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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 22, 2000
REGISTRATION NO. 333-48698
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO.1 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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DIGITAL RIVER, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 7375 41-1901640
(State or other jurisdiction of (Primary standard industrial (I.R.S. employer
incorporation or organization) classification code number) identification no.)
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9625 W. 76TH STREET, SUITE 150
EDEN PRAIRIE, MN 55344
(952) 253-1234
(Address, including zip code, and telephone number, including area
code, of Registrant's principal executive offices)
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JOEL A. RONNING
CHIEF EXECUTIVE OFFICER
DIGITAL RIVER, INC.
9625 W. 76TH STREET, SUITE 150
EDEN PRAIRIE, MN 55344
(952) 253-1234
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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COPIES TO:
MICHAEL J. SULLIVAN
VIRGINIA C. EDWARDS
LAURIE HAUBER
COOLEY GODWARD LLP
ONE MARITIME PLAZA, 20TH FLOOR
SAN FRANCISCO, CALIFORNIA 94111
(415) 693-2000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
as soon as practicable after the registration statement becomes effective.
If the only securities being registered on this form are being offered pursuant
to dividend or interest reinvestment plans, please check the following
box: / /
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, as amended (the "Securities Act"), other than securities offered only in
connection with dividend or interest reinvestment plans, check the following
box: /X/
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: / /
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: / /
If this form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: / /
---------------------------
WE HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE
NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL WE SHALL FILE A FURTHER AMENDMENT
THAT SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER
BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OR UNTIL
THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE
COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THE
SELLING STOCKHOLDER MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING
AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR
SALE IS NOT PERMITTED.
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SUBJECT TO COMPLETION, DATED NOVEMBER 22, 2000
PROSPECTUS
DIGITAL RIVER, INC.
1,350,000 SHARES
COMMON STOCK
The selling stockholder identified in this prospectus is selling 1,350,000
shares of our common stock. We are not selling any shares of our common stock
under this prospectus and will not receive any of the proceeds from the sale of
shares by the selling stockholder.
The selling stockholder may sell the shares of common stock described in this
prospectus in a number of different ways and at varying prices. We provide more
information about how they may sell their shares in the section entitled "Plan
of Distribution" on page 13.
Our common stock is traded on the Nasdaq National Market under the symbol
"DRIV." On November 20, 2000, the closing sale price of our common stock, as
reported on the Nasdaq National Market, was $5.625 per share.
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
BEGINNING ON PAGE 2.
THE SHARES OFFERED OR SOLD UNDER THIS PROSPECTUS HAVE NOT BEEN APPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAVE
THESE ORGANIZATIONS DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this prospectus is , 2000
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Digital River is our registered trademark. All other trademarks or
service marks appearing in this prospectus are the property of their
respective owners.
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PROSPECTUS SUMMARY
The following is a summary of our business. You should carefully read
the section entitled "Risk Factors" in this prospectus and our annual report on
Form 10-K for the year ended December 31, 1999 for more information on our
business and the risks involved in investing in our stock.
In addition to the historical information contained in this prospectus,
this prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act of
1934. These statements may be identified by the use of words such as "expects,"
"anticipates," "intends," "plans" and similar expressions. The outcome of the
events described in these forward-looking statements is subject to risks and
actual results could differ materially. The sections entitled "Risk Factors"
beginning on page 3 of this prospectus, and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business" in our
Annual Report and Quarterly Reports contain a discussion of some of the factors
that could contribute to those differences.
DIGITAL RIVER
OVERVIEW
We are a leading provider of comprehensive electronic commerce
outsourcing solutions. We are an application service provider that enables our
clients to access our proprietary electronic commerce system over the Internet.
We have developed a technology platform that allows us to provide a suite of
electronic commerce services, including Web commerce development and hosting,
transaction processing, fraud screening, digital delivery, integration to
physical fulfillment and customer service. We also provide analytical marketing
and merchandising services to assist clients in increasing Web page view traffic
to, and sales through, their Web commerce systems. We provide an outsourcing
solution that allows our clients to promote their own brands while leveraging
our investment in infrastructure and technology. As of September 30, 2000, we
have processed over 4.0 million cumulative transactions and had contracts with
over 8,000 clients, primarily software publishers and online retailers. In
January 2000, we announced that we had created the Software and Digital Services
Group to serve the software and digital products market, and the E-Business
Services Group to serve manufacturers, distributors and retailers outside of the
software industry. The Company's clients include 3M Company, Autodesk Inc.,
CompUSA Inc., Egghead.com, Inc., Fujitsu Ltd., ScanSoft Inc. and Symantec Corp.
Our proprietary commerce network server, or CNS, technology serves as
the platform for our solutions. The CNS incorporates custom software
applications that enable Web store authoring, electronic software delivery,
fraud prevention, export control, merchandising programs and online
registration, and features a database of more than 100,000 software and digital
products. Using our CNS platform, we create Web commerce systems for our clients
that replicate the look and feel of each client's Web site. End-users enter the
client site and are then seamlessly transferred to our CNS. End-users can then
browse for products and make purchases online, and once purchases are made, we
either deliver the products digitally to the end-user through the Internet or
communicate the order through its integration into a number of third party
fulfillment agencies for physical fulfillment. We also provide transaction
processing services and collect and maintain critical information about
end-users. This information can later be used by our clients to facilitate
add-on or upgrade sales and for other direct marketing purposes. We actively
manage direct marketing campaigns for our clients, and also deliver purchase
information and Web store traffic statistics to our clients through online
reporting.
We were incorporated in Minnesota in February 1994 and reincorporated
into Delaware in December 1997. References in the prospectus to "Digital River,"
"we," "our," "us" and the "Company" refer to Digital River, Inc., a Delaware
corporation and its subsidiaries. Our executive offices are located at 9625 West
76th Street, Suite 150, Eden Prairie, Minnesota 55344. Our telephone number is
(952) 253-1234. Information contained on our Web site does not constitute part
of this prospectus.
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RECENT DEVELOPMENTS
On August 24, 2000, pursuant to an Asset Purchase Agreement dated as of
August 24, 2000 by and between Digital River and NetSales, Inc., in exchange for
1,000,000 shares of our common stock, we purchased those assets and assumed
those liabilities of NetSales related to NetSales' software services business.
