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As filed with the Securities and Exchange Commission on January 31, 2000
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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EXCHANGE APPLICATIONS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 04-3338916
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
89 SOUTH STREET, BOSTON, MASSACHUSETTS 02111 (617) 737-2244
(Address and telephone number of registrant's principal executive offices)
ANDREW J. FRAWLEY, CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE OFFICER
EXCHANGE APPLICATIONS, INC.
89 SOUTH STREET
BOSTON, MASSACHUSETTS 02111
(617) 737-2244
(Name, address, including ZIP code, and telephone number, including area code,
of agent for service and registrant's principal executive offices)
Copy to:
NEIL W. TOWNSEND, ESQ.
BINGHAM DANA LLP
150 FEDERAL STREET
BOSTON, MASSACHUSETTS 02110
(617) 951-8000
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: AT SUCH TIME
OR TIMES AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE AS THE SELLING
STOCKHOLDERS MAY DETERMINE.
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, please 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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF SECURITIES AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED BE REGISTERED PER SHARE (1) OFFERING PRICE REGISTRATION FEE
- ---------------------------------------- --------------- -------------------- --------------------- -----------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par value........ 958,934 $95.50 $91,578,197 $24,176.64
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</TABLE>
(1) Calculated in accordance with Rule 457(c) based on the average of the high
and low prices reported on the Nasdaq National Market on January 27, 2000.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
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Subject to completion, dated January 31, 2000
PROSPECTUS
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THESE
SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS 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.
958,934 SHARES
EXCHANGE APPLICATIONS, INC.
COMMON STOCK
---------------
The selling stockholders identified in this prospectus may sell up to
958,934 shares of common stock of Exchange Applications. We will not receive any
of the proceeds from the sale of shares by the selling stockholders. Our common
stock is traded on the Nasdaq National Market under the symbol "EXAP". On
January 28, 2000, the last reported sale price of our common stock was $93.19.
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 5.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS ________, 2000
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WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any document we file at the
SEC's public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference room. Our SEC filings are also available to the public from the SEC's
Website at http://www.sec.gov.
We have filed with the Securities and Exchange Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549, a Registration Statement on Form S-3 (Reg. No.
333-_____) (the "Registration Statement") under the Securities Act of 1933, as
amended, with respect to the common stock offered hereby. This prospectus does
not contain all of the information set forth in the Registration Statement and
the exhibits to the Registration Statement. Statements made in this prospectus
as to the contents of any contract, agreement or other document referred to are
not necessarily complete but are complete in all material respects. With respect
to each contract, agreement or other document filed as an exhibit to the
Registration Statement, reference is made to the exhibit for a more complete
description of the matter involved. The Registration Statement and the exhibits
thereto may be inspected and copied at prescribed rates at the public reference
facilities maintained by the SEC at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the regional offices of the
Commission located at Seven World Trade Center, 13th Floor, New York, New York
10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661.
In addition, we are required to file electronic versions to these
documents with the SEC through their Electronic Data Gathering, Analysis, and
Retrieval (EDGAR) system. The SEC Website, http://www.sec.gov, contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the SEC.
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 other 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:
- Our annual report on Form 10-K for the year ended December 31, 1998.
- Our quarterly reports on Form 10-Q for the quarters ended March 31,
1999, June 30, 1999 and September 30, 1999.
- The description of the common stock contained in our Registration
Statement on Form 8-A filed with the SEC under the Securities Exchange
Act of 1934.
You may request a copy of any and all of these filings and documents at
no cost, by writing or telephoning us at the following address:
Exchange Applications, Inc.
Attention: Investor Relations
89 South Street
Boston, Massachusetts 02111
(617) 737-2244
This prospectus is part of a Registration Statement on Form S-3 we
filed with the SEC to register shares of our common stock. You should rely only
on the information incorporated by reference or provided in this prospectus. No
one else is authorized to provide you with different information. We are not
making an offer of these securities in any state where the offer is not
permitted. You should not assume that the information in this prospectus is
accurate as of any date other than the date on the front of this document.
Exchange Applications, VALEX, eXstatic, Continuous Customer Management and
the Exchange Applications logo are trademarks of Exchange Applications. All
other trademarks or tradenames referred to in this prospectus are the property
of their respective owners.
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FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements based on our
current expectations, assumptions, estimates and projections about Exchange
Applications and our industry that involves risks and uncertainties. Our
results, performance and achievements may be materially different from those
expressed or implied by the forward-looking statements. We undertake no
obligation to update publicly any forward-looking statements for any reason,
even if new information becomes available or other events occur in the future.
