthermore, the Internet and the market for our
products may develop more slowly than expected because of inadequate development
of communication, network and other necessary infrastructure. If online
business-to-business enterprise commerce does not continue to grow or grows more
slowly than expected, our business will be seriously harmed.
OUR LENGTHY SALES AND PRODUCT IMPLEMENTATION CYCLES AFFECT OUR REVENUE
RECOGNITION AND MAKE IT DIFFICULT TO ACCURATELY FORECAST OUR QUARTERLY RESULTS.
Our lengthy sales and product implementation cycles are subject to delays
over which we have little control. These delays will affect the timing of
revenue recognition and make it difficult to accurately forecast our quarterly
results. Licensing our Webridge Private Exchange application products is often a
company-wide decision by prospective customers that results in a lengthy sales
cycle. During the sales process, we educate our customers about the uses and
benefits of our products and services. Once the decision has been made to choose
our products and services, our customers must commit significant resources over
an extended period of time to develop content for the Website and to learn how
to operate our software. We generally recognize the revenue related to the sale
of our products upon the customer's deployment of our products. Delays in
license transactions due to unusually lengthy sales cycles, delays in customer
preparation or delays in deploying our products could harm our business and may
cause our operating results to vary significantly from quarter to quarter.
10
<PAGE> 13
OUR COMPLEX PRODUCTS MAY BE ESPECIALLY SUSCEPTIBLE TO PRODUCT DEFECTS THAT COULD
HARM OUR REPUTATION AND REVENUE.
Complex software products like ours may contain undetected errors that will
not become apparent until after the products are introduced or when the volume
of provided services increases. Product defects could result in all or any of
the following consequences, which individually or together could seriously harm
our business:
- loss of revenue;
- delay in market acceptance;
- diversion of development resources;
- damage to our reputation;
- increased service and warranty costs; and
- loss of customers and market share to our competitors.
In addition, defects, like any other problem with our products, could
damage our reputation. Because our reputation is important to our success, any
damage to our reputation could seriously harm our business.
A BREACH OF THE SECURITY TECHNOLOGY THAT WE USE COULD EXPOSE US TO LIABILITY,
HARM OUR REPUTATION OR OTHERWISE SERIOUSLY HARM OUR BUSINESS.
If any breach of the security features of our products or products that we
use as a platform occurs, we could be exposed to liability, and our reputation
and business could be seriously harmed. Advances in computer capabilities, new
discoveries in cryptography or other events or developments could cause a breach
of these security features.
OUR SUCCESS AND COMPETITIVE POSITION DEPENDS ON OUR ABILITY TO PROTECT OUR
PROPRIETARY TECHNOLOGY, WHICH MAY NOT BE POSSIBLE.
We do not have any patents or patent applications pending. Existing
intellectual property laws afford us only limited protection against
infringement or misappropriation of our technology. Others may attempt to
disclose, obtain, misappropriate, copy or use our solutions or technologies.
This is particularly true in foreign countries where laws or law enforcement
practices may not protect our proprietary rights as fully as in the United
States. Policing unauthorized use of our products is difficult, particularly
because the global nature of the Internet makes it difficult to control the
ultimate destination or security of software and other transmitted data. Others
may independently develop and obtain patents or copyrights for technologies that
are similar or superior to our technologies. If that happens, we may need or
want to license these technologies and we may not be able to obtain licenses on
reasonable terms, if at all.
The steps we have taken to prevent misappropriation of our technology,
including entering into agreements for that purpose, may be insufficient. In
addition, litigation may be necessary in the future to enforce our intellectual
property rights, to protect our trade secrets, to determine the validity and
scope of the proprietary rights of others or to defend against claims of
infringement or invalidity. We may not prevail in an action to protect our
intellectual property rights. Litigation like this, even if we prevail, could
result in substantial costs and diversions of our management resources, either
of which could seriously harm our business.
WE MAY BE SUBJECT TO CLAIMS OF INTELLECTUAL PROPERTY INFRINGEMENT, WHICH COULD
DIVERT MANAGEMENT RESOURCES AND HARM OUR REPUTATION.
Issues relating to ownership of and rights to use intellectual property can
be complicated. In recent years there has been significant litigation in the
United States regarding intellectual property rights. We may become involved in
disputes that affect our ability to resell or use intellectual property. Others
may
11
<PAGE> 14
claim that we have infringed their patent, trademark, copyright or other
proprietary rights. It is also possible that claims will be made for
indemnification resulting from allegations of infringement. Claims like these
could divert management attention, affect our reputation and otherwise seriously
harm our business. In addition, intellectual property claims may be asserted
against us as a result of the use by us, our customers or others of our products
for the transmission, dissemination or display of information on the Internet.
Any claims, with or without merit, could be time consuming and costly, delay
product shipments or require that we enter into royalty or licensing agreements.
As a result, an infringement claim could seriously harm our business. If we are
unsuccessful in any future intellectual property litigation, we may be forced to
do one or more of the following which could, individually or together, seriously
harm our business:
- stop selling or using technology or services that incorporate the
challenged intellectual property;
- obtain a license to use the relevant technology, which may not be
available on reasonable terms or at all;
- configure products and services or develop new technology to avoid
infringement;
- refund license fees or other payments that we have previously received;
and
- pay damages in these disputes.
IF OUR SYSTEMS AND THE SYSTEMS OF OUR KEY PARTNERS AND CUSTOMERS ARE NOT YEAR
2000 COMPLIANT, WE COULD INCUR INCREASED COSTS, DELAY OR LOSS OF REVENUE,
DIVERSION OF DEVELOPMENT RESOURCES OR DAMAGE TO OUR REPUTATION.
Computer systems problems relating to the year 2000 may still be discovered
months after January 1, 2000. Our products are generally integrated into
computer systems involving sophisticated hardware and complex software products,
which may not be Year 2000 compliant. The failure of our customers' systems to
be Year 2000 compliant and the related problems that may be discovered in early
2000 could impede the success of applications that we or our partners have
developed for them. Accordingly, known or unknown defects that affect the
operation of our software, including any defects or errors in our product
applications or systems that implement our products, could result in delay or
loss of revenue, diversion of development resources, damage to our reputation,
or increased service or warranty costs and litigation costs.
TO REMAIN COMPETITIVE, WE WILL NEED ADDITIONAL FINANCING, WHICH MAY NOT BE
AVAILABLE ON SATISFACTORY TERMS OR AT ALL.
We expect the net proceeds from this offering, together with existing cash
and available borrowings under our credit facilities, will be sufficient for us
to meet our working capital and capital expenditure requirements for at least
the next 12 months. We may, however, need additional financing sooner if we:
- fail to achieve our projected revenue levels;
- expand faster than planned;
- develop services or products ahead of schedule;
- need to respond to competition; or
- decide to acquire complementary products, businesses or technologies.
If we raise additional funds through the sale of equity or convertible debt
securities, your percentage ownership will be reduced. In addition, these
transactions may dilute the value of our common stock. We may issue securities
with rights, preferences and privileges senior to our common stock. We may not
be able to raise additional funds on terms satisfactory to us or at all.
12
<PAGE> 15
WE HAVE NO SIGNIFICANT EXPERIENCE OPERATING INTERNATIONALLY, WHICH MAY MAKE IT
DIFFICULT AND COSTLY TO EXPAND OVERSEAS.
To date, we have derived most of our revenue from sales to customers in the
United States. We recently opened one office in Europe and one office in Japan
and we plan to expand our international operations. There are many barriers to
competing successfully internationally, including:
- costs of customizing products for use in foreign countries;
- difficulties staffing and managing foreign operations;
- fluctuations in currency exchange rates;
- varying technology standards and capabilities;
- insufficient or unreliable telecommunications infrastructure and Internet
access; and
- import and export restrictions and tariffs.
As a result of these factors, we may not be able to profitably market, sell
and deliver our products and services in international markets.
RISKS RELATED TO THE INTERNET INDUSTRY
IF WE ARE UNABLE TO MEET THE RAPID TECHNOLOGICAL CHANGES IN ONLINE COMMERCE AND
COMMUNICATION, OUR EXISTING PRODUCTS AND SERVICES COULD BECOME OBSOLETE.
Our products and services may fail to be competitive if we do not match the
pace of technological developments in Internet commerce and communication. The
information services, software and communications industries are characterized
by rapid technological change, changes in customer requirements, frequent new
product and service introductions and enhancements, and evolving industry
standards and practices. The introduction of products and services embodying new
technologies and the emergence of new industry standards and practices can
render our existing products and services obsolete. Our future success will
depend, in part, on our ability to:
- develop leading technologies;
- enhance our existing products and services;
- develop new products and services that address the increasingly
sophisticated and varied needs of our prospective customers; and
- respond to technological advances and emerging industry standards and
practices on a timely and cost-effective basis.
Internet commerce technology is complex and new products and enhancements
can require long development periods. If we are unable to develop and introduce
new products and services or enhancements in a timely manner in response to
changing market conditions or customer requirements, or if new products and
services do not achieve market acceptance, our business will be seriously
harmed.
NEW AND EXISTING LAWS COULD EITHER DIRECTLY RESTRICT OUR BUSINESS OR INDIRECTLY
AFFECT OUR BUSINESS BY LIMITING THE GROWTH OF INTERNET COMMERCE.
The adoption of laws or regulations that restrict our methods of doing
business or limit the growth of the Internet could decrease demand for our
products and services and increase our cost of doing business. There are now
relatively few laws specifically directed towards online services, and it may
take years to
13
<PAGE> 16
determine whether and how existing laws, such as those governing intellectual
property, privacy, libel, consumer protection and taxation, apply to the
Internet. Due to the increasing popularity of the Internet generally and
Internet commerce specifically, we expect that federal, state or foreign
agencies will enact laws and regulations with respect to the Internet. These new
laws and regulations may address issues like online user privacy, pricing,
taxation, content and quality of products and services. If enacted, these laws
and regulations could prohibit different aspects of our business, increase our
costs and administrative burdens and limit the market for our products and
services or those of our customers, which could seriously harm our business. For
example, because our products involve the solicitation of personal data
regarding individual consumers, our business could be limited by laws regulating
the solicitation, collection or processing of this data. The Telecommunications
Act of 1996 prohibits the transmission of some types of information and content
over the Internet. The scope of the prohibition and the liability associated
with a Telecommunications Act violation are unsettled. Legislation imposing
potential liability upon us for information carried on or disseminated through
our products could cause us to implement costly measures to reduce our exposure
to this liability or to discontinue certain services. Our business could be
harmed by the expense involved in reacting to actual or potential liability
associated with the Telecommunications Act or other Internet-related laws and
regulations. In addition, the increased attention focused upon liability issues
as a result of the Telecommunications Act could limit the growth of Internet
commerce, which could decrease demand for our products.
LIMITATIONS ON THE ONLINE COLLECTION OF PROFILE INFORMATION COULD HARM THE
MARKET FOR OUR PRODUCTS.
The reluctance of online users to provide personal data and laws and
regulations prohibiting use of personal data gathered online, without express
consent or notification of the possible dissemination of their personal data,
could limit the effectiveness of our products. One of the principal features of
our Webridge Private Exchange application products is the ability to develop and
maintain profiles of online users to assist business managers in determining the
nature of the content to be provided to these online users. Profile information
is often captured when consumers, business customers and employees visit a Web
site and volunteer information in response to survey questions concerning their
backgrounds, interests and preferences. Profiles are augmented over time through
the subsequent collection of usage data. Some of our prospective customers may
have adopted or participate in voluntary online marketing guidelines that
discourage use of profiling techniques and personal information for marketing
purposes without the express consent of online users. Moreover, the perception
by prospective customers that substantial security and privacy concerns exist
among online users, whether or not valid, may inhibit market acceptance of our
products. In addition, new laws and regulations could limit the use of profiling
and sharing of personal data with others by requiring businesses to notify Web
site users that the data captured from them while online may be used by
marketing entities to direct product messages to them. In some cases, those new
laws may even require businesses to obtain the express permission of online
users to collect, store and use the profile or personal data. Recent federal
legislation and regulations already impose such limits on the data obtained from
children under the age of 13. Many bills have been introduced in the United
States Congress and state legislatures intended to impose limits on the use of
personal information about all online users. Other countries and economic trade
areas, including the European Union and its member states, have adopted legal
restrictions on the collection, use and processing of personal data. While
similar legal requirements have been adopted in some states, we do not believe
that they will materially harm our business. It is also possible that similar
laws could be adopted in the United States on the federal level. If these
restrictions on the use of personal data become federal law in the United States
or if the privacy concerns of online users are not adequately addressed, the
market for our Webridge Private Exchange application products could be harmed.
14
<PAGE> 17
RISKS RELATED TO THIS OFFERING
WE EXPECT THE MARKET PRICE OF OUR COMMON STOCK TO BE VOLATILE, AND IT MAY DROP
UNEXPECTEDLY.
The initial public offering price will be determined through negotiations
between us and the representatives of the underwriters based on factors that may
not be indicative of future market performance. The initial public offering
price may be higher than the price at which the common stock will trade on
completion of this offering. An active public market for our common stock may
not develop or be sustained after this offering.
The market price of our common stock is likely to be highly volatile
following this offering and could be subject to wide fluctuations in response to
quarterly variations in operating results, announcements of new products or
services by us or our competitors, market conditions affecting Internet
companies generally, changes in financial estimates by securities analysts or
other events or factors, many of which are beyond our control.
The stock market and specifically the stock prices of Internet related
companies have been very volatile. This volatility is often not related to the
operating performance of these companies. This broad market and industry
volatility may reduce or increase the price of our common stock, without regard
to our operating performance. Due to this volatility, the market price of our
common stock could significantly decrease.
In the past, securities class action litigation has often been brought
against a company following periods of volatility in the market price of its
securities. We may in the future be the target of similar litigation. Securities
litigation could result in substantial costs and divert management's attention
and resources, which could seriously harm our business and the market price of
our common stock.
THE FUTURE SALE OF SUBSTANTIAL AMOUNTS OF OUR COMMON STOCK BY STOCKHOLDERS MAY
NEGATIVELY AFFECT OUR STOCK PRICE.
The price of our common stock could decline as a result of sales by our
existing stockholders of shares of common stock in the market after this
offering, or the perception that these sales could occur. In addition, we have a
significant number of shares that are subject to outstanding options and
warrants as well as shares subject to lock-up agreements with FleetBoston
Robertson Stephens Inc. prohibiting the sale of the shares for 180 days
following the date of this prospectus. The exercise of these options and
warrants or the early release of shares from the lock-up agreements and the
subsequent sale of the underlying common stock could cause a decline in our
stock price. These sales also might make it difficult for us to sell equity
securities in the future at a time and at a price that we believe appropriate.
For a more detailed description of the number of shares that may be sold
following this offering, see "Shares Eligible for Future Sale."
ANY PREFERRED STOCK ISSUED IN THE FUTURE WILL HAVE RIGHTS SUPERIOR TO THE RIGHTS
OF OUR COMMON STOCK.
Following this offering, our board of directors will have the authority to
issue up to 50 million shares of preferred stock and to determine the price,
voting power, preferences and other terms of the shares. The board of directors
may exercise this authority without any further approval by the stockholders.
The rights of the holders of common stock may be adversely affected by the
rights of the holders of any preferred stock that may be issued in the future.
BECAUSE WE ARE UNABLE TO IDENTIFY THE SPECIFIC USES FOR THE NET PROCEEDS OF THIS
OFFERING, YOU WILL BE RELYING ON THE JUDGMENT OF OUR MANAGEMENT REGARDING THE
APPLICATION OF THE PROCEEDS.
We have not identified any specific use for the net proceeds of this
offering. Rather, we expect to use the net proceeds for general corporate
purposes, including working capital. Consequently, our management
15
<PAGE> 18
will have significant flexibility in applying the net proceeds of this offering.
You will be relying on the judgment of our management regarding the application
of the proceeds.
BECAUSE OUR EXECUTIVE OFFICERS AND DIRECTORS OWN A SIGNIFICANT PERCENTAGE OF OUR
COMMON STOCK, THEY WILL BE ABLE TO EXERCISE SIGNIFICANT INFLUENCE OVER US.
Upon completion of this offering, our directors and executive officers and
their affiliates will beneficially own approximately 39.3% of the outstanding
common stock. As a result, if these stockholders act together, they will be able
to exercise significant influence over all matters requiring stockholder
approval, including the election of directors and approval of significant
corporate transactions like mergers and other business combinations. This
concentration of ownership may also have the effect of delaying or preventing a
change in control of us unless it is supported by our directors and executive
officers.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS; MARKET DATA
This prospectus contains forward-looking statements that are subject to
risks and uncertainties. Discussions containing forward-looking statements may
be found in the material set forth under "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Business" as well as
elsewhere in the prospectus. We generally use words such as "believes,"
"intends," "expects," "anticipates," "plans," and similar expressions to
identify forward-looking statements. This prospectus also contains estimates by
others regarding the size and growth of the Internet professional services
market and Internet usage in general. You should not place undue reliance on
these forward-looking statements. Our actual results could differ materially and
adversely from those anticipated in the forward-looking statements for many
reasons, including the risk factors described above and elsewhere in this
prospectus.
Although we believe the expectations reflected in the forward-looking
statements are reasonable, they relate only to events as of the date on which
the statements are made, and our future results, levels of activity, performance
or achievements may not meet these expectations.
This prospectus contains data related to the commerce over the Internet,
commonly referred to as e-commerce or eCommerce, economic sector and the
Internet professional services industry. These market data have been included in
studies published by the market research firms International Data Corporation
and Forrester Research. These data include projections that are based on a
number of assumptions, including increasing worldwide business use of the
Internet, the growth in the number of Web access devices per user, the absence
of any failure of the Internet and the continued improvement of security on the
Internet. If any of these assumptions is incorrect, actual results may differ
from the projections based on those assumptions and these markets may not grow
at the rates projected by these data, or at all, or these markets may decline.
The failure of these markets to grow at these projected rates may have a
material adverse effect on our business and the market price of our common
stock.
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<PAGE> 19
USE OF PROCEEDS
We estimate that we will receive net proceeds from this offering of
approximately $44.9 million, or approximately $51.8 million if the underwriters'
overallotment option is exercised in full, after deducting the estimated
underwriting discounts and commissions and offering expenses payable by us.
These estimates are based on an initial public offering price of $9.00 a share.
We expect to use the net proceeds from this offering for working capital
and other general corporate purposes, including sales and marketing activities
in the United States, Europe and Asia, product development and support, and
hiring of additional personnel. We have, however, no specific quantifiable plan
for allocation of the proceeds. In addition, although we have no understandings,
commitments or agreements concerning any acquisition or investment, we might use
a portion of the remaining proceeds to acquire or invest in companies,
technology, services or products that complement our business. Before we use the
net proceeds of this offering, we intend to invest them in short-term,
interest-bearing, investment grade securities.
The principal purposes of this offering are to obtain additional capital,
to create a public market for our common stock and to facilitate future access
to public equity markets.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock and
we do not anticipate paying cash dividends. We intend to retain earnings, if
any, to fund the development and growth of our business.
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<PAGE> 20
CAPITALIZATION
The following table sets forth, as of June 30, 2000, our cash and cash
equivalents and our capitalization on an actual basis and as adjusted to give
effect to the automatic conversion of all of our outstanding preferred stock
into common stock upon the completion of this offering and the sale by us of
5,500,000 shares of common stock offered at an assumed initial public offering
price of $9.00 per share, after deducting underwriting discounts and commissions
and the estimated offering expenses payable by us. This information should be
read in conjunction with our consolidated financial statements and related notes
appearing elsewhere in this prospectus.
The shares issued and outstanding do not include 1,513,498 shares issuable
on the exercise of outstanding options at a weighted-average exercise price of
$2.40 as of June 30, 2000 and an outstanding warrant to purchase shares of
convertible preferred stock at an exercise price of $4.24 at June 30, 2000
convertible into 1,571 shares of common stock.
<TABLE>
<CAPTION>
JUNE 30, 2000
-----------------------
ACTUAL AS ADJUSTED
-------- -----------
<S> <C> <C>
Cash and cash equivalents................................... $ 15,405 $ 60,315
======== ========
Long-term debt and capital lease obligations, net of current
portion................................................... $ 238 $ 238
Stockholders' equity:
Convertible preferred stock, 17,844,000 shares authorized,
17,745,556 issued and outstanding, actual, that will be
converted into 11,828,816 shares of common stock upon
completion of this offering; no shares issued or
outstanding, as adjusted............................... 18 --
Common stock, 50,000,000 shares authorized, 9,744,655
issued and outstanding, actual; 27,073,471 shares
issued and outstanding, as adjusted.................... 14 38
Additional paid-in capital................................ 44,492 89,396
Deferred stock-based compensation......................... (2,947) (2,947)
Accumulated other comprehensive income.................... (8) (8)
Accumulated deficit....................................... (23,685) (23,685)
-------- --------
Total stockholders' equity........................ 17,884 62,794
-------- --------
Total capitalization.............................. $ 18,122 63,032
======== ========
</TABLE>
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<PAGE> 21
DILUTION
Our pro forma net tangible book value as of June 30, 2000 was $17,884,000,
or $0.83 per share of common stock, after giving effect to the automatic
conversion of all of our outstanding preferred stock into 11,828,816 shares of
common stock upon the completion of this offering. Pro forma net tangible book
value per share is determined by dividing our pro forma tangible net worth by
the pro forma number of shares of common stock outstanding. Assuming our sale of
5,500,000 shares of common stock, and after deducting underwriting discounts and
commissions and the estimated offering expenses payable by us, our pro forma net
tangible book value as of June 30, 2000 would have been $62.8 million, or $2.32
per share. This represents an immediate increase in pro forma net tangible book
value of $1.49 per share to existing stockholders and an immediate dilution of
$6.68 per share to investors purchasing shares in this offering. The following
table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $9.00
Pro forma net tangible book value per share as of June 30,
2000...................................................... $0.83
Increase attributable to this offering...................... 1.49
-----
Pro forma net tangible book value per share after this
offering.................................................. 2.32
-----
Dilution to new investors................................... $6.68
=====
</TABLE>
The following table summarizes, as of June 30, 2000 on the pro forma basis
described above, the total number of shares of common stock purchased from us,
the total consideration paid and the average price paid per share by the
existing stockholders and by the new investors based on an assumed initial
public offering price of $9.00 per share before deducting the estimated
underwriting discounts and commissions and offering expenses payable by us.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.................. 21,573,471 79.7% $39,946,967 44.7% $1.85
New investors.......................... 5,500,000 20.3 49,500,000 55.3 9.00
---------- ---- ----------- ----
Total........................ 27,073,471 100% $89,446,967 100%
========== ==== =========== ====
</TABLE>
The tables and calculations above assume no exercise of any stock options
and warrants after June 30, 2000. The foregoing discussion and table excludes:
- 1,513,498 shares issuable on the exercise of outstanding options at a
weighted-average exercise price of $2.40;
- 1,635,372 shares of common stock available for issuance under our stock
incentive plans and our stock purchase plan;
- 2,356 shares of convertible preferred stock subject to a warrant
outstanding as of June 30, 2000 at an exercise price of $4.24 per share
convertible into 1,571 shares of common stock; and
- 825,000 shares issuable upon exercise of the underwriters' over-allotment
option.
If exercisable options to purchase 66,712 shares of common stock and the
warrant had been exercised as of June 30, 2000, our pro forma net tangible book
value per share as of that date would have been $0.83 and dilution to new
investors would have been $6.68 per share.
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<PAGE> 22
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and notes that are
included in this prospectus. The following information has been derived from the
audited consolidated financial statements included elsewhere in this prospectus:
- Consolidated statements of operations data for each of the years in the
three-year period ended December 31, 1999; and
- Consolidated balance sheet data as of December 31, 1998 and 1999.
The following information has been derived from audited consolidated
financial statements that do not appear in this prospectus:
- Consolidated statement of operations data for the period from June 26,
1996 (inception) to December 31, 1996; and
- Consolidated balance sheet data as of December 31, 1996 and 1997.
The following information has been derived from the unaudited consolidated
financial statements included elsewhere in this prospectus:
- Consolidated statements of operations data for the six months ended June
30, 1999 and 2000; and
- Consolidated balance sheet data as of June 30, 2000.
Results of operations for the six months ended June 30, 2000 are not
necessarily indicative of the results that may be expected for the full fiscal
year or any future period.
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 26, 1996 SIX MONTHS ENDED
(INCEPTION) TO YEARS ENDED DECEMBER 31, JUNE 30,
DECEMBER 31, --------------------------- -----------------
1996 1997 1998 1999 1999 2000
-------------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS
DATA:
Revenue:
Product licenses................... $ -- $ -- $ 175 $ 1,879 $ 524 $ 3,226
Services........................... -- -- 148 2,568 348 2,789
----- ------- ------- ------- ------- -------
Total revenue................... -- -- 323 4,447 872 6,015
----- ------- ------- ------- ------- -------
Cost of revenue:
Cost of product licenses........... -- -- 9 -- -- 22
Cost of services................... -- -- 135 1,332 452 1,855
----- ------- ------- ------- ------- -------
Total cost of revenue........... -- -- 144 1,332 452 1,877
----- ------- ------- ------- ------- -------
Gross profit......................... -- -- 179 3,115 420 4,138
----- ------- ------- ------- ------- -------
Operating expenses:
Research and development........... 163 1,514 3,403 4,939 2,199 3,913
Sales and marketing................ -- 427 1,926 5,317 1,983 5,842
General and administrative......... 41 327 724 1,376 590 2,155
----- ------- ------- ------- ------- -------
Total operating expenses........ 204 2,268 6,053 11,632 4,772 11,910
----- ------- ------- ------- ------- -------
Loss from operations................. (204) (2,268) (5,874) (8,517) (4,352) (7,772)
Other income (expense), net.......... (5) 71 59 298 179 527
----- ------- ------- ------- ------- -------
Net loss............................. $(209) $(2,197) $(5,815) $(8,219) $(4,173) $(7,245)
===== ======= ======= ======= ======= =======
Basic and diluted net loss per
share.............................. $0.00 $ (2.30) $ (1.63) $ (1.45) $ (0.81) $ (0.99)
Shares used in computing basic and
diluted net loss per share......... 0 956 3,571 5,680 5,168 7,307
</TABLE>
20
<PAGE> 23
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1996 1997 1998 1999 JUNE 30, 2000
----- ------ ------ ------- -------------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents......................... $ 79 $4,995 $5,951 $22,214 $15,405
Working capital (deficit)......................... (233) 4,782 7,431 22,695 16,764
Total assets...................................... 108 5,276 8,721 27,400 24,055
Long-term debt and capital lease obligations, net
of current portion.............................. -- 38 252 16 238
Total stockholders' equity (deficit).............. (204) 5,025 7,621 23,254 17,884
</TABLE>
21
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements and related notes included in this prospectus.
OVERVIEW
We provide Web-based packaged application software for online
business-to-business enterprise commerce. We were incorporated in 1996 and were
a development stage company from incorporation through the first half of 1998.