The Asset Purchase Agreement includes a contingent earnout whereby NetSales can
receive up to an additional 350,000 shares of our common stock based on
performance over the 180 day period following August 24, 2000. Of the 1,000,000
shares of common stock issued at closing, 100,000 shares were placed in escrow
to secure certain indemnification obligations contained in the Asset Purchase
Agreement. Subject to outstanding claims, the escrow will terminate on June 24,
2001.
As of the quarter ending September 30, 2000, we will commence reporting
our company wide revenues on a net basis. Such a change in accounting practices
is based upon the consensus reached in Issue 99-19: "Reporting Revenue Gross as
a Principal versus Net as an Agent" by the Emerging Issues Task Force ("EITF")
of the Financial Accounting Standards Board. EITF 99-19 provides guidance
regarding net versus gross revenue recognition. Previously, substantially all
revenue generated through our Software Services division was recognized on a
gross basis. Revenue generated through the E-Business Services division has
historically been reported on a net basis so there will be no change for
presentation for this division. This change reflects a new reporting
presentation only and will not alter our net income, either historically or in
the future.
RISK FACTORS
Investing in our common stock involves a high degree of risk. You
should be able to bear a complete loss of your investment. You should carefully
consider the following factors, in addition to the other information in this
prospectus, before investing in our stock.
BECAUSE WE HAVE A LIMITED OPERATING HISTORY, WE ARE ENCOUNTERING NUMEROUS RISKS
THAT WE MAY FAIL TO SUCCESSFULLY ADDRESS.
We have a limited operating history. We were incorporated in February
1994 and conducted our first online sale through a client's Web store in August
1996. Our business and prospects must be considered in light of the risks
encountered by companies in their early stages of development, particularly
companies in new and rapidly evolving markets such as electronic commerce. Some
of these risks relate to our ability to:
- maintain or develop relationships with software and
online retailers;
- maintain or develop relationships with E-Business clients
and prospects;
- execute our business and marketing strategy;
- continue to develop and upgrade our technology and
transaction-processing systems;
- provide superior customer service and order fulfillment;
- respond to competitive developments; and
- retain and motivate qualified personnel.
We may not be successful in addressing these risks, and if we are not
successful, our business will suffer. Our current and future expense levels are
based largely on our planned operations and our estimates of future sales. It is
difficult, however, for us to accurately forecast future revenue, because our
business is still new and our market is still developing. We may be unable to
adjust spending in a timely manner to compensate for any unexpected revenue
shortfall. As a result, any significant shortfall in revenue would immediately
harm our business. As a result of our rapidly evolving business and our limited
operating history, we believe that period-to-period comparisons of our operating
results are not necessarily meaningful and investors should not rely upon our
historical results as an indication of future performance.
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WE HAVE A HISTORY OF LOSSES AND WE EXPECT OUR LOSSES TO CONTINUE FOR THE
FORESEEABLE FUTURE.
We have incurred significant losses since we were formed. As of
September 30, 2000, we had an accumulated deficit of approximately $78.5
million. We intend to continue to expend significant financial and management
resources on the development of additional services, sales and marketing,
improved technology and expanded operations. For example, this year we have
invested over $10 million to improve our technology infrastructure so that we
can offer our clients comprehensive e-commerce outsourcing solutions. As a
result of these expenditures, we expect operating losses and negative cash flows
to continue for the foreseeable future. In addition, our operating losses could
increase from current levels. Our revenue may not increase or even continue at
its current level, and we may not be profitable or generate cash from operations
in future periods.
OUR OPERATING RESULTS ARE LIKELY TO FLUCTUATE SIGNIFICANTLY.
Our quarterly and annual operating results are likely to fluctuate
significantly in the future due to a variety of factors, many of which are
outside our control. Some of these factors include:
- our ability to attract and retain software publishers
and online retailers as clients;
- our ability to attract and retain E-Business clients;
- the introduction of new Web sites, Web stores, services or
products by us or by others;
- price competition and margin erosion;
- the rate at which the online market for the purchase of
software products continues to emerge;
- our ability to continue to upgrade and develop our systems
and infrastructure to meet emerging market needs and
remain competitive in our service offerings;
- termination of any account that represents a significant
portion of our revenue;
- technical difficulties or system downtime;
- our ability to attract new personnel as needed as our
business grows;
- our ability to increase the proportion of sales from
online retailers;
- the failure of Internet bandwidth to increase over time or
any increase in the cost of Internet bandwidth;
- and U.S. and foreign regulations relating to our business.
Due to these and other factors, our annual or quarterly operating
results may not meet the expectations of securities analysts and investors. If
this happens, the trading price of the common stock would likely significantly
decline.
A LOSS OF ANY CLIENT THAT ACCOUNTS FOR A LARGE PORTION OF OUR REVENUE COULD
CAUSE OUR REVENUE TO DECLINE.
Revenue related to three software publisher clients collectively
accounted for approximately 20% of our revenue in 1999 and approximately 15% of
our revenue in the Software Services division for the nine months ended
September 30, 2000. Contracts with these clients are generally short term in
nature. If any one of these contracts is not renewed or otherwise ends, our
revenues could decline and our business could be harmed.
OUR SALES CYCLE IS LENGTHY.
We market our services directly to software publishers, online
retailers and E-Business prospects. These relationships are typically complex
and take time to finalize. Due to operating procedures in many large
organizations, a significant amount of time may pass between selection of our
products and services by key decision makers and the signing of a contract. As a
result, the period between the initial sales call and the signing of a
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contract with significant sales potential is difficult to predict and typically
ranges from six to 12 months. Delays in signing contracts with these potential
clients could harm our business.
THERE ARE A NUMBER OF RISKS ASSOCIATED WITH ELECTRONIC SOFTWARE DELIVERY, OR
ESD, INCLUDING THE MARKET'S POTENTIAL FAILURE TO ACCEPT ESD.
Our success will depend in large part on growth in end-user acceptance
of ESD as a method of distributing software products. ESD is a relatively new
method of distributing software products and the growth and market acceptance of
ESD is highly uncertain and subject to a number of risks. Factors that will
influence market acceptance of ESD include:
- the availability of sufficient bandwidth to enable purchasers
to rapidly download software products;
- the cost of time-based Internet access;
- the number of software products that are available for
purchase through ESD as compared to those available
through physical delivery; and
- the level of end-user comfort with the process of downloading
software via the Internet, including the ease of use and
lack of concern about transaction security.