EXCHANGE APPLICATIONS, INC.
We are a leading provider of customer optimization software products and
services. Our software and services are designed to enable businesses to
optimize the value of customer relationships across channels, products and
service lines. Our VALEX software, eXstatic software and consulting services
help companies better understand their customers and prospects, and use that
understanding to plan and execute highly targeted marketing campaigns and
evaluate their impact.
We help organizations answer the critical question: "How do we optimize the
value we receive from a particular customer in exchange for the dollars invested
in that customer?" With that answer, businesses reach promising customer
segments through timely campaigns built using VALEX and eXstatic . By providing
selected customers with the right offers, at the right times, through the right
channels, companies can enjoy measurable returns on their marketing investments
as both revenues and customer satisfaction rise.
Today's increasingly competitive business environment is driving many
companies to seek ways to increase profitability through revenue growth. To
efficiently grow revenue, many businesses have begun to adopt software
applications intended to help them acquire new customers and retain and expand
existing customer relationships.
To enable this focus on customers, businesses need:
- an investment allocation methodology to identify profitable customer
opportunities;
- the ability to access and analyze large amounts of customer information;
- marketing automation and campaign management applications to design and
implement effective marketing campaigns;
- technologies to manage interactions with customers; and
- the ability to evaluate the effectiveness of investments on current and
potential customer profitability.
We provide a solution called Continuous Customer Management, which includes
our VALEX software product and eXstatic software product and our related
consulting and integration services. This solution is designed to enable
businesses to maximize profitability by:
- providing a complete view of the relationship between a business and its
customers;
- interfacing with a range of data-mining, reporting, modeling and Web
interaction analysis products that access data warehouses to identify
high-value customers;
- providing powerful marketing automation and campaign management software
that allows marketers to define and execute highly timely and targeted
marketing campaigns and other customer communications;
- integrating with front-office customer touchpoints, such as call centers,
direct mail, sales forces, e-mail and Web sites, to deliver
communications to existing and potential customers; and
- tracking the success or failure of communication streams to ensure more
effective investment in customers.
With our solution, businesses seek to achieve customer relationship
optimization, which involves proactively managing the economics of each customer
relationship to enable businesses to reach their full profit potential. Through
Continuous Customer
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Management, VALEX and eXstatic, businesses gain an understanding of the
economics of customer relationships, measure customer value and provide
incentives through campaigns that influence and optimize customer behavior. Our
solution offers the following key benefits:
- Improved Profitability and Revenue Growth. Through the use of our
solution, businesses have achieved increased customer retention rates,
lower acquisition costs, more efficient cross selling and better customer
satisfaction due to more relevant, less intrusive communications.
- Comprehensive Solution. Our products and services are designed to provide
a complete solution for customer optimization. We believe that our
combined offering of software, proprietary methodologies and consulting
services help businesses implement marketing automation and campaign
management software and improve customer profitability quickly and with
little risk.
- Enterprise-wide Customer View. VALEX is designed to enable organizations
to access and use all types of information stored in data warehouses.
Businesses are therefore not restricted in the scope or type of
information used to design customer optimization strategies.
- Increased Marketing Velocity. VALEX and eXstatic are designed to allow
businesses to reduce dramatically the cycle time from planning through
design, execution and measurement of campaigns to better respond to
competitive and market pressures and to quickly evaluate new campaigns.
- Open, Extensible Architecture. VALEX and eXstatic are designed to be
open, easy-to-use and scaleable across a wide variety of computing
environments, and can be integrated with existing hardware and software
environments.
Our objective is to be the leading provider of customer optimization
software and solutions. Strategies to achieve this include:
- extending the technology of VALEX and eXstatic to broaden their
capabilities;
- offering additional customer optimization solutions through internal
development and/or acquisition;
- increasing our focus on industries other than the telecommunications and
financial services industries;
- broadening distribution channels and building additional alliances;
- expanding global direct sales efforts; and
- increasing Web-based capabilities.
We have deployed our solution across many industries, with installations at
over 120 different locations in North and South America, Europe and the Pacific
Rim. Our customers include Ameritrade, Bell Atlantic, Citigroup, Federal
Express, Fidelity Investments, Fleet Bank, Hongkong Telephone, NatWest Bank
(U.K.), Nextel, Staples and U S West. Our products and services are distributed
through our direct sales force, through re-seller relationships with IBM, Acxiom
and others, and through co-marketing arrangements with companies such as
Andersen Consulting, Compaq, Ernst & Young, KPMG, MicroStrategy,
PricewaterhouseCoopers, Renaissance Worldwide, SAS Institute and Sun
Microsystems.
