<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 25, 1998
REGISTRATION NO. 333-65569
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
PRE-EFFECTIVE
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
MARKETWATCH.COM, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7375 94-3289801
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
825 BATTERY STREET
SAN FRANCISCO, CALIFORNIA 94111
(415) 733-0500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
J. PETER BARDWICK
CHIEF FINANCIAL OFFICER
MARKETWATCH.COM, INC.
825 BATTERY STREET
SAN FRANCISCO, CALIFORNIA 94111
(415) 733-0500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
<TABLE>
<S> <C>
MARK C. STEVENS, ESQ. SCOTT C. DETTMER, ESQ.
JEFFREY R. VETTER, ESQ. BROOKS STOUGH, ESQ.
SAYRE E. STEVICK, ESQ. WILLIAM A. HOLMES, ESQ.
FENWICK & WEST LLP DAVID W. KLING, ESQ.
TWO PALO ALTO SQUARE GUNDERSON DETTMER STOUGH VILLENEUVE
PALO ALTO, CALIFORNIA 94306 FRANKLIN & HACHIGIAN, LLP
(650) 494-0600 155 CONSTITUTION DRIVE
MENLO PARK, CA 94025
(650) 321-2400
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION
NOVEMBER 25, 1998
2,750,000 SHARES
[LOGO]
COMMON STOCK
------------------
This is the initial public offering of MarketWatch.com, Inc. and we are offering
2,750,000 shares of our common stock. We anticipate that the initial public
offering price will be between $10.00 and $12.00 per share.
We have applied to list the common stock on the Nasdaq National Market under the
symbol "MKTW."
INVESTING IN THE COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 6.
<TABLE>
<CAPTION>
PER SHARE TOTAL
<S> <C> <C>
Public Offering Price..................................... $ $
Underwriting Discounts and Commissions.................... $ $
Proceeds to MarketWatch.com............................... $ $
</TABLE>
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
MarketWatch.com has granted the Underwriters the right to purchase up to 412,500
additional shares to cover any over-allotments.
JOINT BOOK-RUNNING MANAGERS
<TABLE>
<S> <C>
BT ALEX. BROWN DONALDSON, LUFKIN & JENRETTE
- ------------------------------------------------------------------------------------------------------------------
SALOMON SMITH BARNEY FAC/EQUITIES
</TABLE>
, 1998
<PAGE> 3
[ART]
The information on our Web site is not a part of this Prospectus.
MarketWatch, the MarketWatch logo, MarketWatch Live and MarketWatch RT are
some of our service marks. The CBS name and the "Eye" design are registered
trademarks of CBS. This Prospectus also includes trademarks and trade names of
other companies.
2
<PAGE> 4
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information and Financial Statements and notes thereto appearing elsewhere in
this Prospectus.
This Prospectus contains forward-looking statements. 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,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business" as well as those discussed elsewhere in this
Prospectus contain a discussion of some of the factors that could contribute to
these differences.
MARKETWATCH.COM
OUR BUSINESS
We are a leading Web-based provider of comprehensive, real-time business
news, financial programming and analytic tools. Our CBS.MarketWatch.com Web site
also offers several tiers of paid subscription products, personal finance
commentary and data, community features and other services designed to provide a
"one-stop-shop" for our audience's financial information needs. We carefully
design and regularly update our Web site to provide well-organized, relevant and
clear programming. Our staff of over 40 professional journalists, including
freelance journalists, creates in-depth, up-to-the-minute business and financial
commentary and analysis throughout the trading day and our correspondents often
appear on CBS Television and CBS Radio News. We have important strategic
relationships with our principal stockholders Data Broadcasting Corporation, or
DBC, and CBS Broadcasting Inc., or CBS. Our goal is to create the preeminent
brand for real-time business news and financial programming on the Web. We
believe our focus on original and authoritative content and our access to a
national media audience through our CBS relationship will help us achieve this
goal. In October 1998, our Web site attracted nearly 2.2 million visitors, who
generated more than 48 million page views, as compared with approximately
785,000 visitors, who generated more than 38 million page views in March 1998.
Our visitor information was based on information provided to us by Doubleclick,
Inc.
OUR MARKET OPPORTUNITY
The Web has rapidly become a significant global medium, allowing content
providers to deliver information and programming in a manner not possible in
traditional broadcast and print media. Demand for comprehensive business
information and financial programming and the volume of online securities
trading have increased significantly. Traditional print media such as newspapers
and magazines cannot offer real-time data and information, and broadcasters are
limited in the depth and availability of their content. Not bound by these
limitations, we are well-positioned to exploit the significant market
opportunity that exists for a real-time business news, financial programming and
analytic tools provider.
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<PAGE> 5
OUR STRATEGY
Our strategy to exploit our market opportunity includes the following:
- Build traffic and audience loyalty;
- Deliver original, authoritative and timely programming with high
editorial value;
- Leverage CBS's name recognition and resources;
- Maximize the use of DBC's data and analytic tools;
- Build and capitalize on the attractive demographics of our audience;
and
- Pursue additional revenue streams.
OUR CUSTOMERS
We believe our Web site draws users who represent an attractive demographic
group for companies that advertise and conduct business over the Internet. Since
introducing our CBS.MarketWatch.com Web site, we have successfully attracted
more than 75 advertisers across a broad range of industries, beginning with
advertisers in the financial services and technology industries and more
recently in the automotive, travel and consumer retailing industries.
OUR HISTORY
We were formed in October 1997 as a joint venture 50% owned by each of CBS
and DBC. CBS licensed its name, logo and certain news content for use in
connection with the CBS.MarketWatch.com Web site. When this joint venture was
formed, CBS and DBC agreed that their contributions would be treated as having
equal value. Immediately prior to the closing of this offering CBS has agreed to
extend this license through October 2005 and agreed to provide us $30 million
rate card amount of promotion and advertising through October 2002. DBC
contributed certain assets related to our predecessor business, that it formed
in October 1995, and agreed to provide our initial funding and ongoing services,
including hosting our Web site. Our address is 825 Battery Street, San
Francisco, California, 94111 and our telephone number is (415) 733-0500.
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<PAGE> 6
THE OFFERING
Common Stock offered by MarketWatch.com... 2,750,000 shares
Common Stock to be outstanding after the
offering.................................. 11,750,000 shares(1)
Use of proceeds........................... Repayment of debt and general
corporate purposes, including
working capital. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol.... MKTW
SUMMARY FINANCIAL DATA
The following table summarizes the financial data for our business and the
predecessor business of DBC and the share information gives effect to the
conversion of our business from a limited liability company into a corporation
at the beginning of each period indicated. See the MarketWatch.com and DBC
Online/News Financial Statements included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DBC ONLINE/NEWS
PREDECESSOR BUSINESS MARKETWATCH.COM
----------------------------------------- ---------------------------------------------------
INCEPTION INCEPTION
(OCTOBER 1, JANUARY 1, (OCTOBER
1995) 1997 29, 1997) QUARTER ENDED
THROUGH YEAR ENDED THROUGH THROUGH ------------------------------------
DECEMBER 31, DECEMBER 31, OCTOBER 28, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1995 1996 1997 1997 1998 1998 1998
------------ ------------ ----------- ------------ --------- -------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Net revenues --$....... $ 607 $ 1,172 $ 630 $ 1,176 $ 1,519 $ 1,799
Gross profit --....... 156 512 482 893 847 926
Operating loss (236).. (1,867) (1,383) (81) (759) (1,573) (2,490)
Net loss (147).. (1,172) (943) (81) (766) (1,587) (2,544)
Basic and diluted
net loss per
share ......... $ (0.01) $ (0.09) $ (0.18) $ (0.28)
Shares used to
compute basic and
diluted net loss
per share ......... 9,000 9,000 9,000 9,000
</TABLE>
The following table indicates a summary of our balance sheet at September
30, 1998, which has been adjusted to reflect the sale of the 2,750,000 shares of
Common Stock at an assumed initial public offering price of $11.00 per share and
after deducting estimated underwriting discounts and commissions and estimated
offering expenses. See "Use of Proceeds" and "Capitalization."
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
---------------------------
ACTUAL AS ADJUSTED
--------- --------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash...................................................... $ 65 $23,769
Working capital (deficit)................................. (3,894) 22,838
Total assets.............................................. 2,966 26,670
Advances from DBC......................................... 3,028 --
Total stockholders' equity (deficit)...................... (2,054) 24,678
</TABLE>
- ---------------
(1) Based on the number of shares actually outstanding as of September 30, 1998.
Excludes a total of 1,500,000 shares subject to outstanding options or
reserved for issuance under our 1998 Equity Incentive Plan and Directors
Stock Option Plan.
------------------------
Unless otherwise specifically stated, information throughout this
Prospectus (i) does not take into account the exercise of the Underwriters'
over-allotment option, and (ii) gives effect to the conversion of our business
form into a corporation, and the conversion of each 0.01% membership interest of
the liability company into 1,000 shares of Common Stock, which will occur
immediately prior to the closing of this offering.
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<PAGE> 7
RISK FACTORS
This offering involves a high degree of risk. You should carefully consider
the risks described below and the other information in this Prospectus before
deciding to invest in shares of our Common Stock.
NOTICE TO PROSPECTIVE INVESTORS: CBS'S OR DBC'S OWNERSHIP OF OUR SECURITIES
IS NOT A RECOMMENDATION BY EITHER COMPANY THAT INVESTORS ACQUIRE OR HOLD OUR
COMMON STOCK. NEITHER CBS NOR DBC HAS ANY OBLIGATION TO SUPPLY ANY FINANCIAL
SUPPORT TO THE COMPANY BEYOND THAT REQUIRED BY THEIR CURRENT AGREEMENTS WITH US.
RISKS RELATED TO OUR RELATIONSHIP WITH CBS AND DBC
CONTROL BY CBS AND DBC
After this offering, CBS and DBC each will own approximately 38% of our
outstanding Common Stock. CBS and DBC will have certain rights to have
representatives on our Board of Directors generally based upon the percentage of
our voting securities which they hold. Initially, they will each have three
representatives. If we issue voting securities, or securities convertible into
or exchangeable for voting securities in the future, subject to certain
limitations, CBS and DBC will each have the right to purchase securities from us
so they can maintain their percentage ownership. In addition, if either CBS or
DBC desires to transfer any shares of Common Stock held by it, the other party
has a right of first refusal to purchase all or a portion of those shares,
subject to certain exceptions. As a result of their share ownership and the
other rights described in this Prospectus, CBS and DBC collectively will be able
to control our management and affairs, elect a majority of our Board of
Directors and approve significant corporate transactions. This concentration of
ownership and other rights could also delay or prevent a change in control. See
"Certain Transactions," "Principal Stockholders" and "Description of Capital
Stock."
If a competitor of CBS directly or indirectly acquires more than 30% of the
voting power of DBC or substantially all of DBC's assets at a time when DBC
beneficially owns at least 10% of our outstanding common stock, CBS may within
45 days either:
- purchase all of our securities held by DBC; or
- require DBC to place these securities in a trust which would then dispose
of the securities with a view to maximizing the sale price while
disposing of such shares as promptly as reasonably practicable.
DBC would forfeit its Board representation in either event. We cannot
predict which option, if any, CBS would elect in such an event. Although DBC has
advised us that it has no present plans or intentions to effect such a
transaction, DBC could effect such a transaction at any time in the future. See
"Description of Capital Stock -- Rights of First Refusal."
DEPENDENCE ON CBS RELATIONSHIP
We license the CBS logo, name and certain news content from CBS. The CBS
logo and name are critical to our marketing and brand building activities. We
would need to change the name of our Web site and devote substantial resources
towards building a new brand name if our agreement with CBS were terminated or
not renewed. This agreement also has a number of risks associated with it. CBS
can require us to remove any content on our Web site which it determines
conflicts with, interferes with or is detrimental to its reputation or business
or for certain other reasons. We are also required to conform to CBS's
guidelines for the use of its trademarks. CBS has the right to approve all
materials, such as marketing materials, that include any CBS trademarks. CBS
also has control over the visual and editorial presentation of its television
news content on our Web site. Because of these restrictions, we may not be able
to perform our desired marketing activities.