If ESD does not achieve widespread market acceptance, our business will
be harmed. Even if ESD achieves widespread acceptance, we cannot be certain that
we will overcome the substantial existing and future technical challenges
associated with electronically delivering software reliably and consistently on
a long-term basis. Our failure to do so would harm our business.
WE ARE DEPENDENT ON THE CONTINUED GROWTH OF ELECTRONIC COMMERCE AND DEVELOPMENT
OF THE INTERNET INFRASTRUCTURE.
We depend on the growing use and acceptance of the Internet as an
effective medium of commerce by end-users. Rapid growth in the use of and
interest in the Internet and other online services is a recent development. The
acceptance and use of the Internet and other online services may not continue to
develop and a sufficiently broad base of consumers may not adopt, and continue
to use, the Internet and other online services as a medium of commerce. We rely
on purchasers who have historically used traditional means of commerce to
purchase goods or transact business. If we are to be successful, these
purchasers must accept and use the Internet as a means of purchasing goods and
services and exchanging information and we cannot predict the rate at which
these purchasers will do so.
The Internet may fail as a commercial marketplace for a number of
reasons, including potentially inadequate development of the necessary network
infrastructure or delayed development of enabling technologies and performance
improvements. If the number of Internet users or their use of Internet resources
continues to grow, it may overwhelm the existing Internet infrastructure. Delays
in the development or adoption of new standards and protocols required to handle
increased levels of Internet activity or increased governmental regulation could
also have a similar effect. In addition, growth in Internet usage that is not
matched by comparable growth in the infrastructure supporting Internet usage
could result in slower response times or impair usage of the Internet.
WE ARE DEPENDENT ON SOFTWARE PUBLISHERS.
We are heavily dependent upon the software publishers that supply us
with software, and the availability of this software is unpredictable. Our
contracts with our software publisher clients are generally one year in
duration, with an automatic renewal provision for additional one-year periods,
unless we are provided with a written notice at least 90 days before the end of
the contract. As is common in our industry, we have no long-term or exclusive
contracts or arrangements with any software publishers that guarantee the
availability of software products. We cannot be certain that the software
publishers that currently supply software to us will continue to do so or that
we will be able to establish new relationships with software publishers. If we
cannot develop and maintain satisfactory relationships with software publishers
on acceptable commercial terms, if we are unable to obtain sufficient
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quantities of software, if the quality of service provided by these software
publishers falls below a satisfactory level or if software returned to us
exceeds our clients' expectations, our business could be harmed.
WE ARE DEPENDENT ON ONLINE RETAILERS.
Our strategy is dependent upon increasing our sales of software
products through online retailers. We have historically generated substantially
all of our revenue from the sale of software to end-users that were initiated
through the Web stores of our software publisher clients. In 1999 and the nine
months ended September 30, 2000, less than 8% of our revenue for the Software
Services division was generated through our online retailer clients. We may not
successfully establish relationships with additional online retailers and our
current relationships may not continue. If we are unable to expand our
relationships with online retailers, we will likely be unable to continue to
grow our business and establish meaningful market share.
WE ARE DEPENDENT ON E-BUSINESS CLIENTS.
Our strategy is also dependent upon increasing fee and service revenues
from E-Business clients. We may not succeed in establishing and maintaining
relationships with sufficient numbers of E-Business clients to support our
investments in technology and infrastructure. If we are unable to attract and
retain these clients, our business will suffer.
WE MAY BE UNABLE TO SUCCESSFULLY IMPLEMENT OUR DEVELOPMENT AND ACQUISITION
STRATEGY.
To extend our electronic commerce outsourcing capabilities, we have
developed, and intend to continue developing, our E-Business services. We have
also acquired, and intend to continue acquiring, companies that provide
outsourcing services to shareware publishers. These business initiatives require
a significant expenditure of management time and sales, marketing and product
development funds. These expenditures may disrupt our ongoing business, distract
management and make it difficult to maintain standards, controls and procedures.
If we make acquisitions outside of our core business, assimilating the acquired
technology, services or products into our operations could be difficult. If we
are unable to successfully implement our new business initiatives, we will not
generate a profitable return on our investment and we will be unable to gain
meaningful market share. If a significant number of clients of the acquired
companies cease doing business with us, our business will suffer.
SYSTEM FAILURES COULD REDUCE THE ATTRACTIVENESS OF OUR PRODUCT AND SERVICE
OFFERINGS.
We provide commerce, marketing and delivery services to our clients and
end-users through our CNS transaction-processing and client management systems.
These systems also maintain an electronic inventory of products and gather
consumer marketing information. The satisfactory performance, reliability and
availability of the CNS and the underlying network infrastructure are critical
to our operations, our level of customer service, our reputation and our ability
to attract and retain clients. Our systems and operations are vulnerable to
damage or interruption from:
- fire, flood and other natural disasters; and
- power loss, telecommunications failure, break-ins and
similar events.
We presently have no offsite back-up facilities and do not carry
sufficient business interruption insurance to fully compensate us for losses
that may occur. Despite the use of network security devices, our servers are
vulnerable to computer viruses, physical or electronic break-ins and similar
disruptions, which could lead to interruptions, delays, loss of data or the
inability to accept and fulfill end-user orders. Any systems interruption that
impairs our ability to accept and fill customer orders reduces the
attractiveness of our product and service offerings to clients and end-users,
which could harm our business.
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FAILURE TO DEVELOP OUR TECHNOLOGY TO ACCOMMODATE INCREASED CNS TRAFFIC COULD
REDUCE DEMAND FOR OUR SERVICES.