Our principal executive offices are located at 89 South Street, Boston,
Massachusetts 02111, and our telephone number is (617) 737-2244.
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RISK FACTORS
An investment in our common stock is very risky. You should carefully
consider the risks described below and the other information in this prospectus
before purchasing the common stock.
OUR LIMITED OPERATING HISTORY MAKES EVALUATING OUR BUSINESS DIFFICULT.
We began commercial shipment of the initial VALEX product in July 1996. We
were not a separate company until November 1996. Accordingly, we have only a
limited operating history for you to evaluate our business. You must consider
the risks, expenses and difficulties that an early-stage company like ours
faces. These risks include our ability to:
- successfully respond to competitive developments;
- continue to upgrade our products and service offerings; and
- continue to attract, retain and motivate qualified personnel.
RECENT TRANSACTIONS WILL RESULT IN SHORT-TERM LOSSES.
As a result of the expenses associated with recent transactions with
MicroStrategy Incorporated, we may report quarterly and annual operating losses
for the foreseeable future.
OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY AND YOU SHOULD NOT
RELY ON THEM TO PREDICT OUR FUTURE PERFORMANCE.
Our quarterly revenues, expenses and operating results may vary
significantly from quarter to quarter due to a number of factors. Therefore, you
should not rely on period-to-period comparisons of results of operations as an
indication of future performance. Moreover, our operating results may fall below
market analysts' expectations in some future quarters. This could cause the
trading price of our common stock to decline.
OUR BUSINESS MAY SUFFER IF OUR SOLUTIONS ARE NOT ACCEPTED BY NEW CUSTOMERS.
We currently derive all of our revenues from VALEX licenses, eXstatic
licenses and services related to our Continuous Customer Management solution. We
anticipate that these sources will continue to account for a majority of our
revenues for the foreseeable future. As a result, our business will suffer if
the market does not accept our solutions and our future enhancements of these
solutions. If demand for our solutions drops as a result of competition,
technological change or other factors, our business could be substantially
harmed.
The market for customer optimization software applications is still emerging
and it may not continue to grow. Even if the market does grow, businesses may
not adopt our solutions. We have spent, and intend to continue to spend,
considerable resources educating potential customers about customer optimization
software and services in general and about the features and functions of our
products and services in particular. However, our solutions may not achieve any
additional degree of market acceptance. If the market for our solutions fails to
grow or grows more slowly than we currently anticipate, our business would be
materially harmed.
WE DEPEND ON A FEW INDUSTRIES FOR MOST OF OUR SALES, AND WE MAY NOT BE
SUCCESSFUL IN EXPANDING BEYOND THOSE LIMITED MARKETS.
A substantial portion of our revenues has been derived from sales to
telecommunications companies and financial institutions, including retail banks,
credit card issuers and mutual fund companies. We may not continue to be
successful in these markets. In addition, we may not be successful in achieving
significant market acceptance in other markets that we target.
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THE LOSS OF ONE OF OUR LARGEST CUSTOMERS COULD CAUSE OUR REVENUES TO DROP
QUICKLY AND UNEXPECTEDLY.
In fiscal 1998 and in the nine-month period ended September 30, 1999, our
top five customers accounted for 37.1% and 34.8% of total revenues,
respectively. We cannot be certain that our current customers will continue to
do business with us, that business from existing customers will continue at the
levels of previous periods, or that we will be able to do a significant amount
of business with new customers. If we lose one of our customers, our revenues
could drop more quickly than we could reduce expenses. This could substantially
harm our financial results.
WE NEED TO MANAGE OUR GROWTH EFFECTIVELY OR WE MAY NOT SUCCEED.
We have grown rapidly, with total revenues increasing from $6.0 million in
1996, to $13.3 million in 1997, to $26.2 million in 1998 and we recorded $29.9
million of total revenues for the first nine months of 1999. The number of our
employees has increased from 47 at December 31, 1996 to 157 at December 31, 1998
and to 215 at September 30, 1999. Our operating and financial systems and the
geographic distribution of our operations and customers have also experienced
substantial growth over this period. Our future operating results will depend on
the ability of our officers and other key employees to continue to implement and
improve our operational, customer support and financial control systems, and to
expand, train and manage our employee base. Our failure to expand and integrate
these areas in an efficient manner could cause our expenses to grow, our
revenues to decline or to grow more slowly than expected, and could have a
material adverse effect on our business.
IF WE LOSE OUR KEY PERSONNEL, OR FAIL TO ATTRACT AND RETAIN ADDITIONAL
PERSONNEL, OUR BUSINESS AND GROWTH MAY SUFFER.