We initially developed our Webridge Private Exchange Base Site for building
online applications, Webridge Studio-Site Designer for building page layouts and
Webridge Studio-Entity Manager for data modeling. These products were first
released in 1998. Following our first product release in 1998, we have developed
and released several versions of our products.
In 1999, we introduced three packaged applications: one for managing
partner relationships, one for knowledge management and one for online commerce.
In 1999 we also introduced four add-on application modules: Webridge Lead
Manager for automating sales lead management, Webridge Notification Manager for
outbound email and fax messaging, Webridge Configuration Manager, a rules-driven
application to reduce order errors, and Webridge Commerce Manager, a
comprehensive online order management and processing system. In 2000 we
introduced two additional add-on application modules: Webridge Event Manager for
group calendaring and scheduling and Webridge Discussion Manager for creating
secure discussion forums for group collaboration and knowledge sharing. We
expect to continue to develop additional online business applications. As of
June 30, 2000, we have licensed Webridge Private Exchange to 39 companies. To
date, all of our products and services have been sold through our domestic
direct sales force and are deployed by our professional services organization,
third-party integration service providers or a combination of both.
Our revenue is derived from the sale of perpetual and subscription-based
product licenses and from deployment, support, hosting and training services.
Our perpetual product license revenue is based on per-server license fees for
software and per-user license fees for authenticated users. Subscription-based
product licenses revenue is based on monthly or quarterly fees for time-based
contracts for the use of server software and authenticated user licenses.
Product licenses revenue is recognized when persuasive evidence of a
customer agreement exists, the product has been delivered, we have no remaining
significant implementation obligations, the license fee is fixed or determinable
and collection of the fee is probable. Subscription-based product licenses
revenue is recognized ratably over the period of the subscription contract,
typically two years.
Our professional services are comprised of deployment, hosting, support and
training services. Deployment services revenue is based on fees for
time-and-materials and fixed-price contracts for deployment, application
development, integration and software installation. Deployment services revenue
from time-and-material based contracts is recognized as the services are
performed. We recognize deployment services fees on fixed-price contracts when
specific contractual milestones are achieved, or based on an estimated
percentage of completion as work progresses. Our non-subscription customers
typically purchase annual support agreements for periodic product upgrades,
online support and phone support. For subscription-based customers, support
services are paid monthly or quarterly. Support revenue is recognized ratably
over the period of the contract, typically one year for non-subscription based
contracts and two years for subscription based contracts. Hosting services
include initial setup and ongoing operation of a server to host our software and
are based on monthly or quarterly fees. Revenue for hosting services, including
the initial set up fee, is recognized ratably over the period of the contract,
typically one year. We recognize billable amounts due from customers in excess
of revenue recognized as deferred revenue. The timing of customer billings can
vary significantly depending on specific contract terms and can therefore have a
significant impact on deferred revenue in any period.
22
<PAGE> 25
Cost of revenue consists of license fees necessary to manufacture our
products, as well as personnel and other expenses relating to professional
services. Since inception, we have incurred substantial research and development
costs and have invested heavily in the expansion of our sales, marketing and
professional services organizations to build an infrastructure to support our
long-term growth. As a result of investments in our infrastructure, we have
incurred net losses in each quarter since inception and, as of June 30, 2000,
had an accumulated deficit of $23.7 million. We anticipate that our operating
expenses will increase substantially for the foreseeable future as we expand our
product development, sales, marketing and professional services staff. In
addition, we expect to incur substantial expenses associated with development of
third-party-based integration service provider and joint marketing programs.
Accordingly, we expect to incur net losses for the foreseeable future.
As of June 30, 2000, we had recorded aggregate deferred stock-based
compensation of $3.7 million. Deferred stock-based compensation is amortized as
options become exercisable, generally over a period of four years. We amortized
deferred stock-based compensation of $279,000 in 1999 and $502,000 in the six
months ended June 30, 2000. Amortization of deferred stock-based compensation
recorded as of June 30, 2000 will approximate $469,000 in 2000, $911,000 in
2001, $911,000 in 2002, $632,000 in 2003 and $24,000 in 2004.
23
<PAGE> 26
RESULTS OF OPERATIONS
The following table sets forth certain consolidated statement of operations
data as a percentage of total revenue for the periods indicated.
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED ENDED
DECEMBER 31, JUNE 30,
-------------- ------------
1998 1999 1999 2000
------ ---- ---- ----
<S> <C> <C> <C> <C>
Revenue:
Product licenses...................................... 54% 42% 60% 54%
Services.............................................. 46 58 40 46
------ ---- ---- ----
Total revenue...................................... 100 100 100 100
------ ---- ---- ----
Cost of revenue:
Cost of product licenses.............................. 3 -- -- --
Cost of services...................................... 42 30 52 31
------ ---- ---- ----
Total cost of revenue.............................. 45 30 52 31
------ ---- ---- ----
Gross profit.......................................... 55 70 48 69
------ ---- ---- ----
Operating expenses:
Research and development.............................. 1,054 111 252 65
Sales and marketing................................... 596 120 227 97
General and administrative............................ 224 31 68 36
------ ---- ---- ----
Total operating expenses........................... 1,874 262 547 198
Loss from operations............................... (1,819) (192) (499) (129)
Other income (expense), net............................. 19 7 21 9
------ ---- ---- ----
Net loss........................................... (1,800)% (185)% (478)% (120)%
====== ==== ==== ====
</TABLE>
SIX MONTHS ENDED JUNE 30, 1999 AND 2000
Revenue
Our revenue was $872,000 in the six months ended June 30, 1999 and $6.0
million in the six months ended June 30, 2000, an increase of $5.1 million.
Our product licenses revenue was $524,000 in the six months ended June 30,
1999 and $3.2 million in the six months ended June 30, 2000, an increase of $2.7
million. Product license fees, on a perpetual and subscription basis, are the
sole source of product licenses revenue. The increase in our product licenses
revenue resulted from the increase in customers over the prior year period and
reorders from existing customers, both resulting from an increase in the size
and productivity of the sales and marketing force and expanded product
offerings.
Our services revenue was $348,000 in the six months ended June 30, 1999 and
$2.8 million in the six months ended June 30, 2000, an increase of $2.5 million.
Services revenue represented 40% of total revenue in the six months ended June
30, 1999 and 46% in the six months ended June 30, 2000. Professional service
fees are the predominant source of services revenue. The increase in services
revenue reflects increased Webridge Private Exchange project deployments in the
six months ended June 30, 2000 as well as revenue recognized with respect to
contracts entered into in 1999. The increase in services revenue as a percentage
of total revenue in the six months ended June 30, 2000 is due to the increased
service component in contracts generating revenue in 2000. Due to our limited
experience selling our products, we are uncertain how services revenue
associated with such sales will affect our results of operations in the future.
In addition, the percentage of total revenue represented by services revenue in
24
<PAGE> 27
prior fiscal periods may not be indicative of levels to be expected in future
periods, depending in part on our use of third-party integration service
providers versus our own professional services organization.
Cost of Revenue
Cost of Product Licenses Revenue. Cost of product licenses revenue was $0
in the six months ended June 30, 1999 and $22,000 in the six months ended June
30 2000.
Cost of Services Revenue. Cost of services revenue was $452,000 in the six
months ended June 30, 1999 and $1.9 million in the six months ended June 30,
2000, an increase of $1.4 million. Cost of services revenue was 130% of services
revenue in the six months ended June 30, 1999 and 67% in the six months ended
June 30, 2000. The increase in cost of services revenue was primarily due to an
increase in professional service deployment personnel and third-party
integration services provider fees to deploy the increased number of our
products. The decrease in the cost of services revenue as a percentage of
services revenue in the six months ended June 30, 2000 was the result of
allocation of deployment services fixed costs over increased services revenue.
Cost of services revenue as a percentage of services revenue may vary
significantly between periods due to the services component in customer
contracts and the mix of services provided by us and third-party integration
service providers.
Operating Expenses
Research and Development. Research and development expenses were $ 2.2
million in the six months ended June 30, 1999 and $3.9 million in the six months
ended June 30, 2000, an increase of $1.7 million, or 77%. The increase was
primarily related to the increased use of outside contractors to support our
product development of Webridge Private Exchange, Site Designer and Entity
Manager. We believe that continued investment in research and development is
critical to our future success and we expect these expenses to increase over
time.
Sales and Marketing. Sales and marketing expenses were $2.0 million in the
six months ended June 30, 1999 and $5.8 million in the six months ended June 30,
2000, an increase of $3.8 million. The increase primarily reflects commissions
and bonuses on increased sales and our increased investment in our sales and
marketing infrastructure, which included significant personnel-related costs due
to the addition of 19 sales and marketing personnel, trade show expenses, direct
mail expenses, public relations expenses and Web site development. We expect
sales and marketing expenses to increase in the future.
General and Administrative. General and administrative expenses were
$590,000 in the six months ended June 30, 1999 and $2.2 million in the six
months ended June 30, 2000, an increase of $1.6 million. The increase was
primarily the result of adding 13 finance, executive and administrative
personnel to support the growth of our business, the increased use of outside
legal and accounting services, expanded human resources programs, and
establishing operations in the United Kingdom and Japan. Also contributing to
the increase were $506,000 of expenses related to our delayed initial public
offering. General and administrative costs represented 68% of total revenue in
the six months ended June 30, 1999 and 36% in the six months ended June 30,
2000. We expect general and administrative expenses to increase in the future as
we expand our corporate infrastructure to meet the requirements of a public
company.
Other Income (Expense), Net. Other income (expense), net, was $179,000 in
the six months ended June 30, 1999 and $527,000 in the six months ended June 30,
2000, an increase of $348,000. The increase reflects the higher cash and
short-term investment base as a result of proceeds we received from the issuance
of Series C convertible preferred stock in December 1999 and January 2000.
Interest expense was $21,000 in the six months ended June 30, 1999 and $67,000
in the six months ended June 30, 2000, an increase of $46,000. The increase was
due to short-term bank borrowings and increased capital lease obligations.
25
<PAGE> 28
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
Revenue
Our revenue was $0 in 1997, $323,000 in 1998 and $4.4 million in 1999, an
increase of $4.1 million from 1998 to 1999. Our three largest customers in 1998
accounted for 96% of our total revenue in 1998 and our three largest customers
in 1999 accounted for 45% of our total revenue in 1999.
Our product licenses revenue was $175,000 in 1998 and $1.9 million in 1999,
an increase of $1.7 million. The increase in our product licenses revenue from
1998 to 1999 was due to the initial introduction of the Webridge Private
Exchange application products in late 1998, the release of packaged applications
and add-on modules, and increases in both the size and productivity of our sales
force. Virtually none of this revenue increase was attributable to increased
prices.
Our services revenue was $148,000 in 1998 and $2.6 million in 1999, an
increase of $2.5 million. In 1998 and 1999, services revenue consisted primarily
of deployment services fees and, to a lesser extent, support and hosting
services, associated with increasing product licenses revenue during these
periods. The increase in services revenue from 1998 to 1999 reflects an
increased number of customers for our applications and the recognition of
revenue from contracts entered into in prior periods. Services revenue
represented 46% of our total revenue in 1998 and 58% in 1999. The increase in
services revenue as a percentage of our total revenue from 1998 to 1999 is due
to use of the required accounting methods to allocate revenue among the various
elements of our contracts and to determine timing of recognition of those
elements. Revenue is allocated first to services and then to product licenses
using the residual-method specified under SOP 98-9, resulting in allocation of
all discounts to product licenses. In accordance with SOP 97-2, professional
services revenue is recognized at the time the services are performed and
product licenses revenue is recognized at the time there are no remaining
significant obligations, usually resulting in earlier recognition of
professional services revenue relative to product licenses revenue. Due to our
limited experience selling Webridge Private Exchange, we are uncertain how
services revenue associated with such sales will affect our results of
operations in the future. In addition, the percentage of total revenue
represented by services revenue in prior fiscal periods may not be indicative of
levels to be expected in future periods, depending in part on our use of
third-party integration service providers versus our own professional services
organization.
Cost of Revenue
Cost of Product Licenses Revenue. Cost of product licenses revenue was
$9,000 in 1998 and was nominal in 1999. In 1998 we incurred one-time license
fees for third-party software included in our product.
Cost of Services Revenue. Cost of services revenue was $135,000 in 1998 and
$1.3 million in 1999, an increase of $1.2 million. The increase from 1998 to
1999 was a result of growth in our professional services organization and the
use of third-party integration service providers to deploy an increased number
of our products for our growing customer base. Cost of services revenue as a
percentage of services revenue was 91% in 1998 and 52% in 1999. The decrease in
cost of services revenue as a percentage of services revenue from 1998 to 1999
was the result of allocation of deployment services fixed costs over increased
1999 services revenue. Cost of services revenue as a percentage of services
revenue may vary significantly between periods due to the services component in
customer contracts and the mix of services provided by us and third-party
integration service providers.
Operating Expenses
Research and Development. Research and development expenses were $1.5
million in 1997, $3.4 million in 1998 and $4.9 million in 1999, increases of
$1.9 million, or 127%, from 1997 to 1998, and $1.5 million, or 44%, from 1998 to
1999. The increases from 1997 through 1999 were primarily related to the
addition of software developers and outside contractors to support our product
development and testing
26
<PAGE> 29
activities related to the development and release of our applications. We added
17 employees in 1997, eight in 1998 and six in 1999. We believe continued
investment in research and development is critical to our future success and we
expect these expenses to increase over time.
Sales and Marketing. Sales and marketing expenses were $427,000 in 1997,
$1.9 million in 1998 and $5.3 million in 1999, increases of $1.5 million, or
375%, from 1997 to 1998, and $3.4 million, or 179%, from 1998 to 1999. The
increases from 1997 through 1999 mainly reflect significant personnel-related
costs, such as salaries, benefits, commissions and travel and entertainment
expenses, due to the addition of six sales and marketing employees in 1997, 11
in 1998 and 13 in 1999. To a lesser degree, the increases result from increased
sales and marketing activities, which included tradeshows, advertising, public
relations and other promotional expenses. We expect sales and marketing expenses
to increase in the future.
General and Administrative. General and administrative expenses were
$327,000 in 1997, $724,000 in 1998 and $1.4 million in 1999, increases of
$397,000, or 121%, from 1997 to 1998, and $676,000, or 93%, from 1998 to 1999.
The increases from 1997 through 1999 were primarily the result of additional
finance, executive and administrative personnel as well as increased use of
outside legal and accounting services to support the growth of our business
during these periods. General and administrative costs represented 31% of our
total revenue in 1999. We expect general and administrative expenses to increase
in the future as we expand our corporate infrastructure to meet the requirements
of a public company.
Other Income (Expense), Net. Other income (expense), net, was $71,000 in
1997, $59,000 in 1998 and $298,000 in 1999 and primarily consisted of interest
income offset by interest expense.
Income Taxes. For income tax purposes, we were an S corporation from
inception through August 1997 and, accordingly, any losses for that period
passed through to the stockholders. As of December 31, 1999, we had net
operating loss carryforwards for federal and state income tax reporting purposes
of approximately $14.8 million and tax credit carryforwards of $529,000, which
expire at various dates through 2019. The United States tax laws contain
provisions that limit the use in any future period of net operating loss and
credit carryforwards upon the occurrence of certain events, including a
significant change in ownership interests. We had significant changes in
ownership interests that occurred in August 1997 and December 1999. We had
deferred tax assets, including our net operating loss carryforwards and tax
credits, totaling approximately $6.1 million as of December 31, 1999. A
valuation allowance has been recorded for the entire deferred tax asset as a
result of uncertainties regarding the realization of the asset balance.
27
<PAGE> 30
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth unaudited consolidated statement of
operations data for each of the six fiscal quarters ended June 30, 2000, as well
as this data expressed as a percentage of our total revenue for the periods
indicated. This data has been derived from our unaudited consolidated financial
statements that have been prepared on the same basis as the audited consolidated
financial statements and, in the opinion of our management, include all
adjustments, consisting of normal recurring adjustments, necessary for a fair
presentation of the information when read in conjunction with the financial
statements and related notes.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1999 1999 1999 1999 2000 2000
--------- -------- ------------- ------------ --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenue:
Product licenses.............. $ 243 $ 281 $ 599 $ 756 $ 1,159 $ 2,067
Services...................... 100 248 749 1,471 1,357 1,432
------- ------- ------- ------- ------- -------
Total revenue.............. 343 529 1,348 2,227 2,516 3,499
Cost of revenue:
Cost of product licenses...... -- -- -- -- 3 19
Cost of services.............. 237 215 286 594 822 1,033
------- ------- ------- ------- ------- -------
Total cost of revenue...... 237 215 286 594 825 1,052
------- ------- ------- ------- ------- -------
Gross profit.................... 106 314 1,062 1,633 1,691 2,447
Operating expenses:
Research and development...... 1,107 1,092 1,244 1,496 1,631 2,282
Sales and marketing........... 886 1,097 1,420 1,914 2,657 3,185
General and administrative.... 293 297 326 460 694 1,461
------- ------- ------- ------- ------- -------
Total operating expenses... 2,286 2,486 2,990 3,870 4,982 6,928
Loss from operations............ (2,180) (2,172) (1,928) (2,237) (3,291) (4,481)
Other income (expense), net..... 88 91 48 71 284 243
------- ------- ------- ------- ------- -------
Net loss........................ $(2,092) $(2,081) $(1,880) $(2,166) $(3,007) $(4,238)
======= ======= ======= ======= ======= =======
AS A PERCENTAGE OF TOTAL
REVENUE:
Revenue:
Product licenses.............. 70.9% 53.1% 44.4% 33.9% 46.1% 59.1%
Services...................... 29.1 46.9 55.6 66.1 53.9 40.9
------- ------- ------- ------- ------- -------
Total revenue.............. 100.0 100.0 100.0 100.0 100.0 100.0
Cost of revenue:
Cost of product licenses...... -- -- -- -- -- 0.5
Cost of services.............. 69.1 40.6 21.2 26.7 32.7 29.5
------- ------- ------- ------- ------- -------
Total cost of revenue...... 69.1 40.6 21.2 26.7 32.7 30.0
------- ------- ------- ------- ------- -------
Gross profit.................... 30.9 59.4 78.8 73.3 67.2 70.0
Operating expenses:
Research and development...... 322.8 206.4 92.3 67.3 64.8 65.2
Sales and marketing........... 258.3 207.4 105.3 85.9 105.6 91.0
General and administrative.... 85.4 56.1 24.2 20.6 27.6 41.8
------- ------- ------- ------- ------- -------
Total operating expenses... 666.5 469.9 221.8 173.8 198.0 198.0
Loss from operations............ (635.6) (410.5) (143.0)% (100.5) (130.8) (128.0)
Other income (expense), net..... 25.7 17.2 3.6 3.2 11.3 6.9
------- ------- ------- ------- ------- -------
Net loss........................ (609.9)% (393.3)% (139.5)% (97.3)% (119.5)% (121.1)%
======= ======= ======= ======= ======= =======
</TABLE>
The trends discussed in the annual comparisons of operating results apply
generally to the comparison of results of operations for each of the quarters in
1999.
28
<PAGE> 31
Our revenue and results of operations have fluctuated significantly in the
past and could fluctuate significantly in the future due to a variety of
factors, many of which are outside of our control. These factors include:
- demand for and market acceptance of our current products and services;
- size and timing of specific sales;
- level of product and price competition, including new products and
services offered by our competitors;
- unexpected delays in introducing new products and services by us;
- functionality and timing of Microsoft releases of products for which we
have developed new related products or upgrades;
- our ability to hire, train and retain sales and other personnel;
- the length of our sales cycle;
- our ability to establish and maintain relationships with third-party
integration service providers and business partners;
- failure of customers to renew subscriptions for our products and
services;
- mix of products and services sold;
- changes in pricing policies by us or our competitors;
- mix of distribution channels through which products are sold;
- customer order deferrals in anticipation of new products or enhancements
by us or our competitors;
- mix of international and domestic sales;
- changes in our sales force incentives;
- the rate at which new sales people become productive;
- software defects and other product quality problems;
- changes in the level of operating expenses to support projected growth;
- personnel changes;
- changes in our strategy or those of our competitors; and
- budgeting cycles of our customers.
In addition, seasonality in customer buying may occur in the future.
Specifically, because of typical customer project budgeting cycles, we could
experience relatively higher North American demand for our products in quarters
ending June 30 and December 31 of each year and relatively lower demand in
quarters ending March 31 and September 30.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have funded our operations primarily through sales of
equity securities and, to a lesser degree, the use of long-term debt and capital
leases. Between August 1997 and June 2000 we raised approximately $36.7 million
from the issuance of convertible preferred stock, $981,000 from the issuance of
common stock, and $2.6 million from the issuance of long-term debt, and we
financed capital
29
<PAGE> 32
acquisitions through leases totaling approximately $428,000. Our sources of
liquidity as of June 30, 2000 consisted principally of cash and cash equivalents
of $15.4 million, investments of $998,000 and $2.0 million of available
borrowings under our line of credit.
Net cash used in operating activities was $1.5 million in 1997, $5.3
million in 1998, $8.2 million in 1999 and $6.5 million in the six months ended
June 30, 2000. For these periods, net cash used by operating activities was
primarily a result of funding ongoing operations.
Since 1997, our investing activities have consisted primarily of purchases
of property and equipment and purchases and maturities of investments. Capital
expenditures, including those under capital leases, totaled $276,000 in 1997,
$339,000 in 1998, $412,000 in 1999 and $1.0 million in the six months ended June
30, 2000. We have financed the acquisition of property and equipment primarily
through long-term debt and capital leases. Our acquisition of property and
equipment was primarily computer hardware and software for our increasing
employee base as well as for our Web site and management information systems. In
the six months ended June 30, 2000, a significant part of our expenditures was
for furniture and fixtures related to our move into new office space. We
anticipate that we will experience an increase in our capital expenditures and
lease commitments consistent with our anticipated growth in operations,
infrastructure and personnel.
Our financing activities provided $6.6 million in 1997, $8.5 million in
1998, $23.9 million in 1999 and $817,000 in the six months ended June 30, 2000.
In 1997 cash provided by financing activities consisted primarily of $6.5
million received in connection with the sale of Series A convertible preferred
stock. In 1998 cash provided by financing activities consisted primarily of $6.1
million received in connection with the sale of Series B convertible preferred
stock, $1.9 million from the conversion of notes payable into Series B
convertible preferred stock and $439,000 in proceeds from long-term debt. In
1999 cash provided by financing activities consisted primarily of $2.0 million
received in connection with the sale of Series B convertible preferred stock,
$21.5 million from the issuance of Series C convertible preferred stock,
$750,000 in proceeds from a line of credit offset by principal payments on
long-term debt and capital lease obligations and the purchase of a restricted
investment. In the six months ended June 30, 2000, cash provided by financing
activities consisted primarily of $525,000 from the issuance of Series C
convertible preferred stock, $100,000 from the issuance of Series B convertible
preferred stock, $758,000 from the exercise of stock options, and $360,000 of
proceeds from the sale and leaseback of fixed assets offset by the payment of
$750,000 on the line of credit and principal payments on long-term debt and
capital lease obligations.
As of June 30, 2000 we had a secured line of credit with a bank for $2.0
million, bearing interest at the lending bank's prime rate plus 1.0% (9.75% at
June 30, 2000). Borrowings are limited to the lesser of 80% of eligible accounts
receivable or $2.0 million and are secured by substantially all of our
non-leased assets. As of June 30, 2000, there was no balance outstanding on the
line. The expiration date of this line of credit is August 28, 2000. A term
sheet has been executed with the bank to renew the credit facility and to
increase the line of credit to $2.5 million and to add an equipment purchase
facility of $500,000. Although the term sheet has been executed, the renewed
credit line will not be in place until we sign final documents. Consequently, we
do not assure you that the new credit line will be obtained. As of June 30,
2000, there was an outstanding letter of credit of approximately $250,000 to
secure a facilities lease outstanding under a separate facility with another
bank. This letter of credit is cash collateralized.
We anticipate that the net proceeds of this offering, together with our
existing line of credit and available funds, will be sufficient to meet our
anticipated needs for working capital and capital expenditures for at least the
next 12 months. We may, however, be required, or could elect, to seek additional
funding before that time. Our future capital requirements will depend on several
factors, including our future revenue, spending to support product development,
expansion of operating infrastructure and expansion of sales, general and
administrative activities, the timing of introductions of new products, possible
acquisitions of complementary products, businesses or technologies, and market
acceptance of our products. If additional equity or debt financing is required,
it may not be available on
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acceptable terms or at all. See "Risk Factors -- To remain competitive, we will
need additional financing, which may not be available on satisfactory terms at
all".
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
As of June 30, 2000 our cash included money market securities. Due to the
short duration of our investment portfolio, an immediate 10% change in interest
rates would not have a material effect on the fair market value of our
portfolio. Therefore, we would not expect our operating results or cash flows to
be affected to any significant degree by the effect of a sudden change in market
interest rates on our securities portfolio.
YEAR 2000 COMPLIANCE
Many computer systems had been expected to experience problems
distinguishing between dates in different centuries because such systems were
developed using two digits rather than four digits to determine the applicable
year. Consequently, there was concern that these systems would be unable to
distinguish between dates in different centuries and could have experienced
errors resulting in system failures or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices or engage in similar normal business activities. To
date, we have not experienced any problems complying with the Year 2000 issue
and have not been informed of any failures of our products from customers. These
problems, however, may not be discovered until months after January 1, 2000.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standards, or SFAS, No. 133, Accounting for
Derivative Instruments and Hedging Activities. SFAS No. 133, as amended,
establishes methods of accounting for derivative financial instruments and
hedging activities related to those instruments as well as other hedging
activities. Because we currently hold no derivative financial instruments and do
not currently engage in hedging activities, adoption of SFAS No. 133 is expected
to have no material impact on our financial condition or results of operations.
Statement No. 133 is effective for all fiscal quarters of all fiscal years
beginning after June 15, 2000.
In March 2000, FASB issued Interpretation No. 44, Accounting for Certain
Transactions involving Stock Compensation -- an Interpretation of APB Opinion
No. 25,(FIN 44). FIN 44 applies prospectively to new awards, exchanges of awards
in a business combination, modifications to outstanding awards, and changes in
grantee status that occur on or after July 1, 2000, except for the provisions
related to repricings and the definition of an employee, which apply to awards
issued after December 15, 1998. The provisions related to modifications to fixed
stock options awards to add a reload feature are effective for awards modified
after January 12, 2000. We do not expect that this statement will have a
significant impact on our financial condition or results of operations.