We have experienced periodic interruptions, affecting all or a portion
of our systems, which we believe will continue to occur from time to time. We
periodically enhance and expand our technology and transaction-processing
systems, and network infrastructure and other technologies to accommodate
increases in the volume of traffic on the CNS. We may be unable to improve and
increase the capacity of our network infrastructure. We may be unable to
anticipate increases, if any, in the use of the CNS or to expand and upgrade its
systems and infrastructure to accommodate these increases. Our inability to add
software and hardware or to develop and upgrade existing technology,
transaction-processing systems or network infrastructure to handle increased
traffic on the CNS may cause unanticipated system disruptions, slower response
times and poor customer service, including problems filling customer orders, any
of which could harm our business. In addition, additional network capacity may
not be available from third-party suppliers when we need it. Our network and our
suppliers' networks may be unable to maintain an acceptable data transmission
capability, especially if demands on the CNS increase. Our failure to maintain
an acceptable data transmission capability could significantly reduce demand for
our services, which would impair our business.
SECURITY BREACHES COULD HINDER OUR ABILITY TO SECURELY TRANSMIT CONFIDENTIAL
INFORMATION.
A significant barrier to electronic commerce and communications is the
secure transmission of confidential information over public networks. We rely on
encryption and authentication technology licensed from third parties to provide
the security and authentication necessary for secure transmission of
confidential information, such as customer credit card numbers. A party who
circumvents our security measures could misappropriate proprietary information
or interrupt our operations. Any compromise or elimination of our security could
harm our business.
We may be required to expend significant capital and other resources to
protect against security breaches or to address problems caused by breaches.
Concerns over the security of the Internet and other online transactions and the
privacy of users may also inhibit the growth of the Internet and other online
services generally, and the Web in particular, especially as a means of
conducting commercial transactions. To the extent that our activities or those
of third-party contractors involve the storage and transmission of proprietary
information, such as credit card numbers, security breaches could damage our
reputation and expose us to a risk of loss or litigation and possible liability.
Our security measures may not prevent security breaches and failure to prevent
security breaches could cause our business to suffer.
CURRENT AND POTENTIAL COMPETITORS COULD REDUCE OUR OPERATING MARGINS AND MARKET
SHARE.
The electronic commerce market is new, rapidly evolving and intensely
competitive. We expect competition to intensify in the future, particularly in
the area of electronic sale and distribution of software products. We currently
compete directly with other providers of electronic commerce solutions,
including CyberSource Corporation, Preview Systems, Inc., ReleaseNow.com
Corporation and Network Commerce Inc. We compete indirectly with software
companies, system integrators and application service providers that offer tools
and services for electronic commerce, including companies that provide a broad
range of Internet and server solutions, such as Microsoft Corporation and
Netscape Communications Corporation. We also compete indirectly with a large
number of companies that provide tools and services enabling one or more of the
transaction processing functions of electronic commerce, such as transaction
control, data security, customer interaction and database marketing, such as
BroadVision, Inc., Commerce One, Inc., Corio, Inc., IBM Global Services, Open
Market, Inc., Qwest Communications International, Inc., Scient Corporation, US
Internetworking, and US Web/CKS. In addition to direct competition with other
transaction processing providers and enablers and indirect competition with
other providers of electronic commerce software and systems, we compete with
companies that sell and distribute software products via the Internet, including
Amazon.com, Inc., Beyond.com Corporation, Ingram Micro Inc. and Tech Data
Corporation. We also compete with companies such as AltaVista Company, a
subsidiary of CMGI, Inc., America Online, Inc., At Home Corporation, Infoseek
Corporation, Lycos, Inc. and Yahoo! Inc., which specialize in electronic
commerce or derive a substantial portion of their revenues from electronic
commerce and may themselves offer, or provide means for others to offer,
software products.
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We believe that the principal competitive factors in our market
include:
- breadth of service and product offerings;
- software and shareware publisher and online retailer
relationships;
- brand recognition;
- system reliability and capacity;
- price;
- customer service;
- speed, accessibility and ease of use;
- speed to market;
- scalability;
- convenience; and
- speed of fulfillment.
The online retailers and the other companies listed above may compete
directly with us by adopting a similar business model. Moreover, while some of
these companies are also clients or potential clients of ours, they may compete
with our electronic commerce outsourcing solution if they develop electronic
commerce systems or acquire these systems from other software and shareware
vendors or service providers.
Many of our current and potential competitors have longer operating
histories, larger customer bases, greater brand recognition and significantly
greater financial, marketing and other resources than we do. In addition,
larger, well-established and well-financed entities may acquire, invest in or
form joint ventures with online competitors as the use of the Internet and other
online services increases. New technologies and the expansion of existing
technologies, such as price comparison programs that select specific titles from
a variety of Web sites, may direct end-users to online retailers that compete
with us, which would increase our competitive pressures. Increased competition
may result in reduced operating margins, as well as a loss of market share.
Further, in response to changes in the competitive environment, we may from time
to time make pricing, service or marketing decisions or acquisitions that could
harm our business. We may be unable to compete successfully against current and
future competitors, and any inability to do so could harm our business.
WE MUST KEEP PACE WITH RAPID TECHNOLOGICAL CHANGE IN ORDER TO SUCCEED.
To remain competitive, we must continue to enhance and improve the
responsiveness, functionality and features of the CNS and the underlying network
infrastructure. The Internet and the electronic commerce industry are
characterized by rapid technological change, changes in user requirements and
preferences, frequent new product and service introductions embodying new
technologies and the emergence of new industry standards and practices that
could render our technology and systems obsolete. Our success will depend, in
part, on our ability to both license and internally develop leading technologies
to enhance our existing services, develop new products, services and
technologies that address the increasingly sophisticated and varied needs of our
clients, and respond to technological advances and emerging industry standards
and practices on a cost-effective and timely basis. The development of the CNS
technology and other proprietary technology involves significant technical and
business risks. We may fail to use new technologies effectively or adapt our
proprietary technology and systems to customer requirements or emerging industry
standards. If we are unable to adapt to changing market conditions, client
requirements or emerging industry standards, our business could be harmed.
WE MUST EFFECTIVELY MANAGE OUR RAPID GROWTH IN ORDER TO SUCCEED.
We have rapidly and significantly expanded our operations and
anticipate that further significant expansion will be required to address
potential growth in our client base and market opportunities. In the nine months
ended September 30, 2000, we increased our number of employees from 278 to 357.