Our future success depends on the continued services of a relatively small
number of key technical and senior management personnel, including Andrew J.
Frawley, our Chairman, President and Chief Executive Officer, David G.
McFarlane, our Chief Operating Officer, and Michael D. McGonagle, our Chief
Technology Officer, none of whom presently has an employment contract with us.
Our future success also depends on our continuing ability to attract and retain
other highly qualified technical, sales and managerial personnel. Competition
for these people is intense, and we have at times in the past experienced
difficulty in recruiting qualified personnel. The loss of any member of our key
technical, sales and senior management personnel or the inability to attract and
retain additional qualified personnel could have a material adverse effect on
our business.
OUR BUSINESS WILL NOT GROW IF WE DO NOT KEEP PACE WITH RAPIDLY CHANGING
TECHNOLOGIES.
Because the market for our software products is rapidly changing, our future
success will depend upon our ability to continue to enhance our current product
line. We also must develop and introduce new products that keep pace with
technological developments, satisfy increasingly sophisticated customer
requirements and achieve market acceptance. If we are not successful in
developing and marketing, on a timely and cost-effective basis, fully functional
product enhancements or new products that respond to technological advances by
others, our business will not grow and our financial results will suffer. In
particular, our business could be harmed by:
- any significant errors or "bugs" in our software shipped to customers;
- any delay by customers in making purchasing decisions in anticipation of
the general availability of new or enhanced products;
- significant delays in the general availability of our new products or
releases;
- significant problems in the installation or implementation of our new
products or releases; or
- customer dissatisfaction with our new products or releases.
OUR STOCK PRICE OR OUR BUSINESS COULD BE ADVERSELY AFFECTED IF WE ARE NOT ABLE
TO EFFICIENTLY INTEGRATE ACQUISITIONS.
We may pursue acquisitions that could provide new technologies, products or
service offerings. Future acquisitions by us may involve potentially dilutive
issuances of equity securities. We also may incur substantial additional
liabilities and expenses, such as debt or amortization expenses related to
goodwill and other intangible assets. If any of these occur, the market price of
our common stock and our financial results could suffer.
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Acquisitions also involve numerous risks, including:
- difficulties in the assimilation of the operations, technologies,
products and personnel of the acquired company;
- the diversion of management's attention from other business concerns;
- risks of entering markets in which we have no or limited prior
experience; and
- the potential loss of key employees of the acquired company.
If we are not successful integrating acquisitions, it could increase our
expenses and harm our business.
COMPETITION COULD REDUCE OUR MARKET SHARE AND HARM OUR BUSINESS.
Our competitors may be able to develop products and services that are more
attractive to businesses than our products and services. Many of our competitors
have longer operating histories, significantly greater financial, technical,
marketing and other resources, greater name recognition and larger customer
bases. As a result, they may be able to adapt more quickly to new or emerging
technologies and changes in customer requirements. They also may be able to
devote greater resources to the promotion and sale of their products and
services than us. If these companies introduce products and services that
effectively competed with our products and services, they could be in a position
to charge lower prices or to bundle their products and services with their other
products and services. This could give them a competitive advantages over us.
In order to be successful in the future, we must continue to respond
promptly and effectively to the challenges of technological change and
competitors' innovations. If we cannot compete successfully with existing or new
competitors, we may have to reduce prices on our products, which could lead to
reduced profits. We could also lose market share, which would materially and
adversely affect our business.
IF WE DO NOT SUCCESSFULLY MAINTAIN OUR RELATIONSHIPS WITH INDIRECT DISTRIBUTION
CHANNELS, OUR SALES COULD DECLINE OR COULD GROW MORE SLOWLY THAN EXPECTED.
We expect to increase the amount of our products that we distribute through
various indirect channels. We are unable to predict the extent to which our
distribution partners will be successful in distributing our products. We rely
on the marketing and sales efforts of these organizations, many of whom also
market and sell competitive products. The loss of one or more of our
relationships with these organizations could have a material adverse effect on
our business.
Our future performance will also depend, in part, on our ability to attract
organizations that will be able to market and support our products effectively,
especially in markets in which we have not previously distributed our products.
None of our agreements governing the re-seller or co-marketing relationships
with these organizations includes any commitments on the part of these
organizations to effect any minimum number of sales of our products, or
otherwise to provide us with business. If revenues arising from our
relationships with these organizations do not exceed historical levels, our
business will not grow as expected.