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BUSINESS
OVERVIEW
We provide packaged application software, called Webridge Private Exchange,
for Web-based, business-to-business commerce. Our software products and services
help our customers rapidly and efficiently deploy, maintain and extend a
comprehensive and secure business-to-business enterprise commerce solution for
interacting with the business customers, partners, suppliers, distributors,
employees and others that are the constituents of the extended enterprise. Our
products include a multi-functional business-to-business engine to perform
online transactions, partner relationship applications to efficiently manage a
full range of online business relationships, and an information portal to allow
companies to interact instantly with their business customers, partners,
suppliers, distributors and employees. Webridge Private Exchange customers
include BenefitMall.com, Deutsche Bank AG London, Exabyte Corporation, Executone
Information Systems, Inc., Honeywell, Inc., Hughes Network Systems, Ivy Animal
Health, Inc., Juniper Networks, Inc., Outboard Marine Corporation, PanAmSat
Corporation, PremiereGroup, Promedia Workplace Learning, Inc., Taylor
Corporation, Unicast Communications Corp. and Xerox Corporation.
INDUSTRY BACKGROUND
Impact of the Internet
Business worldwide is accelerating and becoming increasingly competitive,
fueled by the Internet and other technologies, shortened product cycles and the
globalization of the economy. However, the fundamental need for businesses to
deliver value, customer focus, competitive differentiation and operational
excellence has changed little. What has changed are the tools available to help
businesses create and manage the collaborative relationships that achieve these
objectives. The adoption rate of the Internet and its associated multi-point
technologies has been notably faster than more gradual adoption rates for
earlier point-to-point communication tools such as the telephone and the fax.
International Data Corporation reports that the number of Internet users was 240
million in 1999 and will grow to 602 million by the end of 2003. This rapidly
expanding technology has introduced a new era of digital communication enabling
businesses to interact globally across industries in ways that can have a
revolutionary impact on their success.
In this time-compressed and increasingly competitive environment, direct
access 24 hours a day, 365 days a year to a business partner's processes and
secure personalized information could accelerate the vital business
relationships that create sustainable competitive advantages. Many
organizations, however, still use an 8 hours a day, 5 days a week model that
builds walls around core information systems and business processes, limiting
access to human gatekeepers who in turn diminish information availability as
they dole data out one element at a time through point-to-point communication
tools. We believe organizations that adhere to this model will limit their
ability to take advantage of the rapid growth of online business-to-business
transactions, which Forrester Research reports totaled only $43 billion in 1998
but will reach $2.7 trillion by 2004.
Emergence of Business-to-Business Enterprise Commerce
Business-to-business enterprise commerce is an emerging approach to
conducting online business which exploits the ability of the Internet to
digitally weave the employees and core information systems of disparate
organizations into a rich fabric of collaborative information partnerships. The
intent of business-to-business enterprise commerce is to automate and streamline
the repetitive daily interactions within an online network of sales prospects,
customers, sales channel partners, employees, distributors and suppliers. This
approach requires businesses to establish a framework for online relationships
with all of their important constituencies, using formats and protocols that are
compatible with computers and understood by humans, including sales prospects,
customers, sales channel partners, employees, distributors
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and suppliers. This enterprise commerce framework must fuse the typically
separate intranet, extranet, and Internet networks into a single, unified
enterprise commerce network. This framework must also provide the data integrity
and security facilities required for this network. The types of information that
flow across this network are diverse and limited principally by the range of
enterprise commerce applications available to serve the constituents. Enterprise
commerce businesses need to constantly upgrade existing applications and acquire
or develop new applications to maximize the reach, productivity and value of
their interactive business relationships.
Much as companies adopted enterprise resource planning software in the late
1980s to manage back-office operations and sales force automation software in
the mid-1990s to manage front-office operations, many businesses are now seeking
solutions that can help them gain competitive advantage by accelerating the
development of interactive business relationships. International Data
Corporation projects that the e-commerce applications market will grow from $1.8
billion in 1999 to $23 billion in 2004.
The Technology Challenge to Achieve Business-to-Business Enterprise Commerce
Businesses are increasingly demanding online business-to-business
enterprise commerce applications that in one integrated solution:
- perform commerce transactions with high integrity;
- deliver pinpoint, targeted, personalized content with security; and
- process cross-organizational business rules, which are computer programs
that embody business policies.
These applications must be designed to keep up with the growth of the business
and adapt to changes in Internet and other technologies. Businesses recognize
that these large-scale solutions are complex, mission-critical software systems
which raise major technological challenges and require significant resource
commitments.
Early approaches by companies to develop business-to-business enterprise
commerce solutions were undertaken by in-house information technology
programmers. More recently, companies turned to vendors of higher-level
technology point products, which manage only discrete portions of a
comprehensive business-to-business enterprise commerce solution, such as Web
page authoring, Web application servers, commerce components, content
management, personalization, security frameworks and general application
development. Enterprise commerce solutions built by integrating these point
products typically require significant planning, custom development, testing and
integration of the disparate technological elements, often requiring multiple
programming tools. Consequently, both these approaches involve long development
cycles and high maintenance costs, frequently offer limited functionality and
scalability and are often unreliable or unmanageable in the long term. In
addition, business rules and content, such as pricing formulas, product
promotions, partner groupings, and financial policies, are often written in
complex programming languages and are very difficult for non-technical managers
to change quickly. Business managers, therefore, may not have the capability to
directly control business policies embedded in the system or to react in
real-time to changing market conditions, and instead must submit each change as
a request to frequently overloaded technical specialists.
Packaged Applications for Business-to-Business Enterprise Commerce
In this fast-paced marketplace, businesses are being driven by their
customers, partners, distributors, suppliers and employees to quickly capture
the sustainable competitive advantage that can come through exploiting
business-to-business enterprise commerce technology. Businesses cannot afford to
make costly mistakes, nor can they sit idly by while their competitors establish
market share and mind share. The inherent risks and unpredictable schedules
associated with in-house development lead businesses to seek packaged
applications specifically designed for business-to-business enterprise commerce.
These packaged
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applications provide an attractive alternative to in-house and third-party
custom-developed solutions, enabling businesses to get to market quicker with a
solution that can be more readily maintained and extended as the business
evolves. Packaged applications can be an even more attractive alternative if
made available as part of an overall enterprise commerce business framework that
not only includes additional applications but is also designed to integrate with
a company's existing software infrastructure and can be tailored and extended
using a company's existing skill base.
To maximize the competitive advantage of the business-to-business
enterprise commerce approach, packaged applications should:
- support collaborative, cross-organizational business activities ranging
from support forums and shared calendars to joint marketing and sales
campaign management with sales channel partners;
- securely apply personalized processing of business rules and content that
dynamically adapts to an individual user's organizational relationship
and personal preferences;
- allow non-technical business managers to define and modify business
rules, content and organizational profiles in real-time and enable
flexible cross-organizational delegation of these duties;
- expedite commerce interactions with extensively cross-referenced,
targeted content and automatic configuration assistance to increase order
accuracy and minimize delivery times;
- execute distributed, high-integrity financial and business rule
transactions that are coordinated with and make use of a company's
existing business applications and databases; and
- provide a development and execution framework in which custom software
extensions can be easily integrated, allowing system-wide features and
attributes, such as security, to be inherited automatically.
THE WEBRIDGE SOLUTION FOR BUSINESS-TO-BUSINESS ENTERPRISE COMMERCE
We provide Web-based packaged application software for online
business-to-business enterprise commerce initiatives. Our software products and
services help our customers rapidly and efficiently deploy, maintain, and extend
a comprehensive and secure business-to-business enterprise commerce solution for
interacting with business customers, partners, suppliers, distributors,
employees and others. Key benefits of our solution include:
Comprehensive Business-to-Business Solution. Our products include a highly
functional business-to-business engine to perform online transactions and
establish online marketplaces, partner relationship applications to efficiently
manage a full range of online business relationships including sales management,
and an information portal to allow companies to interact instantly with their
business customers, partners, suppliers, distributors and employees. Underlying
our products are multi-functional, integrated components for content management,
organizational and user profile management, security and data integrity. Our
comprehensive solution minimizes the need for individual point products and
reduces the need for lengthy custom development.
Business-to-Business Personalization. Our products allow companies to
create a unique Web experience for each user, with an environment that is
assembled dynamically according to established business rules in real-time to
meet the changing needs of companies and their business customers, partners,
suppliers, distributors and employees. Our products allow companies to profile
their business customers at the enterprise level as well as at the individual
user level. This enables companies to more effectively serve their business
customers, partners, suppliers, distributors and employees by meeting a full
range of corporate-level requirements, such as company policies and
business-to-business contract provisions.
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Security and Integrity. Our products offer a flexible, sophisticated and
integrated security system. Business managers can create and manage user
profiles and group definitions to control information access and to target
information to specific users. This is particularly important in
business-to-business transactions where the system contains sensitive
information about business customers, partners, distributors and suppliers, who
may compete with one another. Group definitions and access control can be
changed in real time with a high level of security and data integrity, which
encourages a higher level of confidence and promotes more commercial activity.
Rapid Deployment and Ongoing Adaptability. Our single platform
architecture, with its integrated development environment, provides enterprise
application integration by easily integrating into our customers' existing
systems, eliminating the need for individual single purpose products that
require costly and lengthy integration into a comprehensive solution. Our
platform architecture allows companies to complete their online
business-to-business initiatives more rapidly, thereby reducing time to market
and decreasing costs. We believe our products can be implemented faster than
those of our competitors, sometimes in less than 60 days. Once deployed, our
solution is easy to use, maintain, modify and expand to meet a company's
changing needs, capable of supporting tens of thousands of users and many
business relationships. With simple development environments and a central,
shared repository, business managers, rather than information technology
personnel, can quickly and easily modify business rules, user profiles and
content in real time, offering a personalized experience to each visitor.
Ease of Customization. To complement our core product, which we call
Webridge Private Exchange Base Site, we offer add-on software applications and a
library of software representing highly customizable enterprise commerce
business components, commonly referred to as business objects, that allow our
product to be easily assembled and tailored for each customer's unique
practices, processes and expertise. Building on Webridge Private Exchange Base
Site, customers can add specialized software applications that provide needed
functionality, and then augment applications with additional and supporting
business objects to rapidly produce a cost-effective custom solution for their
particular requirements.
STRATEGY
Our goal is to establish our position as the leading provider of online
business-to-business enterprise commerce solutions. To achieve this goal, we
intend to:
Leverage our Product Leadership. We believe our applications are among the
most integrated online business-to-business enterprise commerce solutions
available on the market today. We intend to leverage this position to become a
leading provider of online business-to-business applications. We will continue
to offer comprehensive, rapidly deployable, easy-to-use and reliable products
that address our customers' complete business-to-business needs as they build,
maintain and extend their online business-to-business solutions.
Build Upon Our Network of Relationships. We are building relationships with
leading system integrators, consultants, software and hardware providers and
industry strategists. We also plan to build relationships with value-added
resellers and original equipment manufacturers to develop indirect sales
channels. We intend to use and extend this network to reach target markets,
accelerate the adoption of our current products and technologies, and test and
validate our next-generation products and technologies. These relationships
enable us to focus on our core competencies, while offering our customers
complementary services and technologies from industry leaders and innovators
that we do not offer, such as graphics design, business consulting services and
some specialized software. We believe these relationships, in addition to others
that we intend to pursue, will help validate and accelerate the widespread
adoption of our online business-to-business enterprise commerce solutions.
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License to Applications Service Providers. In addition to offering our
customers the option to pay a one-time fee for a perpetual license, we intend to
offer our software using two monthly payment licensing models, both directly and
through Internet-based applications service providers.
- In one model, we provide our customers software tailored to their
requirements, together with the necessary hardware and facilities. We
also provide both system-level and application-level administrative
management services so that the customer need only provide normal
business-level administrative services.
- In another model, we license our software through applications service
providers. These applications service providers run, or host, our
software on their own servers and allow their customers to use our
software over the Internet for a fee. We believe this applications
service provider model will be particularly attractive to small and
mid-sized companies that typically have more limited internal information
technology resources, thereby expanding our addressable market.
Expand Internationally. We intend to take advantage of the worldwide growth
of the Internet by expanding our global marketing efforts. We believe there will
be significant international opportunities for our products and services and
plan to continue our international expansion by adding direct sales personnel
and increasing our indirect sales channels. We currently have one field office
in Europe, one in Japan and plan to expand further into both regions in the next
12 months. We have established relationships, and expect to establish additional
relationships, with system integrators, consultants, software and hardware
providers and industry strategists in these international markets.
PRODUCTS
We develop, market and support comprehensive, Web-based packaged
application software for online business-to-business enterprise commerce.
Webridge Private Exchange is a packaged application for commerce, content
management and collaboration, with additional specialized add-on software
applications and software tools used to extend, customize and maintain the
solutions built using these products.
Webridge Private Exchange is our business-to-business enterprise commerce
offering. Our customers use Webridge Private Exchange to deploy
business-to-business Web sites aimed at increasing sales, strengthening customer
and partner relationships, lowering costs and streamlining internal systems and
interactions with external systems. The business requirements of a corporate
customer are met in an expedited manner using the Webridge Private Exchange Base
Site architecture, which integrates pre-built application subsystems, which are
multi-functional and can be tailored to meet individual needs, with custom built
application subsystems. A principal feature of Webridge Private Exchange Base
Site is a set of building blocks, called business objects or layouts, that
implement capabilities required to conduct business-to-business commerce,
content and collaboration management on Web sites. These building blocks enable
non-technical business managers to deliver personalized content that is secure
and targeted, selectively promote products and brands, manage closed-loop
marketing campaigns, fulfill financial and information transactions, and foster
long-term relationships with customers, business partners, suppliers,
distributors and employees on a real-time basis.
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The table below summarizes the major components of our business-to-business
enterprise commerce solution.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
NAME DESCRIPTION
-----------------------------------------------------------------------------------------------------
<S> <C>
Webridge Private Exchange Base Site Enables companies to collaborate and perform
transactions with business constituents via a
powerful, easy to use interface. Uses a
comprehensive business-to-business framework
including integrated object-oriented data
management services for robustness, meaning
enhanced security, reliability, availability,
scalability and performance.
-----------------------------------------------------------------------------------------------------
Add-on software applications:
-----------------------------------------------------------------------------------------------------
Webridge Commerce Manager Provides comprehensive online order management,
order processing and a flexible template to
create an online product catalog.
-----------------------------------------------------------------------------------------------------
Webridge Configuration Manager Generates Web-based configuration pages.
-----------------------------------------------------------------------------------------------------
Webridge Notification Manager Sends targeted and personalized bulk email and/or
fax notifications and tracks responses.
-----------------------------------------------------------------------------------------------------
Webridge Lead Manager Captures, qualifies, assigns, distributes and
manages leads with flexible reporting tools.
-----------------------------------------------------------------------------------------------------
Webridge Event Manager Provides Web-based group calendar and scheduling
functions.
-----------------------------------------------------------------------------------------------------
Webridge Discussion Manager Creates secure discussion forums for group
collaboration and knowledge sharing.
-----------------------------------------------------------------------------------------------------
Visual development environment tools:
-----------------------------------------------------------------------------------------------------
Webridge Studio -- Entity Manager A Windows application used to define and manage
transactional business object entities. Includes
a point-and-click query building tool.
-----------------------------------------------------------------------------------------------------
Webridge Studio -- Site Designer A Windows application used to design and manage
sophisticated data-driven hypertext markup
language, or HTML, page and form layouts with
object-oriented what-you-see-is-what-you-get, or
WYSIWYG, ease.
-----------------------------------------------------------------------------------------------------
</TABLE>
WEBRIDGE PRIVATE EXCHANGE APPLICATIONS
Webridge Private Exchange Base Site is designed for securely sharing
cross-organizational information and managing collaborative projects. This
application provides a powerful, easy-to-use interface for navigating and
browsing very large collections of information by automatically organizing
information into distinct workspaces. The administration of these
workspaces, including content and access control, can be delegated to users
or groups of users within the company or its business partners. The
workspaces can be organized using folders, and the information can range
from simple office documents to interactive applications such as group
calendars and discussion forums. Users can create multiple, customized
views of information. Webridge Private Exchange Base Site allows a company
to quickly assemble and apply its information assets to improve
productivity, collaboration, business performance and profitability.
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WEBRIDGE ADD-ON SOFTWARE APPLICATIONS
We offer six additional software applications that can be either added to
our packaged applications for additional functions or added to a custom
application built on Webridge Private Exchange Base Site to reduce
implementation time.
Webridge Commerce Manager provides a flexible template to create an online
product catalog that enables non-technical business managers to instantly
change products, prices, promotions and other information to react to
fast-changing marketplaces. With Webridge Commerce Manager, companies have
the ability to sell goods and services directly to consumers online. This
application also supports complicated business-to-business transactions,
such as those that have individually negotiated pricing and other contract
terms and conditions. Webridge Commerce Manager is designed to allow the
use of a large number of commercially available commerce components,
including components specialized for global sales tax calculations,
domestic and international shipping and handling cost computation, payment
processing, order management, and connectors to most major back-end
inventory and financial systems.
Webridge Configuration Manager provides business managers with a visual
interface to specify all possible product configurations. The software
application automatically generates Web-based configuration pages that
guide the Web site visitor in selecting options and product configurations
that satisfy the constraints specified by the business manager. This
improves order accuracy for companies. In addition, Web site visitors can
easily generate pricing quotes, analyze alternative scenarios, and save
configurations for later use.
Webridge Notification Manager allows marketing personnel to create and
manage closed-loop, targeted and personalized email and fax marketing
campaigns. This software application can measure the effectiveness of the
marketing campaigns by automatically tracking responses to the
notifications.
Webridge Lead Manager automates the capture, qualification, assignment and
distribution of sales leads to cross-organizational recipients. The
recipients can use this software application to manage the lead while
business managers monitor the progress. Business managers can capture leads
directly from the Web site or load leads in bulk from other sources. Sales
leads can be assigned and distributed manually or automatically using
easily customizable business rules.
Webridge Event Manager provides Web-based group calendar and scheduling
functions. Using this software, groups can schedule and manage meetings,
appointments, seminars, project deadlines, and other events online.
Webridge Discussion Manager creates secure discussion forums for group
collaboration and knowledge sharing. This application allows individuals to
share documents securely, participate in threaded discussion groups and
conduct private information exchanges. These discussion forums can be
easily established and managed by business managers without technical
assistance.
VISUAL DEVELOPMENT ENVIRONMENT TOOLS
We also provide comprehensive tools for our clients to develop, deploy and
extend Webridge Private Exchange. Our visual development environment tools
include the ability to integrate with widely used software source code
management tools to facilitate and coordinate large projects using teams of
developers.
Webridge Studio Entity Manager is a Windows-based tool that allows
developers to design and manage sets of business objects, including the
creation of business rules and queries that select subsets of the business
objects for display, reporting or other purposes.
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Webridge Studio Site Designer is a Windows-based WYSIWYG tool that allows
graphic designers to create visually sophisticated HTML pages and forms
that display data from business objects. This tool's open architecture also
supports design using the other widely used HTML editors.
WEBRIDGE PRIVATE EXCHANGE ARCHITECTURE AND PRODUCTS
WEBRIDGE ARCHITECTURE AND PRODUCTS CHART
TECHNOLOGY
We designed a comprehensive architectural approach that provides the
robustness necessary for the extended enterprise, rapid application development
and a standard way to easily extend functionality by integrating third-party
software components. We believe our advanced technology architecture, which is
based on industry standards, enables our clients, partners, and consultants to
build, deliver and manage more robust business-to-business enterprise commerce
solutions in less time and at lower cost than existing alternatives.
APPLICATION ARCHITECTURE
The application code in our products is based on modular components,
allowing developers and system integrators to use, integrate, modify, adapt or
extend the applications with minimal impact on other areas, and do so more
quickly than with alternative approaches. Code can be written using Microsoft
programming language products, including VBScript, JScript and Java, which
minimizes the need for specialized programming skills. There are numerous
compatible, pre-built visual and logic components included in our products,
which minimize the amount of new code that needs to be written to create a
custom application. Programmers can easily create components that compatibly
extend the library of available pre-built components. By emphasizing the re-use
of pre-built and easily customizable visual designs and software components, the
Webridge solution provides an efficient architecture for clients to build and
deploy business-to-business enterprise commerce applications quickly and
cost-effectively.
A key feature of the Webridge Private Exchange architecture is its strong
compatibility with Microsoft's Component Object Model, or COM+, standard for
distributed component computing. We believe COM+ is the most widely supported
distributed component standard in the information technology industry with
millions of developers producing programs compatible with COM+. Nearly all of
Microsoft's products are COM+-compatible and thousands of additional
COM+-compatible software components are available in the market. By emphasizing
COM+ compatibility, our solution provides our clients with an easy and standard
way to extend their solutions using compatible components from a large library
of pre-built commercial software.
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APPLICATION SERVICES
Webridge Private Exchange Base Site's integrated application services help
our customers create a unique, compelling experience for each user with a
personalized presentation assembled dynamically to meet the changing needs of
each user and business relationship. These services are built using customizable
business objects and can be easily modified to satisfy custom requirements.
Content Management with Workflow allows business managers to publish secure
information without HTML programming required, provides a workflow approval
process, manages networks of related content and includes secure full-text
search capabilities.
Pinpoint Personalization delivers content and processes business rules
based on stored user profiles, click trails through a Web site, business
policies, and third-party recommendation engines. This feature supports user
driven personalization like My Yahoo, and can accommodate various Web browsers
and national language choices.
User and Organizational Profiles give business managers the ability to
create, enhance and change user profiles and group definitions to control
information access and to target specific users or groups with information. This
feature also supports delegation of administrative authority to other
organizations or directly to users.
MULTI-TIER NETWORK ARCHITECTURE
We use a modular multi-tier network architecture to provide scalable
processing power and to enhance system availability. The presentation tier
manages secure visitor authentication, delivers streaming and cached content,
and encrypts the data for secure transmission. The application tier hosts the
Webridge Private Exchange Base Site, which generates personalized content and
executes business rules. The structured data tier is a relational database
management system that manages tables of structured data and executes queries
against that database. The unstructured data tier manages the repository of
uploaded office document content and other unstructured content and executes
queries against that content database. The delivery tier runs bulk notification
jobs and interfaces with the customer's email and fax communications facility.
Within any tier, the processing load can be further distributed and balanced
across multiple servers, providing both increased processing speed and redundant
data for automatic recovery in the event of failure.
ADHERENCE TO INDUSTRY STANDARDS
Adherence to software industry standards enables us and our customers to
benefit from a workforce already trained in industry standards. Adherence to
these standards also provides compatibility with other existing and future
software products, including extensible markup language, or XML, logical
directory access protocol, or LDAP, and simple object access protocol, or SOAP.
We have invested significant resources in developing our architecture to comply
with widely adopted commercial software industry standards for building large
scale Internet applications, including XML and LDAP.
WEBRIDGE PRIVATE EXCHANGE BASE SITE ARCHITECTURE
Webridge Private Exchange Base Site architecture enables our customers to
create, manage and extend their business-to-business enterprise commerce
initiatives. This architecture provides four key capabilities:
- XML data services provides a means to create XML data interchanges with
business partners' computers and dynamically adapts each interchange to
the specific pre-existing business relationship;
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- automatic data management moves business objects back and forth between
fast random access memory and slower database memory to maximize
performance and ensure data integrity;
- security services provides a comprehensive means of securing data and
business rules, including tools that allow non-technical business
managers to specify and control user access to data and business rules;
and
- external integration services coordinates reliable access to, and updates
of, data held in mainframe or other back-end systems, and stores data in
case of a systems failure and forwards it when the connection is
reestablished.
WEBRIDGE PROFESSIONAL SERVICES
Deployment Services. We offer a wide range of services to help ensure a
timely and comprehensive deployment of our enterprise commerce solution for our
customers. Our deployment services group consists of highly trained and
experienced professional Web developers, technical architects and project
managers who assist our customers with planning, designing and rapidly
implementing their enterprise commerce solutions. Our personnel are involved
early in the process to provide both technical guidance as well as overall
system design prior to completion of the sale. After the sale, we assume control
of the project and work hand-in-hand with customer personnel to deploy and test
the Webridge solution.
In many cases, we work with third-party integration service providers to
deploy our solution. In these cases, a joint team is assembled, typically
consisting of one or two Webridge personnel and several integration service
provider personnel. We have relationships with several independent integration
service providers and we intend to further broaden the involvement of
third-party integration service providers in our solution deployments. Through
these relationships our customers have access to a wider range of services and
expertise to ensure a complete solution.
We offer our customers several deployment services, primarily focused on
the design and rapid implementation of our enterprise commerce solutions,
including:
- needs analysis;
- data schema and system architecture design;
- Web site layout and navigation design;
- project management;
- application deployment;
- customized business application development;
- software integration; and
- system performance improvement.
Hosting Services. We also provide hosting services for customers who prefer
to outsource operation of the server(s) running Webridge Private Exchange.
Hosting services consist of continuous server operation, including performance
and security monitoring, statistical reporting and software updating. Hosting
services are provided directly by Webridge and through an outsourcing
arrangement with a national online service provider.
Support Services. After deployment, we provide support services for
customers. These services include telephone and online support. The support
contract also provides customers with upgrade rights.
Training Services. We offer basic and advanced training for customers and
independent integration service providers. Courses are led by instructors in a
classroom setting either at our offices or at the client's facilities. Classes
teach the skills necessary to quickly become productive and proficient using the
Webridge programming tools.
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BUSINESS RELATIONSHIPS
We have business relationships to assist us in marketing, selling and
developing our online business-to-business applications. We have non-contractual
business relationships with the following systems integrators: AGENCY.COM,
Computer Services Corporation, Cotelligent, Inc., Crowe, Chizek and Company,
LLP, CTR Business Systems, Inc., Emerald-Delaware, Inc. (Emerald Solutions),
Proxicom, Inc. and marchFIRST, Inc. These integrators deploy our products for
our customers and many have recommended our products to potential customers. We
also have non-contractual business relationships with Frank Lynn & Associates,
Inc., Frontline Solutions and Technology Channels Group, business consultants
who both provide services to our customers and recommend our products to
potential customers. We have contractual business relationships with e-Junction,
Inc. and AristaSoft Corporation, application service providers that use our
products as a foundation to provide services to their customers.
In addition, we have non-contractual business relationships with leading
software and hardware providers to enable our products to leverage our clients'
information technology investments and to provide complete online
business-to-business solutions. Our current relationships are with the following
technology companies:
- Microsoft Corporation. Our online business-to-business solutions are
designed to run exclusively on the Microsoft platform. We collaborate
with Microsoft on joint marketing activities to highlight the benefits of
our products on the Microsoft platform. We participate in the Microsoft
E-Commerce Alliance, a group of companies working together to provide
customers with an easy one-stop shopping experience using Microsoft-based
online commerce solutions, and fully support the Microsoft BizTalk
framework to offer our customers packaged online business-to-business
solutions that seamlessly integrate with hundreds of independent software
products.
- Intel Corporation. We work closely with Intel to optimize the
performance of our solutions on Intel's architecture. We also collaborate
with Intel on joint marketing activities to highlight the benefits of our
products on the Intel platform.