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<PAGE> 8
Our license agreement with CBS will expire on October 29, 2005, and CBS
will have no obligation to renew it. CBS will also have the right to terminate
this agreement if
- we breach a material term or condition of the agreement;
- we become insolvent or subject to bankruptcy or similar proceedings;
- a competitor of CBS acquires 15% or more of our voting power;
- we issue voting securities to, or actively participate in the acquisition
of our voting power by, a CBS competitor which results in such competitor
directly or indirectly owning 9% or more of our voting power; or
- we discontinue using the MarketWatch trademark and do not establish a
substitute mark acceptable to CBS.
If our agreement with CBS is terminated prior to the end of its term, our
business could be adversely affected.
CBS has agreed, subject to certain limitations, to provide us an aggregate
rate card amount of $30 million of advertising and on-air promotions during the
period from October 29, 1997 through October 29, 2002. However, the timing and
placement of these advertisements and promotions are subject to CBS's
discretion. CBS could discontinue promoting us in the manner that it currently
does. CBS also makes no guarantees to us as to the demographic composition or
size of the audience that views these advertisements or promotions. This
advertising and on-air promotion, as well as our association with the CBS brand,
are important elements of our strategy to increase our brand awareness. This
obligation will terminate if our license agreement terminates.
We may not be able to continue to attract a sufficient amount of user
traffic and advertisers to our Web site without the CBS name and logo or
promotion from CBS. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business -- Strategic Relationships,"
"Certain Transactions" and Note 7 of Notes to MarketWatch.com Financial
Statements.
DEPENDENCE ON DBC RELATIONSHIP
DBC has provided us with substantially all of our cash funding to date and
has accounted for a substantial portion of our revenues. DBC also currently
provides us with Web site hosting services, software programming assistance,
data feeds, communications lines, and related facilities, network operations and
Web site management services as well as certain administrative, engineering and
human resources services. If DBC fails to provide these services satisfactorily,
we would be required to perform these services ourselves or obtain these
services from another provider. Replacing these services could cause us to incur
additional costs. We may not be able to replace these services on commercially
reasonable terms or if we choose to perform these services ourself, we may not
be able to perform them adequately. During any such transition, our services
could be disrupted for an indefinite period of time and, as a result, we could
lose a substantial number of users and advertisers. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations," "Certain
Transactions" and Note 7 of Notes to MarketWatch.com Financial Statements.
POTENTIAL COMPETITION FROM CBS AND DBC
Although our agreements with CBS and DBC contain certain non-competition
provisions, these provisions have certain exceptions and are not exclusive
relationships. For example:
- CBS could license its name and logo to other Web sites or Internet
services that deliver general news, sports or entertainment. These sites
or services could also offer financial news, so long as the delivering of
comprehensive stock quotes and financial news to consumers in the English
language is not their primary function and their principal theme and
format;
- DBC may provide hosting services to other Web sites;
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<PAGE> 9
- DBC could also establish an advertising-supported Web site that does not
have as its primary function and its principal theme and format the
delivery of financial news and stock quotes;
- either CBS or DBC could license their content to other Web sites or
Internet services; or
- CBS or DBC could make certain investments in other Web sites or Internet
services.
Any of these could adversely affect us. For example, these sites or
services could compete with us or CBS and DBC might promote these other services
more actively than they promote our Web site. See "Business -- Strategic
Relationships" and "Certain Transactions."
RISKS RELATED TO OUR BUSINESS
POTENTIAL FLUCTUATIONS IN OUR QUARTERLY OPERATING RESULTS; UNPREDICTABILITY
OF FUTURE REVENUE; EXPECTED FUTURE LOSSES; SEASONALITY
Our quarterly operating results may fluctuate significantly in the future
as a result of a variety of factors, many of which are outside our control.
These factors include:
- the early stage of our development, particularly given that we did not
become a separate legal entity until October 1997;
- the level of Web usage;
- traffic levels on our Web site, which can fluctuate significantly as a
result of business and financial news events;
- the demand for advertising on our Web site as well as on the Web in
general;
- changes in rates paid for Web advertising resulting from competition or
other factors;
- our ability to enter into or renew key agreements such as our recent
agreement with Yahoo!;
- the amount and timing of our costs related to our marketing efforts or
other initiatives;
- fees we may pay for distribution or content agreements or other costs we
incur as we expand our operations;
- new services introduced by us or our competitors;
- competitive factors;
- technical difficulties or system downtime affecting the Web generally or
the operation of our Web site; or
- economic conditions specific to the Web as well as general economic
conditions.
Therefore, our operating results for any particular quarter may not be
indicative of future operating results.
We expect our revenues to come from a mix of advertising, content
licensing, e-commerce relationships and subscription service fees. However, we
expect to be substantially dependent on advertising revenues for the foreseeable
future. Therefore, our quarterly revenues and operating results are likely to be
particularly affected by the level of our advertising revenue in each quarter.
Our operating expenses are based on our expectations of our future revenues and
are relatively fixed in the short term. If we have lower revenues, particularly
advertising revenues, than we expect, we may not be able to quickly reduce our
spending in response. Our cost structure could also change dramatically as we
increasingly operate independently from DBC. If we continue to rely on DBC for
the services described under "-- Dependence on DBC Relationship," we will be
required to reimburse DBC for its costs in providing the services. We will have
little control over the amount of these costs, which could be substantial. In
addition, we intend to significantly increase our operating expenses to grow our
business. Any shortfall in our revenues would have a direct impact
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<PAGE> 10
on our operating results for a particular quarter and these fluctuations could
affect the market price of our Common Stock in a manner unrelated to our
long-term operating performance.
We have incurred operating losses in each fiscal quarter since we were
formed. We expect operating losses and negative cash flows to continue for the
foreseeable future as we intend to significantly increase our operating expenses
to grow our business.
We believe that advertising sales in traditional media, such as television
and radio, generally are lower in the first and third calendar quarters of each
year. If our market makes the transition from an emerging to a more developed
media, seasonal and cyclical patterns in our industry may develop in the future.
Therefore, if our industry follows the same seasonal patterns as those in the
traditional media, we may experience lower advertising revenues in the first and
third calendar quarters of each year. Furthermore, traffic levels on our Web
site typically fluctuate with the occurrence of significant events in the
business and financial news, such as fluctuations in the stock markets, that
could cause changes in our audience size. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
NEED TO DEVELOP AND IMPLEMENT OUR OWN INTERNAL SYSTEMS
Although our predecessor business has been operating since October 1995, we
did not become a separate legal entity until October 1997 when we were formed as
a limited liability company and we introduced our CBS.MarketWatch.com Web site.
We have been and continue to be substantially dependent on DBC to host our
Web site and for many of our financial, administrative and operational services
and related support functions. We may not be able to perform these financial,
administrative, operational and support functions effectively as an independent
company. In addition, we believe that we will need further improvements in these
systems, controls and procedures to manage our growth. Our future financial
performance could be adversely affected if we or DBC do not perform these
functions effectively or if we do not implement these systems, controls and
procedures successfully.
INTENSE COMPETITION FOR WEB-BASED BUSINESS AND FINANCIAL CONTENT
Many Web sites compete for consumers' and advertisers' attention and
spending, particularly in the business and financial information and news area.
We expect this competition to continue to increase. We compete for advertisers,
users and content providers with many types of companies:
- publishers and distributors of traditional media, including television,
radio and print, such as The Wall Street Journal, CNN and CNBC;
- general purpose consumer online services such as America Online and
Microsoft Network;
- online services or Web sites targeted to business, finance and investing
needs, such as TheStreet.com and Motley Fool; and
- Web retrieval and other Web "portal" companies, such as Excite, Inc.,
InfoSeek Corporation, Lycos, Inc., Yahoo! Inc., and Netscape
Communications Corporation. Increased competition could result in price
reductions, reduced margins or loss of market share, any of which would
adversely affect our business.
See "Business -- Industry Background" and "-- Competition."
NEED TO ESTABLISH AND MAINTAIN STRATEGIC RELATIONSHIPS WITH OTHER WEB SITES
We depend on establishing and maintaining distribution relationships with
high-traffic Web sites for a significant portion of our traffic. For example,
for the month of August 1998, a significant percentage of our traffic came from
Yahoo!. There is intense competition for placements on these sites, and we may
not be able to enter into such relationships on commercially reasonable terms or
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<PAGE> 11
at all. Even if we enter into distribution relationships with these Web sites,
they themselves may not attract significant numbers of users. Therefore, our
site may not receive additional users from these relationships. Moreover, we may
have to pay significant fees to establish these relationships.
Occasionally we enter into agreements with advertisers, content providers
or other high traffic Web sites that require us to exclusively feature these
parties in certain sections of our Web site. Existing and future exclusivity
arrangements may prevent us from entering into other content agreements,
advertising or sponsorship arrangements or other strategic relationships. Many
companies we may pursue for a strategic relationship also offer competing
services. As a result, these competitors may be reluctant to enter into
strategic relationships with us. Our business could be adversely affected if we
do not establish and maintain additional strategic relationships on commercially
reasonable terms or if any of our strategic relationships do not result in
increased use of our Web site.
RISKS RELATING TO OUR ABILITY TO TRACK AND MEASURE THE DELIVERY OF
ADVERTISEMENTS
It is important to our advertisers that we accurately measure the
demographics of our user base and the delivery of advertisements on our Web
site. We depend on third parties to provide these measurement services. If they
are unable to provide these services in the future, we would be required to
perform them ourselves or obtain them from another provider. This could cause us
to incur additional costs or cause interruptions in our business during the time
we are replacing these services. We are implementing additional systems designed
to record demographic data on our users. If we do not develop these systems
successfully, we may not be able to accurately evaluate the demographic
characteristics of our users. Companies may not advertise on our Web site or may
pay less for advertising if they do not perceive our measurements or
measurements made by third parties to be reliable.
DEVELOPMENT OF OUR DIRECT SALES FORCE
Until early 1998, we relied upon third parties to sell advertisements on
our Web site. Since that time, we created our own internal sales force. On
September 30, 1998, our sales group had 13 members. We depend on our sales force
to sell advertising on our Web site. This involves a number of risks:
- our sales personnel have only worked for us for a short period of time;
- our need to further increase the size of our sales force;
- our ability to hire, retain, integrate and motivate additional sales and
sales support personnel;
- the length of time it takes new sales personnel to become productive; and
- the competition we face from other companies in hiring and retaining
sales personnel.
Our business would be adversely affected if we do not develop and maintain
an effective sales force.
DEPENDENCE ON FINANCIAL INDUSTRY ADVERTISERS
Financial services companies have accounted for the substantial majority of
our advertising revenues. We will need to sell advertising to customers outside
of the financial services industry in order to increase our revenues. To date,
relatively few advertisers from industries other than the technology and
financial services industries have devoted a significant portion of their
advertising budgets to Web advertising. If we do not attract advertisers from
other industries, our business could be adversely affected.
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RISKS OF INCREASED USERS STRAINING OUR SYSTEMS AND OTHER SYSTEM MALFUNCTIONS
In the past, our Web site has experienced significant increases in traffic
when there are significant business or financial news stories. In addition, the
number of our users has continued to increase over time and we are seeking to
further increase our user base. Therefore, our Web site must accommodate a high
volume of traffic and deliver frequently updated information. Our Web site has
in the past and may in the future experience slower response times or other
problems for a variety of reasons.
We also depend on information providers, including DBC, to provide
information and data feeds on a timely basis. Our Web site could experience
disruptions or interruptions in service due to the failure or delay in the
transmission or receipt of this information. In addition, our users depend on
Internet service providers, online service providers and other Web site
operators for access to our Web site. Each of them has experienced significant
outages in the past, and could experience outages, delays and other difficulties
due to system failures unrelated to our systems. These types of occurrences
could cause users to perceive our Web site as not functioning properly and
therefore cause them to use other methods to obtain their business and financial
news and other information.
NEED TO EXPAND OUR BUSINESS AND RELATED PROBLEMS
We believe that we will need to expand our business and operations both to
operate as an entity independent from DBC and in order to grow our business.
This growth is likely to continue to place a significant strain on our
resources. As we grow, we will also have to implement new operational and
financial systems, procedures and controls. If we are unable to accomplish any
of these, our business could be adversely affected. In addition, several members
of our senior management joined us in 1998, including our Vice Presidents of
Advertising Sales and of Marketing and our Chief Financial Officer. As a result,
our senior managers may not work together effectively as a team to successfully
manage our growth.