WE HAVE A LIMITED ABILITY TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS AND OTHERS
COULD INFRINGE ON OR MISAPPROPRIATE OUR PROPRIETARY RIGHTS.
Our success and ability to compete are substantially dependent on our
internally developed technologies and trademarks, which we protect through a
combination of copyright, trademark and trade secret laws, confidentiality
procedures and contractual provisions.
Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy aspects of our products or to obtain and use information
that we regard as proprietary. Policing unauthorized use of our products is
difficult and, while we are unable to determine the extent to which piracy of
our software products exists, we expect software piracy to be a problem. In
addition, the laws of some foreign countries do not protect our proprietary
rights to the same extent as the laws of the United States. Furthermore, our
competitors may independently develop technology similar to ours.
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The number of intellectual property claims may increase as the number of
competing products grows and the functionality of products in different industry
segments overlaps. Although we are not aware that any of our products infringe
upon the proprietary rights of third parties, there can be no assurance that
third parties will not claim infringement by us with respect to current or
future products. Any of these claims, with or without merit, could be time-
consuming to address, result in costly litigation, cause product shipment delays
or require us to enter into royalty or licensing agreements. These royalty or
licensing agreements, if required, might not be available on terms acceptable to
us or at all, which could have a material adverse effect upon our business.
IF WE DO NOT SUCCESSFULLY GROW AND MANAGE OUR INTERNATIONAL OPERATIONS, OUR
BUSINESS WILL SUFFER.
We have operations in a number of foreign markets. We currently have
customers in more than 28 countries. We believe that we must expand our sales in
international markets in order for our business to grow as planned. In order to
successfully expand international sales, we must establish additional foreign
operations and hire additional personnel. If we are unable to do so in a timely
and effective manner, our growth in international sales will be limited, and our
business could be materially adversely affected. We have begun to translate our
products into different languages and character sets, which may be more
difficult or expensive to complete than expected. In addition, other markets may
have longer selling cycles and different product requirements than the United
States and we may not be able to successfully adapt our products and methods.
Our international operations are also subject to the risks inherent in any
international business activities, including, in particular:
- management of an organization spread over various countries;
- longer accounts-receivable payment cycles in certain countries;
- compliance with a variety of foreign laws and regulations;
- unexpected changes in regulatory requirements;
- overlap of different tax structures; and
- general economic conditions.
CURRENCY FLUCTUATIONS AND GENERAL ECONOMIC CONDITIONS IN OUR FOREIGN MARKETS MAY
IMPACT OUR CUSTOMERS' SPENDING AND THE VALUE OF MONEY OWED TO US.
We have made substantial sales to international customers in Canada,
Denmark, Germany, the Netherlands, Sweden, the United Kingdom and China. Our
revenues from international operations have been denominated in foreign
currencies which historically have been relatively stable in relation to U.S.
dollars. As a result, we have not adopted a policy of hedging foreign currency
risks. If economic conditions in our target markets decline, currencies could
fluctuate relative to the U.S. dollar, and our customers could reduce their
information technology spending.
OUR FOUNDERS, OFFICERS AND PRINCIPAL STOCKHOLDERS HAVE SUBSTANTIAL CONTROL OVER
OUR VOTING STOCK AND HAVE THE ABILITY TO MAKE DECISIONS THAT COULD ADVERSELY
AFFECT OUR STOCK PRICE.
As of January 20, 2000, our current officers, directors and principal
stockholders held approximately 6.3% of our outstanding common stock.
Consequently, this group will be able to control the outcome of all matters
submitted for stockholder action, including the election of members to our Board
of Directors and the approval of significant change in control transactions,
which may have the effect of delaying or preventing a change in control.
Representatives of the existing stockholders constitute all five directors and
will therefore have significant influence in directing the actions of the Board
of Directors. We have not identified candidates for the additional position on
the Board of Directors.
WE MAY BE SUBJECT TO FUTURE PRODUCT LIABILITY CLAIMS.
While our license agreements with our customers typically contain provisions
designed to limit our exposure to potential product liability claims, it is
possible that these provisions may not be effective under the laws of certain
jurisdictions. Although we have not
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experienced any product liability claims to date, we may be subject to claims in
the future. A successful product liability claim brought against us could have a
material adverse effect on our business. Moreover, defending these claims,
regardless of merit, could entail substantial expense and require the time and
attention of key management personnel.
YEAR 2000 PROBLEMS MAY DISRUPT OUR BUSINESS.