CUSTOMERS
As of June 30, 2000, we had licensed our products and provided related
services to 39 customers. Our customers represent a broad spectrum of
enterprises within diverse sectors. Primedia Workplace Learning, Inc. and Xerox
Corportion accounted for 25.1% and 10.7%, respectively, of our revenue in 1999.
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<PAGE> 45
As of June 30, 2000, our customers were:
<TABLE>
<S> <C>
TECHNOLOGY AND COMMUNICATIONS FINANCIAL AND INSURANCE SERVICES
Adtran, Inc. Deutsche Bank AG London
Aether Systems, Inc. BenefitMall.com
AGENCY.COM LTD. Executone Healthcare Systems, division of Executive
AristaSoft Corporation Information Systems, Inc.
AXENT Technologies, Inc. MANUFACTURING AND SERVICES
CellIt, Inc. AgSpan
Cohesion Technologies, Inc. Bemis Manufacturing Company
Develop Online.com Corporation Delirium Corporation
Exabyte Corporation Honeywell Inc.
Executone Information Systems, Inc. Iron Spire, Inc.
Genesys Telecommunications Laboratories, Ivy Animal Health, Inc.
Inc. Outboard Marine Corporation
GoBizNow.com PremiereGroup
Hughes Network Systems Schweitzer Engineering Laboratories, Inc.
In Focus Systems, Inc. Taylor Corporation
Interactive Search, Inc. Unicast Communications Corp.
e-Junction, Inc.
Juniper Networks, Inc.
Lifegoals.com Corporation
NCR Corporation
NEC Technologies
PanAmSat Corporation
Primedia Workplace Learning, Inc.
RosettaNet
Think3, Inc.
Xerox Corporation
</TABLE>
CASE STUDIES
Deutsche Bank
Deutsche Bank is one of the world's five largest banks and is the global
leader in foreign exchange services. Deutsche Bank's customers include large
international companies, international banks and strategic investment partners.
Deutsche Bank needed a highly secure, Internet-based application to support
foreign currency trading and to deliver rapidly changing financial information
to its major customers. Deutsche Bank required an online solution that would:
- provide global customers with instant access to its trading exchange;
- provide market differentiation for Deutsche Bank Foreign Exchange;
- provide lower transaction costs; and
- be operational in 65 days.
Webridge Private Exchange Base Site was selected because it enabled
Deutsche Bank to build its secure FX Markets Web site within Deutsche Bank's
time constraints. The FX Markets secure Web site provides:
- customers the ability to place foreign exchange orders and check the
status of their trades through the Internet site;
- extensive security to assure that only authorized users have access to
restricted information;
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<PAGE> 46
- transactional connections to the Deutsche Bank back office systems; and
- automatic extraction of relevant information from external real-time news
feeds with instant indexing and personalized information delivery.
The site was operational within nine weeks of commencement of the project.
Xerox's Reseller Channels Group
Xerox, through its Reseller Channels Group, launched aggressive channels
programs three years ago to expand sales coverage. Expanding sales channels
programs for printers and its supplies business is a key part of Xerox's
strategy going forward. To support this strategy, Xerox is focusing on enhancing
resellers' awareness of, and ability to sell, Xerox products. Xerox selected
Webridge Private Exchange, Webridge Lead Manager and Webridge Notification
Manager to serve as its Web-based partner management system to support a
comprehensive Internet strategy for the Reseller Channels Group that would:
- build loyalty among resellers;
- significantly shorten volume channel sales and improve reseller
productivity; and
- reduce selling costs.
Xerox required a complete, dynamic Web-based partner management solution
that could deploy quickly, and give it an immediate advantage over its
competitors. Xerox chose Webridge because the Webridge solution:
- securely delivers customized product, training, promotion and pricing
information to different categories of resellers based upon business
rules defined by Xerox channel managers;
- provides personalized, pertinent information;
- allows the Reseller Channels Group to manage day-to-day operation of its
Web site;
- integrates a complete lead management system to ensure timely
distribution, Web-based follow-up, monitoring, reporting and forecasting
of leads; and
- sends personalized emails or faxes regularly to notify resellers of new
information and programs customized to the unique needs of various
partner categories.
The reseller Web site Xerox developed using the Webridge solution adheres
to the Xerox corporate look and feel guidelines and consolidates multiple
partner Web sites into one site powered by Webridge.
Primedia Workplace Learning
Primedia Workplace Learning is a leading supplier of interactive video,
audio and on-line training products to professionals in several industries,
including health care, law enforcement, banking, automotive and industrial
services. Primedia Workplace Learning recently initiated a project to transition
its business from a traditional model to an integrated, Web-based business to
accomplish the following goals:
- increase its market penetration and reach;
- leverage its library of video training assets;
- offer real-time testing and certification online;
- provide self-service ordering of training material; and
- lower transaction costs.
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<PAGE> 47
To accomplish its goals, Primedia needed to deploy Web applications that
could provide broad functionality to its business customers and could scale to
accommodate future growth. Primedia selected Webridge because of the
comprehensive applications framework and integrated development environment
offered by our products. Using Webridge Private Exchange, Primedia was able to
deliver multiple industry vertical portal sites and Primedia Academy, which
provide:
- rules-driven personalized catalogs for organizations;
- self-administered online testing;
- automatic certification and tracking of individual education records;
- access to more than 800,000 authenticated users, easily expandable;
- delegated publishing and administration; and
- real-time integration with its back-office system.
Honeywell
The globalization of Honeywell's partner base and the increase in the pace
of business necessitated a new approach to communication and collaboration among
Honeywell and its strategic partners. The answer was the Web-based Honeywell
Alliance Partner program. This program is aimed at building an online
marketplace where Honeywell and its key business partners can conduct commercial
activities. The goals of the project are to:
- securely exchange sensitive information, such as strategic plans, with
partners;
- foster relationships among partners via discussion forums;
- improve the quality of support to partners and increase partner loyalty;
- leverage the Honeywell knowledge library on a self-service basis;
- conduct marketing and promotional activities with Alliance Partners; and
- reduce costs.
To achieve these aims, Honeywell needed a business-to-business Web
application that could execute complex content management while being secure,
reliable and highly customizable for efficient and productive use by its
business partners. Webridge Private Exchange was chosen because of its unique
ability to deliver the full range of capabilities Honeywell required, including:
- secure discussion forums among partners and Honeywell;
- a knowledge management portal;
- secure access to subject matter experts in Honeywell's vertical markets;
- online project management and collaboration securely partitioned for each
user;
- real-time product demonstrations and evaluation downloads; and
- delegation of content management to Honeywell's account managers.
SALES AND MARKETING
We market our products mainly through a combination of a headquarters-based
telesales group and a field-based direct sales organization with offices
throughout the United States. We also have one sales
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<PAGE> 48
office in each of Europe and Japan. We generate sales leads from a variety of
marketing activities, as well as from other businesses with which we have
strategic relationships. These leads are qualified by our telesales group and
passed to our field-based direct sales group for follow up. Our typical sales
process includes a needs assessment and a demonstration of our products followed
by a more detailed technical solution plan developed jointly by our technical
sales and services personnel and the customer.
We intend to expand our direct sales presence by opening additional sales
offices internationally and additional sales offices in the United States. We
also plan to develop an indirect sales channel using value-added reseller and
original equipment manufacturer relationships worldwide to further penetrate the
market for our products and services and to further develop our business
relationships with third-party integration service providers as a means of
broadening our marketing reach.
Our marketing activities are designed primarily to generate sales leads
and, to a lesser degree, to increase the overall awareness of the Webridge brand
and products. Our lead generating activities include Web-based events, seminars,
tradeshows and other promotional programs which highlight the value of the
Webridge Private Exchange product for the online business-to-business enterprise
commerce market. We also participate in and conduct industry conferences, market
research, speaking events, public relations activities and developer
conferences.
COMPETITION
The market for online business-to-business applications is rapidly evolving
and intensely competitive. We expect competition to persist and intensify in the
future. Our primary competition includes:
- in-house development efforts by prospective customers and partners, which
may be encouraged by providers of point products;
- vendors of application software or application development platforms and
tools directed at interactive commerce, like Art Technology Group,
BroadVision and Vignette;
- portal solution providers such as Plumtree Software;
- marketing solution providers such as ChannelWave and MarketSoft; and
- Web site developers that develop custom software or integrate other
application software into custom solutions.
We believe the primary factors upon which we compete are the capabilities
of our products, the extent to which, and the ease with which, our products
integrate with other software and existing operating systems, our deployment
time, our prices and our ability to provide quality services to assist our
customers and our partners. We believe our applications provide faster
implementation and lower cost of ownership than in-house development efforts or
independent Web site developers integrating separate application software
products, application development platforms and tools. We believe the
capabilities of our products, along with their ability to integrate with systems
using Windows NT and Windows 2000 and software designed to run on Windows NT and
Windows 2000, provide us with an advantage over all of our competitors with
respect to customers using the Windows NT and Windows 2000 operating systems.
Because our product only operates on the Windows NT and Windows 2000 operating
systems, we are at a disadvantage to our competitors with respect to customers
using other operating systems. See "Risk Factors -- Existing and potential
competitors could make it more difficult for us to acquire and retain
customers".
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
Our success and ability to compete are substantially dependent on our
internally developed technologies, software and trademarks, which we seek to
protect through a combination of copyright, trade
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<PAGE> 49
secret and trademark law, and contractual restrictions and operational
safeguards. These legal protections afford only limited protection for our
technology. We seek to protect our source code for our software, documentation
and other written materials pursuant to signed license agreements. We also seek
to avoid disclosure of our intellectual property by requiring employees,
consultants and other companies with whom we have concluded marketing agreements
with access to our proprietary information to execute confidentiality
agreements. Additionally, we have operational safeguards in place that provide
security for our network and facilities. Despite these precautions, it may be
possible for a third party to copy or otherwise obtain and use our proprietary
information without authorization or to develop similar technology
independently. We pursue the registration of our trade and service marks in the
United States, and we have registered the trademark "Webridge" in the United
States. We have an application pending to register the trademark "Webridge" in
the European Community. We have a trademark application pending in the United
States for our logo. Effective trademark, service mark, copyright and trade
secret protection may not be available in every country in which our products
are distributed or made available through the Internet, and policing
unauthorized use of our proprietary information is difficult. See "Risk
Factors -- Our success and competitive position depends on our ability to
protect our proprietary technology."
We rely upon technology developed by third parties, including Visual Studio
and Java Virtual Machine software and Java language from Microsoft. We do not
assure you that our third-party technology will not infringe on the intellectual
property rights of others or continue to be available to us on commercially
reasonable terms, if at all. The loss of or inability to maintain any of these
technologies could result in delays in introduction of our products and services
until equivalent technology, if available, is identified, licensed, if
necessary, and integrated, which could seriously harm our business. See "Risk
Factors -- The market for the Windows NT operating system or its successor
version, Windows 2000, may fail to develop fully, develop more slowly than we
expect or otherwise be harmed".
EMPLOYEES
As of June 30, 2000, we employed 136 persons on a full-time basis. None of
our employees is covered by a collective bargaining agreement and we have never
experienced a work stoppage. We believe we have good relations with our
employees.
FACILITIES
Our headquarters are located in leased facilities in Beaverton, Oregon,
consisting of approximately 50,000 square feet under a lease expiring in
February 2007. The average monthly rent for this facility is approximately
$95,700. In addition, we have exercised options committing us to lease
approximately 37,000 square feet of additional space in the same facility. We
will begin occupying this additional space in September 2000.
We also rent space in other cities to support our sales and support
activities, including San Francisco, Los Angeles, Minneapolis, Dallas, Boston,
Philadelphia, Chicago, Washington, D.C., Atlanta, London and Tokyo. We believe
our facilities and options to rent additional space are adequate to meet our
needs for the foreseeable future.
LEGAL PROCEEDINGS
We are not a party to any litigation or arbitration proceedings that would
have, or during the last two fiscal years has had, a material effect on our
business.
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<PAGE> 50
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table includes information about our executive officers and
directors.
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
---- --- -----------
<S> <C> <C>
Gary N. Fielland....................... 51 Chief Executive Officer, President and
Director
Mark S. Anastas........................ 45 Chief Operating Officer, Corporate
Secretary and Director
David L. Brinker....................... 49 Chief Financial Officer
Robert F. Dunne........................ 46 Vice President of Sales
Jon F. Jackson......................... 45 Vice President of Research and
Development
Gary M. Raetz.......................... 49 Vice President of Customer Services
Gary A. Whitney........................ 42 Vice President of Marketing
David A. Shrigley...................... 52 Director
C. Scott Gibson........................ 48 Director
Gerard H. Langeler..................... 49 Director
James A. Lash.......................... 56 Director
</TABLE>
GARY N. FIELLAND co-founded Webridge and has served as our President, Chief
Executive Officer and a Director since June 1996. Prior to co-founding Webridge,
from 1983 to June 1996, Mr. Fielland was a co-founder, Chief Architect and
Fellow of Sequent Computer Systems, Inc. (now the NUMA-Q division of IBM) a
provider of scalable Intel-based server solutions for e-business, where he led
the development of one of the computer industry's first commercial symmetric
multiprocessing microcomputer architecture. Mr. Fielland received a Bachelor of
Science degree in Mechanical Engineering and a Master of Engineering degree in
Computer Science and Electrical Engineering from the University of Florida.
MARK S. ANASTAS co-founded Webridge and has served as our Chief Operating
Officer, Corporate Secretary and a Director since June 1996. Prior to
co-founding Webridge, and from July 1995 to May 1996, Mr. Anastas was the
Product Line Architect for Intel Corporation's Internet Product Division, where
he was responsible for product definition and partner recruitment. He also
served as President and Chief Executive Officer of Huxley Corp., a start-up
client/server customer relationship management application software company,
from May 1994 to July 1995. Mr. Anastas received a Bachelor of Science degree in
Computer Science from the University of Illinois and a Master of Science degree
in Computer Science from the University of Washington.
DAVID L. BRINKER has served as our Chief Financial Officer since August
1998. Before joining Webridge, Mr. Brinker was the General Manager for the Test
Software Division of Integrated Measurement Systems, Inc., a producer of
engineering test stations and virtual test software, from January 1997 to July
1998. Mr. Brinker was an independent consultant from August 1996 to January
1997. From June 1995 to August 1996, Mr. Brinker was the President and Chief
Executive Officer of TView, Inc., a developer of computer peripherals. From
March 1994 to June 1995, Mr. Brinker served as the Chief Financial Officer of
Summit Design, Inc., a software company. From 1983 to 1994, Mr. Brinker held a
variety of management positions with Mentor Graphics Corporation, a provider of
electronic hardware and software design solutions and consulting services,
serving most recently as Vice President for World Trade responsible for all
field operations. Mr. Brinker received a Bachelor of Science degree in Economics
from Portland State University.
ROBERT F. DUNNE has served as our Vice President of Sales since August
1998. Prior to joining Webridge, Mr. Dunne served as Vice President and General
Manager of the Network Computer Group at
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<PAGE> 51
Tektronix, Inc., a leading test and measurement equipment company, from
September 1997 to April 1998 and was responsible for launching the sales channel
strategy for Tektronix's Color Printer Division (now owned by Xerox
Corporation). From July 1993 to September 1997, Mr. Dunne served as the Vice
President of Sales of Tektronix' Video and Networking Division. Additionally,
Mr. Dunne began his career with IBM Corporation and held key sales and marketing
management positions with Mentor Graphics Corporation and Zycad Corporation. Mr.
Dunne received a Bachelor of Science degree in Marketing from the University of
Colorado.
JON F. JACKSON is a co-founder of Webridge and has served as our Vice
President of Research and Development since June 1996. From 1989 to May 1996,
Mr. Jackson was a Principal Engineer and Senior Manager for Sequent Computer
Systems, Inc. where he was responsible for its engineering product planning and
other software development activities. Prior to joining Sequent, and from 1986
to 1989, Mr. Jackson served as Engineering Manager at Intel Corporation and was
responsible for developing a real-time operating system. Mr. Jackson holds a
Bachelor of Arts degree in Information Science from the University of
California, Santa Cruz.
GARY M. RAETZ is a co-founder of Webridge and has served as Vice President
of Customer Service since February, 1997. Prior to joining us, Mr. Raetz was
Senior Manager at Intel Corporation, from July 1995 to January 1997, where he
was responsible for working with Microsoft Corporation on the "Net-PC" platform
initiative. Mr. Raetz was an independent marketing consultant from January 1994
to July 1995. From April 1985 to January 1994, Mr. Raetz served as a Director of
Technical Marketing, Professional Services, and Integration Services and Custom
Products for Sequent Computer Systems, Inc. and was responsible for building its
Custom Products and Professional Services business units. Mr. Raetz received a
Bachelor of Arts degree in Computer Science and Mathematics from Portland State
University and a Master of Science degree in Computer Science from the Naval
Postgraduate School in Monterey, California.
GARY A. WHITNEY has served as our Vice President of Marketing since
February 1997. Mr. Whitney was the Director of Consumer Marketing and co-founder
of The Palace, a real-time, interactive, rich-media network company formed by
Intel Corporation and Time Warner, Inc., from June 1996 to February 1997. From
April 1995 to June 1996, Mr. Whitney was a Product Marketing Manager for Intel
Corporation. From 1988 to 1994, Mr. Whitney held a number of marketing
management positions at Sequent most recently serving as the Marketing Manager
for Sequent's Windows NT server family. From 1982 to 1988, Mr. Whitney served in
a variety of development and marketing positions with Hewlett-Packard
Corporation. Mr. Whitney holds both Bachelor of Science and Master of Arts
degrees in Industrial and Management Engineering from Montana State University.
C. SCOTT GIBSON has served as a director since April 1997. Mr. Gibson
co-founded Sequent Computer Systems, Inc. in 1983 and served as President until
March 1992. Since March 1992, Mr. Gibson has been a private investor and
consultant to technology companies. Mr. Gibson currently serves as a Director of
Triquint Semiconductor, Inc., RadiSys Corporation, Inference Corporation,
Integrated Management Systems, Inc., Egghead.com and Emerald-Delaware, Inc. Mr.
Gibson also serves as a director to several development-stage technology
companies. Mr. Gibson is the Chairman of the Board of Trustees of the Oregon
Graduate Institute of Science and Technology. Mr. Gibson received a Bachelor of
Science degree in Electrical Engineering and Masters of Business Administration
from the University of Illinois.
GERARD H. LANGELER has served as a director since August 1997. Since 1992,
Mr. Langeler has been a General Partner of Olympic Venture Partners, a venture
capital firm. Prior to joining Olympic Venture Partners, Mr. Langeler co-founded
Mentor Graphics Corporation and served as President and Chief Operating Officer
from 1987 to 1991. Mr. Langeler is a director of Preview Systems, an e-commerce
solutions provider, and several other private technology start-up companies. Mr.
Langeler holds a Bachelor of Arts degree in Chemistry from Cornell University
and a Masters of Business Administration from Harvard University.
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<PAGE> 52
JAMES A. LASH has served as a director since December 1998. Mr. Lash has
been a venture capitalist since 1976 and focuses investments on the computer,
software, telecommunications and life sciences industries. Mr. Lash is also a
director of several other private technology start-up companies. Mr. Lash
received Bachelor of Science degrees in Aeronautical and Astronautical
Engineering from the Massachusetts Institute of Technology and a Masters degree
in Business Administration from Tulane University.
DAVID A. SHRIGLEY has served as a director since February 2000. Since July
1999, Mr. Shrigley has been a principal with Sevin Rosen funds, a venture
capital firm. Prior to joining Sevin Rosen, from November 1996 to April 1999,
Mr. Shrigley was Executive Vice President in charge of marketing, sales and
service for Bay Networks (now owned by Nortel Networks Corporation). Prior to
that time, Mr. Shrigley spent 18 years at Intel in a variety of management
positions, including Vice President and General Manager, Corporate Marketing
from June 1995 to November 1996, and Vice President and General Manager, APAC
Sales and Marketing Operations, in Hong Kong, from June 1989 to June 1995. Mr.
Shrigley is a director of SonicWALL, Inc., a provider of Internet security for
small and medium-sized companies, and several private technology companies. Mr.
Shrigley holds a Bachelor of Arts degree in Business Administration and an
Associate of Science degree in Electrical Engineering from Franklin University.
Our executive officers serve at the discretion of the board of directors.
There are no family relationships among any of our directors or officers.
Our directors are elected for a period of one year at our annual meeting of
stockholders and serve until the next annual meeting and until their successors
are duly elected and qualified.
COMMITTEES OF THE BOARD OF DIRECTORS
Our board of directors established a Compensation Committee in June 1999
and an Audit Committee in May 1998. The Compensation Committee reviews and
recommends to the board of directors the compensation and benefits of all our
officers and establishes and reviews the general policies relating to
compensation and benefits of our employees. The Audit Committee reviews our
internal accounting procedures and consults with and reviews the reports and
services provided by our independent accountants. The members of our Audit
Committee are Mr. Gibson, Mr. Langeler and Mr. Lash, none of whom has ever been
an officer or employee of Webridge. The members of our Compensation Committee
are Mr. Gibson and Mr. Langeler.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the Compensation Committee has ever been an officer
or employee of Webridge. Prior to establishing the Compensation Committee in
June 1999 our board of directors as a whole performed the function delegated to
the Compensation Committee. None of our executive officers serves as a member of
the board of directors or compensation committee of any entity that has one or
more executive officers serving as a member of our board of directors or
Compensation Committee.
DIRECTOR COMPENSATION
Our directors do not receive any cash compensation from us for their
service as members of our board of directors. Under our stock incentive plan,
non-employee directors are eligible to receive stock option grants and
restricted stock at the discretion of the board of directors or other
administrator of the plan.
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EXECUTIVE COMPENSATION
The following table includes the total compensation paid or accrued for
services rendered to us in all capacities during the year ended December 31,
1999 by our chief executive officer and our four highest compensated executive
officers whose salary and bonus exceeded $100,000 for the year ended December
31, 1999 (collectively, the named executive officers).
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL AWARDS
COMPENSATION SECURITIES
----------------- UNDERLYING
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS(#)
--------------------------- -------- ----- ------------
<S> <C> <C> <C>
Gary N. Fielland............................................ $149,862 $-- 200,001
Chief Executive Officer and President
Mark S. Anastas............................................. 142,608 -- 200,001
Chief Operating Officer
David L. Brinker............................................ 134,583 -- 53,334
Chief Financial Officer
Robert F. Dunne............................................. 200,000 -- 53,334
Vice President of Sales
Jon F. Jackson.............................................. 128,120 -- 160,002
Vice President of Research and Development
</TABLE>
We did not pay our chief executive officer or any other named executive
officer any compensation intended to serve as an incentive for performance to
occur over a period longer than one year pursuant to a long-term incentive plan
for the year ended December 31, 1999. We do not have a defined benefit or
actuarial plan with respect to our chief executive officer or any other named
executive officer under which benefits are determined primarily by final
compensation and years of service.
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides summary information regarding stock options
granted to the named executive officers during 1999. All options granted to
these individuals were granted under our 1996 stock incentive plan. Unless
otherwise noted, options granted under the plan generally vest 25% on the
anniversary of the vesting commencement date and monthly thereafter in 36 equal
installments. The percentage of total options set forth in table below is based
on options for 1,738,282 shares granted to our employees and consultants in
1999. All options were granted at the fair market value as determined by our
board of directors on the date of grant. The potential realizable value is
calculated assuming the exercise price on the date of grant appreciates at the
indicated rate for the entire term of the option and that the option is
exercised at the exercise price and sold on the last day of its term at the
appreciated price. All options listed have a term of 10 years. The 5% and 10%
assumed annual rates of compounded stock price appreciation are mandated by the
Securities and Exchange Commission and do not represent our estimate or
projection of the future stock price. Unless the market price of the common
stock appreciates over the option term, no value will be realized from the
option grants made to the named executive officers. The
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<PAGE> 54
assumed 5% and 10% rates of stock appreciation are based on a value of $1.875
per share, the deemed fair market value of our common stock as of December 31,
1999.
OPTION GRANTS IN 1999
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
NUMBER OF PERCENT OF RATES OF STOCK PRICE
SHARES TOTAL EXERCISE APPRECIATION FOR OPTION
UNDERLYING OPTIONS PRICE TERM
OPTIONS GRANTED TO PER EXPIRATION ------------------------
NAME GRANTED(#) EMPLOYEES SHARE DATE 5% 10%
---- ---------- ---------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Gary N. Fielland......... 200,001(1) 11.5% $0.315 07/09/09 $ 39,621 $100,406
Mark S. Anastas.......... 200,001(1) 11.5% 0.315 07/09/09 39,621 100,406
David L. Brinker......... 53,334(2) 3.1% 0.315 07/09/09 10,566 26,775
Robert F. Dunne.......... 53,334(3) 3.1% 0.315 07/09/09 10,566 26,775
Jon F. Jackson........... 160,002(1) 9.2% 0.315 07/09/09 31,697 80,326
</TABLE>
-------------------------
(1) The options become exercisable at the rate of 1/36th of the total number of
shares beginning July 26, 2000. Mr. Fielland exercised these options on
December 20, 1999 pursuant to an Early Exercise Agreement with us. These
shares are subject to a right of repurchase in our favor in the event Mr.
Fielland ceases to be an employee or director before June 26, 2001.
(2) The options become exercisable at the rate of 1/12th of the total number of
shares beginning September 1, 2002.
(3) The options become exercisable at the rate of 1/12th of the total number of
shares beginning September 10, 2002.
OPTION EXERCISES AND HOLDINGS
The following table sets forth the number of shares of common stock
acquired upon the exercise of stock options by our chief executive officer and
our four other highest compensated executive officers during 1999, and the
number and value of the shares of common stock underlying unexercised in-the-
money options held by these individuals as of December 31, 1999. The value of
unexercised in-the-money options is calculated based on:
- the fair market value of our common stock using the assumed initial
offering price of $9 per share,
- less the exercise price, and
- multiplied by the number of shares underlying the option.
All options were granted under our 1996 stock incentive plan.
YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES DECEMBER 31, 1999 DECEMBER 31, 1999
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gary N. Fielland(1).......... 216,863 $315,035 -- 200,001 -- --
Mark S. Anastas(2)........... 7,950 1,431 -- 200,001 -- $1,737,009
David L. Brinker(3).......... 53,589 9,645 16,667 186,668 $147,752 1,645,212
Robert F. Dunne(4)........... 72,222 13,000 16,667 231,112 147,752 2,039,208
Jon F. Jackson(2)............ -- -- -- 160,002 -- 1,389,617
</TABLE>
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<PAGE> 55
-------------------------
(1) An option for 200,001 shares was exercised pursuant to an Early Exercise
Agreement on December 20, 1999, subject to a right of repurchase in our
favor in the event Mr. Fielland ceases to be an employee or director before
June 26, 2001.
(2) The option becomes exercisable at the rate of 1/36 of the total number of
shares monthly beginning July 26, 2000.
(3) Of the unexercisable options, 4,167 become exercisable monthly from January
1, 2000 through August 1, 2002 and an additional 4,445 options become
exercisable monthly from September 1, 2002 through August 1, 2003.