RISKS OF DEVELOPING NEW AND ENHANCED SERVICES AND FEATURES FOR OUR WEB SITE
We believe that our Web site will be more attractive to advertisers if we
develop a larger audience comprised of demographically-favorable users.
Accordingly, we intend to introduce additional or enhanced services in the
future in order to retain our current users and attract new users. If we
introduce a service that is not favorably received our current users may not
continue using our service as frequently. New users could also choose a
competitive service over ours.
We may also experience difficulties that could delay or prevent us from
introducing new services. Furthermore, these services may contain errors that
are discovered after the services are introduced. We may need to significantly
modify the design of these services on our Web site to correct these errors. Our
business could be adversely affected if we experience difficulties in
introducing new services or if these new services are not accepted by users.
RISKS RELATED TO OUR INDUSTRY
DEPENDENCE ON CONTINUED GROWTH IN USE OF THE WEB
Our market is new and rapidly evolving. Our business would be adversely
affected if Web usage does not continue to grow. Web usage may be inhibited for
a number of reasons, such as:
- inadequate network infrastructure;
- security concerns;
- inconsistent quality of service; and
- availability of cost-effective, high-speed service.
11
<PAGE> 13
If Web usage grows, the Internet infrastructure may not be able to support
the demands placed on it by this growth or its performance and reliability may
decline. In addition, Web sites have experienced interruptions in their service
as a result of outages and other delays occurring throughout the Internet
network infrastructure. If these outages or delays frequently occur in the
future, Web usage, as well as usage of our Web site, could grow more slowly or
decline.
RISKS ASSOCIATED WITH OUR BUSINESS MODEL WHICH DEPENDS ON WEB ADVERTISING
We expect to derive a substantial amount of our revenues from advertising
for the foreseeable future. No standards have been widely accepted to measure
the effectiveness of Web advertising. If such standards do not develop, existing
advertisers may not continue their current levels of Web advertising.
Furthermore, advertisers that have traditionally relied upon other advertising
media may be reluctant to advertise on the Web. Advertisers that already have
invested substantial resources in other advertising methods may be reluctant to
adopt a new strategy. Our business would be adversely affected if the market for
Web advertising fails to develop or develops more slowly than expected. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business -- Strategy" and "-- Advertising and Sales."
Different pricing models are used to sell advertising on the Web. It is
difficult to predict which, if any, will emerge as the industry standard. This
makes it difficult to project our future advertising rates and revenues. For
example, advertising rates based on the number of "click throughs," or user
requests for additional information made by clicking on the advertisement,
instead of rates based solely on the number of impressions, or times an
advertisement is displayed, could adversely affect our revenues because
impression-based advertising comprises a substantial majority of our current
advertising revenues. Our advertising revenues could be adversely affected if we
are unable to adapt to new forms of Web advertising. Moreover, "filter" software
programs that limit or prevent advertising from being delivered to a Web user's
computer are available. Widespread adoption of this software could adversely
affect the commercial viability of Web advertising.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES RELATING TO THE WEB
There are currently few laws or regulations that specifically regulate
communications or commerce on the Web. However, laws and regulations may be
adopted in the future that address issues such as user privacy, pricing, and the
characteristics and quality of products and services. For example, the
Telecommunications Act sought to prohibit transmitting certain types of
information and content over the Web. Several telecommunications companies have
petitioned the Federal Communications Commission to regulate Internet Service
Providers and online services providers in a manner similar to long distance
telephone carriers and to impose access fees on these companies. This could
increase the cost of transmitting data over the Internet. Moreover, it may take
years to determine the extent to which existing laws relating to issues such as
property ownership, libel and personal privacy, are applicable to the Web. Any
new laws or regulations relating to the Web could adversely affect our business.
WEB SECURITY CONCERNS COULD HINDER INTERNET COMMERCE
The need to securely transmit confidential information over the Internet
has been a significant barrier to electronic commerce and communications over
the Web. Any well-publicized compromise of security occurred could deter more
people from using the Web or from using it to conduct transactions that involve
transmitting confidential information, such as stock trades or purchases of
goods or services. Because many of our advertisers seek to advertise on our Web
site to encourage people to use the Web to purchase goods or services, our
business could be adversely affected.
We may also incur significant costs to protect against the threat of
security breaches or to alleviate problems caused by such breaches.
12
<PAGE> 14
STORAGE OF PERSONAL INFORMATION ABOUT OUR USERS
We have a non-disclosure policy displayed on our Web site. Our policy is
not to willfully disclose any individually identifiable information about any
user to a third party without consent. This policy is accessible to users of our
personalized services when they initially register. Despite this policy,
however, if third persons were able to penetrate our network security or
otherwise misappropriate our users' personal information or credit card
information, we could be subject to liability. These could include claims for
unauthorized purchases with credit card information, impersonation or other
similar fraud claims. They could also include claims for other misuses of
personal information, such as for unauthorized marketing purposes. These claims
could result in litigation. In addition, the Federal Trade Commission and other
states have been investigating certain Internet companies regarding their use of
personal information. We could incur additional expenses if new regulations
regarding the use of personal information are introduced or if they chose to
investigate our privacy practices.
LIABILITY FOR INFORMATION DISPLAYED ON OUR WEB SITE
We may be subjected to claims for defamation, negligence, copyright or
trademark infringement or based on other theories relating to the information we
publish on our Web site. These types of claims have been brought, sometimes
successfully, against online services as well as other print publications in the
past. We could also be subjected to claims based upon the content that is
accessible from our Web site through links to other Web sites. Our insurance may
not adequately protect us against these types of claims.
RISKS RELATED TO THIS OFFERING
ANTI-TAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW
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. See "Risks Related to Our Relationship with CBS
and DBC -- Control by CBS and DBC," "Certain Transactions" and "Description of
Capital Stock."
SHARES ELIGIBLE FOR PUBLIC SALE AFTER THIS OFFERING COULD ADVERSELY AFFECT OUR
STOCK PRICE
After this offering there will be outstanding 11,750,000 shares of our
Common Stock. There will be 12,162,500 shares outstanding if the Underwriters'
over-allotment option is exercised in full. Of these shares, the shares sold in
this offering will be freely tradeable except for any shares purchased by our
"affiliates" as defined in Rule 144 under the Securities Act. The remaining
9,000,000 shares held by CBS and DBC will be "restricted securities" and will
become eligible for sale no later than the first anniversary of the date our
business is changed to a corporation, subject to the volume limitations and
other conditions of Rule 144 under the Securities Act. In addition, 180 days
after this offering, at least 233,237 shares will be issuable upon the exercise
of options (based on options outstanding on November 30, 1998). Sales of a large
number of shares could have an adverse effect on the market price for our Common
Stock.
Neither CBS nor DBC has any restrictions on selling any of our securities
held by it, other than as provided in lock-up agreements with BT Alex. Brown
Incorporated and Donaldson, Lufkin & Jenrette Securities Corporation, the
Stockholders' Agreement and under applicable securities laws. In addition, CBS
and DBC can require us to register our securities they own for public sale. Any
sales by these stockholders could adversely affect the trading price of our
Common Stock. See "Management -- Director Compensation," "-- Employee Benefit
Plans," "Description of Capital Stock -- Registration Rights" and "Shares
Eligible for Future Sale."
13
<PAGE> 15
POSSIBLE VOLATILITY OF OUR STOCK PRICE
We cannot predict the extent to which investor interest in MarketWatch.com
will lead to the development of a trading market or how liquid that market might
become. The initial public offering price for the shares will be determined by
negotiations between MarketWatch.com and the representatives of the Underwriters
and may not be indicative of prices that will prevail in the trading market. The
stock market has experienced significant price and volume fluctuations and the
market prices of securities of technology companies, particularly
Internet-related companies, have been highly volatile. Investors may not be able
to resell their shares at or above the initial public offering price. See
"Underwriting."
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 such a company. Such litigation could result in substantial
costs and a diversion of management's attention and resources.
14
<PAGE> 16
USE OF PROCEEDS
We estimate that the net proceeds from the sale of the 2,750,000 shares of
Common Stock offered hereby will be approximately $26.7 million, at an assumed
initial public offering price of $11.00 per share and after deducting the
estimated underwriting discounts and commissions and estimated offering
expenses. If the Underwriters' over-allotment option is exercised in full, we
estimate that such net proceeds will be approximately $30.9 million. The
principal purposes of this offering are to obtain additional capital, create a
public market for our Common Stock and facilitate our future access to the
public capital markets.
We intend to use at least $5.0 million of the net proceeds of this offering
for marketing activities during 1999 and a portion of the net proceeds to repay
all outstanding indebtedness to DBC ($3.0 million at September 30, 1998). This
indebtedness matures on October 29, 2000 and bears interest at a rate equal to
the prime rate of The Chase Manhattan National Bank plus 2% (10.25% at September
30, 1998). We expect to use the remainder of the net proceeds for general
corporate purposes, including working capital such as expansion of sales and
marketing activities and the acquisition of content and distribution
relationships. The amounts actually expended for such working capital purposes
may vary significantly and will depend on a number of factors, including the
amount of our future revenues and the other factors described under "Risk
Factors." Accordingly, we will retain broad discretion in the allocation of the
net proceeds of this offering. A portion of the net proceeds may also be used to
acquire or invest in complementary businesses, technologies, product lines or
products. We have no current plans, agreements or commitments with respect to
any such acquisition, and we are not currently engaged in any negotiations with
respect to any such transaction. Pending such uses, the net proceeds of this
offering will be invested in short-term, interest-bearing, investment grade
securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock and
do not anticipate paying any cash dividends on our capital stock in the
foreseeable future.
15
<PAGE> 17
CAPITALIZATION
The following table sets forth the capitalization of MarketWatch.com as of
September 30, 1998 (i) on an actual basis, and (ii) as adjusted to give effect
to the sale of the 2,750,000 shares of Common Stock offered hereby, at an
assumed initial public offering price of $11.00 per share and after deducting
the estimated underwriting discounts and commissions and estimated offering
expenses that we will pay and the application of the estimated net proceeds
therefrom. See "Use of Proceeds."
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
---------------------
AS
ACTUAL(3) ADJUSTED
--------- --------
(IN THOUSANDS)
<S> <C> <C>
Advances from DBC(1)........................................ $ 3,028 $ --
-------- --------
Stockholders' equity (deficit):
Preferred Stock, $0.01 par value; 5,000,000 shares
authorized; no shares issued and outstanding actual and
as adjusted............................................ -- --
Common Stock, $0.01 par value; 30,000,000 shares
authorized; 9,000,000 shares issued and outstanding
actual; 11,750,000 shares issued and outstanding as
adjusted(2)............................................ 90 118
Additional paid-in capital................................ 5,093 31,797
Deferred compensation..................................... (1,259) (1,259)
Contribution receivable................................... (1,000) (1,000)
Accumulated deficit....................................... (4,978) (4,978)
-------- --------
Total stockholders' equity (deficit).............. (2,054) 24,678
-------- --------
Total capitalization............................ $ 974 $ 24,678
======== ========
</TABLE>
- ---------------
(1) See Note 7 of Notes to MarketWatch.com Financial Statements for a
description of the advances from DBC.
(2) Based on the number of shares outstanding as of September 30, 1998 and
giving effect to the Reorganization as if such transaction had occurred as
of such date. Excludes (1) 866,000 shares of Common Stock then issuable upon
the exercise of options then outstanding with a weighted average exercise
price of $6.25 per share, and (2) an aggregate of 634,000 additional shares
to be reserved for issuance under our 1998 Equity Incentive Plan and 1998
Directors' Stock Option Plan. See "Management -- Employee Benefit Plans" and
Note 4 of Notes to MarketWatch.com Financial Statements.
(3) Reflects the Reorganization as if such transaction had occurred as of the
inception of the LLC.