Many currently installed computer systems and software products are coded to
accept only two-digit entries in the date code field. As of January 1, 2000,
these date code fields need to accept four-digit entries to distinguish 21st
century dates from 20th century dates. As a result, computer systems and
software used by many companies may need to be upgraded to comply with these
"Year 2000" requirements. Significant uncertainty exists in the software
industry concerning the potential effects associated with the failure to comply
with these requirements. Any failure of third-party equipment or software
comprising any part of our systems to operate properly due to Year 2000 problems
could require us to incur unanticipated expenses to address associated problems,
which could have a material adverse effect on our business.
Year 2000 issues may affect the purchasing patterns of customers and
potential customers in a variety of ways. Many companies are expending
significant resources to replace or remedy their current hardware and software
systems for Year 2000 compliance. These expenditures may result in reduced funds
available to purchase software products such as those we offer.
We believe, based on an internal assessment, that the current versions of
our software products are Year 2000 compliant. However, our products are
generally integrated with enterprise systems and other products of our customers
developed by other vendors. Year 2000 problems in these systems and products
might significantly limit the ability of our customers to realize the intended
benefits offered by our products and services. We have no plan to determine
whether the internal systems and products of our customers are Year 2000
compliant. We may in the future be subject to claims based on Year 2000 problems
in others' products or issues arising from the integration of multiple products
within an overall system. Although we have not been involved in any litigation
or proceeding to date involving our products or services related to Year 2000
issues, we may be required in the future to defend our products or services or
to negotiate resolutions of claims based on Year 2000 issues. The costs of
defending and resolving Year 2000-related disputes, and any liabilities for Year
2000-related damages, including consequential damages, could have a material
adverse effect on our business.
OUR COMMON STOCK PRICE IS LIKELY TO BE VOLATILE AND COULD DROP UNEXPECTEDLY.
The market for securities of most high technology companies, including our
common stock, has been highly volatile. It is likely that the market price of
the common stock will continue to fluctuate widely in the future. Factors
affecting the trading price of our common stock include:
- responses to quarter-to-quarter variations in our results of operations;
- the announcement of new products or product enhancements by us or our
competitors;
- technological innovation by us or our competitors;
- general market conditions or market conditions specific to particular
industries; and
- changes in earnings estimates by analysts.
WE HAVE ADOPTED ANTI-TAKEOVER PROVISIONS THAT COULD AFFECT THE MARKET PRICE OF
OUR COMMON STOCK OR OUR ABILITY TO SELL OUR BUSINESS.
Certain provisions of our amended and restated certificate of incorporation
and our by-laws could make it more difficult for a third party to acquire us,
even if doing so would be beneficial to our stockholders. In addition, certain
provisions of Delaware law and our stock incentive plans may also have the
effect of discouraging, delaying or preventing a sale.
9
<PAGE> 11
USE OF PROCEEDS
We will not receive any proceeds from the sale of shares of common stock
offered by the selling stockholders.
RECENT DEVELOPMENTS
In December 1999, Exchange Applications entered into two transactions with
MicroStrategy Incorporated. In one transaction, a software development and
license agreement, we paid $30 million and received a three and one-half year
royalty-free license to resell MicroStrategy software products. These products
help businesses analyze customer data in order to create intelligent marketing
campaigns. We also received in this transaction development services from at
least 30 MicroStrategy engineers on a fully dedicated basis to design
applications for our customer relationship management products and services.
In the second transaction, we entered into a reseller agreement with
MicroStrategy permitting MicroStrategy to re-sell Valex and eXstatic. We expect
to recognize $4.5 million in software license revenue in the fiscal quarter
ended December 31, 1999 from resales by MicroStrategy of eXstatic. We had
approximately $13.4 million in total revenue for the fiscal quarter ended
December 31, 1999.
SELLING STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of our common stock as of January 31, 2000 by each of the selling
stockholders. The table shows the number of shares being sold by each selling
stockholder and the number and percentage of our outstanding shares each selling
stockholder will own after the offering.