(4) Of the unexercisable options, 5,556 become exercisable monthly from January
10, 2000 through August 10, 2002 and an additional 4,445 options become
exercisable monthly from September 10, 2002 through August 10, 2003.
EMPLOYMENT ARRANGEMENTS
In July 2000, we entered into a one-year employment agreement with Robert
F. Dunne, our Vice President of Sales, providing for an annual base salary of
$200,000 and a guaranteed bonus of $100,000, with eligibility for additional
bonus payments. The agreement may be terminated at any time by either party. If
the agreement is terminated by us without cause, Mr. Dunne will be entitled to
receive the difference between $300,000 and the amount he has been paid under
the agreement, provided he signs a waiver and release of all claims against the
Company.
1996 STOCK INCENTIVE PLAN
In June 1996, the board of directors adopted and our stockholders approved
our 1996 stock incentive plan. We have reserved a total of 11,360,089 shares of
common stock for issuance under this plan. As of June 30, 2000, options to
purchase a total of 1,513,498 shares of common stock were outstanding under this
plan. These options had a weighted average exercise price of $2.40 per share. As
of June 30, 2000, 102,038 shares remained available for future issuance.
The 1996 plan authorizes the grant of incentive options and nonqualified
options. This plan also provides for awards of stock appreciation rights,
performance shares, restricted shares and other stock-based awards.
Incentive options may be granted under the 1996 plan to our employees,
officers and directors. The exercise price of incentive options granted under
the plan must be at least equal to the fair market value of our common stock on
the date of grant. Payment of the exercise price must be made in cash or, with
the approval of the board of directors, in shares of our common stock.
Under the terms of our 1996 plan, we may grant nonqualified options to our
employees, officers, and directors and to our non-employee agents, consultants,
advisers and independent contractors. There are no limits on the exercise price
of nonqualified options granted under this plan.
In the event of a merger with, or acquisition by another company, or a sale
of substantially all of our assets, options and other awards outstanding under
the 1996 plan may be:
- terminated as of the date of the merger, acquisition, or sale of assets,
provided that holders have a prior 30-day period in which to exercise the
options or stock appreciation rights to the extent vested;
- accelerated by the board of directors to become exercisable during the 30
day period before the date of the merger, acquisition or sale of assets;
or
- exchanged for or converted into similar options or awards of the
acquiring or surviving entity.
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<PAGE> 56
The 1996 plan is administered by the board and may be delegated to a
committee of the board. The board selects the individuals to whom options will
be granted and determines the exercise price and other terms of each award,
subject to the provisions of the plan. The board has the authority to amend or
terminate the plan as long as such action does not affect any outstanding
options and provided that stockholder approval is obtained for any amendment to
the extent required by applicable law. This plan will otherwise expire when all
shares available for issuance have been issued.
2000 STOCK INCENTIVE PLAN
In April 2000, our stockholders approved our 2000 stock incentive plan,
which our board of directors had approved in March 2000. The purpose of the plan
is to attract and retain the services of our directors, officers, and selected
employees as well as selected consultants to our business.
The 2000 plan provides for the granting of:
- incentive stock options within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended, to employees;
- nonqualified stock options to employees and consultants; and
- restricted stock, cash bonus rights, stock bonuses and performance awards
to all eligible participants in the 2000 plan.
We have reserved a total of 1,333,334 shares under the 2000 plan, plus an
automatic annual increase in the number of shares, to be added on the first day
of the second month of each fiscal year beginning on February 1, 2001, equal to
the lesser of 200,000 shares or five percent of the adjusted average number of
shares outstanding used to calculate fully diluted earnings per share for the
preceding fiscal year. No incentive stock options can be granted under the plan
after ten years from the date the plan was adopted.
The 2000 plan is administered by our board of directors. Authority for
administration of this plan may be delegated by the board of directors to any
committee of the board.
The exercise price of incentive stock options must not be less than the
fair market value of the common stock at the date of the grant. Payment of the
exercise price must be made in cash or, with the approval of the board of
director, in shares of our common stock. The maximum term of incentive stock
options is 10 years. The aggregate market value, on the date of the grant, of
the common stock for which incentive stock options are exercisable for the first
time by an employee during any calendar year may not exceed $100,000.
In the event of a corporate transaction, such as a merger with or into
another corporation, or sale of substantially all of our assets, each
outstanding option to purchase shares under the 2000 plan may be assumed or an
equivalent option substituted by the successor corporation. If the successor
corporation does not assume or provide an equivalent substitute for the option,
the board may provide a period of time before the transaction is completed for
all holders to exercise their outstanding options and may exercise discretionary
authority to accelerate the exercisability of such options.
EMPLOYEE STOCK PURCHASE PLAN
Our 2000 employee stock purchase plan, or ESPP, is an employee benefit
program that allows eligible employees to purchase shares of our common stock at
a discount from fair market value. It will be implemented upon the completion of
this offering. A total of 200,000 shares will be reserved for issuance under the
ESPP, plus an automatic increase in the number of shares, to be added on the
first day of the second month of each fiscal year beginning on February 1, 2001,
equal to the lesser of 333,334 shares or one percent of the adjusted average
number of shares outstanding used to calculate fully diluted earnings per share
for the preceding fiscal year.
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<PAGE> 57
With certain exceptions, all our full-time employees will be eligible to
participate in the ESPP. Except for the first offering period, offering periods
are one year long and are divided into two six-month purchase periods. The first
offering period will begin on the date of this prospectus, will run for
approximately two years, but not more than 27 months, and will be divided into
four purchase periods. On the first day of each offering period, known as the
offering date, each eligible employee is automatically granted an option to
purchase shares of our common stock. That option will be automatically exercised
on the last day of each purchase period during the offering. The last day of a
purchase period is known as a purchase date. No employee may purchase more than
10,000 shares on any one purchase date or accrue the right to purchase shares at
a rate that exceeds $25,000 of fair market value, as determined on the offering
date, for each calendar year that the option is outstanding. Each eligible
employee may elect to participate in the ESPP by filing a subscription and
payroll deduction authorization. Shares may be purchased under the ESPP only
through payroll deductions of not more than 15 percent of an employee's total
compensation. On each purchase date, the amounts withheld will be applied to
purchase shares for the employee. The purchase price will be the lesser of 85
percent of the fair market value of our common stock:
- On the offering date; or
- On the purchase date.
The ESPP will be administered by our board of directors. The board of
directors may adopt rules and regulations for the operation of the ESPP, adopt
forms for use in connection with the ESPP, decide any questions of
interpretation of the ESPP or rights arising under the ESPP and generally
supervise the administration of the ESPP. We pay all expenses of the ESPP other
than commissions on sales of shares for our employees' accounts by the
custodian.
The board of directors may amend the ESPP, except that increases in the
number of reserved shares, other than adjustments authorized by the ESPP, or
decreases in the purchase price of shares offered under the ESPP require
stockholder approval. The board of directors may terminate the ESPP at any time.
LIMITATIONS ON DIRECTORS' LIABILITY AND INDEMNIFICATION
Our certificate of incorporation limits the liability of directors to the
fullest extent permitted by Delaware law. Delaware law provides that directors
of a corporation will not be personally liable for monetary damages for breach
of their fiduciary duties as directors, except liability for:
- any breach of the director's duty of loyalty to the corporation or its
stockholders;
- acts of omissions not in good faith or that involve intentional
misconduct or knowing violation of law;
- unlawful payments of dividends or unlawful stock repurchases or
redemptions; or
- any transaction from which a director derives an improper personal
benefit.
Although liability for monetary damages has been eliminated by our certificate
of incorporation to the fullest extent permitted by Delaware law, the
availability of equitable remedies such as injunctive relief or rescission are
not affected.
Our certificate of incorporation and bylaws provide that we shall indemnify
our directors and officers and may indemnify our agents to the fullest extent
permitted by law. We believe that indemnification under our certificate and
bylaws covers at least negligence on the part of an indemnified party. Our
certificate of incorporation and bylaws also permit us to advance expenses
incurred by an indemnified party in connection with the defense of any action or
proceeding arising out of the person's service as a director, officer, or agent
of Webridge upon an undertaking by the person to repay any advances if it is
determined that the person is not entitled to indemnification.
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<PAGE> 58
We have entered into agreements to indemnify Messrs. Anastas, Gibson,
Langeler, Whitney, Raetz, Brinker, Dunne, Jackson, Shrigley and Lash in addition
to the indemnification provided for in our certificate of incorporation. These
agreements, among other things, provide additional contractual assurances with
respect to the scope of the indemnification described above and additional
procedural protections. We believe that our certificate of incorporation and
bylaw provisions and indemnification agreements are necessary to attract and
retain qualified persons as directors and officers. Insofar as indemnification
for liabilities arising under the Securities Act may be permitted to our
directors and officers, we have been informed that, in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy and is therefore unenforceable.
We are not aware of any pending litigation or proceeding involving any
director, officer, employee or agent in which indemnification would be required
or permitted. Furthermore, we are not aware of any threatened litigation or
proceeding that might result in a claim for indemnification.
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<PAGE> 59
RELATED-PARTY TRANSACTIONS
We have accepted promissory notes from the following persons in the amounts
listed below as consideration for restricted stock issued to them:
In November 1998, James Lash loaned $1.5 million to us, represented by a
promissory note that bore interest at a rate of 10%. In December 1998, Mr. Lash
contributed the promissory note to Manchester Bridge Principal LP of which he is
the general partner. On December 24, 1998, Manchester Bridge Principal converted
its promissory note and paid an additional $1.5 million in return for 1,764,706
shares of Series B preferred stock. Mr. Lash was appointed as a director upon
the closing of the sale of Series B preferred stock.
In July 1996, Mr. Fielland loaned us $100,000 represented by a promissory
note that bore interest at a rate of 12%. On August 25, 1997, Mr. Fielland
converted this promissory note into 127,295 shares of Series A preferred stock.
In November 1998, Mr. Fielland loaned us $100,000 represented by a
promissory note that bore interest at a rate of 9%. On December 24, 1998, Mr.
Fielland converted this promissory note and paid an additional $900,000 for
588,977 shares of Series B preferred stock.
The following table summarizes the shares of common stock and preferred
stock purchased by our directors and 5% stockholders and persons associated with
them in private placement transactions. The Series A preferred stock was sold
for $0.903 per share on August 25, 1997. The Series B preferred stock was sold
for $1.70 per share on December 24, 1998. The Series C preferred stock was sold
for $5.07 per share on December 22, 1999. Each share of preferred stock
automatically converts into .667 shares of common stock upon the closing of this
offering. See "Principal Stockholders."
<TABLE>
<CAPTION>
COMMON STOCK
ISSUABLE UPON
COMMON SERIES A SERIES B SERIES C CONVERSION OF
ENTITIES AFFILIATED WITH DIRECTORS STOCK PREFERRED PREFERRED PREFERRED PREFERRED STOCK
---------------------------------- --------- --------- --------- --------- ---------------
<S> <C> <C> <C> <C> <C>
Entities affiliated with Olympic
Venture Partners (Gerard H.
Langeler)(1)......................... -- 2,768,549 656,974 302,343 2,485,245
Entities affiliated with Sevin Rosen
Funds (David A. Shrigley)(2)......... -- 3,323,513 788,666 362,949 2,983,421
Manchester Bridge Principal LP (James
A. Lash)............................. -- -- 1,764,706 -- 1,176,471
C. Scott Gibson........................ 233,334 57,232 -- 5,051 41,523
Gary N. Fielland....................... 949,819 127,295 588,977 63,220 519,663
Mark S. Anastas........................ 752,017 -- -- --
OTHER 5% STOCKHOLDERS
Meritech Capital Partners L.P.(3)...... -- -- -- 3,353,057 2,235,372
</TABLE>
-------------------------
(1) Includes shares held by OVP IV Entrepreneurs Fund L.P. and shares held by
Olympic Venture Partners IV L.P. OVMC IV, L.L.C. is the general partner of
OVP IV Entrepreneurs Fund and Olympic Venture Partners IV L.P., and
exercises investment and voting power over the shares held by these
entities. Mr. Langeler is a general partner of the general partner of the
Olympic Venture Partners entities and is a director of Webridge. He
disclaims beneficial ownership of the shares held by those entities except
to the extent of his proportionate interest therein.
(2) Includes shares held by Sevin Rosen Fund V L.P., Sevin Rosen V Affiliates
Fund L.P. and Sevin Rosen Bayless Management Company. SRB Associates V L.P.
is the general partner of Sevin Rosen Fund V L.P. and Sevin Rosen V
Affiliates Fund L.P. and exercises investment and voting power over the
shares held by these entities. Mr. Shrigley is an employee of Sevin Rosen
Bayless Management Company, an affiliate of SRB Associates V L.P. and is a
director of Webridge. He disclaims beneficial ownership of the shares held
by the entities.
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<PAGE> 60
(3) Includes shares held by Meritech Capital Partners L.P. and Meritech
Affiliate Partners L.P. Meritech Capital Associates, L.L.C. is the general
partner of both Meritech Capital Partners L.P. and Meritech Affiliate
Partners L.P. and exercises voting and investment power over the shares held
by these entities.
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<PAGE> 61
PRINCIPAL STOCKHOLDERS
The following table sets forth information about the beneficial ownership
of our common stock, including our preferred stock on an as-converted basis for
common stock, as of June 30, 2000 and as adjusted to reflect the sale of common
stock in this offering, by:
- each stockholder known by us to own beneficially more than 5% of the
common stock,
- each director,
- our named executive officers, and
- all directors and executive officers as a group.
Unless otherwise indicated, the address for each of the named stockholders
is c/o Webridge, Inc., 1925 S.W. AmberGlen Parkway, Beaverton, Oregon 97006.
Except as otherwise indicated, and subject to applicable community property
laws, the persons named in the table have sole voting and investment power with
respect to all shares of common stock held by them. The percentage of beneficial
ownership prior to the offering is based on 21,770,814 shares of common stock
outstanding as of June 30, 2000, and shares issued on the conversion of all
outstanding shares of preferred stock into common stock upon the completion of
this offering.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED SHARES BENEFICIALLY
PRIOR TO OFFERING OWNED AFTER THE
-------------------------- OFFERING
NAME NUMBER PERCENTAGE(1) PERCENTAGE
---- ---------- ------------- -------------------
<S> <C> <C> <C>
Entities affiliated with Sevin Rosen Funds(2)......... 2,983,421 13.7% 11.0%
13455 Noel Road, Suite 1670
Dallas, TX 75240
Entities affiliated with Olympic Venture
Partners(3)......................................... 2,485,245 11.4 9.1
2420 Carillon Point
Kirkland, WA 98033
Entities affiliated with Meritech Capital
Partners(4)......................................... 2,235,372 10.3 8.2
Two Soundview, Suite 302
Greenwich, CT 06830
Manchester Bridge Principal LP........................ 1,176,471 5.4 4.3
411 Theodore Fremd Avenue
Rye, NY 10580
Gary N. Fielland(5)................................... 1,302,814 6.0 4.8
Mark Anastas(6)....................................... 709,349 3.3 2.6
David Brinker(7)...................................... 256,924 1.2 *
Robert Dunne(8)....................................... 133,333 * *
Jon Jackson(9)........................................ 658,606 3.0 2.4
David Shrigley(10).................................... 2,983,421 13.7 11.0
C. Scott Gibson....................................... 274,857 1.3 1.0
Gerard H. Langeler(11)................................ 2,485,245 11.4 9.4
James A. Lash(12)..................................... 1,176,471 5.4 4.3
All directors and executive officers as a group
(11 persons)(13).................................... 10,689,973 49.1% 39.3%
</TABLE>
-------------------------
* Less than 1% of the outstanding shares of common stock.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage of ownership of that
person, shares of common stock subject to options or warrants held by that
person that are exercisable or will become exercisable within 60 days after
June 30, 2000 are considered outstanding, but these shares are not
considered outstanding for computing percentage ownership of any other
person. Unless otherwise indicated in the footnotes below, the persons and
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<PAGE> 62
entities named in the table have sole voting and investment power with
respect to all shares beneficially owned, subject to community property
laws where applicable.
(2) Includes 2,855,694 shares held by Sevin Rosen Fund V L.P., 122,091 shares
held by Sevin Rosen V Affiliates Fund L.P. and 5,636 shares held by Sevin
Rosen Bayless Management Company. SRB Associates V L.P. is the general
partner of Sevin Rosen Fund V L.P. and Sevin Rosen V Affiliates Fund L.P.
and exercises investment and voting power over the shares held by these
entities.
(3) Includes 122,944 shares held by OVP IV Entrepreneurs Fund L.P. and
2,362,301 shares held by Olympic Venture Partners IV L.P. OVMC IV, L.L.C.
is the general partner of OVP IV Entrepreneurs Fund and Olympic Venture
Partners IV L.P. and exercises investment and voting power over the shares
held by these entities.
(4) Includes 2,199,606 shares held by Meritech Capital Partners L.P. and 35,766
shares held by Meritech Affiliate Partners L.P. Meritech Capital
Associates, L.L.C. is the general partner of both Meritech Capital Partners
L.P. and Meritech Affiliate Partners L.P. and exercises voting and
investment power over the shares held by these entities.
(5) 188,890 of these shares are subject to a right of repurchase in our favor.
These shares will be released from the repurchase right at the rate of
5,555 shares per month beginning on July 26, 2000. Includes 160,000 shares
held by the Fielland Limited Partnership, of which Mr. Fielland is the
general partner and exercises investment and voting power over the shares
held by the partnership.
(6) Includes 200,000 shares held by the Anastas Family Limited Partnership, of
which Mr. Anastas is a general partner and exercises investment and voting
power over the shares held by the partnership and 11,111 shares issuable
upon exercise of options exercisable within 60 days of June 30, 2000.
(7) 153,333 of these shares are subject to a right of repurchase in our favor.
53,333 of the shares will be released from the repurchase right at the rate
of 4,444 shares per month beginning on September 1, 2000. The remaining
100,000 shares will be released from the repurchase right at the rate of
4,166 shares per month beginning on April 1, 2000.
(8) Includes 61,111 shares issuable upon exercise of options exercisable within
60 days of June 30, 2000.
(9) Includes 8,889 shares issuable upon exercise of options exercisable within
60 days of June 30, 2000.
(10) Includes 2,855,694 shares held by Sevin Rosen Fund V L.P., 122,091 shares
held by Sevin Rosen V Affiliates Fund L.P. and 5,636 shares held by Sevin
Rosen Bayless Management Company. SRB Associates V L.P. is the general
partner of Sevin Rosen Fund V L.P. and Sevin Rosen Affiliates V Fund L.P.
and exercises investment and voting power over the shares held by these
entities. Mr. Shrigley is an employee of Sevin Rosen Bayless Management
Company, an affiliate of SRB Associates V L.P. and is a director of
Webridge. He disclaims beneficial ownership of the shares held by the
entities.
(11) Includes 122,944 shares held by OVP IV Entrepreneurs Fund L.P. and
2,362,301 shares held by Olympic Venture Partners IV L.P. OVMC IV, L.L.C.
is the general partner of OVP IV Entrepreneurs Fund and Olympic Venture
Partners IV L.P. and exercises investment and voting power over the shares
held by these entities. Mr. Langeler is a general partner of the general
partner of the Olympic Venture Partners entities and is a director of
Webridge. He disclaims beneficial ownership of the shares held by those
entities except to the extent of his proportionate interest therein.
(12) Includes 1,176,471 shares held by Manchester Bridge Principal LP.
Manchester Principal LP is the general partner of Manchester Bridge
Principal LP and exercises investment and voting power over the shares held
by the partnership. Mr. Lash is the manager of the general partner and is a
director of Webridge. He disclaims beneficial ownership of the shares held
by the entities except to the extent of this proportionate interest
therein.
(13) Includes the shares described in Notes 5 through 12.
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<PAGE> 63
DESCRIPTION OF CAPITAL STOCK
GENERAL
Upon the completion of this offering, we will be authorized to issue 100
million shares of common stock and 50 million shares of undesignated preferred
stock. The following summary describes all material provisions of our capital
stock. We encourage you to read the provisions of our certificate of
incorporation and bylaws, which are included as exhibits to the registration
statement of which this prospectus forms a part, and which, together with
applicable Delaware law, contain the legal terms that govern our capital stock.
COMMON STOCK
As of June 30, 2000, there were 21,573,471 shares of our common stock
outstanding, which were held of record by 144 stockholders, after giving effect
to the conversion of the outstanding shares of preferred stock into common
stock. In addition, as of June 30, 2000, there were 1,571 shares subject to an
outstanding warrant and 1,513,498 shares of common stock subject to outstanding
options. Upon completion of this offering, there will be 27,073,471 shares of
common stock outstanding.
The holders of common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may be
applicable to any outstanding preferred stock, the holders of common stock are
entitled to receive ratably dividends, if any, declared from time to time by the
board of directors out of funds legally available for that purpose. If we
liquidate, dissolve or wind up, the holders of common stock are entitled to
share ratably in all assets remaining after payment of liabilities, subject to
the prior distribution rights of preferred stock, if any, then outstanding. The
holders of common stock have no preemptive or conversion rights or other
subscription rights. There are no redemption or sinking fund provisions
applicable to our common stock. The outstanding shares of common stock are, and
the shares of common stock offered by this prospectus when issued will be, fully
paid and nonassessable.
PREFERRED STOCK
As of June 30, 2000, we had three series of preferred stock: Series A
preferred stock, Series B preferred stock and Series C preferred stock. Each
series of preferred stock has the rights, preferences and privileges set forth
in our current Amended and Restated Certificate of Incorporation and the Second
Amended and Restated Investors' Rights Agreement dated as of December 22, 1999,
which is included as an exhibit to the registration statement of which this
prospectus forms a part. As of June 30, 2000, the number of outstanding shares
for each series of our preferred stock was:
- 7,464,134 shares of Series A preferred stock, which are convertible into
aggregate of 4,976,093 shares of common stock;
- 5,939,816 shares of Series B preferred stock, which are convertible into
aggregate of 3,959,885 shares of common stock; and
- 4,341,606 shares of Series C preferred stock, which number reflects the
full exercise of a warrant to purchase 2,356 shares of Series C preferred
stock, which are convertible into aggregate of 2,894,409 shares of common
stock.
Upon the completion of this offering, all outstanding shares of preferred stock
will be automatically converted into a total of 11,828,816 shares of common
stock, which does not include a warrant to purchase 2,356 shares of Series C
preferred stock. Thereafter, the board of directors will have the authority,
without further action by the stockholders, to issue up to 50,000,000 shares of
preferred stock in one or more series and to designate the rights, preferences,
privileges and restrictions of each such series. The issuance of
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<PAGE> 64
preferred stock could have the effect of restricting dividends on the common
stock, diluting the voting power of the common stock, impairing the liquidation
rights of the common stock or delaying or preventing a change in our corporate
control without further action by the stockholders. We have no present plans to
issue any shares of preferred stock after the completion of this offering.
REGISTRATION RIGHTS
The holders of 19,038,841 shares of common stock, including shares issuable
upon conversion of preferred stocks, referred to as the registrable securities,
are entitled to have their shares registered by us under the Securities Act
under the terms of an agreement between us and the holders of these registrable
securities.
Subject to limitations specified in the agreement, these registration
rights include the following:
- The holders of at least 25% of the then outstanding registrable
securities may require, on two occasions beginning 12 months after the
date of this prospectus, that we use our best efforts to register at
least 20% of the then-outstanding registrable securities for public
resale.
- If we register any common stock, either for our own account or for the
account of other security holders, the holders of these registrable
securities are entitled to
-- notice of registration; and
-- include their shares of common stock in such registration, subject to
the ability of the underwriters to limit the number of shares included
in the offering in view of market conditions.
- The holders of these registrable securities may require us on six
occasions to register all or a portion of their registrable securities on
Form S-3 when use of such form becomes available to us, provided that the
proposed aggregate selling price is at least $500,000.
We will bear all registration expenses other than underwriting discounts
and commissions. All registration rights terminate on the date five years
following the closing of this offering, or, with respect to each holder of
registrable securities, at such time as the holder is entitled to sell all of
its shares in any three-month period under Rule 144 of the Securities Act. The
holders of these registrable securities have entered into lock-up agreements
generally providing that, with limited exceptions, they will not offer to sell,
contract to sell or transfer any of the shares of our common stock or any
securities convertible into, or exercisable or exchangeable for, our common
stock for 180 days after the date of this prospectus, without the prior written
consent of FleetBoston Robertson Stephens Inc.
WARRANTS
As of June 30, 2000, there was a warrant outstanding to purchase 2,356
shares of our Series C preferred stock at a price of $4.24 per share.
DELAWARE ANTI-TAKEOVER LAW AND CHARTER PROVISIONS
Delaware law and our restated certificate of incorporation and by-laws
could make it more difficult to acquire us by means of a tender offer, a proxy
contest, open market purchases, and removal of incumbent directors. These
provisions, summarized below, are expected to discourage types of coercive
takeover practices and inadequate takeover bids and to encourage persons seeking
to acquire control of us to first negotiate with us. We believe that the
benefits of increased protection of our potential ability to negotiate with the
proponent of an unfriendly or unsolicited proposal to acquire or restructure us
outweigh the disadvantages of discouraging takeover or acquisition proposals
because negotiation of these proposals could result in an improvement of their
terms.
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We must comply with Section 203 of the Delaware General Corporation Law, an
anti-takeover law. In general, Section 203 prohibits a publicly held Delaware
corporation from engaging in a business combination with an interested
stockholder for a period of three years following the date the person became an
interested stockholder, unless the business combination or the transaction in
which the person became an interested stockholder is approved in a prescribed
manner. Generally, a business combination includes a merger, asset or stock
sale, or other transaction resulting in a financial benefit to an interested
stockholder. An interested stockholder includes a person who, together with
affiliates and associates, owns, or did own within three years prior to the
determination of interested stockholder status, 15% or more of the corporation's
voting stock. The existence of this provision generally will have an
anti-takeover effect for transactions not approved in advance by the board of
directors, including discouraging attempts that might result in a premium over
the market price for the shares of common stock held by stockholders.
Upon the closing of this offering, our restated certificate of
incorporation and bylaws will require that any action required or permitted to
be taken by our stockholders must be effected at a duly called annual or special
meeting of the stockholders and may not be effected by a consent in writing. In
addition, upon the completion of this offering, special meetings of our
stockholders may be called only by the board of directors or some of our
officers. These provisions may have the effect of deterring hostile takeovers or
delaying changes in our control or management.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is ChaseMellon
Shareholder Services.
LISTING
We have applied for listing on the Nasdaq Stock Market's National Market
System under the symbol "WEBR."
SHARES ELIGIBLE FOR FUTURE SALE
Before this offering, there has been no public market for our common stock.
We cannot predict the effect, if any, that sales of shares of our common stock
to the public or the availability of shares for sale to the public will have on
the market price of our common stock prevailing from time to time. Nevertheless,
if a significant number of shares of our common stock are sold in the public
market, or if people believe these sales may occur, the market price of our
common stock could decline, which could impair our future ability to raise
capital through the sale of our equity securities.