16
<PAGE> 18
DILUTION
The net tangible book value of MarketWatch.com as of September 30, 1998 was
approximately $(2.1 million), or $(0.23) per share of Common Stock. Pro forma
net tangible book value per share represents the amount of total tangible assets
less total liabilities, divided by the pro forma shares of Common Stock
outstanding as of September 30, 1998. After giving effect to the issuance and
sale of the 2,750,000 shares of Common Stock offered hereby at an assumed
initial public offering price of $11.00 per share and after deducting estimated
underwriting discounts and commissions and estimated offering expenses, the pro
forma net tangible book value of MarketWatch.com as of September 30, 1998 would
have been $24.7 million, or $2.10 per share. This represents an immediate
increase in pro forma net tangible book value of $2.33 per share to existing
stockholders and an immediate dilution of $8.90 per share to new investors. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $11.00
Net tangible book value per share at September 30,
1998................................................... $(0.23)
Increase in pro forma net tangible book value per share
attributable to new investors.......................... 2.33
Pro forma net tangible book value per share after
offering.................................................. 2.10
------
Dilution per share to new investors......................... $ 8.90
======
</TABLE>
The following table summarizes, on a pro forma basis, as of September 30,
1998, the differences between the number of shares of Common Stock purchased
from MarketWatch.com, the aggregate cash consideration paid and the average
price per share paid by existing stockholders and new investors purchasing
shares of Common Stock in this offering:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- ------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C>
Existing
stockholders(1)........ 9,000,000 76.6% $ 2,000,000 6.2% $ 0.22
New investors............ 2,750,000 23.4 30,250,000 93.8 11.00
----------- ------ ----------- --------
Total.......... 11,750,000 100.0% $32,250,000 100.0%
=========== ====== =========== ========
</TABLE>
- ---------------
(1) Reflects the Reorganization as if it had occurred as of the inception of the
LLC.
The foregoing discussion and tables assume no exercise of any stock options
outstanding as of September 30, 1998. As of September 30, 1998, there were
options outstanding to purchase a total of 866,000 shares of Common Stock with a
weighted average exercise price of $6.25 per share. To the extent that any of
these options are exercised, there will be further dilution to new investors.
See "Capitalization," "Management -- Employee Benefit Plans" and Note 4 of Notes
to MarketWatch.com Financial Statements.
17
<PAGE> 19
SELECTED FINANCIAL DATA
The following selected financial data is qualified by reference to, and
should be read in conjunction with, the Financial Statements of MarketWatch.com
and DBC Online/News, the respective notes thereto and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" appearing
elsewhere in this Prospectus. The selected statement of operations data of
MarketWatch.com presented below for the period from inception (October 29, 1997)
through December 31, 1997, and the balance sheet data as of December 31, 1997,
are derived from financial statements of MarketWatch.com that have been audited
by PricewaterhouseCoopers LLP, independent accountants, and are included
elsewhere in this Prospectus. The selected statement of operations data of DBC
Online/News for the period from inception (October 1, 1995) through December 31,
1995, the year ended December 31, 1996 and for the period from January 1, 1997
to October 28, 1997 and the balance sheet data as of December 31, 1996 and
October 28, 1997, are derived from financial statements of DBC Online/News, that
have been audited by PricewaterhouseCoopers LLP, independent accountants, and
are included elsewhere in this Prospectus. The statement of operations data for
the nine month period ended September 30, 1998 and the balance sheet data as of
September 30, 1998 are derived from unaudited financial data of MarketWatch.com
and, in the opinion of management, include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of
MarketWatch.com's results of operations for such periods and its financial
condition as of such date. The statement of operating data for the nine month
period ended September 30, 1997, are derived from unaudited financial data of
DBC Online/News, and, in the opinion of its management, include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of DBC Online/ News' results of operations for such period and its
financial condition as of such date. The operating results for the nine month
period ended September 30, 1998 are not necessarily indicative of the results to
be expected for any other interim period or the year ending December 31, 1998.
The financial information of DBC Online/News included herein is not necessarily
indicative of the results of operations, financial position and cash flows of
MarketWatch.com had it been a stand-alone entity at such times nor is it
indicative of the results of operations, financial position and cash flows of
MarketWatch.com in the future.
<TABLE>
<CAPTION>
DBC ONLINE/NEWS(1)
-------------------------------------------------------------------------------
INCEPTION
(OCTOBER 1, 1995) JANUARY 1, 1997 NINE MONTH PERIOD
THROUGH YEAR ENDED THROUGH ENDED
DECEMBER 31, 1995 DECEMBER 31, 1996 OCTOBER 28, 1997 SEPTEMBER 30, 1997
----------------- ----------------- ------------------ ------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues:
Advertising............................. $ -- $ 303 $ 690 $ 578
News to DBC............................. -- -- -- --
Subscription............................ -- 304 482 458
------- ------- ------- -------
Total net revenues................ -- 607 1,172 1,036
Cost of revenues......................... -- 451 660 589
------- ------- ------- -------
Gross profit............................. -- 156 512 447
------- ------- ------- -------
Operating expenses:
Product and content development......... 210 1,159 885 772
General and administrative.............. 26 732 943 857
Sales and marketing..................... -- 132 67 64
------- ------- ------- -------
Total operating expenses.......... 236 2,023 1,895 1,693
------- ------- ------- -------
Operating loss........................... (236) (1,867) (1,383) (1,246)
Interest expense......................... (9) (90) (181) (160)
------- ------- ------- -------
Loss before income tax benefit........... (245) (1,957) (1,564) (1,406)
Income tax benefit....................... 98 785 621 466
------- ------- ------- -------
Net loss................................. $ (147) $(1,172) $ (943) $ (940)
======= ======= ======= =======
Basic and diluted net loss per
share(2)................................
Shares used to compute basic and diluted
net loss per share(2)(3)................
<CAPTION>
MARKETWATCH.COM
---------------------------------------
INCEPTION
(OCTOBER 29, 1997) NINE MONTH PERIOD
THROUGH ENDED
DECEMBER 31, 1997 SEPTEMBER 30, 1998
------------------ ------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues:
Advertising............................. $ 320 $ 3,054
News to DBC............................. 210 949
Subscription............................ 100 491
------- -------
Total net revenues................ 630 4,494
Cost of revenues......................... 148 1,828
------- -------
Gross profit............................. 482 2,666
------- -------
Operating expenses:
Product and content development......... 186 996
General and administrative.............. 248 2,131
Sales and marketing..................... 129 4,361
------- -------
Total operating expenses.......... 563 7,488
------- -------
Operating loss........................... (81) (4,822)
Interest expense......................... -- (75)
------- -------
Loss before income tax benefit........... (81) (4,897)
Income tax benefit....................... -- --
------- -------
Net loss................................. $ (81) $(4,897)
======= =======
Basic and diluted net loss per
share(2)................................ $ (0.01) $ (0.54)
======= =======
Shares used to compute basic and diluted
net loss per share(2)(3)................ 9,000 9,000
======= =======
</TABLE>
18
<PAGE> 20
<TABLE>
<CAPTION>
DBC ONLINE/NEWS MARKETWATCH.COM
------------------------------------- ---------------------------------------
DECEMBER 31, 1996 OCTOBER 28, 1997 DECEMBER 31, 1997 SEPTEMBER 30, 1998
----------------- ----------------- ----------------- ------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash........................................... $ -- $ -- $ -- $ 65
Working capital (deficit)...................... (1,502) (2,449) 139 (3,894)
Total assets................................... 409 546 237 2,966
Advances from DBC.............................. 1,644 2,708 -- 3,028
Total stockholders' equity (deficit)........... (1,320) (2,263) 152 (2,054)
</TABLE>
- ---------------
(1) Represents the results of operations of the Predecessor Business for the
periods indicated.
(2) Reflects the Reorganization as if such transaction had occurred as of the
beginning of the period indicated.
(3) See Note 2 to Notes of MarketWatch.com Financial Statements for information
concerning the number of shares used in computing net loss per share.
19
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Financial
Statements and the Notes thereto of MarketWatch.com and the Predecessor Business
which appear elsewhere in this Prospectus. The following discussion contains
forward-looking statements that reflect MarketWatch.com's plans, estimates and
beliefs. Our actual results could differ materially from those discussed in the
forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed below and elsewhere
in this Prospectus, particularly in "Risk Factors."
OVERVIEW
MarketWatch.com is a leading Web-based provider of comprehensive, real-time
business news, financial programming and analytic tools. In addition to
real-time coverage of business and financial news and in-depth commentary on
market moving trends and events, we offer stock quotes, portfolios, charts and
fundamental data. MarketWatch.com, a joint venture owned 50% each by DBC and
CBS, was formed as a limited liability company in October 1997. It was formed as
the successor to DBC's Online/News Business, which commenced operations in
October 1995. When this joint venture was formed, CBS and DBC agreed that their
contributions would be treated as having equal value. Immediately prior to the
closing of this offering, we will be re-organized from an LLC into a
corporation.
The DBC Online/News Business developed the dbc.com Web site to deliver
financial quotes and news to users free of charge. While operating as DBC
Online/News, DBC sold advertising banners and sponsorships and subscriptions to
MarketWatch RT. With the formation of the LLC, the dbc.com site was changed to
the CBS.MarketWatch.com site. Since the formation of the LLC, MarketWatch.com
has operated as a provider of business news, financial programming and analytic
tools, with services including new articles, feature columns and analytic tools,
such as stock quotes and charting. These services are available free of charge.
MarketWatch.com has continued selling advertising banners and sponsorships and
subscriptions to MarketWatch RT. We have also begun selling news to DBC and
subscriptions to MarketWatch Live.
DBC's principal products are Signal, StockEdge, BMI, InSite, BondEdge and
QuoTrek, which provide real-time streaming quotes and financial market data to
subscribers using the Internet, cable television, FM radio, satellite and direct
telephone lines. DBC developed DBC Online/News with the original intent of
enhancing its existing services to its subscribers. Subsequently DBC began to
sell advertising on the dbc.com Web site. While MarketWatch.com's principal
source of revenue is advertising, DBC's principal source of revenue is
subscriptions. While MarketWatch.com sells MarketWatch RT and MarketWatch Live,
on a non-exclusive basis and DBC may provide these services itself or through
other third parties. However, DBC is not permitted to sell advertising on a Web
site that has as its primary function or principal theme and format the delivery
of stock quotes or financial news in the English language to consumers. However,
DBC could compete with us in the future. See "Risk Factors -- Risks Related to
Our Relationship with CBS and DBC -- Potential Competition from CBS and DBC."
We have yet to achieve significant revenue and our ability to generate
significant revenue is uncertain. Further, in view of the rapidly evolving
nature of our business and our very limited operating history, we have little
experience forecasting our revenues. Therefore, we believe that period-to-period
comparisons of our financial results are not necessarily meaningful and you
should not rely upon them as an indication of our future performance. To date,
we have incurred substantial costs to create, introduce and enhance our
services, to develop content, to build brand awareness and to grow our business.
As a result, we have incurred operating losses in each fiscal quarter since we
were formed. We expect operating losses and negative cash flows to continue for
the foreseeable future as we intend to significantly increase our operating
expenses to grow our
20
<PAGE> 22
business. We may also incur additional costs and expenses related to content
creation, technology, marketing or acquisitions of businesses and technologies
to respond to changes in our rapidly changing industry. These costs could have
an adverse effect on our future financial condition or operating results.
AGREEMENTS WITH CBS AND DBC
Upon formation of the LLC, DBC agreed to contribute $2.0 million in cash
and the intellectual property of the DBC Online/News Business for its 50%
ownership interest. DBC simultaneously entered into a five-year Services
Agreement to provide us with our Web site infrastructure and certain operational
and administrative services at DBC's cost. Under this original Services
Agreement, DBC also agreed to pay us between $2.50 and $5.00 per month for each
DBC subscriber who receives real-time streaming quotes, subject to a minimum of
$100,000 per month. CBS agreed to contribute $50 million in rate card
advertising and promotion over five years for its 50% ownership interest. CBS
simultaneously entered into a five-year License Agreement to license its CBS
"Eye" design and certain CBS news content, in exchange for royalties
approximating 30% of our advertising banner revenue.
Immediately prior to the closing of this offering, the agreements will be
amended so that CBS will contribute $30 million in rate card advertising through
October 2002 instead of $50 million, the license will be extended for three
years to October 28, 2005, and the royalties will be modified from 30% of
advertising revenue to approximately 8% of all revenue other than revenue
attributable to DBC and certain other revenue. See "Certain
Transactions -- Reorganization Transactions."