William Bryant serves on our Board of Directors, Gino Borland is Founder,
eXstatic Software and Susan O'Neill is Vice President of Marketing, eXstatic
Software. None of the other selling stockholders has, or within the past three
years has had, any position, office or other material relationship with Exchange
Applications or any of our predecessors or affiliates.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED AFTER
SHARES BENEFICIALLY SHARES OFFERING(1)
OWNED BEFORE BEING -----------------------
OFFERING OFFERED NUMBER PERCENTAGE
------------------- ------- ------ ----------
<S> <C> <C> <C> <C>
Gino Borland................................ 495,213 495,213 0 *
Madrona Investment Group LLC................ 12,083 12,083 0 *
Arch Venture Fund IV, L.P................... 12,083 12,083 0 *
Scott Lipsky................................ 6,041 6,041 0 *
Michael Cockrill............................ 4,531 4,531 0 *
Chase & Assoc. Inc.......................... 4,531 4,531 0 *
Susan and Jerry O'Neill (2)................. 16,992 3,021 13,971 *
William Bryant (3).......................... 15,265 1,510 13,755 *
Marc Lhormer................................ 1,510 1,510 0 *
Dan Weld.................................... 1,510 1,510 0 *
Linden Rhoads (4)........................... 5,765 1,510 4,255 *
Robert Bruce Binger......................... 1,510 1,510 0 *
Keith Grinstein............................. 1,510 1,510 0 *
MicroStrategy Incorporated................. 412,371 412,371 0 *
</TABLE>
- ----------
* Indicates less than 1% of the outstanding shares of common stock.
(1) Beneficial ownership is calculated in accordance with the rules of the
Securities and Exchange Commission.
(2) Includes 13,971 shares subject to options that currently are exercisable.
(3) Includes 13,755 shares subject to options that currently are exercisable.
10
<PAGE> 12
(4) Includes 4,255 shares subject to options that currently are exercisable.
PLAN OF DISTRIBUTION
The shares of common stock may be sold from time to time by the selling
stockholders 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. The selling stockholders may offer their 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 Stock 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.
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 stockholders. Alternatively, the
selling stockholders may from time to time offer shares of common stock to or
through underwriters, broker/dealers or agents. The selling stockholders 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.
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 nine business days prior to the
start of the distribution. In addition, each 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 stockholders 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 will be paid by Exchange
Applications. These expenses include the SEC's filing fees and fees under state
securities or "blue sky" laws. The selling stockholders will pay all
underwriting discounts and selling commissions, if any.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for
us by Bingham Dana LLP, Boston, Massachusetts.
11
<PAGE> 13
EXPERTS
Arthur Andersen LLP, independent auditors, have audited our
consolidated financial statements included in our Annual Report on Form 10-K for
the year ended December 31, 1998, as set forth in their report, which is
incorporated by reference in this prospectus and elsewhere in the registration
statement. Our financial statements are incorporated by reference in reliance
upon Arthur Andersen LLP's report, given on their authority as independent
public accountants.
12
<PAGE> 14
958,934 SHARES
EXCHANGE APPLICATIONS, INC.
COMMON STOCK
---------------
PROSPECTUS
---------------
________, 2000
WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT 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 _______,
2000. YOU SHOULD NOT ASSUME THAT THIS PROSPECTUS IS ACCURATE AS OF ANY OTHER
DATE.
TABLE OF CONTENTS
-----------------
Page
Where You Can Find More Information....................................... 2
Forward Looking Statements................................................ 3
Exchange Applications, Inc................................................ 3
Risk Factors.............................................................. 5
Use of Proceeds........................................................... 10
Recent Developments....................................................... 10
Selling Stockholders...................................................... 10
Plan of Distribution...................................................... 11
Legal Matters............................................................. 11
Experts................................................................... 12
<PAGE> 15
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Expenses of the Registrant in connection with the issuance and distribution
of the securities being registered are estimated as follows:
TOTAL
SEC Registration Fee........................................ $24,176.64
NASD Fees................................................... $14,924.50
Miscellaneous Costs......................................... $ 5,000.00
Total..................................................... $44,101.14
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation law empowers a Delaware
corporation to indemnify its officers and directors and certain other persons to
the extent and under the circumstances set forth therein.
The Amended and Restated Certificate of Incorporation of the Company and the
Amended and Restated By-laws of the Company provide for indemnification of
officers and directors of the Company and certain other persons against
liabilities and expenses incurred by any of them in certain stated proceedings
and under certain stated conditions.
ITEM 16. EXHIBITS
The following is a list of exhibits filed as a part of this registration
statement:
5.1 Opinion of Bingham Dana LLP
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Bingham Dana LLP (included in Exhibit 5.1)
24.1 Power of Attorney (included on signature page)
II-1
<PAGE> 16
ITEM 17. UNDERTAKINGS
(A) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) 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 be the initial bona
fide offering thereof.
(B) The undersigned registrant hereby undertakes to deliver or cause to
be delivered with the prospectus, to each person to whom the prospectus is sent
or given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Exchange Act; and, where
interim financial information required to be presented by Article 3 of
Regulation S-X is not set forth in the prospectus, to deliver, or cause to be
delivered to each person to whom the prospectus is sent or given, the latest
quarterly report that is specifically incorporated by reference in the
prospectus to provide such interim financial information.