Upon completion of this offering, we will have outstanding 27,073,471
shares of our common stock, assuming no exercise of options after June 30, 2000.
Of these shares, the 5,500,000 shares sold in this offering will be freely
tradable without restriction under the Securities Act except for any shares
purchased by any of our "affiliates" as that term is defined in Rule 144 under
the Securities Act.
63
<PAGE> 66
The remaining 21,573,471 shares of common stock were issued and sold by us
in reliance on exemptions from the registration requirements of the Securities
Act, of which are subject to lock-up agreements with the
underwriters described below. In addition, shares of our common stock held by
our existing stockholders will be eligible for sale in the public market as
described below.
<TABLE>
<CAPTION>
NUMBER OF SHARES
ELIGIBLE FOR
RELEVANT DATES FUTURE SALE COMMENT
-------------- ---------------- -------
<S> <C> <C>
As of the date of this prospectus.............. 0
180 days after effective date ( ,
2000)........................................ 17,686,461 All shares subject to lock-up
released; shares eligible for
sale under Rules 144 and 701
More than 181 days after effective date (after
, 2000).......................... 3,887,010 Additional shares becoming
eligible for sale under Rule
144 more than 180 days the
effective date
</TABLE>
In addition, as of June 30, 2000, there were outstanding options to
purchase 1,513,498 shares of common stock, all of which are subject to lock-up
agreements.
LOCK-UP AGREEMENTS
Each of our executive officers and directors and certain of our
stockholders, who together will own a total of shares of our
common stock after the offering, have entered into lock-up agreements generally
providing that, with limited exceptions, they will not offer to sell, contract
to sell or transfer any of the shares of our common stock or any securities
convertible into, or exercisable or exchangeable for, our common stock for 180
days after the date of this prospectus, without the prior written consent of
FleetBoston Robertson Stephens Inc.
FleetBoston Robertson Stephens Inc. may, in its sole discretion and at any
time without notice, release all or any portion of the securities subject to
lock-up agreements. When determining whether or not to release shares from the
lock-up agreements, FleetBoston Robertson Stephens Inc. will consider the
stockholder's reasons for requesting the release, the number of shares for which
the release is being requested and market conditions at the time. FleetBoston
Robertson Stephens Inc. has informed us that it does not have any present
intention or any understanding, tacit or explicit, to release any of the
securities subject to the lock-up agreements prior to the expiration of the 180
day lock-up period. Following the expiration of the 180 day lock-up period,
additional shares of our common stock will be available for sale in the public
market subject to compliance with Rule 144 or Rule 701.
We have agreed not to sell or dispose of any shares of our common stock
during the 180-day period following the date of this prospectus, except we may
issue, and grant options to purchase, shares of our common stock under our stock
incentive plan.
RULE 144
In general, under Rule 144, beginning 90 days after the date of this
prospectus, any person (or persons whose shares are aggregated) who has
beneficially owned restricted shares for at least one year, will be entitled to
sell in any three-month period a number of shares that does not exceed the
greater of:
- one percent of the then-outstanding shares of common stock (approximately
271,000 shares immediately after this offering), or
64
<PAGE> 67
- the average weekly trading volume during the four calendar weeks
preceding the date on which notice of the sale is filed with the SEC.
Sales under Rule 144 must also comply with manner of sale provisions and
notice requirements and are subject to the availability of public information
about us. We are unable to estimate the number of shares that will be sold under
Rule 144 as this will depend on the market price for the common stock, the
personal circumstances of the sellers and other factors.
RULE 144(k)
Under Rule 144(k), a person who is not considered to have been one of our
"affiliates" at any time during the three months preceding a sale and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner other than an "affiliate," is
entitled to sell these shares without complying with the manner of sale, notice
filing, volume limitation or public information provisions of Rule 144.
Therefore, unless otherwise restricted, shares of our common stock that have
been held by a non-affiliate for at least two years may be sold in the open
market immediately after the lock-up agreements expire or upon completion of
this offering to the extent any shares of our common stock are not subject to
lock-up agreements.
RULE 701
In general under Rule 701, our employees, officers, directors and
consultants who purchased shares of our common stock in connection with written
compensatory benefit plans or written contracts relating to the compensation of
the purchaser may rely on Rule 701 to resell those shares. The Securities and
Exchange Commission has indicated that Rule 701 will apply to stock options
granted by an issuer before it becomes subject to the reporting requirements of
the Securities Exchange Act of 1934, as amended, along with the shares acquired
upon exercises of those options, including exercises after the date of this
offering. Shares issued in reliance on Rule 701 are restricted and beginning 90
days after the date of this prospectus:
- may be sold by persons other than our affiliates subject only to the
manner of sale provisions of Rule 144; and
- may be sold by our affiliates under Rule 144 without complying with its
one-year holding period requirement.
STOCK OPTIONS
At June 30, 2000, options to purchase 1,513,498 shares of common stock were
outstanding under our 1996 stock incentive plan and an additional 102,038
remained available for grant under the plan. In addition, 1,333,334 shares of
common stock remained available for grant under our 2000 stock incentive plan.
The holders of outstanding options to purchase shares which are
currently exercisable or become exercisable within 90 days after the date of
this prospectus are subject to lock-up for 180 days following the date of this
offering.
Upon the completion of this offering, we intend to file a registration
statement on Form S-8 under the Securities Act to register all shares of common
stock covered by outstanding options or reserved for future issuance under our
1996 stock incentive plan, our 2000 stock incentive plan and our 2000 employee
stock purchase plan. We expect the registration statement will cover a total of
approximately 3,148,870 shares. The registration statement will become effective
upon filing. Accordingly, shares covered by that registration statement will
thereupon be eligible for sale in the public markets, unless such options are
subject to exercisability restrictions or the lock-up agreements noted above.
65
<PAGE> 68
UNDERWRITING
The underwriters named below, acting through their representatives,
FleetBoston Robertson Stephens Inc., U.S. Bancorp Piper Jaffray Inc. and Banc of
America Securities LLC have severally agreed with us, subject to the terms and
conditions of the underwriting agreement, to purchase from us the number of
shares of our common stock set forth opposite their names below. The
underwriters are committed to purchase and pay for all of the shares if any are
purchased.
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ---------
<S> <C>
FleetBoston Robertson Stephens Inc..........................
U.S. Bancorp Piper Jaffray Inc..............................
Banc of America Securities LLC..............................
---------
Total..................................................... 5,500,000
=========
</TABLE>
We have been advised that the underwriters propose to offer the shares of
our common stock to the public at the public offering price located on the cover
page of this prospectus and to dealers at that price less a concession of not in
excess of $ per share, of which $ may be reallowed to other dealers. After
the initial public offering, the public offering price, concession and
reallowance to dealers may be reduced by the representatives. No reduction in
this price will change the amount of proceeds to be received by us as indicated
on the cover page of this prospectus.
The underwriters have advised us that they do not expect sales to
discretionary accounts to exceed five percent of the total number of shares
offered.
Over-Allotment Option. We have granted to the underwriters an option,
exercisable during the 30-day period after the date of this prospectus, to
purchase up to 825,000 additional shares of our common stock to cover
over-allotments, if any, at the same price per share as we will receive for the
5,500,000 shares that the underwriters have agreed to purchase. To the extent
that the underwriters exercise this option, each of the underwriters will have a
firm commitment to purchase approximately the same percentage of such additional
shares that the number of shares of our common stock to be purchased by it shown
in the above table represents as a percentage of the 5,500,000 shares offered by
this prospectus. If purchased, the additional shares will be sold by the
underwriters on the same terms as those on which the 5,500,000 shares are being
sold. We will be obligated, under this option, to sell shares to the extent the
option is exercised. The underwriters may exercise the option only to cover
over-allotments made in connection with the sale of the 5,500,000 shares of our
common stock offered by this prospectus.
The following table shows the per share and total underwriting discounts
and commissions to be paid by us to the underwriters. This information is
presented assuming either no exercise or full exercise by the underwriters of
their over-allotment option.
<TABLE>
<CAPTION>
WITHOUT WITH
PER OVER-ALLOTMENT OVER-ALLOTMENT
SHARE OPTION OPTION
----- -------------- --------------
<S> <C> <C> <C>
Assumed public offering price........................... $9.00 $49,500,000 $56,925,000
Underwriting discounts and commissions.................. $0.63 $ 3,465,000 $ 3,984,750
Proceeds, before expenses, to us........................ $8.37 $46,035,000 $52,940,250
</TABLE>
The expenses of the offering, other than underwriting discounts and
commissions, payable by us are estimated at $1,125,000. FleetBoston Robertson
Stephens Inc. expects to deliver the shares of our common stock to purchasers on
, 2000.
Indemnity. The underwriting agreement contains covenants of indemnity among
the underwriters and us against certain civil liabilities, including liabilities
under the Securities Act, and liabilities arising from breaches of
representations and warranties contained in the underwriting agreement.
66
<PAGE> 69
Lock-up Agreements. Under the terms of lock-up agreements, each of our
officers and directors and certain of our stockholders have agreed with the
representatives, for a period of 180 days after the date of this prospectus,
subject to limited exceptions, not to offer to sell, contract to sell, or
otherwise sell, dispose of, loan, pledge or grant any rights with respect to any
shares of our common stock or any options or warrants to purchase any shares of
our common stock, or any securities convertible into or exchangeable for shares
of our common stock owned as of the date of this prospectus or later acquired
directly by such holders or with respect to which they have the power of
disposition, without the prior written consent of FleetBoston Robertson Stephens
Inc. However, FleetBoston Robertson Stephens Inc. may, in its sole discretion
and at any time without notice, release all or any portion of the securities
subject to these agreements not to sell shares. There are no existing agreements
between the representatives of the underwriters and any of our stockholders
providing consent to the sale of shares prior to the expiration of the period
180 days after this prospectus.
Future Sales by Us. In addition, we have agreed that during the 180 days
after the date of this prospectus, we will not, subject to certain exceptions,
without the prior written consent of FleetBoston Robertson Stephens:
- Consent to the disposition of any shares held by stockholders subject to
agreements not to sell shares prior to the expiration of the period 180
days after the date of this prospectus; or
- Issue, sell, contract to sell, or otherwise dispose of any shares of
common stock or any securities convertible into, exercisable for or
exchangeable for shares of our common stock, other than:
-- the sale of shares in this offering;
-- the issuance of common stock upon the exercise of outstanding options
or warrants; and
-- the issuance of options of shares under our stock incentive plan.
Directed Share Program. At our request, the underwriters have reserved up
to at least 7% of the shares of our common stock offered by this prospectus for
sale to our officers, directors, employees and their family members and to our
business associates at the public offering price set forth on the cover page of
this prospectus. These business associates are current and former clients,
vendors, suppliers and other individuals who, in the judgment of our management,
have contributed to our success. These persons must commit to purchase no later
than the close of business on the day following the date of this prospectus. The
number of shares available for sale to the general public will be reduced to the
extent these persons purchase the reserved shares.
Listing. We have applied to have our common stock approved for quotation on
the Nasdaq National Market under the symbol "WEBR."
No Prior Public Market. Prior to this offering, there has been no public
market for our common stock. Consequently, the initial public offering price for
the common stock offered by this prospectus will be determined through
negotiations among us and the representatives of the underwriters. Among the
factors to be considered in these negotiations are prevailing market conditions,
our financial information, market valuations of other companies that we and the
representatives of the underwriters believe to be comparable to us, estimates of
our business potential, the present state of our development and other factors
deemed relevant.
Syndicate Short Sales. The representatives have advised us that, on behalf
of the underwriters, they may make short sales of our common stock in connection
with this offering, resulting in the sale by the underwriters of a greater
number of shares than they are required to purchase pursuant to the underwriting
agreement. The short position resulting from those short sales will be deemed a
"covered" short position to the extent that it does not exceed the 825,000
shares subject to the underwriters' over-allotment option and will be deemed a
"naked" short position to the extent that it exceeds that number. A naked short
position is more likely to be created if the underwriters are concerned that
there may be downward pressure on the
67
<PAGE> 70
trading price of the common stock in the open market that could adversely affect
investors who purchased shares in the offering. The underwriters may reduce or
close out their covered short position either by exercising the over-allotment
option or by purchasing shares in the open market. In determining which of these
alternatives to pursue, the underwriters will consider the price at which shares
are available for purchase in the open market compared to the price at which
they may purchase shares through the over-allotment option. Any "naked" short
position will be closed out by purchasing shares in the open market. Similar to
the other stabilizing transactions described below, open market purchases made
by the underwriters to cover all or a portion of their short position may have
the effect of preventing or retarding a decline in the market price of our
common stock following this offering. As a result, our common stock may trade at
a price that is higher than the price that otherwise might prevail in the open
market.
Stabilization. The representatives have advised us that, pursuant to
Regulation M under the Securities Act of 1934, they may engage in transactions,
including stabilizing bids or the imposition of penalty bids, that may have the
effect of stabilizing or maintaining the market price of shares of common stock
at a level above that which might otherwise prevail in the open market. A
"stabilizing bid" is a bid for or the purchase of shares of common stock on
behalf of the underwriters for the purpose of fixing or maintaining the price of
the common stock. A "penalty bid" is an arrangement permitting the
representatives to claim the selling concession otherwise accruing to an
underwriter or syndicate member in connection with the offering if the common
stock originally sold by that underwriter or syndicate member is purchased by
the representatives in the open market pursuant to a stabilizing bid or to cover
all or part of a syndicate short position. The representatives have advised us
that stabilizing bids and open market purchases may be effected on the Nasdaq
National Market or otherwise and, if commenced, may be discontinued at any time.
LEGAL MATTERS
The validity of the shares of our common stock offered hereby will be
passed upon for us by Stoel Rives LLP, Portland, Oregon. Certain legal matters
in connection with this offering will be passed upon for the underwriters by
Brobeck, Phleger & Harrison LLP, Broomfield, Colorado.
EXPERTS
The financial statements of Webridge, Inc. as of December 31, 1998 and
1999, and for each of the years in the three-year period ended December 31,
1999, have been included in this prospectus and elsewhere in the registration
statement in reliance upon the report of KPMG LLP, independent auditors,
appearing elsewhere in this prospectus and registration statement and upon the
authority of KPMG LLP as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 for our common stock offered by this prospectus. This
prospectus, which constitutes a part of that registration statement, does not
contain all of the information included in the registration statement or the
exhibits and schedules that are part of the registration statement. For further
information on us and our common stock, you should review the registration
statement and its exhibits and schedules. Any document we file may be read and
copied at the Commission's public reference rooms at the following locations:
<TABLE>
<S> <C> <C>
Room 1024 Suite 1300 Citicorp Center
450 Fifth Street, N.W. Seven World Trade Center 500 West Madison Street,
Washington, D.C. 20549 New York, New York 10048 Suite 1400
Chicago, Illinois 60661
</TABLE>
68
<PAGE> 71
Please call the Commission at 1-800-SEC-0330 for further information about
the public reference rooms. Our filings with the Commission are also available
to the public from the Commission's Web site at http://www.sec.gov.
Upon completion of this offering, we will become subject to the information
and periodic reporting requirements of the Securities Exchange Act and will file
periodic reports, proxy statements and other information with the Commission.
These periodic reports, proxy statements and other information will be available
for inspection and copying at the Commission's public reference rooms and the
Web site of the Commission referred to above.
69
<PAGE> 72
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
WEBRIDGE, INC. CONSOLIDATED FINANCIAL STATEMENTS:
Report of KPMG LLP........................................ F-2
Consolidated Balance Sheets............................... F-3
Consolidated Statements of Operations..................... F-4
Consolidated Statement of Stockholders' Equity
(Deficit).............................................. F-5
Consolidated Statements of Cash Flows..................... F-6
Notes to Consolidated Financial Statements................ F-7
</TABLE>
F-1
<PAGE> 73
When the reverse stock split referred to in note 10(b) of the notes to the
consolidated financial statements has been completed, we will render the
following opinion.
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Webridge, Inc.:
We have audited the accompanying consolidated balance sheets of Webridge,
Inc. and subsidiaries as of December 31, 1998 and 1999, and the related
consolidated statements of operations, stockholders' equity (deficit), and cash
flows for each of the years in the three-year period ended December 31, 1999.
These consolidated financial statements are the responsibility of the Webridge's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Webridge,
Inc. and subsidiaries as of December 31, 1998 and 1999, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1999 in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
Portland, Oregon
March 6, 2000, except as to note 10(b)
which is as of September , 2000
F-2
<PAGE> 74
WEBRIDGE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------- --------------------------
1998 1999 2000 2000
------- -------- ----------- -----------
(PRO FORMA)
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................... $ 5,951 $ 22,214 $ 15,405
Investments............................................. 1,981 958 998
Restricted investment................................... -- 250 250
Accounts receivable..................................... 347 2,935 5,048
Revenue in excess of billings........................... -- -- 333
Prepaids and other current assets....................... -- 468 663
------- -------- --------
Total current assets............................ 8,279 26,825 22,697
Furniture and equipment, net.............................. 422 575 1,358
Other assets.............................................. 20 -- --
------- -------- --------
Total assets.................................... $ 8,721 $ 27,400 $ 24,055
======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit.......................................... $ -- $ 750 --
Accounts payable........................................ 124 763 1,460
Accrued expenses........................................ 347 843 1,202
Deferred revenue........................................ 113 1,490 3,023
Current portion of long-term debt and capital lease
obligations.......................................... 264 284 248
------- -------- --------
Total current liabilities....................... 848 4,130 5,933
Long-term debt and capital lease obligations, net of
current portion......................................... 252 16 238
------- -------- --------
Total liabilities............................... 1,100 4,146 6,171
------- -------- --------
Commitments
Stockholders' equity:
Preferred stock, $.001 par value. Authorized 17,844
shares consisting of:
Series C convertible preferred stock; liquidation
preference $21,474. Authorized 4,342 shares; issued
and outstanding - 0-, 4,235 and 4,339 shares at
December 31, 1998 and 1999 and June 30, 2000
(unaudited), respectively.......................... -- 4 5 --
Series B convertible preferred stock; liquidation
preference $10,064. Authorized 6,038 shares; issued
and outstanding 4,744, 5,920 and 5,940 shares at
December 31, 1998 and 1999 and June 30, 2000
(unaudited), respectively.......................... 5 6 6 --
Series A convertible preferred stock; liquidation
preference $6,740. Authorized 7,464 shares; issued
and outstanding 7,464 shares at December 31, 1998
and 1999 and June 30, 2000 (unaudited)............. 7 7 7 --
Common stock, $.001 par value. Authorized 50,000 shares;
issued and outstanding 8,242, 8,708 and 9,745 shares
at December 31, 1998, 1999 and June 30, 2000
(unaudited), respectively............................ 12 13 14 32
Additional paid-in capital.............................. 15,818 41,973 44,492 44,492
Deferred stock-based compensation....................... -- (2,309) (2,947) (2,947)
Accumulated other comprehensive income -- foreign
currency translation................................. -- -- (8) (8)
Accumulated deficit..................................... (8,221) (16,440) (23,685) (23,685)
------- -------- -------- --------
Total stockholders' equity...................... 7,621 23,254 17,884 17,884
------- -------- -------- --------
Total liabilities and stockholders' equity...... $ 8,721 $ 27,400 $ 24,055
======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 75
WEBRIDGE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
----------------------------- ------------------
1997 1998 1999 1999 2000
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Product licenses....................... $ -- $ 175 $ 1,879 $ 524 $ 3,226
Services............................... -- 148 2,568 348 2,789
------- ------- ------- ------- -------
Total revenue....................... -- 323 4,447 872 6,015
Cost of revenue:
Cost of product licenses............... -- 9 -- -- 22
Cost of services....................... -- 135 1,332 452 1,855
------- ------- ------- ------- -------
Total cost of revenue............... -- 144 1,332 452 1,877
------- ------- ------- ------- -------
Gross profit........................ -- 179 3,115 420 4,138
------- ------- ------- ------- -------
Operating expenses:
Research and development............... 1,514 3,403 4,939 2,199 3,913
Sales and marketing.................... 427 1,926 5,317 1,983 5,842
General and administrative............. 327 724 1,376 590 2,155
------- ------- ------- ------- -------
Total operating expenses............ 2,268 6,053 11,632 4,772 11,910
------- ------- ------- ------- -------
Loss from operations................ (2,268) (5,874) (8,517) (4,352) (7,772)
------- ------- ------- ------- -------
Other income (expense):
Interest income........................ 94 134 321 200 594
Interest expense....................... (23) (69) (45) (21) (67)
Other.................................. -- (6) 22 -- --
------- ------- ------- ------- -------
Total other income (expense)........ 71 59 298 179 527
------- ------- ------- ------- -------
Net loss before provision for income
taxes............................. (2,197) (5,815) (8,219) (4,173) (7,245)
Provision for income taxes............... -- -- -- -- --
------- ------- ------- ------- -------
Net loss............................ $(2,197) $(5,815) $(8,219) $(4,173) $(7,245)
======= ======= ======= ======= =======
Basic and diluted net loss per share..... $ (2.30) $ (1.63) $ (1.45) $ (0.81) $ (0.99)
======= ======= ======= ======= =======
Shares used in computing basic and
diluted net loss per share............. 956 3,571 5,680 5,168 7,307
======= ======= ======= ======= =======
Pro forma basic and diluted net loss per
share.................................. $ (0.38)
=======
Shares used in computing pro forma basic
and diluted net loss per share......... 19,135
=======
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 76
WEBRIDGE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SERIES C SERIES B SERIES A
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK COMMON STOCK ADDITIONAL
--------------- --------------- --------------- --------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
------ ------ ------ ------ ------ ------ ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance as of December 31, 1996........ -- $-- -- $-- -- $-- 3,330 $ 5 $ --
Issuance of common stock............... -- -- -- -- -- -- 4,196 6 78
Exercise of common stock options....... -- -- -- -- -- -- 521 1 38
Issuance of Series A preferred stock... -- -- -- -- 7,464 7 -- -- 6,697
Issuance of common stock options for
services............................. -- -- -- -- -- -- -- -- 634
Net loss............................... -- -- -- -- -- -- -- -- --
----- -- ----- -- ----- -- ----- --- -------
Balance as of December 31, 1997........ -- -- -- -- 7,464 7 8,047 12 7,447
Exercise of common stock options....... -- -- -- -- -- -- 195 -- 26
Issuance of Series B preferred stock... -- -- 4,744 5 -- -- -- -- 8,044
Issuance of common stock options for
services............................. -- -- -- -- -- -- -- -- 301
Repayment of common stock subscription
receivable........................... -- -- -- -- -- -- -- -- --
Net loss............................... -- -- -- -- -- -- -- -- --
----- -- ----- -- ----- -- ----- --- -------
Balance as of December 31, 1998........ -- -- 4,744 5 7,464 7 8,242 12 15,818
Exercise of common stock options....... -- -- -- -- -- -- 500 1 103
Repurchase of common stock............. -- -- -- -- -- -- (34) -- (4)
Issuance of Series B preferred stock... -- -- 1,176 1 -- -- -- -- 1,999
Issuance of Series C preferred stock... 4,235 4 -- -- -- -- -- -- 21,469
Deferred stock-based compensation...... -- -- -- -- -- -- -- -- 2,588
Amortization of stock-based
compensation......................... -- -- -- -- -- -- -- -- --
Net loss............................... -- -- -- -- -- -- -- -- --
----- -- ----- -- ----- -- ----- --- -------
Balance as of December 31, 1999........ 4,235 4 5,920 6 7,464 7 8,708 13 41,973
Exercise of common stock options
(unaudited).......................... -- -- -- -- -- -- 1,038 1 757
Repurchase of common stock
(unaudited).......................... -- -- -- -- -- -- (1) -- (2)
Foreign currency translation
(unaudited).......................... -- -- -- -- -- -- -- -- --
Issuance of Series B preferred stock
(unaudited).......................... -- -- 20 -- -- -- -- -- 100
Issuance of Series C preferred stock
(unaudited).......................... 104 1 -- -- -- -- -- -- 524
Deferred stock-based compensation
(unaudited).......................... -- -- -- -- -- -- -- -- 1,140
Amortization of stock-based
compensation (unaudited)............. -- -- -- -- -- -- -- -- --
Net loss (unaudited)................... -- -- -- -- -- -- -- -- --
----- -- ----- -- ----- -- ----- --- -------
Balance as of June 30, 2000
(unaudited).......................... 4,339 $5 5,940 $6 7,464 $7 9,745 $14 $44,492
===== == ===== == ===== == ===== === =======
<CAPTION>
ACCUMULATED
COMMON OTHER TOTAL
DEFERRED STOCK COMPREHENSIVE STOCKHOLDERS'
STOCK-BASED SUBSCRIPTION INCOME -- FOREIGN ACCUMULATED EQUITY
COMPENSATION RECEIVABLE CURRENCY TRANSLATION DEFICIT (DEFICIT)
------------ ------------ -------------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance as of December 31, 1996........ $ -- $ -- $-- $ (209) $ (204)
Issuance of common stock............... -- -- -- -- 84
Exercise of common stock options....... -- (35) -- -- 4
Issuance of Series A preferred stock... -- -- -- -- 6,704
Issuance of common stock options for
services............................. -- -- -- -- 634
Net loss............................... -- -- -- (2,197) (2,197)
------- ---- --- -------- -------
Balance as of December 31, 1997........ -- (35) -- (2,406) 5,025
Exercise of common stock options....... -- -- -- -- 26
Issuance of Series B preferred stock... -- -- -- -- 8,049
Issuance of common stock options for
services............................. -- -- -- -- 301
Repayment of common stock subscription
receivable........................... -- 35 -- -- 35
Net loss............................... -- -- -- (5,815) (5,815)
------- ---- --- -------- -------
Balance as of December 31, 1998........ -- -- -- (8,221) 7,621
Exercise of common stock options....... -- -- -- -- 104
Repurchase of common stock............. -- -- -- -- (4)
Issuance of Series B preferred stock... -- -- -- -- 2,000
Issuance of Series C preferred stock... -- -- -- -- 21,473
Deferred stock-based compensation...... (2,588) -- -- -- --
Amortization of stock-based
compensation......................... 279 -- -- -- 279
Net loss............................... -- -- -- (8,219) (8,219)
------- ---- --- -------- -------
Balance as of December 31, 1999........ (2,309) -- -- (16,440) 23,254
Exercise of common stock options
(unaudited).......................... -- -- -- -- 758
Repurchase of common stock
(unaudited).......................... -- -- -- -- (2)
Foreign currency translation
(unaudited).......................... -- -- (8) -- (8)
Issuance of Series B preferred stock
(unaudited).......................... -- -- -- -- 100
Issuance of Series C preferred stock
(unaudited).......................... -- -- -- -- 525
Deferred stock-based compensation
(unaudited).......................... (1,140) -- -- -- --
Amortization of stock-based
compensation (unaudited)............. 502 -- -- -- 502
Net loss (unaudited)................... -- -- -- (7,245) (7,245)
------- ---- --- -------- -------
Balance as of June 30, 2000
(unaudited).......................... $(2,947) $ -- $(8) $(23,685) $17,884
======= ==== === ======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 77
WEBRIDGE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
----------------------------- ------------------
1997 1998 1999 1999 2000
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.............................................. $(2,197) $(5,815) $(8,219) $(4,173) $(7,245)
Adjustments to reconcile net loss to net cash used for
operating activities:
Depreciation and amortization...................... 49 163 256 114 198
(Gain) loss on disposal of assets.................. -- 5 (2) -- 28
Non-cash interest expense.......................... 19 10 -- -- --
Non-cash expense for services...................... 634 301 -- --
Amortization of deferred stock-based
compensation..................................... -- -- 279 22 502
Change in operating assets and liabilities:
Accounts receivable.............................. -- (347) (2,588) (371) (2,113)
Revenue in excess of billings.................... -- -- -- -- (333)
Accounts payable and accrued expenses............ 11 279 1,135 293 1,056
Deferred revenue................................. -- 113 1,377 705 1,533
Prepaids and other assets........................ -- -- (448) (160) (99)
------- ------- ------- ------- -------
Net cash used for operating activities........ (1,484) (5,291) (8,210) (3,570) (6,473)
------- ------- ------- ------- -------
Cash flows from investing activities:
Proceeds on sale of fixed assets...................... -- 6 5 -- 19
Purchase of furniture and equipment................... (211) (282) (412) (135) (1,028)
Purchase of investments............................... -- (1,981) (2,198) -- (1,820)
Maturities of investments............................. -- -- 3,221 55 1,780
Deposit on facility lease............................. (24) 4 -- -- (96)
------- ------- ------- ------- -------
Net cash (used for) provided by investing
activities.................................. (235) (2,253) 616 (80) (1,145)
------- ------- ------- ------- -------
Cash flows from financing activities:
Proceeds from issuance of preferred stock............. 6,465 6,139 23,473 2,000 625
Repurchase of common stock............................ -- -- (4) (1) (2)
Proceeds from issuance of common stock................ 88 26 104 7 758
Proceeds from notes payable........................... -- 439 -- -- --
Proceeds from (repayment of) line of credit........... -- -- 750 -- (750)
Proceeds from sale/leaseback.......................... -- -- 22 -- 406
Repayments of common stock subscriptions receivable... -- 35 -- -- --
Principal payments on capital leases.................. (7) (39) (19) (150) (111)
Principal payments on notes payable................... -- -- (219) -- (109)
Principal payments on notes payable to stockholders... (31) -- -- -- --
Proceeds from notes payable to stockholders........... 120 1,900 -- -- --
Restricted investment................................. -- -- (250) -- --
------- ------- ------- ------- -------
Net cash provided by financing activities..... 6,635 8,500 23,857 1,856 817
------- ------- ------- ------- -------
Net increase (decrease) in cash and cash
equivalents................................. 4,916 956 16,263 (1,794) (6,801)
Effect of exchange rate on cash......................... -- -- -- -- (8)
Cash and cash equivalents at beginning of period........ 79 4,995 5,951 5,951 22,214
------- ------- ------- ------- -------
Cash and cash equivalents at end of period.............. $ 4,995 $ 5,951 $22,214 $ 4,157 $15,405
======= ======= ======= ======= =======
Supplemental disclosures:
Cash paid for interest................................ $ 10 $ 57 $ 45 $ 21 $ 67
Non-cash investing activities:
Equipment acquired under capital lease................ 65 57 -- -- --
Common stock issued in exchange for notes
receivable......................................... 35 -- -- -- --
Conversion of notes payable to stockholders and
related accrued interest into preferred stock...... 239 1,910 -- -- --
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 78
WEBRIDGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) NATURE OF BUSINESS
Webridge, Inc. (Webridge) was incorporated in Delaware in June 1996.