This expansion is placing a
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significant strain on our managerial, operational and financial resources. Our
new employees include a number of key managerial, technical and operations
personnel whom we have not yet fully integrated. We recently acquired three
shareware businesses and one software services business that required us to
integrate two new offices and a number of new employees. We expect to add
additional key personnel in the near future, including direct sales, marketing
and technical personnel. To manage the expected growth of our operations and
personnel, we will be required to:
- improve existing and implement new operational, financial and
management controls, reporting systems and procedures;
- install new management information systems; and
- train, motivate and manage our employees.
We may be unable to install management information and control systems
in an efficient and timely manner, and our current or planned personnel,
systems, procedures and controls may be inadequate to support our future
operations. In addition, we may be unable to hire, train, retain, motivate and
manage required personnel or to successfully identify, manage and exploit
existing and potential market opportunities. If we are unable to manage growth
effectively, our business will be harmed.
OUR CHIEF EXECUTIVE OFFICER IS CRITICAL TO OUR BUSINESS AND HE MAY NOT REMAIN
WITH US IN THE FUTURE.
Our future success significantly depends on the continued services and
performance of our senior management, particularly Joel A. Ronning, our chief
executive officer. Our performance also depends on our ability to retain and
motivate our other executive officers and key employees. The loss of the
services of any of our executive officers or other key employees could harm our
business. We have long-term employment agreements only with Mr. Ronning and
Perry W. Steiner, our president. Our future success also depends on our ability
to identify, attract, hire, train, retain and motivate other highly skilled
technical, managerial, operations, merchandising, sales and marketing and
customer service personnel. Competition for personnel is intense, and we may be
unable to successfully attract, assimilate or retain sufficiently qualified
personnel. The failure to retain and attract the necessary personnel could harm
our business.
PROTECTING OUR INTELLECTUAL PROPERTY IS CRITICAL TO OUR SUCCESS.
Trademarks, patents, copyrights, trade secrets and other
intellectual property are critical to our success, and we rely on trademark,
trade secret protection and confidentiality and license agreements with our
employees, clients, partners and others to protect our proprietary rights. We
seek to protect our proprietary position by, among other methods, filing
United States and foreign patent applications related to our proprietary
technology, inventions and improvements that are important to the development
of our business. We currently have four United States patents issued and nine
U.S. patents, as well as two foreign patents pending in a number of areas of
electronic commerce. Proprietary rights relating to our technologies will be
protected from unauthorized use by third parties only to the extent that they
are covered by valid and enforceable patents or copyrights or are effectively
maintained as trade secrets. The laws of some foreign countries do not
protect our intellectual property rights to the same extent as do the laws of
the United States. The patent position of high technology companies involves
complex legal and factual questions and, therefore, we cannot predict their
validity and enforceability with certainty. Even if issued, our patent
applications may be challenged, invalidated, held unenforceable or
circumvented. Further, rights granted under future patents may not provide us
with proprietary protection or competitive advantages against competitors
with similar technology. Others may independently develop similar
technologies or duplicate technologies developed by us.
We have three registered trademarks, including "Digital River," and
seven trademark registrations pending. Effective trademark and trade secret
protection may not be available in every country in which our products and
services are made available online. The steps we have taken to protect our
proprietary rights may be inadequate, and third parties may infringe or
misappropriate our trade secrets, trademarks, trade dress and similar
proprietary rights. In addition, others may independently develop
substantially equivalent intellectual property. Any significant failure to
protect our intellectual property in a meaningful manner could harm our
business. In
8.
<PAGE>
addition, litigation may be necessary in the future to enforce our intellectual
property rights, to protect our trade secrets or to determine the validity and
scope of the proprietary rights of others. Litigation could result in
substantial costs and diversion of management and technical resources, which
could harm our business.
CLAIMS OF INFRINGEMENT OF OTHER PARTIES' INTELLECTUAL PROPERTY RIGHTS COULD
REQUIRE US TO EXPEND SIGNIFICANT RESOURCES.
From time to time we may receive notice of claims of infringement of
other parties' proprietary rights. Any future assertions or prosecutions of
claims like these could require us to expend significant financial and
managerial resources. Defending any claim, whether valid or not, could be
time-consuming, result in costly litigation and diversion of technical and
management personnel, cause product shipment delays or require us to develop
non-infringing technology or enter into royalty or licensing agreements. Royalty
or licensing agreements, if required, may be unavailable on terms acceptable to
us, or at all. If a third party succeeds in any infringement action against us
and we fail or are unable to develop non-infringing technology or license the
infringed or similar technology on a timely basis, our business could be harmed.
CLAIMS AGAINST US RELATED TO THE SOFTWARE PRODUCTS THAT WE DELIVER
ELECTRONICALLY COULD ALSO REQUIRE US TO EXPEND SIGNIFICANT RESOURCES.
Claims may be made against us for negligence, copyright or trademark
infringement or other theories based on the nature and content of software
products that are delivered electronically and subsequently distributed to
others. Although we carry general liability insurance, our insurance may not
cover potential claims of this type or may not be adequate to cover all costs
incurred in defense of potential claims or to indemnify us for all liability
that may be imposed. Any costs or imposition of liability that are not covered
by insurance or in excess of insurance coverage could harm our business.
WE MAY NEED TO RAISE ADDITIONAL CAPITAL TO ACHIEVE OUR BUSINESS OBJECTIVES.
We require substantial working capital to fund our business. We have
had significant operating losses and negative cash flow from operations since
inception and expect to continue to do so for the foreseeable future. We believe
that our existing capital resources will be sufficient to meet our capital
requirements for at least the next 12 months. However, our capital requirements
depend on several factors, including the rate of market acceptance of our
products, the ability to expand our client base, the growth of sales and
marketing and other factors. If capital requirements vary materially from those
currently planned, we may require additional financing sooner than anticipated.
If additional funds are raised through the issuance of equity securities, the
percentage ownership of our stockholders will be reduced, stockholders may
experience additional dilution or these equity securities may have rights,
preferences or privileges senior to those of our common stock. Additional
financing may not be available when needed, on terms favorable to us or at all.
If adequate funds are not available or are not available on acceptable terms, we
may be unable to develop or enhance our services, take advantage of future
opportunities or respond to competitive pressures, which could harm our
business.
CHANGES IN GOVERNMENT REGULATION COULD LIMIT OUR INTERNET ACTIVITIES
OR RESULT IN ADDITIONAL COSTS OF DOING BUSINESS OVER THE INTERNET.