RESULTS OF OPERATIONS
We have compared below the results of operations of MarketWatch.com and DBC
Online/News for the nine months ended September 30, 1998 and 1997 ("Nine Months
Results of Operations"). In addition, we have presented and compared as
supplemental information the results of operations of the sequential quarters
ending March 31, 1997 through September 30, 1998 ("Quarterly Results of
Operations"). We have also compared the results of operations for DBC
Online/News for the period from January 1, 1997 through October 28, 1997, the
year ended December 31, 1996, and the period from October 1, 1995 through
December 31, 1995 ("Results of Operations -- DBC Online/News Only").
The results of operations for DBC Online/News reflect the carve out
historical results of operations of the online and news businesses of DBC prior
to the formation of MarketWatch.com. These results of operations include all
revenue and costs directly attributable to the DBC Online/News Business,
including costs for facilities, functions and services used by the business at
shared sites and allocations of costs for certain administrative functions and
services performed by centralized departments within DBC. Costs have been
allocated based on DBC management's estimate of the costs that would have been
incurred if the DBC Online/News Business had been a separate entity.
The following descriptions of the components of revenue and expenses are
applicable to the Nine Months Results of Operations, the Quarterly Results of
Operations and the Results of Operations -- DBC Online/News Only:
- Advertising revenues consist primarily of sales of advertising banners
and sponsorships.
- News to DBC revenues are the sale to DBC by MarketWatch.com of its news
for between $2.50 and $5.00 per month for each DBC subscriber who
receives real-time streaming quotes, subject to a minimum of $100,000 per
month. Prior to the formation of the LLC, DBC Online/News did not charge
DBC for this news.
- Subscription revenues are primarily the sale of subscriptions to DBC's
MarketWatch RT and MarketWatch Live products.
- Cost of revenues includes compensation and benefits for news reporters
and editors, royalties payable to CBS and other content providers, Web
site infrastructure costs allocated from
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<PAGE> 23
DBC, exchange fees and beginning in 1998, the cost of serving ads by
Doubleclick. Web infrastructure costs include communications lines,
computer equipment, and DBC network operations personnel costs.
- Product development expenses are primarily compensation and benefits for
software developers and expenses for contract programmers and developers.
- General and administrative expenses consist primarily of compensation and
benefits for finance and administrative personnel, allocations from DBC
for administrative services, occupancy costs, professional fees,
depreciation and charges for bad debts.
- Sales and marketing costs consist primarily of promotion and advertising
provided by CBS beginning in 1998, Internet banner ads, advertising
commissions, promotional materials and compensation, benefits and sales
commissions to our direct sales force. Sales and marketing expenses prior
to formation of MarketWatch.com were not significant.
See Note 2 to the MarketWatch.com Financial Statements for a description of
how we recognize our net revenues
NINE MONTH RESULTS OF OPERATIONS
The following table sets forth, for the periods presented, certain data
from our and DBC Online/News' statements of operations and such data as a
percentage of net revenue. The statement of operations data has been derived
from our and DBC Online/News unaudited financial statements, which, in our and
DBC Online/News' respective management's opinion, have been prepared on
substantially the same basis as the audited financial statements and include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the financial information for the periods presented. This
information should be read in conjunction with the financial statements and
notes thereto included elsewhere in this Prospectus. The operating results in
any nine month period are not necessarily indicative of the results that may be
expected for any future period.
<TABLE>
<CAPTION>
DBC ONLINE/NEWS MARKETWATCH.COM DBC ONLINE/NEWS MARKETWATCH.COM
NINE MONTHS NINE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1998 SEPTEMBER 30, 1997 SEPTEMBER 30, 1998
------------------ ------------------ ------------------ ------------------
(IN THOUSANDS) (AS A PERCENTAGE OF NET REVENUES)
---------------------------------------
<S> <C> <C> <C> <C>
Net revenues:
Advertising............ $ 578 $ 3,054 56% 68%
News to DBC............ -- 949 -- 21%
Subscription........... 458 491 44% 11%
------- ------- ----- -----
Total net
revenues...... 1,036 4,494 100% 100%
Cost of revenues......... 589 1,828 57% 41%
------- ------- ----- -----
Gross profit............. 447 2,666 43% 59%
------- ------- ----- -----
Operating expenses:
Product development.... 772 996 75% 22%
General and
administrative....... 857 2,131 83% 47%
Sales and marketing.... 64 4,361 6% 97%
------- ------- ----- -----
Total operating
expenses...... 1,693 7,488 163% 167%
------- ------- ----- -----
Operating loss........... (1,246) (4,822) (120%) (107%)
Interest expense......... (160) (75) (15%) (2%)
------- ------- ----- -----
Loss before income tax
benefit................ (1,406) (4,897) (136%) (109%)
Income tax benefit....... 466 -- 45% --
------- ------- ----- -----
Net loss................. $ (940) $(4,897) (91%) (109%)
======= ======= ===== =====
</TABLE>
22
<PAGE> 24
Net Revenues
Net revenues for the nine months ended September 30, 1998 increased
compared to the nine months ended September 30, 1997 due to increases in the
number of banner and sponsorship ads placed on our web sites. The increases were
caused by several interrelated factors, including the following:
- increased number of advertisers;
- increased audience acceptance of our Web sites and resultant page views;
- increased size of our direct sales force; and
- increased flexibility and sophistication of advertising packages offered
to advertisers.
Substantially all of our advertising customers purchase advertising under
short-term contracts. Customers can cease advertising on short notice without
penalty. Advertising revenues would be adversely affected if we were unable to
secure new advertising contracts from existing customers or obtain new
customers. We expect to continue to derive a substantial majority of net
revenues from selling advertisements. The market for Web advertising is
intensely competitive, advertising rates could be subject to pricing pressure in
the future. If are forced to reduce our advertising rates or we experience lower
CPMs across our Web site or click-through advertising rates as a result of such
competition or otherwise, future revenues could be adversely affected.
Cost of Revenues
Cost of revenues for the nine months ended September 30, 1998 increased
compared to the nine months ended September 30, 1997 due to the addition of news
reporters and editors, additional network communications lines to accommodate
increased traffic on our sites, and fees payable to Doubleclick to serve ads.
Costs charged by DBC were $296,000 and $172,000 for the nine months ended
September 30, 1998 and 1997, respectively. Royalties to CBS were $148,000 and $0
for the nine months ended September 30, 1998 and 1997, respectively. As a
percent of net revenues, cost of revenues decreased by 20% because certain news
content and Web infrastructure expenses are relatively fixed.
Operating Expenses
Since inception, operating expenses have increased significantly to reflect
the costs associated with the growth and development of MarketWatch.com and our
Web site. We continue to be substantially dependent on DBC for many of our
financial, administrative and operational services and related support
functions. This dependence involves a number of risks. See "Risk Factors --
Risks Related to Our Relationship with CBS and DBC -- Dependence on DBC
Relationship." We plan to implement independent financial, operational and
management controls, and reporting systems and procedures to support the
continued expansion of our operations. As a consequence, we intend to continue
to increase expenditures in all operating areas to support our planned growth
and the development of its infrastructure.
Product Development. Product development expenses for the nine months ended
September 30, 1998 increased compared to the nine months ended September 30,
1997 due to increased headcount and expenses related to development of software
by third parties. As a percentage of net revenues, product development expenses
declined due to the much greater increase in revenues and the relatively small
amount of such expenses. We intend to increase the absolute dollar level of
product development expenditures in future periods in order to further enhance
the programming on the web site and these expenses may fluctuate as a percentage
of revenue over time depending on the projects undertaken by us from
time-to-time.
General and Administrative. General and administrative expenses for the
nine months ended September 30, 1998 increased compared to the nine months ended
September 30, 1997 due to
23
<PAGE> 25
increased headcount, occupancy and bad debts. Costs charged by DBC were $216,000
and $104,000 for the nine months ended September 30, 1998 and 1997,
respectively. We anticipate hiring additional personnel and incurring additional
costs related to being a public company including directors and officers
liability insurance, investor relation programs and professional service fees.
Accordingly, we intend to increase the absolute dollar level of general and
administrative expenses in future periods.
We include in general and administrative expenses the amortization of
deferred compensation related to options granted below fair market value.
Amortization of deferred compensation was $131,000 for the nine months ended
September 30, 1998. The remaining $1,258,000 of deferred compensation will be
amortized over the three-year vesting period of the options.
Sales and Marketing. Sales and marketing expenses for the nine months ended
September 30, 1998 increased compared to the nine months ended September 30,
1997 due to a number of factors including:
- promotions and advertising contributed by CBS in 1998;
- development of our direct sales force in 1998, increased sales
commissions from higher advertising sales;
- increased web banner ads to promote our products and services; and
- purchase of traditional print and broadcast ads in 1998 to promote our
products and services.
We expect to increase our sales staff and significantly increase the
absolute dollar level of sales and marketing expenses in future periods.
Under the terms of the Contribution Agreement, CBS will provide advertising
and promotions over an eight year period. The services will be recorded as
capital contributions at the time the services are provided based on the fair
value of such services. Such fair value will be determined based on the actual
rates CBS charges outside third party advertisers for the advertising and
promotion spots CBS airs for the company, discounted for certain placement
control features retained by CBS, as well as certain standard industry factors.
The Company has recorded advertising expense of $1,198,000 at fair value
($3,400,000 at rate card value) for the six months ended June 30, 1998 and
$1,728,000 at fair value ($4,937,000 at rate card value) for the nine months
ended September 30, 1998 (unaudited) related to services provided by CBS. Such
fair value amounts have been recorded as capital contributions.
Interest Expense
Interest expense for the nine month period ended September 30, 1998
compared to September 30, 1997 decreased to a comparatively lower advance
balance due to DBC over the nine month period ended September 30, 1998.
24
<PAGE> 26
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth, for the periods presented, certain data
from our and DBC Online/News' statements of operations and such data as a
percentage of net revenues. The statement of operations data has been derived
from our and DBC Online/News' unaudited financial statements, which, in our and
DBC Online/News' respective management's opinion, have been prepared on
substantially the same basis as the audited financial statements and include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the financial information for the periods presented. This
information should be read in conjunction with the financial statements and
notes thereto included elsewhere in this Prospectus. The operating results in
any quarter are not necessarily indicative of the results that may be expected
for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
1997(1) 1997(1) 1997(1) 1997(2) 1998(3) 1998(3) 1998(3)
-------- -------- --------- -------- -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues:
Advertising...................... $ 136 $ 205 $ 237 $ 432 $ 696 $ 1,032 $ 1,326
News to DBC...................... -- -- -- 210 311 316 322
Subscriptions.................... 150 151 157 124 169 171 151
----- ------ ------ ----- -------- -------- --------
Total net revenues........ 286 356 394 766 1,176 1,519 1,799
Cost of revenues(a)................ 193 198 198 219 283 672 873
----- ------ ------ ----- -------- -------- --------
Gross profit....................... 93 158 196 547 893 847 926
----- ------ ------ ----- -------- -------- --------
Operating expenses:
Product development............ 230 248 294 299 235 355 406
General and
administrative(b)........... 284 281 292 334 533 730 868
Sales and marketing(c)......... 23 22 19 132 884 1,335 2,142
----- ------ ------ ----- -------- -------- --------
Total operating
expenses................ 537 551 605 765 1,652 2,420 3,416
----- ------ ------ ----- -------- -------- --------
Operating loss..................... (444) (393) (409) (218) (759) (1,573) (2,490)
Interest expense................... 46 53 61 21 7 14 54
----- ------ ------ ----- -------- -------- --------
Loss before income tax benefit..... (490) (446) (470) (158) (766) (1,587) (2,544)
Income tax benefit................. 87 174 205 -- -- -- --
----- ------ ------ ----- -------- -------- --------
Net loss.................. $(403) $ (272) $ (265) $(158) $ (766) $ (1,587) $ (2,544)
===== ====== ====== ===== ======== ======== ========
- ------------------------
(a) includes charges from DBC...... $ 57 $ 57 $ 57 $ 20 $ 92 $ 104 $ 100
(b) includes charges from DBC...... $ 35 $ 35 $ 35 $ 50 $ 72 $ 72 $ 72
(c) includes expense for CBS
promotion and advertising...... $ -- $ -- $ -- $ -- $ 537 $ 661 $ 530
AS A PERCENTAGE OF NET REVENUES:
Net revenues:
Advertising...................... 48% 58% 60% 56% 59% 68% 74%
News to DBC...................... -- -- -- 27 27 21 18
Subscriptions.................... 52 42 40 17 14 11 8
----- ------ ------ ----- -------- -------- --------
Total net revenues........ 100 100 100 100 100 100 100
Cost of net revenues............... 67 56 50 29 24 44 49
----- ------ ------ ----- -------- -------- --------
Gross profit....................... 33 44 50 71 76 56 51
----- ------ ------ ----- -------- -------- --------
Operating expenses:
Product development............ 80 70 75 39 20 23 23
General and administrative..... 99 79 74 44 45 48 48
Sales and marketing............ 8 6 5 17 75 88 119
----- ------ ------ ----- -------- -------- --------
Total operating
expenses................ 188 155 154 100 140 159 190
----- ------ ------ ----- -------- -------- --------
Operating loss..................... (155) (110) (104) (28) (65) (104) (138)
Interest expense................... (16) (15) (15) (3) (1) (1) (3)
----- ------ ------ ----- -------- -------- --------
Loss before income taxes........... (171) (125) (119) -- (65) (104) (141)
Income tax benefit................. 30 49 52 -- -- -- --
----- ------ ------ ----- -------- -------- --------
Net loss.................. (141)% (76)% (67)% (21)% (65)% (104)% (141)%
===== ====== ====== ===== ======== ======== ========
</TABLE>
- ------------------------
(1) DBC OnLine/News
(2) One month DBC OnLine/News and two months MarketWatch.com
(3) MarketWatch.com
25
<PAGE> 27
Net Revenues
Net revenues have increased sequentially from quarter to quarter throughout
the periods presented due to increases in the number of banner and sponsorship
ads placed on our Web sites. After formation of MarketWatch.com in October 1997
and the decision to establish a direct sales force during the quarter ended
March 31, 1998, absolute dollar increases in net advertising revenues began to
increase at a substantially greater rate. We believe that the CBS brand has been
a significant factor for accelerating advertising revenue.