Webridge develops, markets and supports enterprise commerce packaged
applications for commerce, content management and collaboration, with additional
specialized add-on software applications and software tools to customize and
maintain the solutions built with these products. Webridge sells its software
products through a direct sales force primarily in the U.S. Webridge was a
development stage company through the first half of 1998.
During 2000, Webridge established subsidiaries in Japan and in the United
Kingdom.
(b) PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Webridge and its subsidiaries. All significant intercompany transactions and
balances have been eliminated.
(c) REVENUE RECOGNITION
Webridge has adopted Statement of Position (SOP) 97-2, Software Revenue
Recognition, as amended by SOP 98-9, since inception. Revenue on software
arrangements involving multiple elements, which generally include perpetual and
subscription-based software product licenses, deployment services, post-
contractual customer support (PCS), and hosting services, is allocated to the
elements using the residual method. Webridge has determined that deployment
services, PCS, and hosting services can be separated from product licenses
because they are not essential to the functionality of any other element in the
arrangement and have sufficient vendor-specific objective evidence (VSOE) to
permit the allocation of revenue to these elements. VSOE has been determined
based on objective evidence that is specific to Webridge. Objective evidence is
determined by the separate sale of the element or by the contracted renewal
rate.
Under the residual method, the fair value of deployment services, PCS and
hosting services is deferred and subsequently recognized as the services are
performed. The difference between the total software arrangement fee and the
amount deferred for deployment services, PCS and hosting services is allocated
to product licenses and recognized in accordance with SOP 97-2.
Webridge's software is not functionally dependent on deployment services.
Revenue from product licenses is generally recognized when persuasive evidence
of an arrangement exists, the product has been delivered, there are no remaining
significant obligations, the fee is fixed or determinable and collection of the
fee is probable. Subscription-based product licenses revenue is recognized
ratably over the period of the subscription contract, typically two years.
Services revenue consists of deployment services for product installation
and integration, hosting, support and training. Services are billed using either
a fixed fee arrangement or based on time and materials. Deployment service
revenue from time and materials based contracts is recognized as the service is
performed. Revenue is recognized on fixed fee arrangements on the completion of
specific contractual milestone events, or based on an estimated percentage of
completion as work progresses.
Hosting services are sold to customers based on a monthly or quarterly fee.
Revenue for hosting services, including the initial set up fee, is recognized
ratably over the term of the arrangement, typically one year.
F-7
<PAGE> 79
WEBRIDGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
PCS arrangements for non-subscription customers typically have a one-year
term and are billed annually. For subscription customers, PCS is billed monthly
or quarterly and typically has a two-year term. Services provided to customers
under customer support agreements generally include technical support and
unspecified product upgrades. PCS is recognized ratably over the contract
period.
Customers are billed in accordance with contractual specifications.
Webridge records the unrecognized portion of billable fees as deferred revenue.
Customers do not have a right of return, therefore no sales return
allowance has been established in accordance with Financial Accounting Standards
Statement (SFAS) of No. 48, Revenue, Recognition when Right of Return Exists.
(d) CASH AND CASH EQUIVALENTS
Webridge considers all highly liquid securities purchased with original
maturities of three months or less to be cash equivalents.
(e) INVESTMENTS
Investments consist of commercial paper and government obligations which
have original maturities between three and six months. These investments are
classified as held-to-maturity and are recorded at cost which approximates fair
value.
(f) RESTRICTED INVESTMENTS
Webridge has a letter of credit secured by a certificate of deposit with a
bank in the amount of $250. The certificate of deposit matures January 2001.
(g) ACCOUNTS RECEIVABLE
Credit is extended to customers as deemed necessary and generally does not
require collateral. Webridge believes the risk of loss is significantly reduced
by the financial position of its customers. Webridge evaluates customer
information and historical statistics in providing for an allowance of doubtful
accounts. Historically, Webridge has incurred no write-offs of accounts
receivable. At December 31, 1998 and 1999, the allowance for doubtful accounts
was $-0-.
At December 31, 1999, Webridge had accounts receivable from four customers
representing approximately 60% of trade accounts receivable. Loss or
non-performance by these significant customers could adversely affect Webridge's
financial position, liquidity or results of operations.
(h) FURNITURE AND EQUIPMENT
Furniture and equipment are stated at cost. Furniture and equipment
recorded under capital lease arrangements are stated at the lower of the present
value of the minimum lease payments at the beginning of the lease or the fair
value of the leased assets at the inception of the lease.
Depreciation on furniture and equipment is calculated on the straight-line
method over the estimated useful life of the assets, generally three years.
Furniture and equipment acquired under capital leases are amortized
straight-line over the shorter of the lease term or estimated useful life of the
assets.
F-8
<PAGE> 80
WEBRIDGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(i) SOFTWARE DEVELOPMENT COSTS
Webridge accounts for software development costs in accordance with SFAS
No. 86, Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed. Software development costs are capitalized beginning when a
product's technological feasibility has been established by completion of a
working model of the product and ending when a product is available for general
release to customers. To date, the establishment of technological feasibility of
Webridge's products has occurred concurrently with general release and,
accordingly, no costs have been capitalized.
(j) RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred.
(k) STOCK-BASED EMPLOYEE COMPENSATION
Webridge accounts for stock-based compensation using the SFAS No. 123,
Accounting for Stock-Based Compensation. This statement permits a company to
choose either a fair value based method of accounting for its stock-based
compensation arrangements or to comply with the current Accounting Principles
Board Opinion 25 (APB 25) intrinsic value-based method adding pro forma
disclosures of net loss computed as if the fair value-based method had been
applied in the consolidated financial statements. Webridge applies SFAS No. 123
by retaining the APB 25 (and interpretations) method of accounting for
stock-based compensation for employees with annual pro forma disclosure of net
loss. Webridge accounts for stock and stock options issued to non-employees in
accordance with the provisions of SFAS No. 123 and Emerging Issues Task Force
(EITF) consensus on Issue No. 96-18, Accounting for Equity Instruments that are
Issued to Other than Employees for Acquiring, or in Conjunction with Selling,
Goods or Services. Expense associated with stock-based compensation is amortized
on an accelerated basis over the vesting period of the individual stock option
awards consistent with the method prescribed in FASB Interpretation No. 28.
(l) INCOME TAXES
Prior to August 23, 1997, Webridge was taxed under the S Corporation
provisions of the Internal Revenue Code. Under those provisions, the taxable
loss was passed through to the stockholders for inclusion in their personal
returns.
Since August 23, 1997, Webridge accounts for income taxes under the asset
and liability method. Deferred tax assets and liabilities are recognized for the
future tax consequences of events that have been included in the financial
statements and tax returns. Under this method, deferred tax assets and
liabilities are determined based on the difference between the financial
statement and tax bases of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to be recovered or
settled. Valuation allowances are established when necessary to reduce deferred
tax assets to the amounts expected to be realized.
(m) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the balance sheet for cash and cash
equivalents, investments, accounts receivable, accounts payable, accrued
liabilities and deferred revenue approximate fair values due to the short-term
maturities of those instruments. The carrying amount of capital leases
approximate fair value as the stated interest rates reflect current market
rates. Fair value estimates are made at a specific
F-9
<PAGE> 81
WEBRIDGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
point in time, based on relevant market information about the financial
instruments when available. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and, therefore, cannot be
determined with precision.
(n) CONCENTRATIONS OF CREDIT RISK
Results of consolidated operations are derived from sales in the United
States and one sale in Europe for $265. Substantially all assets of Webridge
reside in the United States. Webridge is exposed to concentration of credit risk
principally from accounts receivable. For 1998, the largest customer accounted
for $160, or 50% of total revenues; the next largest customer accounted for
$125, or 39% of total revenues. For 1999, the largest customer accounted for
$1,114, or 25% of total revenues; the next largest customer accounted for $477,
or 11% of total revenues.
Webridge is subject to concentrations of credit risk from its cash and cash
equivalents, investments and trade receivables. Webridge limits its exposure to
credit risk associated with cash and cash equivalents and investments by placing
its cash and cash equivalents with a major financial institution and by
investing in investment-grade securities.
(o) ADVERTISING COSTS
Webridge's policy is to expense advertising costs as incurred. Total
advertising expenses were $-0-, $-0- and $272 for the years ended December 31,
1997, 1998 and 1999, respectively. Included in prepaid expenses was $-0- and
$146 at December 31, 1998 and 1999, respectively, relating to prepaid
advertising and promotion expenses.
(p) COMPREHENSIVE LOSS
Webridge has adopted the provisions of SFAS No. 130, Reporting
Comprehensive Income. Comprehensive income is defined as changes in
stockholders' equity exclusive of transactions with owners, such as capital
contributions and dividends. The differences between net loss and comprehensive
loss for the periods presented are not material.
(q) NET LOSS PER SHARE
Webridge follows the provisions of SFAS No. 128, Earnings Per Share, and
SEC Staff Accounting Bulletin No. 98 (SAB No. 98). Under the provisions of SFAS
128 and SAB No. 98, basic and diluted net loss per share is computed by dividing
net loss available to common stockholders by the weighted average number of
common shares outstanding during the period less the weighted average shares of
common stock subject to repurchase. Diluted net loss per share has not been
presented because the effect of the assumed exercise of stock options, warrants
for preferred stock and convertible securities is antidilutive due to Webridge's
net loss.
Webridge's historical capital structure is not indicative of its future
capital structure due to the conversion of all shares of convertible preferred
stock into common stock concurrent with the closing of Webridge's anticipated
initial public offering. Accordingly, a pro forma calculation assuming the
conversion of all outstanding shares as of December 31, 1999 of convertible
preferred stock into common stock upon Webridge's initial public offering using
the if-converted method from their respective dates of issuance is presented.
F-10
<PAGE> 82
WEBRIDGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth for the periods indicated the weighted
average potential shares of common stock issuable under stock options using the
treasury stock method, warrants and convertible preferred stock on an
if-converted basis, which are not included in calculating net loss per share due
to their antidilutive effect:
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS SIX MONTHS
DECEMBER 31, ENDED ENDED
---------------------- JUNE 30, JUNE 30,
1997 1998 1999 2000 2000
----- ----- ------ ---------- -----------
(PRO FORMA)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Shares issuable under stock options................ -- 138 108 68 68
Shares issuable under warrants..................... -- -- 63 2 2
Restricted stock................................... 5,760 4,625 2,633 2,214 2,214
Weighted average shares of common stock issuable
upon conversion of preferred stock............... 1,745 5,037 8,839 11,818 --
----- ----- ------ ------ -----
7,505 9,800 11,643 14,102 2,284
===== ===== ====== ====== =====
</TABLE>
Pro forma net loss per share is computed using the weighted average number
of common shares outstanding, including the pro forma effects of the conversion
of all outstanding convertible preferred stock into shares of common stock
effective upon the closing of Webridge's initial public offering as if such
conversion occurred at the date of original issuance.
Pursuant to SAB No. 98, common shares issued for nominal consideration in
each of the periods presented, if any, would be included in the per share
calculations as if they were outstanding for all periods presented. No such
shares have been issued.
The following table sets forth the computation of basic and diluted net
loss per share and pro forma basic and diluted net loss per share for the
periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED ENDED
--------------------------- JUNE 30, JUNE 30,
1997 1998 1999 2000 2000
------- ------- ------- ---------- -----------
(PRO FORMA)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Numerator:
Net loss.................................... $(2,197) $(5,815) $(8,219) $(7,245) $(7,245)
======= ======= ======= ======= =======
Denominator:
Weighted average common shares
outstanding.............................. 956 3,571 5,680 7,307 7,307
------- ------- ------- ------- -------
Denominator for basic and diluted
calculation.............................. 956 3,571 5,680 7,307
======= ======= ======= =======
Weighted average effect of pro forma
conversion of securities:
Series A convertible preferred stock..... 4,976
Series B convertible preferred stock..... 3,954
Series C convertible preferred stock..... 2,888
-------
Denominator for pro forma basic and diluted
calculation.............................. 19,135
=======
</TABLE>
F-11
<PAGE> 83
WEBRIDGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(r) SEGMENT REPORTING
Effective January 1, 1998, Webridge adopted the provisions of SFAS No. 131,
Disclosures About Segments of an Enterprise and Related Information. Webridge
identifies its operating segment based on business activities, management
responsibilities and geographic location. During all periods presented, Webridge
operated in a single business segment providing integrated Internet software
applications.
(s) USE OF ESTIMATES
The preparation of the accompanying consolidated 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 at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
(t) RISK OF TECHNOLOGICAL CHANGE
A substantial portion of Webridge's revenues are generated from the
development and rapid release to market of computer software products. In the
extremely competitive industry environment in which Webridge operates, product
generation, development and marketing processes are uncertain and complex,
requiring accurate prediction of market trends and demand as well as successful
management of various risks. Additionally, Webridge's production strategy relies
on certain employees' ability to deliver implemented products in time to meet
critical development and distribution schedules. In light of these dependencies,
it is reasonably possible that failure to successfully manage a significant
product introduction or failure of certain employees to deliver and deploy
products as needed could have a severe impact on Webridge's growth and results
of operations.
(u) PRO FORMA STOCKHOLDERS' EQUITY (UNAUDITED)
Upon consummation of Webridge's initial public offering, all of the
convertible preferred stock outstanding as of the closing date will be converted
into an aggregate of 11,829 shares of common stock, based on the outstanding
shares of convertible preferred stock as of June 30, 2000. Unaudited pro forma
shareholders' equity as of June 30, 2000, as adjusted, reflects the impact of
the conversion of the convertible preferred stock and is disclosed on the
balance sheet.
(v) UNAUDITED QUARTERLY INFORMATION
The financial information included herein as of June 30, 2000 and for the
six-month periods ended June 30, 1999 and 2000 is unaudited. Such information,
however, reflects all adjustments, consisting of normal recurring adjustments,
which are, in the opinion of management, necessary for a fair presentation of
the consolidated financial position, results of operations and cash flows for
the interim periods. The consolidated results of operations for the six-month
period ended June 30, 2000 are not necessarily indicative of the results to be
expected for the full year.
F-12
<PAGE> 84
WEBRIDGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(2) BALANCE SHEET COMPONENTS
(a) FURNITURE AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31,
-------------- JUNE 30,
1998 1999 2000
---- ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Leased furniture and equipment.................. $122 $ 185 $ 271
Furniture and fixtures.......................... 5 10 326
Equipment....................................... 504 842 1,176
Leasehold improvements.......................... -- -- 147
---- ------ ------
631 1,037 1,920
Less accumulated depreciation and
amortization.................................. 209 462 562
---- ------ ------
$422 $ 575 $1,358
==== ====== ======
</TABLE>
Accumulated amortization for furniture and equipment acquired under capital
leases was $41, $88 and $158 (unaudited) as of December 31, 1998 and 1999 and
June 30, 2000, respectively.
(b) ACCRUED LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31,
------------ JUNE 30,
1998 1999 2000
---- ---- -----------
(UNAUDITED)
<S> <C> <C> <C>
Payroll and related expenses..................... $235 $513 $ 68
Commissions...................................... 85 247 363
Accrued sales taxes.............................. 3 67 84
Other accrued liabilities........................ 24 16 687
---- ---- ------
$347 $843 $1,202
==== ==== ======
</TABLE>
(3) BORROWINGS
(a) LINE OF CREDIT
Webridge has a secured line of credit of $2,000 for general operating
purposes with a maturity date of August 28, 2000. At Webridge's option, the line
may be increased by $500 upon payment of a minimal increase fee. The line is
secured by Webridge's accounts receivable.
(b) DEBT
Webridge has a term loan with a bank that bears interest at the bank's
prime rate plus 1% (9.5% at December 31, 1999). Principal and interest are due
in consecutive monthly payments commencing January 1999 through December 28,
2000. As of December 31, 1998 and 1999, Webridge had $439 and $220 outstanding
under the note payable. The notes are secured by substantially all of Webridge's
assets.
(4) COMMITMENTS
(a) LEASES
In September 1999, Webridge entered into an agreement with a leasing
company for a line of credit for up to $500 for the purchase of fixed assets.
The equipment delivery period is September 1999 through
F-13
<PAGE> 85
WEBRIDGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
September 2000. As of December 31, 1999, Webridge had $22 outstanding under the
lease with a 36-month term.
Webridge also has noncancelable operating leases for office space that will
expire at various dates through 2007. Future minimum lease payments under
existing capital leases and noncancelable operating leases as of December 31,
1999 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
Year ending December 31:
2000...................................................... $67 $ 560
2001...................................................... 8 850
2002...................................................... 8 1,048
2003...................................................... -- 1,232
2004...................................................... -- 1,309
Thereafter................................................ -- 3,172
--- ------
Total minimum lease payments........................... 83 $8,171
======
Less amount representing interest......................... 3
---
Present value of net minimum capital lease payments.... 80
Less current installments of obligations under capital
leases................................................. 64
---
Obligations under capital leases, excluding current
installments.......................................... $16
===
</TABLE>
Rent expense was $82, $216 and $266 for the years ended December 31, 1997,
1998 and 1999, respectively. In April of 2000, Webridge moved to a new
headquarters building. The average monthly rent is approximately $96
(unaudited).
(b) PREFERRED STOCK
During 1999, Webridge agreed, in conjunction with the above leasing
arrangement, to allow participation in the next round of preferred financing by
this leasing company. The agreement allowed the leasing company to purchase up
to 20 shares of preferred stock at the preferred stock price. The next round of
financing occurred in December 1999 at $5.07. Webridge plans to sell additional
shares of preferred stock to this company in 2000 in accordance with the
agreement.
(5) STOCKHOLDERS' EQUITY
(a) SERIES C, B AND A PREFERRED STOCK
The terms of the Series C, B and A preferred stock are:
- The holders of preferred stock shall have the right to one vote for each
share of common stock into which such preferred shares could then be
converted.
- Upon declaration of the Board of Directors, the Series C stockholders are
entitled to receive 11% per share per annum, or if greater, an amount
equal to that paid on any other outstanding shares of Webridge. Dividends
on Series C shares are in preference to any declaration or payment on
common stock or for Series A or Series B. Series A and Series B
stockholders are entitled to receive dividends at the rate of 8% and 11%
per annum of the original Series A and Series B issue prices of $.903 per
share and $1.70 per share, respectively. The right to receive dividends
on all
F-14
<PAGE> 86
WEBRIDGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
series of preferred stock is non-cumulative. No dividends may be paid on
common stock until all declared dividends on preferred stock have been paid.
- In the event of any voluntary or involuntary dissolution, liquidation, or
winding-up of the affairs of Webridge, the holders of Series C shall be
entitled to receive, prior, and in preference to any distribution of any
assets to the holders of common stock or Series A or Series B, an amount
per share equal to $5.07 per share plus any declared but unpaid dividends
on such shares.
- In the event of any voluntary of involuntary dissolution, liquidation or
winding-up of the affairs of Webridge, and after the completion of
distribution to the Series C preferred stockholders, the holders of
Series B shall be entitled to receive, prior, and in preference to any
distribution of any assets to the holders of common stock or Series A, an
amount per share equal to $1.70 per share plus any declared but unpaid
dividends on such shares.
- In the event of any voluntary or involuntary dissolution, liquidation or
winding-up of the affairs of Webridge, and after completion of the
initial distribution to preferred stockholders, holders of Series C, B
and A are entitled to participate on a pro-rata basis in the
distributions of the liquidation up to two times the original investment.
After receiving two times the original investment, any remaining assets
are distributed only to common stockholders.
- In the event of any voluntary or involuntary dissolution, liquidation, or
winding-up of the affairs of Webridge, and after the completion of
distribution to the Series C and Series B preferred stockholders, the
holders of Series A shall be entitled to receive, prior, and in
preference to any distribution of any assets to the holders of common
stock, an amount per share equal to $.903 per share plus any declared but
unpaid dividends on such shares.
- Each share of preferred stock is voluntarily convertible into common
stock at any time after the date of issuance, at an initial rate of
one-to-one. (See Note 10(b)). Each share of preferred stock shall
automatically be converted into shares of common stock immediately upon
Webridge's sale of common stock in a firm commitment underwritten public
offering with a minimum offering price of $11.40 per share, and aggregate
offering proceeds of not less than $30,000.
As of December 31, 1999, Webridge had reserved 11,829 shares of its common
stock pursuant to the conversion privileges of the Series C, Series B and Series
A preferred stock.
(b) COLLABORATION AGREEMENT AND WARRANT
In March 1999, Webridge granted a warrant to a company to purchase 118
shares of Series B preferred stock at $1.70 per share in conjunction with a
collaboration agreement. The holder of the warrant must meet a performance
milestone in order to purchase the shares. If performance has not been met by
April 2000, the warrant will be canceled. As of December 31, 1999, the
performance criteria defined in the agreement had not been met, and management
does not anticipate that the performance criteria will be met. The warrant will
be valued in accordance with EITF 98-16 upon establishment of a measurement
date.
(c) STOCK REPURCHASE AGREEMENT
As of December 31, 1999, Webridge had sold 8,662 shares of common stock to
employees for prices ranging from $0.015 to $0.135 under agreements which allow
Webridge, at its option, to repurchase shares of common stock at the original
purchase price if the employee ceases employment for any reason.
F-15
<PAGE> 87
WEBRIDGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Generally, the shares subject to repurchase are reduced by 25% subsequent to the
first year of employment and monthly over the next three years.
Under the terms of the repurchase agreements, if Webridge is acquired by a
publicly traded company through merger or sale of asset or upon an underwritten
public offering, the repurchase agreements will cease to apply for 1,760 shares
of common stock.
(d) WARRANTS
In September 1999, Webridge granted a warrant to purchase approximately 2
shares of Webridge's Series C preferred stock at $4.24 per share in connection
with a lease of furniture and equipment. At December 31, 1999, the warrant had
not been exercised. The warrant was valued using the Black-Scholes model using
the following assumptions: expected dividends, -0-; risk-free interest rate,
6.0%; volatility, 100%; and expected life of three years. The fair value of the
warrant was $8.
(e) STOCK INCENTIVE PLAN
Webridge has authorized to issue up to 11,360 shares of common stock in
connection with its Stock Incentive Plan (the Plan) to directors, employees and
consultants. The Plan provides for the issuance of incentive or nonqualified
stock options, appreciation rights, stock bonuses or cash bonus rights or to
sell shares subject to restrictions.
Webridge uses the intrinsic-value method in accounting for its employee
stock-based compensation plans. Accordingly, no compensation cost has been
recognized for any of its stock options granted or restricted stock sold because
the exercise price of each option or purchase price of each share of restricted
stock equaled or exceeded the deemed fair value of the underlying common stock
as of the grant date for each stock option or purchase date of each restricted
stock share, except for stock options granted and restricted stock sold from
October 1, 1999 through December 31, 1999.
With respect to the stock options granted and restricted stock sold during
the year ended December 31, 1999, Webridge recorded deferred stock compensation
of $2,588 for the difference at the grant or issuance date between the exercise
price of each stock option granted or purchase price of each restricted share
sold and the deemed fair value of the underlying common stock. This amount is
being amortized on an accelerated basis over the vesting period, generally four
years, consistent with the method described in FASB Interpretation No. 28.