We are not currently subject to direct regulation by any domestic or
foreign governmental agency, other than regulations applicable to businesses
generally, export control laws and laws or regulations directly applicable to
electronic commerce. However, due to the increasing popularity and use of the
Internet, it is possible that a number of laws and regulations may be adopted
with respect to the Internet covering issues such as:
- user privacy;
- pricing;
- content;
- copyrights;
9.
<PAGE>
- distribution; and
- characteristics and quality of products and services.
Furthermore, the growth and development of the market for electronic
commerce may prompt calls for more stringent consumer protection laws that may
impose additional burdens on those companies conducting business online. The
adoption of additional laws or regulations may decrease the growth of the
Internet or other online services, which could, in turn, decrease the demand for
our products and services and increase our cost of doing business, or otherwise
harm our business.
The applicability of existing laws governing issues such as property
ownership, copyrights, encryption and other intellectual property issues,
taxation, libel, export or import matters, obscenity and personal privacy, to
the Internet is uncertain. The vast majority of these laws were adopted prior to
the advent of the Internet and related technologies. As a result, they do not
contemplate or address the unique issues of the Internet and related
technologies. Changes to the laws intended to address these issues, including
some recently proposed changes, could create uncertainty in the Internet
marketplace. Uncertainty could reduce demand for our services or increase the
cost of doing business due to increased costs of litigation or increased service
delivery costs.
In addition, as our services are available over the Internet in
multiple states and foreign countries, these jurisdictions may claim that we are
required to qualify to do business as a foreign corporation in each state or
foreign country. We are qualified to do business only in Connecticut, Minnesota
and Washington. Failure to qualify as a foreign corporation in a jurisdiction
where we are required to do so could subject us to taxes and penalties and could
result in our inability to enforce contracts in these jurisdictions. New
legislation or regulation, the application of laws and regulations from
jurisdictions whose laws do not currently apply to our business, or the
application of existing laws and regulations to the Internet and other
electronic services could harm our business.
WE MAY NOT SUCCEED IN DEVELOPING A SUCCESSFUL INTERNATIONAL PRESENCE.
Although we sell software products and services to end-users outside
the United States, we might not succeed in expanding our international presence.
Conducting business outside of the United States is subject to certain risks,
including:
- changes in regulatory requirements and tariffs;
- reduced protection of intellectual property rights;
- difficulties in distribution;
- the burden of complying with a variety of foreign laws; and
- political or economic constraints on international trade
or instability.
In addition, some software exports from the United States are subject
to export restrictions as a result of the encryption technology in the software
and we may become liable to the extent we violate these restrictions. We may be
unable to market, sell and distribute our products and services in local markets
and we cannot be certain that one or more of these factors will not harm our
future international operations, and consequently, our business.
NEW OBLIGATIONS TO COLLECT OR PAY SALES TAX COULD HARM OUR BUSINESS.
We do not currently collect sales, use or other similar taxes with
respect to ESD or shipments of software products into states other than
California, Connecticut, Minnesota and Washington. However, one or more
local, state or foreign jurisdictions may seek to impose sales or use tax
collection obligations on out-of-state companies like ours that engage in
electronic commerce. Any new operation in states outside California,
Connecticut, Minnesota and Washington could subject shipments into those
states to state sales or use taxes under current or future laws. In addition,
any failure by an E-Business client to collect obligatory sales or use taxes
could cause the relevant jurisdiction to attempt imposing that obligation on
us. A successful assertion by one or more states or any foreign country that
we should
10.
<PAGE>
collect sales, use or other taxes on the sale of merchandise through ESD or
E-Business or shipments of software could harm our business.
OUR STOCK PRICE IS LIKELY TO BE HIGHLY VOLATILE DUE TO BROAD MARKET AND INDUSTRY
FACTORS BEYOND OUR CONTROL.
The trading price of our common stock has been and is likely to
continue to be highly volatile and could be subject to wide fluctuations in
response to factors such as:
- actual or anticipated variations in quarterly operating
results;
- announcements of technological innovations;
- new products or services that we or our competitors offer;
- changes in financial estimates by securities analysts;
- conditions or trends in the Internet and online commerce
industries;
- changes in the economic performance and/or market valuations
of other Internet, online service industries;
- changes in the economic performance and/or market valuations
of other Internet, online service or retail companies;
- our announcements of significant acquisitions, strategic
partnerships, joint ventures or capital commitments;
- additions or departures of key personnel;
- sales of common stock; and
- other events or factors, many of which are beyond our
control.
In addition, the stock market in general, and the Nasdaq National
Market and the market for Internet-related and technology companies in
particular, has experienced extreme price and volume fluctuations that have
often been unrelated or disproportionate to the operating performance of these
companies. The trading prices of many technology companies' stocks are at or
near historical highs and these trading prices and multiples are substantially
above historical levels. These trading prices and multiples may not be
sustained. These broad market and industry factors may cause the market price of
our common stock to decline, regardless of our actual operating performance. In
the past, following periods of volatility in the market price of a company's
securities, securities class-action litigation has often been instituted against
that company. Litigation, if instituted, could result in substantial costs and a
diversion of management's attention and resources, which would harm our
business.
PROVISIONS OF OUR CHARTER DOCUMENTS, OTHER AGREEMENTS AND DELAWARE LAW MAY
INHIBIT POTENTIAL ACQUISITION BIDS FOR US.
Certain provisions of our Amended and Restated Certificate of
Incorporation, Bylaws, other agreements and Delaware law could make it more
difficult for a third party to acquire us, even if a change in control would be
beneficial to our stockholders.
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of the shares of
common stock offered by the selling stockholder.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock.
We intend to retain any future earnings to support operations and to finance the
growth and development of our business and we do not anticipate paying cash
dividends for the foreseeable future.
11.
<PAGE>
WHERE YOU CAN GET MORE INFORMATION
We are a reporting company and file annual, quarterly and current
reports, proxy statements and other information with the SEC. You may read and
copy these reports, proxy statements and other information at the SEC's public
reference rooms at Room 1024, 450 Fifth Street, N.W., Washington, D.C., as well
as at the SEC's regional offices at 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New York, NY
10048. You can request copies of these documents by writing to the SEC and
paying a fee for the copying cost. Please call the SEC at 1-800-SEC-0330 for
more information about the operation of the public reference rooms. Our SEC
filings are also available at the SEC's web site at "http://www.sec.gov." In
addition, you can read and copy our SEC filings at the office of the National
Association of Securities Dealers, Inc. at 1735 "K" Street, Washington, D.C.