Cost of Revenues
Cost of revenues have increased sequentially from quarter to quarter
throughout the periods presented due to additions of new reporters and editors,
additional network communications lines to accommodate increased traffic on our
sites, and fees payable to Doubleclick to serve ads. As a percent of net
revenues, cost of revenues decreased steadily from the quarter ended March 31,
1997 to March 31, 1998, because certain news content and web infrastructure
expenses are relatively fixed. In the quarter ended June 30, 1998, the costs
increased as a percent of net revenues due to significant hiring of reporters in
that quarter and a full quarterly impact of the cost of using Doubleclick to
serve ads. In the quarter ended September 30, 1998, the costs began to decrease
as a percent of net revenues.
Operating Expenses
Product Development. Product development expenses have increased in
absolute dollars from the quarter ended March 31, 1997 to the quarter ended
September 30, 1998 primarily as a result of the hiring of Web site development
personnel in the second quarter of 1998. DBC Online/News' product development
expenses reflect initial costs of developing the service and bringing it online
and the introduction of MarketWatch RT in December 1997. To date, all product
development costs have been expensed as incurred.
General and Administrative. General and administrative expenses have
increased sequentially from quarter to quarter since the formation of
MarketWatch.com due to increased headcount, occupancy costs and infrastructure
costs charged by DBC. Our need for general and administrative functions and
infrastructure was relatively constant during the initial phases of the DBC
Online/ News Business and therefore, these costs remained constant during this
time.
Sales and Marketing. Sales and marketing expenses have increased
sequentially from quarter to quarter since the formation of MarketWatch.com due
to promotions and advertising contributed by CBS in 1998, continued development
of our direct sales force beginning in January 1998, increased sales commissions
from higher advertising sales, increased spending on Web banner ads to promote
our Web site, and placement of traditional print and broadcast ads to promote
our Web site.
Interest Expense
The increase in interest expense has fluctuated over the periods due to
changes in the amount of advances from DBC.
RESULTS OF OPERATIONS -- DBC ONLINE/NEWS BUSINESS
Net Revenues
Net revenues were $1.2 million, $607,000 and $0 for the period from January
1, 1997 through October 28, 1997, the year ended December 31, 1996 and for the
period from inception (October 1, 1995) through December 31, 1995, respectively.
The year ended December 31, 1996 was the first period in which DBC made its Web
site and the MarketWatch RT online service publicly available. The increase in
revenue during these time periods is primarily attributable to an increase in
the number of customers advertising on the Web site.
26
<PAGE> 28
Cost of Revenues
Cost of revenues were $660,000, $451,000 and $0 for the period from January
1, 1997 through October 28, 1997, the year ended December 31, 1996 and for the
period from inception through December 31, 1995, respectively. Cost of revenues,
as a percentage of net revenues, for the period from January 1, 1997 through
October 28, 1997, the year ended December 31, 1996 and for the period from
inception through December 31, 1995, respectively, were 56%, 74% and 0%. The
decrease in cost of revenues, as a percentage of net revenues in the latter two
periods, is primarily attributable to advertising revenues increasing while a
portion of the costs associated with providing the advertising remained
relatively constant. Included in cost of revenues are costs allocated from DBC.
Allocated expenses were $191,000, $160,000 and $0 for the period from January 1,
1997 through October 28, 1997, the year ended December 31, 1996 and for the
period from inception through December 31, 1995, respectively.
Operating Expenses
Product Development. Product development expenses were $885,000, $1.2
million and $210,000 for the period from January 1, 1997 through October 28,
1997, the year ended December 31, 1996 and for the period from inception through
December 31, 1995, respectively. Product development, as a percentage of net
revenues, were 76%, 191% and 0% for the period from January 1, 1997 through
October 28, 1997, the year ended December 31, 1996 and for the period from
inception through December 31, 1995, respectively. The decrease in product
development expenses in absolute dollars from inception (October 1, 1995)
through December 31, 1995 and the year ended December 31, 1996 compared to the
ten month period ended October 28, 1997 is primarily due to high product
development costs incurred during the period from October 1995 through April
1996 in the development of the Web site and the MarketWatch RT online service.
General and Administrative. General and administrative expenses were
$943,000, $732,000 and $26,000 for the period from January 1, 1997 through
October 28, 1997, the year ended December 31, 1996 and for the period from
inception through December 31, 1995, respectively. General and administrative
expenses, as a percentage of net revenues, were 80%, 121% and 0% for the period
from January 1, 1997 through October 28, 1997, the year ended December 31, 1996
and for the period from inception through December 31, 1995, respectively.
General and administrative expenses as a percentage of net revenues, decreased
in the later two periods due to costs associated with the implementation of
billing systems related to MarketWatch RT incurred during 1996. Included in
general and administrative expenses are costs allocated from DBC. Allocated
expenses were $115,000 and $135,000 and $9,000 for the period from January 1,
1997 through October 28, 1997, the year ended December 31, 1996 and for the
period from inception through December 31, 1995, respectively.
Sales and Marketing. Sales and marketing expenses were $67,000, $132,000
and $0 for the period from January 1, 1997 through October 28, 1997, the year
ended December 31, 1996 and for the period from inception through December 31,
1995, respectively. Sales and marketing, as a percentage of net revenues were
6%, 22% and 0%, for the period from January 1, 1997 through October 28, 1997,
the year ended December 31, 1996 and for the period from inception through
December 31, 1995, respectively. Sales and marketing expenses decreased due to a
reduction in advertising costs associated with the initial promotion of the Web
site in 1996 and 1995. During 1997, substantially all sales and marketing
efforts were outsourced to a third-party firm in order to reduce costs
associated with maintaining an internal staff.
Interest Expense
DBC funded the working capital requirements of the DBC Online/News Business
division based upon a centralized cash management system. Interest expense was
$181,000, $90,000 and $9,000 for the period from January 1, 1997 through October
28, 1997, the year ended December 31,
27
<PAGE> 29
1996 and the period from inception (October 1, 1995) through December 31, 1995,
respectively. The amounts due to DBC totaled $2,708,000 at October 28, 1997 and
interest on amounts due to DBC is charged at The Chase Manhattan National Bank's
prime plus 2% (10.50% at October 28, 1997).
INCOME TAXES
No benefit for federal and state income taxes is reported in the financial
statements as MarketWatch.com has elected to be taxed as a partnership prior to
the merger of the limited liability company into a corporation. Therefore, for
the periods presented, the federal and state tax effects of the our tax losses
were recorded by the members of the LLC in their respective income tax returns.
Subsequent to the Reorganization, we will account for income taxes in accordance
with Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS No. 109"). Had we applied the provisions of SFAS No. 109 for the
period from inception (October 29, 1997) through December 31, 1997, the deferred
tax asset generated, primarily from net operating loss carryforwards, would have
been offset by a full valuation allowance.
The DBC Online/News Business has accounted for income taxes in accordance
with SFAS No. 109. The operating losses of the DBC Online/News Business were
included in the consolidated tax returns of DBC and were used to offset taxable
income. Therefore, the DBC Online/News Business has reflected a current tax
benefit related to these tax losses.
LIQUIDITY AND CAPITAL RESOURCES
Since inception on October 29, 1997, we have funded our operations
primarily from cash contributed and advanced by DBC and from revenues from
advertising sales. DBC contributed capital of $218,000 and $782,000 to us during
the period from inception (October 29, 1997) through December 31, 1997 and the
nine months ended September 30, 1998, respectively. As of September 30, 1998, we
had a working capital deficit of $3.9 million. Under the terms of the
Contribution Agreement, we received an additional $1.0 million capital
contribution from DBC on October 28, 1998.
Cash used in operating activities was $2.8 million for the nine months
ended September 30, 1998 compared to $205,000 for the period from inception
(October 29, 1997) through December 31, 1997. Significant uses of cash in
operations include costs associated with increased sales and marketing
activities to establish and to promote our products and services and increased
accounts receivable and deferred offering costs, offset by accrued expenses for
the costs of this offering.
Cash used in investing activities was $898,000 for the nine months ended
September 30, 1998 compared to $13,000 for the period from inception (October
29, 1997) through December 31, 1997 and primarily reflects capital expenditures.
Cash from financing activities were $3.8 million for the nine months ended
September 30, 1998 compared to $218,000 for the period from inception (October
29, 1997) through December 31, 1997 and primarily reflects contributions and
advances from DBC.
Capital expenditures were $889,000 for the nine months ended September 30,
1998 and $13,000 for the period from inception (October 29, 1997) through
December 31, 1997. As of September 30, 1998, we had commitments under
noncancellable operating leases of $1,536,000 through March 31, 2003. In
addition, under the terms of our agreements with Yahoo!, we are committed to
make payments for advertising and slotting of $870,000 through 1999. Upon
completion of this offering, the minimum commitment increases from $870,000 over
a twelve month period to $1.6 million over a twelve month period, beginning upon
the closing of this offering. In addition, we are obligated to pay Yahoo! a fee
based on the amount of traffic directed to our Web site.
To date, we continue to be substantially dependent on DBC for almost all of our
financial, administrative and operational services and related support functions
including cash management. We believe the implementation of an independent
accounting system, financial, operational and
28
<PAGE> 30
management controls, and reporting systems and procedures will be necessary to
support the continued expansion of our operations. As a consequence, we intend
to expend capital resources to support the development of the infrastructure.
Under the terms of the Limited Liability Company Agreement of the LLC
between CBS and DBC and, subsequently, the Credit Agreement between
MarketWatch.com and DBC which will be entered into upon the closing of this
offering, DBC agreed to advance us up to an aggregate of $5.0 million on a
revolving basis through October 29, 2000. Borrowings bear interest at a variable
rate per annum equal to The Chase Manhattan Bank's prime rate plus 2% and are
due on October 29, 2000. As of September 30, 1998, advances from DBC were $3.0
million. We intend to use a portion of the net proceeds from this offering to
repay all outstanding advances from DBC. In addition, DBC contributed $1.0
million to us in October 1998. See Note 7 to our financial statements.