Amortization of the December 31, 1999 balance of deferred stock-based
compensation for fiscal years ended 2000, 2001, 2002 and 2003 would approximate
$647, $647, $647 and $368, respectively. The amortization of deferred
stock-based compensation relates to the following items in the accompanying
consolidated statements of operations:
<TABLE>
<CAPTION>
SIX-MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1999 2000
------------ -----------
(UNAUDITED)
<S> <C> <C>
Cost of revenues...................................... $ 63 $103
Research and development.............................. 66 125
Sales and marketing................................... 77 139
General and administrative............................ 73 135
---- ----
Total............................................... $279 $502
==== ====
</TABLE>
F-16
<PAGE> 88
WEBRIDGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Had compensation costs been determined in accordance with SFAS No. 123 for
all of Webridge's stock-based compensation plans, net loss and basic and diluted
net loss per share would have been as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Net loss:
As reported......................................... $(2,197) $(5,815) $(8,219)
Pro forma........................................... (2,236) (5,875) (8,356)
Net loss per share:
As reported......................................... $ (2.30) $ (1.63) $ (1.45)
Pro forma........................................... (2.34) (1.65) (1.47)
</TABLE>
The per share weighted average fair market value, as determined by applying
the Black-Scholes option pricing model to stock options granted during 1997,
1998 and 1999, was $0.01, $0.05 and $0.14, respectively, with the following
weighted average assumptions:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Expected dividend.................................... $ -- $ -- $ --
Risk-free interest rate.............................. 6.0% 5.5% 6.1%
Volatility........................................... 100% 100% 100%
Expected life........................................ 4 years 4 years 4 years
</TABLE>
A summary of stock option activity follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER EXERCISE
OF SHARES PRICE
--------- --------
<S> <C> <C>
Options outstanding at December 31, 1996.................... -- $ --
Granted..................................................... 607 0.028
Exercised................................................... 521 0.028
------ ------
Options outstanding at December 31, 1997.................... 86 0.135
Granted..................................................... 1,143 0.135
Exercised................................................... (195) 0.135
Canceled.................................................... (18) 0.135
Forfeited................................................... (44) 0.135
------ ------
Options outstanding at December 31, 1998.................... 972 0.135
Granted..................................................... 1,738 0.381
Exercised................................................... (500) 0.207
Canceled.................................................... (117) 0.189
Forfeited................................................... -- --
------ ------
Options outstanding at December 31, 1999.................... 2,093 0.319
Granted (unaudited)......................................... 491 7.716
Exercised (unaudited)....................................... (1,038) 0.763
Canceled (unaudited)........................................ (32) 1.102
Forfeited (unaudited)....................................... -- --
------ ------
Options outstanding at June 30, 2000 (unaudited)............ 1,514 $2.396
====== ======
</TABLE>
F-17
<PAGE> 89
WEBRIDGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
At December 31, 1999, the exercise price and weighted average remaining
contractual life of outstanding options was $0.3192 and 9.25 years,
respectively. At December 31, 1999, there were 108 options exercisable.
The following table summarizes information regarding stock options
outstanding and exercisable as of December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------------------- -----------------------
NUMBER WEIGHTED NUMBER
OUTSTANDING AVERAGE WEIGHTED- EXERCISABLE WEIGHTED
RANGE OF AS OF REMAINING AVERAGE AS OF AVERAGE
EXERCISE DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
PRICES 1999 LIFE PRICE 1999 PRICE
--------------- ------------ ----------- --------- ------------ --------
<S> <C> <C> <C> <C> <C>
$0.015 - 0.315 590 8.57 $0.135 102 $0.135
0.315 1,331 9.47 0.135 5 $0.135
0.600 121 9.90 0.600 -- --
1.875 52 9.98 1.875 1 1.875
----- ---
$0.0150 - 1.875 2,093 9.25 $0.3192 108 $0.1648
===== ===
</TABLE>
(6) INCOME TAXES
Due to Webridge's net losses for the years ended December 31, 1997, 1998
and 1999, there has been no provision for federal and state income taxes. The
reconciliation of the statutory federal income tax rate to Webridge's effective
income tax rate is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1997 1998 1999
------ ------ ------
<S> <C> <C> <C>
Computed "expected" income tax benefit...................... (34.0)% (34.0)% (34.0)%
Increases (decreases) resulting from:
State income taxes, net of federal tax benefit............ (4.4) (3.8) (4.2)
Research and experimentation credit....................... (2.8) (3.5) (2.5)
Impact of S Corporation period passed through to
stockholders........................................... (3.0) -- --
Amortization of deferred stock-based compensation......... -- -- 1.2
Non-deductible meals...................................... -- 1.9 .2
Change in valuation allowance............................. 44.2 39.4 39.3
----- ----- -----
Actual tax benefit.......................................... --% --% --%
===== ===== =====
</TABLE>
F-18
<PAGE> 90
WEBRIDGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The tax effects of temporary differences that give rise to deferred tax
assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1998 1999
------ ------
<S> <C> <C>
Deferred tax assets:
Research and experimentation credit carryforwards........ $ 245 $ 458
Net operating loss carryforwards......................... 2,686 5,686
Accrued commissions...................................... -- 32
Depreciable assets....................................... -- 3
------ ------
Total gross deferred tax assets....................... 2,931 6,179
Less valuation allowance................................. 2,925 6,179
------ ------
6 --
Deferred tax liabilities:
Depreciable assets....................................... 6 --
------ ------
Net deferred tax assets............................... $ -- $ --
====== ======
</TABLE>
The valuation allowance for deferred tax assets as of August 23, 1997, the
date Webridge terminated the Subchapter Corporation election, was $-0-. The net
change in the total valuation allowance for the period from August 23, 1997 to
December 31, 1997 was an increase of $673. The change in the valuation allowance
during 1998 and 1999 was an increase of $2,252 and $3,254, respectively.
At December 31, 1998 and 1999, Webridge has net operating loss
carryforwards of approximately $7,031 and $14,822, respectively, and research
and experimentation credit carryforwards of approximately $245 and $529,
respectively, which are available to offset future federal taxable income and
income taxes respectively, if any, through 2019.
A provision of the Internal Revenue Code requires the utilization of net
operating losses and research and experimentation credits be limited when there
is a change of more than 50% in ownership of a company. Such a change occurred
with the sale of preferred stock in August of 1997 and December of 1999.
Accordingly, the utilization of the net operating loss carryforwards generated
from periods to the change in ownership will be subject to annual limitations.
(7) 401(k) PLAN
During 1998, Webridge adopted the Webridge Employee 401(k) Savings Plan
(the Plan) covering all employees. Employees become eligible to participate in
the Plan upon employment and may begin contributing to the Plan on the first day
of any subsequent calendar quarter. Employees may contribute up to 15% of their
pay to the Plan, or the statutorily prescribed annual limit. Webridge, at its
discretion, may make contributions to the Plan. To date, Webridge has made no
contributions to the Plan.
(8) RELATED PARTY TRANSACTION
During 1998, Webridge received cash in exchange for promissory notes
payable, with interest of 9%, from an officer, director and employee of
Webridge. The total of the promissory notes was $1,900. The notes and accrued
interest were converted to Series B convertible preferred stock on December 24,
1998 at $1.70 per share.
F-19
<PAGE> 91
WEBRIDGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(9) SUBSEQUENT EVENT
Webridge sold 104 additional shares of Series C preferred stock in January
2000 for net proceeds of $526.
(10) UNAUDITED SUBSEQUENT EVENT
(a) Issuance of Preferred Stock
Webridge sold 20 additional shares of Series B preferred stock in March
2000 for net proceeds of $100.
(b) Stock Split
On September , 2000, Webridge's stockholders approved a two-for-three
reverse stock split of outstanding common shares. Common share data for all
periods presented in the accompanying consolidated financial statements have
been adjusted to give effect to the stock split. The preferred stock to common
stock conversion ratio is now three to two.
(c) Deferred Stock-based Compensation
During the six months ended June 30, 2000, Webridge granted options to
purchase 285 shares of common stock to employees with an exercise price below
the deemed fair market value. In connection with the grants, Webridge recognized
approximately $1,055 in deferred stock-based compensation.
(d)
In April 2000, the stockholders approved the adoption of the 2000 Employee
Stock Purchase Plan (ESPP) which will become effective on the closing of the
initial public offering and the 2000 Stock Incentive Plan that became effective
in July 2000. Under the ESPP, 200 shares of common stock will be reserved for
the plan. Under the 2000 Stock Incentive Plan 1,333 shares of common stock will
be reserved for issuance under the plan.
F-20
<PAGE> 92
[INSIDE BACK COVER]
[Graphic depicts a computer monitor with a globe on the screen over which
the following is superimposed: pictures of a personal computer, the tower of
which is open like a cash drawer showing money inside, and of a man juggling;
next to these pictures is written "Leading Office Equipment Supplier -- Sales
Channel Management" under which is written "This supplier has an aggressive
program to expand sales coverage for the company's diverse product lines. It
needed a web-based sales channel management system to improve resellers'
productivity and to attract new channel partners. Using Webridge Private
Exchange it was able to: - Build partner loyalty with customized pricing,
promotions, and training and personalized communication - Reduce selling costs
by enabling business managers to craft business rules and publish content
without information technology personnel involvement - Shorten sales cycles
through a comprehensive closed-loop lead management system"; next to this text
is a picture of the supplier's Website: pictures of two people assembling a
sphere out of jigsaw pieces and of two people over whom there are word balloons
shaped like matching jigsaw pieces; next to these pictures is written "Top 5
Global Bank -- FX Trading" under which is written "This bank is the global
leader in foreign exchange trading. The bank needed a highly secure,
Internet-based application to support foreign currency trading and to deliver
rapidly changing financial information to its major customers. Its foreign
currency trading site uses Webridge Private Exchange to: - Provide global
customers instant online foreign currency trading and order status checking
- Establish transactional connections to the bank's back office systems
- Deliver personalized real-time news feeds with instant indexing - Provide
secure access to restricted information"; next to this text is a picture of the
bank's Website: pictures of two people assembling a sphere out of jigsaw pieces
and of two people over whom there are word balloons shaped like matching jigsaw
pieces; next to these pictures is written "Control Systems
Leader -- Business-to-Business Marketplace" under which is written "This
company's partner program is aimed at building deep commercial relationships
between the company and its partners and among the partners themselves. The site
is built using Webridge Private Exchange and provides the following: - Foster
relationships among partners via discussion forums; - project management and
collaboration - Access to subject matter experts in specialized vertical market
areas - Marketing and promotional activities to partners"; next to this text is
a picture of the company's Website, and: pictures of two people assembling a
sphere out of jigsaw pieces, of two people over whom there are word balloons
shaped like matching jigsaw pieces, and of a personal computer, the tower of
which is open like a cash drawer showing money inside; next to these pictures is
written "Media Conglomerate -- Business-to-Business Commerce" under which is
written "One of this company's businesses is to supply interactive video, audio
and on-line training products to professionals in several industries. Recently
the company initiated a project using Webridge Private Exchange to transition
its business from a traditional model to an integrated web-based business to
accomplish the following: - Access to more than 800,000 authenticated users
- Online real-time testing and certification - Self service ordering of training
material - Automatic certification and tracking of individual education records
- Real-time integration with the back office system"; next to this text is a
picture of the company's Website. Across the top of the page is the caption
"Business-to-Business Enterprise Commerce". Across the bottom of the page is the
caption "Commerce - Content - Collaboration".]
<PAGE> 93
[webridge logo]
5,500,000 SHARES
COMMON STOCK
-------------------------
PROSPECTUS
-------------------------
ROBERTSON STEPHENS
U.S. BANCORP PIPER JAFFRAY
BANC OF AMERICA SECURITIES LLC
UNTIL , OR 25 DAYS AFTER THE DATE OF THIS PROSPECTUS, ALL
DEALERS THAT EFFECT TRANSACTIONS IN THESE SHARES OF COMMON STOCK MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALER'S OBLIGATION TO
DELIVER A PROSPECTUS WHEN ACTING AS AN UNDERWRITER AND WHEN SELLING THEIR
PREVIOUSLY UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE> 94
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses, all of which will be
borne by the Registrant, in connection with the sale and distribution of the
securities being registered, other than the estimated underwriting discounts and
commissions. All amounts shown are estimates except for the Securities and
Exchange Commission registration fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC registration fee........................................ $ 13,200
NASD filing fee............................................. 6,250
Nasdaq National Market listing fee.......................... 95,000
Blue Sky fees and expenses.................................. 5,000
Transfer agent and registrar fees........................... 5,000
Accounting fees and expenses................................ 200,000
Legal fees and expenses..................................... 275,000
Director's and officer's insurance.......................... 250,000
Printing and mailing expenses............................... 175,000
Miscellaneous............................................... 100,550
----------
Total..................................................... $1,125,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article IV of the Registrant's Amended and Restated Certificate of
Incorporation (the "Restated Certificate of Incorporation") provides that no
director of the Registrant shall be personally liable for any monetary damages
for any breach of fiduciary duty as a director, except to the extent that the
Delaware General Corporation Law prohibits the elimination or limitation of
liability of directors for breach of fiduciary duty.
Article V of the Registrant's Bylaws provides that any current or former
director or officer of the Registrant shall be indemnified to the fullest extent
not prohibited by law who is made, or threatened to be made, a party to any
threatened, pending or completed action, suit or proceeding, whether criminal,
civil, administrative, investigative or other, by reason of the fact that the
director or officer served or serves at the request of the corporation as a
director or officer. The Registrant shall pay for or reimburse the reasonable
expenses incurred by any current or former director or officer in any such
proceeding in advance of final disposition of the proceeding if the director or
officer sets forth in writing the person's agreement to repay all advances if
the Registrant ultimately determines that the director or officer is not
entitled to indemnification.
Article V of the Registrant's Bylaws further provides that the
indemnification provided therein is not exclusive of any other provisions for
indemnification or advancement of expenses of directors, officers, employees,
agents and fiduciaries that may be included in any statute, bylaw, agreement,
general or specific action of the board of directors, vote of stockholders or
other document or arrangement.
Section 145 of the Delaware General Corporation Law provides that a
corporation has the power to indemnify a director, officer, employee or agent of
the corporation and certain other persons serving at the request of the
corporation in related capacities against amounts paid and expenses incurred in
connection with an action or proceeding to which he is or is threatened to be
made a party by reason of such position, if such person shall have acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, in any criminal proceeding, if such person
had no reasonable cause to believe his conduct was unlawful; provided that, in
the case of actions brought by or in the right of the corporation, no
indemnification shall be made with respect to any matter as to which such
II-1
<PAGE> 95
person shall have been adjudged to be liable to the corporation unless and only
to the extent that the adjudicating court determines that such indemnification
is proper under the circumstances.
Under Section 7(b) of the Underwriting Agreement, the Underwriters are
obligated, under certain circumstances, to indemnify directors and officers of
the Registrant against certain liabilities, including liabilities under the
Securities Act. Reference is made to the form of Underwriting Agreement filed as
Exhibit 1 hereto.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Set forth in chronological order is information regarding shares of our
common stock sold and options granted by the Registrant since February 1997.
Further included is the consideration, if any, received by the Registrant for
the shares and options and information relating to the section of the Securities
Act of 1933, as amended (the "Securities Act"), or rule of the Securities and
Exchange Commission under which exemption from registration was claimed.
1. On June 26, 1996, the Registrant issued 3,333,343 shares of common
stock to five founders for an aggregate purchase price of $5,000
($0.0015 per share).
2. On January 27, 1997, the Registrant issued 333,334 shares of common
stock to one founder for $5,000 ($0.015 per share).
3. On February 10, 1997, the Registrant issued 333,334 shares of common
stock to one founder for $5,000 ($0.015 per share).
4. On February 18, 1997, the Registrant issued 333,334 shares of common
stock to one founder for $5,000 ($0.015 per share).
5. On February 19, 1997, the Registrant issued 333,334 shares of common
stock to one founder for $5,000 ($0.015 per share).
6. On March 3, 1997, the Registrant issued 333,334 shares of common stock
to one founder for $5,000 ($0.015 per share).
7. On March 13, 1997, the registrant issued 333,334 shares of common stock
to two founders for an aggregate purchase price of $5,000 ($0.015 per
share).
8. On March 17, 1997, the Registrant issued 500,000 shares of common stock
to one founder for $7,500 ($0.015 per share).
9. On March 25, 1997, the Registrant issued 333,334 shares of common stock
to one founder for $5,000 ($0.015 per share).
10. On April 16, 1997, the Registrant issued 233,334 shares of common stock
to one founder for $3,500 ($0.015 per share).
11. On April 28, 1997, the Registrant issued 333,334 shares of common stock
to one founder for $5,000 ($0.015 per share).
12. On May 5, 1997, the Registrant issued 66,667 shares of common stock to
one employee for $1,000 ($0.015 per share).
13. On June 24, 1997, the Registrant issued 333,334 shares of common stock
to one founder for $5,000 ($0.015 per share).
14. On July 14, 1997, the Registrant issued 33,335 shares of common stock
to one employee for $500 ($0.015 per share).
II-2
<PAGE> 96
15. On July 15, 1997, the Registrant issued 43,336 shares of common stock
to one employee for $650 ($0.015 per share).
16. On August 4, 1997, the Registrant issued 126,668 shares of common stock
to two employees for an aggregate purchase price of $185 ($0.015 per
share).
17. On August 19, 1997, the Registrant issued 520,765 shares of common
stock to 15 founders for an aggregate purchase price of $39,057 ($0.075
per share).
18. On August 25, 1997, the Registrant issued 7,464,134 shares of Series A
convertible preferred stock for $0.903 per share to twelve accredited
investors for an aggregate purchase price of $6,740.113.
19. On December 24, 1998, the Registrant issued 4,743,621 shares of Series
B convertible preferred stock for $1.70 per share to fourteen
accredited investors for an aggregate purchase price of $8,014,156.
20. On March 12, 1999, the Registrant issued 1,176,471 shares of Series B
convertible preferred stock for $1.70 per share to one accredited
investor for an aggregate purchase price of $2,000,000.
21. On March 12, 1999, the Registrant issued a warrant to one accredited
investor to purchase 117,647 shares of Series B convertible preferred
stock at an exercise price of $1.70 based upon achievement of
performance milestones set forth in a research collaboration agreement
between the Registrant and the accredited investor. This warrant has
expired.
22. On September 24, 1999, the Registrant issued a warrant to one
accredited investor to purchase 2,356 shares of Series C Preferred
Stock at an exercise price of $4.24 in connection with a lease for
office furniture and equipment.
23. On December 23, 1999, the Registrant issued 4,235,412 shares of Series
C convertible preferred stock for $5.07 per share to fourteen
accredited investors for an aggregate purchase price of approximately
$21,473,541.
24. On January 12, 2000, the Registrant issued 103,838 shares of C
convertible preferred stock for $5.07 per share to one accredited
investor for $526,459.
25. On March 20, 2000, the Registrant issued 19,274 shares of Series B
convertible preferred stock for $5.07 per share to one accredited
investor for $100,001. The purchaser is an equipment lessor with whom
the Registrant has done business since September 1999. This issuance
was pursuant to a commitment made by the Registrant to the purchaser in
September 1999.
26. The Registrant from time to time has granted stock options to
employees, directors and consultants in reliance upon exemptions from
registration pursuant to either (i) issuances to accredited investors
in private placements pursuant to Section 4(2) of the Securities Act,
or (ii) issuances to employees, directors and consultants for services
pursuant to Rule 701 promulgated under the Securities Act. The
following table sets forth certain information regarding such grants:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE
SHARES PRICES
--------- ----------------
<S> <C> <C>
February 1, 1997 to December 31, 1997........... 607,429 $0.075 to $0.135
January 1, 1998 to December 31, 1998............ 1,141,973 0.135
January 1, 1999 to December 31, 1999............ 1,738,282 $0.315 to $1.875
January 1, 2000 to March 31, 2000............... 326,634 $1.875 to $11.25
March 31, 2000 to June 30, 2000................. 164,002 $11.25
</TABLE>
II-3
<PAGE> 97
No underwriters were involved in connection with the sales of securities
referred to in this paragraph 27.
The issuances described in paragraphs 18, 19, 20, 21, 22, 23, 24 and 25
above were offered and sold in reliance upon exemptions from the Securities Act
registration requirements set forth in Section 4(2) of the Securities Act
relating to sales by an issuer not involving any public offering. All other
issuances described in this Item 15 were made in reliance upon an exemption from
registration pursuant to Rule 701 under the Securities Act. The recipients of
securities in each such transaction represented their intentions to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof and appropriate legends were affixed to the share
certificates and warrants issued in such transactions. All recipients had
adequate access, through their relationships with us, to information about us.
II-4
<PAGE> 98
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1** Form of Underwriting Agreement
3.1* Registrant's Amended and Restated Certificate of
Incorporation, as currently in effect
3.2** Form of Registrant's Restated Certificate of Incorporation,
to be in effect upon the closing of the offering
3.3* Registrant's Bylaws, as currently in effect
3.4* Form of Registrant's Bylaws, to be in effect upon the
closing of the offering
4.1* See Article III of Exhibit 3.2 and Article I of Exhibit 3.4
5.1 Opinion of Stoel Rives LLP as to the legality of the
securities being registered, including consent
10.1* Registrant's 1996 Stock Incentive Plan
10.2* Lease Agreement between Registrant and Amberjack, Ltd. dated
as of October 14, 1999
10.3* Amended and Restated Loan and Security Agreement between
Silicon Valley Bank and the Registrant, dated as of August
25, 1999
10.4* Master Equipment Lease between Comdisco, Inc. and the
Registrant, dated as of September 24, 1999
10.5* Office Space Sublease between Creative MultiMedia
Corporation and the Registrant, dated as of September 11,
1997 under an Office Lease between Commerce Building Limited
Partnership and Creative Multimedia Corporation, dated as of
April 7, 1995
10.6* Second Amended and Restated First Refusal and Co-Sale
Agreement, dated December 22, 1999 between the Registrant
and certain investors
10.7* Second Amended and Restated Investors' Rights Agreement,
dated December 22, 1999 between the Registrant and certain
investors, as amended March 8, 2000
10.8* Form of Indemnification Agreement between the Registrant and
Messrs. Anastas, Gibson, Whitney, Raetz, Langeler, Fielland,
Brinker, Dunne, Jackson, Shrigley and Lash
10.9 Registrant's 2000 Stock Incentive Plan, as amended
10.10* Registrant's Employee Stock Purchase Plan
10.11* Series B Preferred Stock Purchase Agreement, dated December
24, 1998, between the Registrant and certain investors, as
amended
10.12* Series C Preferred Stock Purchase Agreement, dated December
22, 1999, between the Registrant and certain investors
10.13 Employment Agreement, dated July 1, 2000, between the
Registrant and Robert F. Dunne
21.1 Subsidiaries of Registrant
23.1 Consent of KPMG LLP, Independent Auditors
23.2 Consent of Stoel Rives LLP (included in Exhibit 5.1)
24.1* Power of Attorney
27.1 Financial Data Schedule
</TABLE>
-------------------------
* previously filed
** to be filed by amendment
II-5
<PAGE> 99
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions contained in the Amended and Restated
Certificate of Incorporation of the Registrant and the laws of the State of
Delaware, or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-6
<PAGE> 100
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment to be signed on its behalf by the
undersigned, thereunto duly authorized, in Portland, Oregon, on this 28th day of
August 2000.
WEBRIDGE, INC.
By: GARY N. FIELLAND
--------------------------------------
Gary N. Fielland,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
has been signed by the following persons in the capacities held on the dates
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ GARY N. FIELLAND President, Chief Executive Officer August 28, 2000
------------------------------------- and Director (Principal Executive
Gary N. Fielland Officer)
/s/ DAVID L. BRINKER* Chief Financial Officer August 28, 2000
------------------------------------- (Principal Financial Officer and
David L. Brinker Principal Accounting Officer)
/s/ MARK S. ANASTAS* Chief Operating Officer and Director August 28, 2000
-------------------------------------
Mark S. Anastas
/s/ C. SCOTT GIBSON* Director August 28, 2000
-------------------------------------
C. Scott Gibson
/s/ GERARD LANGELER* Director August 28, 2000
-------------------------------------
Gerard Langeler
/s/ JAMES A. LASH* Director August 28, 2000
-------------------------------------
James A. Lash
/s/ DAVID A. SHRIGLEY* Director August 28, 2000
-------------------------------------
David A. Shrigley
*By: /s/ GARY N. FIELLAND
-------------------------------------
Gary N. Fielland
Attorney-in-fact
</TABLE>
II-7
<PAGE> 101
EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1** Form of Underwriting Agreement
3.1* Registrant's Amended and Restated Certificate of
Incorporation, as currently in effect
3.2** Form of Registrant's Restated Certificate of Incorporation,
to be in effect upon the closing of the offering
3.3* Registrant's Bylaws, as currently in effect
3.4* Form of Registrant's Bylaws, to be in effect upon the
closing of the offering
4.1* See Article III of Exhibit 3.2 and Article I of Exhibit 3.4
5.1 Opinion of Stoel Rives LLP as to the legality of the
securities being registered, including consent
10.1* Registrant's 1996 Stock Incentive Plan
10.2* Lease Agreement between Registrant and Amberjack, Ltd. dated
as of October 14, 1999
10.3* Amended and Restated Loan and Security Agreement between
Silicon Valley Bank and the Registrant, dated as of August
25, 1999
10.4* Master Equipment Lease between Comdisco, Inc. and the
Registrant, dated as of September 24, 1999
10.5* Office Space Sublease between Creative Corporation and the
Registrant, dated as of September 11, 1997 under an Office
Lease between Commerce Building Limited Partnership and
Creative Multimedia Corporation, dated as of April 7, 1995
10.6* Second Amended and Restated First Refusal and Co-Sale
Agreement, dated December 22, 1999 between the Registrant
and certain investors
10.7* Second Amended and Restated Investors' Rights Agreement,
dated December 22, 1999 between the Registrant and certain
investors, as amended March 8, 2000
10.8* Form of Indemnification Agreement between the Registrant and
Messrs. Anastas, Gibson, Whitney, Raetz, Langeler, Fielland,
Brinker, Dunne, Jackson, Shrigley and Lash
10.9 Registrant's 2000 Stock Incentive Plan, as amended
10.10* Registrant's Employee Stock Purchase Plan
10.11* Series B Preferred Stock Purchase Agreement, dated December
24, 1998, between the Registrant and certain investors, as
amended
10.12* Series C Preferred Stock Purchase Agreement, dated December
22, 1999, between the Registrant and certain investors
10.13 Employment Agreement, dated July 1, 2000, between the
Registrant and Robert F. Dunne
21.1 Subsidiaries of Registrant
23.1 Consent of KPMG LLP, Independent Auditors
23.2 Consent of Stoel Rives LLP (included in Exhibit 5.1)
24.1* Power of Attorney
27.1 Financial Data Schedule
</TABLE>
-------------------------
* previously filed
** to be filed by amendment