20006.
The SEC allows us to "incorporate by reference" information that we
file with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
an important part of this prospectus, and information that we file later with
the SEC will automatically update and supersede this information. We incorporate
by reference the documents listed below and any future filings we will make with
the SEC under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act
of 1934:
- Annual Report on Form 10-K for the year ended December 31,
1999, filed March 30, 2000;
- Quarterly Report on Form 10-Q for the quarter ended
March 31, 2000, filed May 15, 2000;
- Quarterly Report on Form 10-Q for the quarter ended
June 30, 2000, filed August 14, 2000;
- Quarterly Report on Form 10-Q for the quarter ended
September 30, 2000, filed November 14, 2000.
- Current Report on Form 8-K filed September 8, 2000, as
amended on Form 8-K/A filed on November 7, 2000;
- Current Report on Form 8-K filed October 20,2000; and
- The description of the common stock contained in our
Registration Statement on Form 8-A, as filed on July 20,
1998 with the SEC.
You may request a copy of these filings at no cost, by writing or
telephoning us at the following address:
Digital River, Inc.
9625 W. 76th Street, Suite 150
Eden Prairie, MN 55344
(952) 253-1234
This prospectus is part of a Registration Statement we filed with the
SEC. You should rely only on the information incorporated by reference or
provided in this prospectus and the Registration Statement. We have authorized
no one to provide you with different information. You should not assume that the
information in this prospectus is accurate as of any date other than the date on
the front of the document.
12.
<PAGE>
SELLING STOCKHOLDER
In the acquisition of NetSales, Inc. that we consummated on August 24,
2000, we issued to the selling stockholder shares of our common stock and agreed
to register a number of shares of this common stock for resale. We also agreed
to use our commercially reasonable efforts to keep the Registration Statement
effective for 365 days. Our registration of the shares of common stock does not
necessarily mean that the selling stockholder will sell all or any of the
shares.
The following table sets forth certain information regarding the
beneficial ownership of the common stock, as of November 15, 2000, by the
selling stockholder.
The information provided in the table below with respect to the selling
stockholder has been obtained from the selling stockholder. Except as otherwise
disclosed below, the selling stockholder does not have nor has had, within the
past three years, any position, office or other material relationship with us.
Because the selling stockholder may sell all or some portion of the shares of
common stock beneficially owned by it, we cannot estimate the number of shares
of common stock that will be beneficially owned by the selling stockholder after
this offering. In addition, the selling stockholder may have sold, transferred
or otherwise disposed of, or may sell, transfer or otherwise dispose of, at any
time or from time to time since the date on which the selling stockholder
provided the information regarding the shares of common stock beneficially owned
by it, all or a portion of the shares of common stock beneficially owned by it
in transactions exempt from the registration requirements of the Securities Act
of 1933.
Beneficial ownership is determined in accordance with Rule 13d-3(d)
promulgated by the SEC under the Securities Exchange Act of 1934. The selling
stockholder possesses sole voting and investment power with respect to its
shares. The percentage in the table below is based on 22,851,214 shares
outstanding on November 15, 2000, adjusted as required by rules promulgated by
the SEC.
SHARES BENEFICIALLY OWNED PRIOR TO OFFERING
<TABLE>
<CAPTION>
SELLING STOCKHOLDER NUMBER PERCENT SHARES BEING OFFERED
------------------- ------ ------- --------------------
<S> <C> <C> <C>
NetSales, Inc. 1,350,000 5.9% 1,350,000
</TABLE>
PLAN OF DISTRIBUTION
The shares of common stock may be sold from time to time by the selling
stockholder in one or more transactions at fixed prices, at market prices at the
time of sale, at varying prices determined at the time of sale or at negotiated
prices. As used in this prospectus, "selling stockholder" includes donees,
pledgees, transferees and other successors in interest selling shares received
from the selling stockholder after the date of this prospectus as a gift,
pledge, partnership distribution or other non-sale transfer. Upon Digital River
being notified by the selling stockholder that a donee, pledgee, transferee or
other successor in interest intends to sell more than 500 shares, a supplement
to this prospectus will be filed. The selling stockholder may offer its shares
of common stock in one or more of the following transactions:
- on any national securities exchange or quotation service
on which the common stock may be listed or quoted at
the time of sale, including the Nasdaq National Market;
- in the over-the-counter market;
- in private transactions;
- through options;
- by pledge to secure debts and other obligations; or
- a combination of any of the above transactions.
13.
<PAGE>
If required, we will distribute a supplement to this prospectus to
describe material changes in the terms of the offering.
The shares of common stock described in this prospectus may be sold
from time to time directly by the selling stockholder. Alternatively, the
selling stockholder may from time to time offer shares of common stock to or
through underwriters, broker/dealers or agents. The selling stockholder and any
underwriters, broker/dealers or agents that participate in the distribution of
the shares of common stock may be deemed to be "underwriters" within the meaning
of the Securities Act of 1933. Any profits on the resale of shares of common
stock and any compensation received by any underwriter, broker/dealer or agent
may be deemed to be underwriting discounts and commissions under the Securities
Act of 1933.
Any shares covered by this prospectus which qualify for sale pursuant
to Rule 144 under the Securities Act of 1933 may be sold under Rule 144 rather
than pursuant to this prospectus. The selling stockholder may not sell all of
the shares it holds. The selling stockholder may transfer, devise or gift such
shares by other means not described in this prospectus.
To comply with the securities laws of certain jurisdictions the common
stock must be offered or sold only through registered or licensed brokers or
dealers. In addition, in certain jurisdictions, the common stock may not be
offered or sold unless they have been registered or qualified for sale or an
exemption is available and complied with.
Under the Securities Exchange Act of 1934, any person engaged in a
distribution of the common stock may not simultaneously engage in market-making
activities with respect to the common stock for five business days prior to the
start of the distribution. In addition, the selling stockholder and any other
person participating in a distribution will be subject to the Securities
Exchange Act of 1934, which may limit the timing of purchases and sales of
common stock by the selling stockholder or any such other person. These factors
may affect the marketability of the common stock and the ability of brokers or
dealers to engage in market-making activities.