We expect to incur significantly higher costs, particularly content
creation costs, and sales and marketing costs, in the future to grow our
business. As a result, we expect cash flow for operations to be funded by
available cash and cash equivalents. We believe that the net proceeds from this
offering, together with our current cash and cash equivalents and commitments
and borrowings from DBC will be sufficient to meet our anticipated cash needs
for working capital and capital expenditures for at least the next 12 months
following the offering. Thereafter, if cash generated from operations and
borrowings under the DBC Credit Agreement are insufficient to satisfy our
liquidity requirements, we may need to raise additional funds through public or
private financing, strategic relationships or other arrangements. There can be
no assurance that such additional funding, if needed, will be available on terms
attractive to MarketWatch.com, or at all. Strategic relationships, if necessary
to raise additional funds, may require us to provide distribution or rights to
certain of its technologies. The failure to raise capital when needed could have
a material adverse effect on our business, operating results and financial
condition. If additional funds are raised through the issuance of equity
securities, the percentage ownership of our then-current stockholders would be
reduced. However, if CBS or DBC elects to maintain their percentage interest
pursuant to the exercise of the Purchase Right described under "Description of
Capital Stock -- Rights of First Refusal," then CBS or DBC would not necessarily
suffer a reduction in their ownership. Furthermore, such equity securities might
have rights, preferences, or privileges senior to those of the Common Stock.
YEAR 2000 READINESS DISCLOSURE
We rely on DBC's computer and communications networks for the operation of
its Web site, and on DBC's information systems for customer billing, accounting
and administration. DBC has advised us that it has substantially completed a
comprehensive review of its products, information systems and critical suppliers
for year 2000 compliance, and has reported that its computer and communications
networks are year 2000 compliant. DBC is currently installing new billing,
accounting and administrative systems which are scheduled to be fully
operational during 1999 and which have been represented will be fully year 2000
compliant when fully operational. DBC and MarketWatch.com utilize third party
software and computer equipment from third party suppliers. DBC and
MarketWatch.com also rely on information, provided electronically by a number of
outside suppliers. Based on representations received from suppliers and
compliance testing completed and ongoing, DBC has advised us that its critical
suppliers are or will be year 2000 compliant in all material respects before the
year 2000. Based on representations from our other software and equipment
suppliers, we believe that our software and other computer hardware is year 2000
compliant. We also rely on solutions provided by Doubleclick for the delivery of
its advertising and user measurement. We have been informed by them that their
solutions are year 2000 compliant.
We have made no investigation of any of our embedded systems, such as
electrical, heating or telephones. However, if any year 2000 issues arose with
respect to these systems, we do not expect that they would have any materially
adverse effect on our business in the long term.
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<PAGE> 31
Failure of third-party equipment or software to operate properly with
regard to the year 2000 and thereafter could require us to incur unanticipated
expenses to remedy any problems, which could have a material adverse effect on
our business, results of operations and financial condition. Furthermore, the
purchasing patterns of advertisers may be affected by year 2000 issues as
companies expend significant resources to correct their current systems for year
2000 compliance. These expenditures may result in reduced funds available for
Web advertising, which could have a material adverse effect on our business,
results of operations and financial condition.
We do not presently have a contingency plan for handling year 2000 problems
that are not detected and corrected prior to their occurrence. DBC has advised
us that it has developed certain contingency options in the event of a failure
due to year 2000 issues. Any failure to address any Year 2000 issue could
adversely affect our business, financial condition and results of operations. If
we are unable to utilize Doubleclick as a result of year 2000 issues, we believe
we could either seek to obtain another vendor or deliver advertising using our
own systems as we had in the past. However, we may not be able to replace
Doubleclick with another vendor on reasonable terms, or we delivered advertising
ourselves, we would not be able to track or measure the advertising to the same
extent as Doubleclick.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosure about Segments
of an Enterprise and Related Information." SFAS 131 establishes new standards
for the way companies report information about operating segments in annual
financial statements. The disclosures prescribed by SFAS 131 are effective for
the year ending December 31, 1998. We do not believe it operates in more than
one segment.
30
<PAGE> 32
BUSINESS
This Prospectus contains forward-looking statements that involve risks and
uncertainties. Our actual results may differ significantly from the results
discussed in these forward-looking statements. Factors that may cause such a
difference include, but are not limited to, those discussed in "Risk Factors."
Ownership of our securities by CBS or DBC should not be viewed as a
recommendation by either company to purchase the Common Stock.
INDUSTRY BACKGROUND
The Web as a New Medium
The Web has rapidly become a significant global medium for communications,
news, information and commerce. Jupiter Communications, a new media research
firm which specializes in online research and analysis, estimates that the
number of Web users worldwide will grow from approximately 85 million at the end
of 1997 to approximately 250 million by the end of 2002. This growth is being
driven by a number of factors, including a growing base of PCs in the home and
workplace, improvements in network infrastructure, more convenient, faster and
inexpensive Internet access, advances in PCs and modems, increases in the
quantity and quality of content available on the Web and the overall increased
public awareness of the Web. The Web has also become an attractive medium for
advertisers, offering a level of targetability, flexibility, interactivity and
measurability not available in traditional media. Jupiter Communications
estimates that the amount of Web advertising in the U.S. will grow from $940
million in 1997 to over $7.6 billion by the year 2002. By advertising on the
Web, advertisers have the ability to gather demographic information and target
their messages to specific groups of consumers as well as to change their
advertisements frequently in response to market factors, current events and
consumer feedback. Moreover, advertisers can track more accurately the
effectiveness of their advertising messages by receiving reports of the number
of advertising "impressions" delivered to consumers, and the resulting "hit" or
"click through" rate to their Web sites.
The Web allows content providers to deliver information and programming in
a manner not possible in the traditional broadcast and print media. Although
these traditional media can have large audiences, they are generally limited to
a specific geography, can deliver only limited content or are not effective in a
real-time environment. Print media is limited by the significant time delays
involved in its production and distribution and its inability to be updated on a
real-time basis. Broadcast media is limited by the relatively small number of
available frequencies or channels, the rigidity of its schedules and its
inherent capacity constraints, with each channel or frequency carrying only a
limited amount of information. By comparison, the Web allows users to rapidly
access, search and interact with a rich repository of content, regardless of
their location. In addition, despite the large amount of undifferentiated
information on many Web sites, users can utilize and manipulate information more
efficiently than in traditional media by conducting real-time, customized
searches.
Demand for Business News and Financial Programming
A number of trends have led to increased demand for comprehensive business
news and financial programming in all forms of media:
- individuals are proactively managing their money and the American public
is investing an increasing percentage of their household wealth in securities;
- the emergence of online trading of financial instruments has led many
investors to rely less on traditional brokers; and
- U.S. companies increasingly compete globally, requiring increased
real-time knowledge of a broad range of financial information from around the
world.
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Business Week reports that more than 70 firms now offer online trading, up
from approximately 30 at the end of 1997, including most of the major U.S.
stockbrokers, with The Charles Schwab Corporation reporting that 52% of its
trading volume in the quarter ended June 30, 1998, was conducted online.
According to Business Week, Forrester Research, a publicly traded independent
research firm which provides analysis of a range of technology industries,
predicts that there were over three million online investing accounts at the end
of 1997, and Forrester Research predicts that this number will increase to 14.4
million by 2002.
Driven by these factors, numerous traditional and online information
sources such as newspapers, magazines, broadcasters and specialized financial
Web sites are seeking to address the demand for timely and relevant financial
information. However, these companies are often unable to meet effectively
consumers' needs for high-quality, compelling and relevant, real-time business
information. Newspapers and magazines cannot offer real-time data and
information, and broadcasters are limited in the depth and availability of their
content. While there has been a proliferation of Web sites which include
financial information as part of their offerings, MarketWatch.com believes that
most sites offering such financial data suffer from a number of limitations.
Frequently, these sites do not offer high quality original content comparable to
that available from the best traditional financial media sources and do not
offer readily available tools on an organized, real-time basis. Furthermore,
these sites often offer large, undifferentiated collections of information that
require users to undertake time-consuming and multi-site searches to obtain all
of the information and tools they need.
MarketWatch.com believes that a significant opportunity exists for a
company to provide easy access to real-time business news, financial programming
and analytic tools over the Internet. By integrating high quality editorial
content with the best available financial tools and data, a Web-based service
can enable its audience to keep abreast of current business developments, track
industry and competitive trends, make informed investment decisions and manage
their financial assets. MarketWatch.com believes that by assembling a loyal base
of users who actively follow business and financial news, a Web site can create
a targeted and demographically-desirable audience that is attractive to
financial and non-financial advertisers.
THE MARKETWATCH.COM SOLUTION
Through our CBS.MarketWatch.com Web site, we are a leading Web-based
provider of comprehensive, real-time business news, financial programming and
analytic tools. The CBS.MarketWatch.com Web site, presents clear, original,
authoritative and timely business coverage created in real-time by its team of
experienced business and financial journalists and commentators, our Web site
incorporates in-depth features and columns, market data feeds and sophisticated
analytical tools. Our experienced editorial staff presents our content in a
well-organized and approachable fashion, thereby enabling our audience to keep
abreast of current business developments, track competitors, make informed
investment decisions and manage their financial assets.
We believe our strategic relationships with our principal investors, CBS
and DBC, allow us to differentiate our Web site as the preeminent brand for
real-time business news and financial programming on the Web. CBS will provide
us with $30 million rate card amount of television network and radio advertising
and promotion over the period from October 29, 1997, through October 29, 2002,
and will provide credibility with advertisers, its audience, and potential
business partners. DBC supplies us with a ready-made infrastructure for the
CBS.MarketWatch.com Web site, access to multiple domestic and international data
feeds and sophisticated analytic tools. We believe that the ongoing development
of a "one-stop-shop" for financially-oriented programming, news and data will
help establish the CBS.MarketWatch.com Web site as one of the premiere Web
sites.
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STRATEGY
Our objective is to create the leading branded Web site for comprehensive
real-time business news, financial programming and analytic tools. This strategy
is designed to maximize the quantity and quality of traffic on the
CBS.MarketWatch.com Web site and to develop a strong and loyal community,
thereby creating an audience which is highly attractive to companies advertising
and engaging in commerce over the Internet. Our strategy to achieve this
objective includes the following key elements:
Build Traffic and Audience Loyalty. We believe that the CBS name and logo,
the advertising and promotion we receive from CBS, and our plans for
significantly increased marketing activities will provide us with increased
visibility among Web users and companies advertising and engaging in commerce
over the Internet. Additionally, we are aggressively pursuing distribution
relationships with high-traffic Web sites to strategically place its programming
and links to its Web site as another key element in building traffic. For
example, certain of our headlines are listed on Yahoo!, with links back to the
CBS.MarketWatch.com Web site for the full story. We are also seeking to build
our traffic with a national brand building campaign in traditional and online
media.
Deliver Original, Authoritative and Timely Programming with High Editorial
Value. MarketWatch.com will continue to cover the financial markets and other
areas of interest to its audience and aggressively enhance this programming by
expanding its staff of journalists, columnists and selected third-party content.
Led by two experienced business journalists, Larry Kramer and Thom Calandra, our
editorial staff creates real-time, high quality news stories that inform,
educate and entertain its audience. Our editors continuously update the
CBS.MarketWatch.com site's "Front Page" throughout the trading day to emphasize
the most important stories of the moment. We believe that the journalistic
background of much of our senior management and their commitment to providing
compelling news stories offers us a significant competitive advantage.
Leverage CBS's Name Recognition and Resources. We believe that our
strategic relationship with CBS helps attract users, facilitate advertising
sales and obtain interviews with high-profile personalities. We seek to leverage
this relationship and use the CBS name and logo in our marketing and throughout
the site. We also benefit from the prominent usage of our logos and URL during
CBS Television and Radio broadcasts, including the CBS Evening News, which
reaches approximately 10.2 million persons each weeknight according to the
National Nielsen Ratings for the television season through August 1998. In
addition, MarketWatch.com correspondents currently appear, and our content is
distributed, on the CBS Television Network and radio news programming.
Leverage DBC's Data and Analytic Tools. MarketWatch.com's strategic
relationship with DBC provides access to in-depth, real-time and historical data
from all of the major U.S. securities markets as well as sophisticated and
proprietary software tools for analyzing and manipulating such data. We
integrate such data and analytic tools with our news content to provide users a
differentiated and effective service. DBC hosts the CBS.MarketWatch.com Web site
and provides the necessary engineering and network infrastructure to support the
Web site's operations at DBC's marginal cost.
Build and Capitalize on Attractive Audience Demographics. We believe our
Web site attracts users who as a group are more affluent and better educated
than users of many other Web sites and therefore represents an attractive medium
for companies that advertise and engage in commerce over the Internet. In order
to attract new users and grow a loyal audience that appeals to a broad range of
advertisers and business partners, we are investing in content, improved and
expanded features and advertising and promotional programs. We believe that this
strategy has helped to attract new advertisers on the CBS.MarketWatch.com Web
site including popular consumer brands such as American Airlines, AT&T, DeBeers,
Ford, Sprint, Toyota and Volvo.