(C) 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 foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
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.
(D) 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.
(E) The undersigned registrant hereby undertakes:
(1) 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 in the registration statement.
(2) That, for the purpose of determining any liability under
the Securities Act, 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.
(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.
II-2
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant,
Exchange Applications, Inc., certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing on Form S-3 and has duly caused
this Registration Statement on Form S-3 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston, Commonwealth of
Massachusetts, on this 31st day of January, 2000.
EXCHANGE APPLICATIONS, INC.
By: /s/ Andrew J. Frawley
-------------------------------
Andrew J. Frawley
Chairman of the Board, President
and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby appoints Andrew J.
Frawley and John G. O'Brien, and each of them singly, acting alone and without
the other, his true and lawful attorney-in-fact and agent with full power of
substitution and resubstitution in each of them, for him and his name, place and
stead, and in any and all capacities, to do and perform any and all acts and to
sign any and all amendments (including without limitation post-effective
amendments) to this registration statement on Form S-3 and to file the same,
with all exhibits thereto and other documents in connection therewith necessary
or advisable to enable the Registrant to comply with the Securities Act of 1933,
as amended, and any rules, regulations and requirements of the Securities and
Exchange Commission in respect thereof, which amendments may make such other
changes in the Registration Statement as the aforesaid attorney-in-fact
executing the same deems appropriate.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
SIGNATURE TITLE DATE
/s/ ANDREW J. FRAWLEY Chairman of the Board, January 31, 2000
- --------------------------------- President, Chief
Andrew J. Frawley Executive Officer and
Director (Principal
Executive Officer)
/s/ DEAN F. GOODERMOTE Director January 31, 2000
- ---------------------------------
Dean F. Goodermote
/s/ JEFFREY HORING Director January 31, 2000
- ---------------------------------
Jeffrey Horing
/s/ RAMANAN RAGHAVENDRAN Director January 31, 2000
- ---------------------------------
Ramanan Raghavendran
/s/ WILLIAM BRYANT Director January 31, 2000
- ---------------------------------
William Bryant
/s/ JOHN G. O'BRIEN Vice President, Chief January 31, 2000
- --------------------------------- Financial Officer,
John G. O'Brien Treasurer and Secretary
(Principal Financial
and Accounting Officer)
II-3
<PAGE> 18
EXHIBIT INDEX
Exhibits
--------
5.1 Opinion of Bingham Dana LLP
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Bingham Dana LLP (included in Exhibit 5.1)
24.1 Power of Attorney (included on signature page)
<PAGE> 1
EXHIBIT 5.1
BINGHAM DANA LLP
150 Federal Street
Boston, MA 02110
January 31, 2000
Exchange Applications, Inc.
89 South Street
Boston, MA 02111
Re: REGISTRATION STATEMENT ON FORM S-3
----------------------------------
Ladies and Gentlemen:
We have acted as counsel for Exchange Applications, Inc., a Delaware
corporation (the "Company"), in connection with the registration under the
Securities Act of 1933, as amended (the "Act"), of 958,934 shares of common
stock, $0.001 par value per share, of the Company (the "Shares"), to be offered
by certain stockholders of the Company (the "Selling Stockholders"), pursuant to
a Registration Statement on Form S-3, filed by the Company with the Securities
and Exchange Commission on January 31, 2000.
We have reviewed the corporate proceedings of the Company with respect
to the authorization of the issuance of the Shares. We have also examined and
relied upon originals or copies of such agreements, instruments, corporate
records, certificates and other documents as we have deemed necessary or
appropriate as a basis for the opinions hereinafter expressed. In our
examination, we have assumed the genuineness of all signatures, the conformity
to the originals of all documents reviewed by us as copies, the authenticity and
completeness of all original documents reviewed by us in original or copy form,
and the legal competence of each individual executing any document. We have
further assumed that the registration requirements of the Act and all applicable
requirements of state laws regulating the sale of securities will have been duly
satisfied.
Subject to the limitations set forth below, we have made such
examination of law as we have deemed necessary for the purposes of this opinion.
This opinion is limited solely to the Delaware General Corporation Law, as
applied by courts located in Delaware, the applicable provisions of the
Delaware Constitution and the reported judicial decisions interpreting those
laws.
Based upon and subject to the foregoing, we are of the opinion that the
Shares have been duly authorized and validly issued and are fully paid and
non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
/s/ Bingham Dana LLP
BINGHAM DANA LLP
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made part of this
registration statement.
Arthur Andersen LLP
Boston, Massachusetts
January 31, 2000