All expenses of this registration, estimated at approximately $30,000,
will be paid by us. These expenses include the SEC's filing fees and fees under
state securities or "blue sky" laws.
LEGAL MATTERS
For the purpose of this offering, Cooley Godward LLP, San Francisco,
California, is giving an opinion as to the validity of the common stock offered
by this prospectus. As of the date of this prospectus, a member of Cooley
Godward LLP beneficially owns 500 shares of the Company's common stock.
EXPERTS
The financial statements incorporated by reference in this prospectus
and elsewhere in the registration statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts giving said report.
The consolidated financial statements of NetSales, Inc., appearing
in Digital River's Current Report on Form 8-K/A filed November 7, 2000, have
been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon included therein and incorporated herein by reference.
Such consolidated financial statements are incorporated herein by reference
in reliance on Ernst & Young LLP's report, given on the authority of such
firm as experts in accounting and auditing.
14.
<PAGE>
We have not authorized any dealer, sales person or other person to give
any information or to make any representations other than those contained in
this prospectus or any prospectus supplement. You must not rely on any
unauthorized information. This prospectus is not an offer of these securities in
any state where an offer is not permitted. The information in this prospectus is
current as of November 22, 2000. You should not assume that this prospectus is
accurate as of any other date.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary..................................1
Digital River.......................................1
Risk Factors........................................2
Use of Proceeds....................................11
Dividend Policy....................................11
Where You Can Get More
Information........................................12
Selling Stockholder................................13
Shares Beneficially Owned Prior to
Offering...........................................13
Plan of Distribution...............................13
Legal Matters......................................14
Experts............................................14
</TABLE>
1,350,000 SHARES
-------------------
COMMON STOCK
PROSPECTUS
-------------------
DIGITAL RIVER, INC.
_____________, 2000
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, if any, all of which will be paid by the
registrant, in connection with the distribution of the common stock being
registered. All amounts are estimated, except the SEC Registration Fee:
<TABLE>
<S> <C>
SEC Registration Fee...........................................$ 1,382
Accounting Fees................................................$ 5,000
Legal Fees and Expenses........................................$10,000
Miscellaneous..................................................$ 3,618
Printing and Engraving.........................................$10,000
Total..........................................................$30,000
</TABLE>
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
As permitted by Section 145 of the Delaware General Corporation Law,
the Bylaws of the Registrant provide that (i) the Registrant is required to
indemnify its directors and executive officers to the fullest extent permitted
by the Delaware General Corporation Law, (ii) the Registrant may, in its
discretion, indemnify other officers, employees and agents as set forth in the
Delaware General Corporation Law, (iii) to the fullest extent permitted by the
Delaware General Corporation Law, the Registrant is required to advance all
expenses incurred by its directors and executive officers in connection with a
legal proceeding (subject to certain exceptions), (iv) the rights conferred in
the Bylaws are not exclusive, (v) the Registrant is authorized to enter into
indemnification agreements with its directors, officers, employees and agents
and (vi) the Registrant may not retroactively amend the Bylaws provisions
relating to indemnity.
The Registrant has entered into agreements with its directors and
executive officers that require the Registrant to indemnify such persons against
expenses, judgments, fines, settlements and other amounts that such person
becomes legally obligated to pay (including expenses of a derivative action) in
connection with any proceeding, whether actual or threatened, to which any such
person may be made a party by reason of the fact that such person is or was a
director or officer of the Registrant or any of its affiliated enterprises,
provided such person acted in good faith and in a manner such person reasonably
believed to be in or not opposed to the best interests of the Registrant. The
indemnification agreements also set forth certain procedures that will apply in
the event of a claim for indemnification thereunder.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT
<S> <C>
*5.1 Opinion of Cooley Godward LLP.
23.1 Consent of Independent Public Accountants.
*23.2 Consent of Cooley Godward LLP (reference is made to Exhibit 5.1).
23.3 Consent of Ernst & Young, LLP, Independent Accountants
*24.1 Power of Attorney. Reference is made to the signature page.
*Previously filed
</TABLE>
II-1
<PAGE>
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons of
the Registrant pursuant to the provisions described in Item 14 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 of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer, or
controlling person of the Registrant in the successful defense of any action,
suit, or proceeding) is asserted by such director, officer, or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes:
24. To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration
statement to include any material information with respect to
the plan of distribution not previously disclosed in the
registration statement or any material change to such
information the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment 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; and
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement 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 the
initial bona fide offering thereof.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has reasonable grounds to believe it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Eden Prairie, State of Minnesota, on the 17th day of
November, 2000.
DIGITAL RIVER, INC.
By: /s/ JOEL A. RONNING
-------------------------------
Joel A. Ronning
CHIEF EXECUTIVE OFFICER AND DIRECTOR
II-3
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
<S> <C> <C>
/s/ JOEL A. RONNING Chief Executive Officer and November 17, 2000
------------------------- Director (Principal Executive
Joel A. Ronning Officer
* Chief Financial Officer and November 17, 2000
------------------------- Treasurer (Principal Financial
Robert E. Strawman and Accounting Officer
* President and Director November 17, 2000
--------------------
Perry W. Steiner
* Director November 17, 2000
-------------------------
William Lansing
* Director November 17, 2000
---------------------
Thomas F. Madison
Director November 17, 2000
---------------------------
Christopher J. Sharples
* Director November 17, 2000
------------------
J. Paul Thorin
* Director November 17, 2000
---------------------
Timothy C. Choate
Director November 17, 2000
----------------------
Frederic M. Seegal
</TABLE>
II-4
* By: /s/ JOEL A. RONNING
--------------------
Joel A. Ronning
Attorney-in-fact
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT
<S> <C>
*5.1 Opinion of Cooley Godward LLP.
23.1 Consent of Independent Public Accountants.
*23.2 Consent of Cooley Godward LLP (reference is made to
Exhibit 5.1).
23.3 Consent of Ernst & Young, LLP, Independent Accountants
*24.1 Power of Attorney. Reference is made to the
signature page.
*Previously filed.
</TABLE>