Pursue Additional Revenue Streams. We believe we have significant
opportunities to capitalize on our audience and content offerings to create
multiple revenue streams for future growth. In
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addition to advertising revenues, we currently offer limited subscription
services for certain market data and analyst reports and intend to offer
additional subscription services, such as exclusive news, commentary and
analytic tools. We are also aggressively pursuing electronic commerce
opportunities through strategic and marketing relationships with retailers and
service providers focused on Web distribution. For example, we believe that our
focused content and audience provides us with excellent opportunities to build
strategic commerce relationships with financial service companies, such as
marketers of credit cards, consumer and home loan companies and insurance
providers. We also believe that an opportunity exists to leverage the
MarketWatch.com brand and create strategic relationships in key international
markets.
THE CBS.MARKETWATCH.COM SITE
The CBS.MarketWatch.com Web site is a comprehensive business and financial
Web site providing up-to-the-minute business news, financial programming and
analytic tools. Our staff of approximately 40 professional journalists,
including freelance journalists, offers real-time coverage of business and
financial news and in-depth commentary on market moving trends and events. We
also offer a wide range of other financial information and subscription services
as well as community features to provide a "one-stop-shop" for our audience.
Recent additions to the CBS.MarketWatch.com Web site include columns by
well-known commentators, enhanced personal portfolio tracking features, hosted
chat rooms, bulletin boards and messaging. We believe that offering
comprehensive business news, financial programming and analytic tools is
critical to its success as it enables us to increase audience loyalty and sense
of community, average usage time and repeat visits.
News and Editorial Content
The CBS.MarketWatch.com front page is carefully designed and regularly
updated throughout the trading day by our journalists and editors to inform our
audience of the important stories of the moment. Unlike many of our Web-based
competitors, we do not rely exclusively on automatic editing and display
systems; instead we leverage our journalistic expertise to add a strong
editorial framework to our content. From the CBS.MarketWatch.com Web site's
"front page," users can access news stories, columns and headlines written by
its reporters and third parties, such as Reuters, Associated Press, and PR
Newswire, as well as stock quotes and other business and financial data and
analytic tools. The CBS.MarketWatch.com Web site also offers limited audio and
video clips of news reports that were recently broadcast on the CBS Television
Network and CBS Radio by our correspondents. Users can also search a historical
database of news stories by company name and ticker symbol.
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We create and publish on the CBS.MarketWatch.com Web site real-time
commentary and analysis of business and financial news and a number of regular
columns by our experienced editorial staff. News features include real-time
headlines, stock market news and updates and coverage of technology stocks, bond
markets, initial public offerings and other areas of interest to our audience.
These features include:
<TABLE>
<CAPTION>
UPDATED THROUGHOUT UPDATED SEVERAL
EACH TRADING DAY UPDATED DAILY TIMES PER WEEK UPDATED WEEKLY
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Analysts' Changes Daily Calendar The Big Cap Bazdarich on Bonds
Bond Report Earnings Calendar Clueless Investor Cappiello's Take
Capitol Report IPO Daily Report Erdman's World Cedd Moses
Earnings Headlines Mutual Fund Center Getting Personal Elaine Garzarelli:
Earnings Surprises Press Briefing I.P.Onder IPO First Words
Futures Movers StockWatch London Calling Irwin Kellner
Headlines Weekly Calendar Screamers Legal Options
Internet Daily SoapBox Marder on Markets
Market Snapshot Telecom Report SportsBiz
Media Report
Movers & Shakers
Mutual Understanding
NewsWatch
Silicon Stocks
Software Report
Tech Report
Washington Sked
</TABLE>
To broaden its audience appeal, the CBS.MarketWatch.com Web site has other
specialized content areas targeting novice as well as sophisticated investors.
These additional areas include:
Mutual Fund Center. A mutual fund expert provides "Superstar Fund" listings
and edits the CBS.MarketWatch.com Web site's mutual fund section. The Mutual
Fund Center section offers Lipper Mutual Fund Profiles and provides links to
other mutual fund listings, news headlines, quotes and charts. The
CBS.MarketWatch.com Web site also offers a "Fund University" section, which
provides various mutual fund educational information and links to other mutual
fund investing sites.
Personal Finance. The CBS.MarketWatch.com Web site has a Getting Personal
section which features regularly updated columns that provide its audience with
information on a range of investment alternatives and other personal
finance-related topics and creates educational programming on topics such as
finance terminology and investing options.
Tax Guide. The CBS.MarketWatch.com Web site has a seasonal online Tax Guide
giving its audience a resource tool for planning tax strategies and estimating
tax bills. This area provides timely special features that highlight the latest
changes in tax laws and reviews and compares various tax preparation software
packages.
Third-Party Products. We also distribute products and services from some of
the leading names in research and news, such as Baseline, Hoover's, Inc.,
INVESTools, Inc., Investor Communications Business Inc. and Zacks Inc. We
receive a portion of any revenue generated from the sale of these products or
services, however, to date, we have not received material revenue from these
sources. Our reporters and editors also use information provided by these
services in our daily news coverage.
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Data and Analytic Tools
We offer a variety of data and analytic tools which, together with its
other real time news and programming, are designed to provide a "one-stop-shop"
for the financial and business needs of its audience. These include the
following:
<TABLE>
- ----------------------------------------------------------------------------
DATA TOOLS
<S> <C>
- ----------------------------------------------------------------------------
US Equities Historical Charts
International Equities Technical Charts
US Options Portfolio Management
Mutual Funds Volume Alerts
Futures/Commodities Price Alerts
Foreign Exchange Stock Screener
Fixed Income
- ----------------------------------------------------------------------------
</TABLE>
Securities Price Quotes. Utilizing data gathered and packaged for online
use by DBC customers, the CBS.Marketwatch.com Web site provides stock quotes
from all major U.S. and international stock markets. These quotes are offered on
a minimum delay of 15 minutes in the United States in accordance with exchange
rules, and of varying periods from foreign markets. Users can also subscribe to
real-time quote services, MarketWatch RT and MarketWatch Live, through the Web
site. Through these stock quote pages, our audience can link to other valuable
information about a particular company, including related MarketWatch.com news
stories, stories from other news services, summaries of SEC filings and annual
reports, summaries of analysts' information and a variety of fundamental and
technical information about its stock. The CBS.MarketWatch.com Web site also
provides information as to various market and industry indices, commodity
contracts and currency exchange rates.
Portfolios. In an effort to offer the most complete and functional
portfolio tracking system on the Web, the CBS.MarketWatch.com Web site has a
sophisticated portfolio tracking service which offers a variety of features,
including the ability to:
- track up to 200 ticker symbols in multiple portfolios;
- access portfolios from any computer with Web access;
- track options, mutual funds and stocks on all major U.S. and
international exchanges;
- monitor portfolios over a secure connection;
- automatically update portfolio price views every five minutes; monitor
short and long positions;
- view transaction history and capital gains reports; and
- download portfolio reports for use in spreadsheets, thus providing a
wider set of choices for record-keeping.
We are also developing additional features, such as an email alert when one
of a user's portfolio securities trades out of its normal range and
end-of-the-day emails summarizing the portfolio's activity that day. This
service is offered free of charge and users can enroll by completing a simple
online registration form.
Data. The CBS.MarketWatch.com Web site offers a wide variety of data
including trading volume and dollar volume information, corporate share
repurchases, industry and customized local CBS affiliate indices, stock split
information and other data related to global and currency markets.
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Analytics. We have developed real-time news products utilizing proprietary
analytical tools. These services typically generate thousands of daily,
real-time headlines based on individual stock activity. If, for example, a stock
exhibits unusual volume or price activity, the software generates a real-time
headline that alerts investors to that activity. The CBS.MarketWatch.com Web
site also provides information relating to fixed-income securities and
commodities.
Community Features
We believe that providing a place for our audience, financial journalists
and experts in the financial world to meet and share ideas about investing will
help increase brand awareness, motivate users to return to the
CBS.MarketWatch.com Web site frequently and encourage our audience to spend more
time on its Web site. Additionally, because we intend to integrate related news,
market data and charts offered throughout our service, community members will be
able to gravitate towards others who share their specific interests, enabling
them to create niche user groups which can be targeted with relevant marketing
campaigns and transaction opportunities. In addition, because we plan to
integrate other content with these community features, community members will be
exposed to other areas of the site, increasing the awareness of the breadth of
our programming and other services. We believe that the personal and interactive
nature of communicating with other people who share similar interests will help
generate an affinity for the community and increased brand loyalty to
MarketWatch.com.
Currently, we offer a bulletin board service where users can discuss
investments. In the fourth quarter of 1998, we intend to launch an array of
communication tools designed to facilitate the creation of a much larger and
more dynamic community. This suite of tools is intended to provide our audience
with the means for communicating either privately, using Web-based email and
instant messaging, or in affinity group message boards and chat rooms. In order
to participate and to assist us in targeting its advertising, users must
complete registration forms and provide demographic information about
themselves.
Our community building efforts are centered on strengthening audience
loyalty, increasing page views across all areas of the site, and providing
opportunities for premium sponsorships, such as sponsoring moderated chat
events. Longer term, as we gather more information about the interests of its
community members, it intends to offer targeted advertising in specialized
discussion groups within the community and pursue electronic commerce
relationships with the goal of entering into revenue sharing relationships based
on transactions derived from community members.
EDITORIAL
We maintain news bureaus in New York City, Washington D.C., San Francisco,
Los Angeles and London, England. Our journalists generate between 400 and 600
finance and business-related, real-time headlines on an average trading day. We
have also devoted additional staff to cover special areas of interest, including
initial public offerings, the fixed income markets, futures and options and
technology stocks. Also, we intend to expand our industry-based and real-time
capital markets coverage. For example, we recently added columns which cover the
telecommunications and the sports industries and introduced a "spot news" desk
to cover the major relevant stories of the day. MarketWatch.com also receives
live media feeds from PR Newswire and Business Wire, and has access to all major
financial wires and broadcast channels. We also work with CBS News' global
operations and presence to expand our coverage of international business and
financial news. In addition to providing news coverage for the
CBS.MarketWatch.com Web site, our journalists provide financial news to CBS
Television News and CBS Radio news programming. We believe that by providing
news reports for CBS and working with CBS News journalists, it will have the
opportunity to enhance our reputation and audience reach.
Our staff of over 40 professional journalists, including freelance
journalists who write for us, are experienced editors, bureau chiefs and
reporters with high standards for reporting and editing. We
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believe our staff provides us with a significant competitive advantage. For
example, Larry Kramer, our Chief Executive Officer, was Executive Editor of the
San Francisco Examiner, and a financial reporter and Metro Editor of The
Washington Post. Our staff also includes Thom Calandra, Editor-in-Chief, who has
been a financial columnist for the San Francisco Examiner, the London-based,
lead markets editor for Bloomberg News and Online Money Editor for USA Today
Online, Paul Erdman, a renowned economist and author, and Irwin Kellner, a
former Chief Economist for Manufacturers Hanover Trust Bank, as well as a number
of other journalists who previously worked for Bloomberg News, Associated Press,
UPI, CBS Radio news, Fox News Internet and Dow Jones Television. We believe that
we are one of the few Web-based companies which offers this level of journalism.
ADVERTISING AND SALES
We are focused on providing our advertisers with a large, demographically
desirable audience. We believe that our Web site attracts users who as a group
are more affluent and better educated than users of many other Web sites and
therefore represents an attractive medium for companies that advertise and
engage in commerce over the Internet. Advertisements are displayed throughout
the Web site, when a user enters the service, reviews a news story or accesses a
quote or portfolio. Advertising revenues represented 56%, 59%, 68% and 74% of
our net revenues for the period from our inception (October 29, 1997) through
December 31, 1997 and the quarters ended March 31, June 30, and September 30,
1998, respectively.
Prior to January 1998, we used a third-party service to sell advertising on
our Web site. We are building a direct sales force, which, as of November 30,
1998, consisted of ten members. We believe that having an internal direct sales
force allows us to better understand and meet advertisers' needs, increase our
access to potential advertisers and maintain strong relationships with our
existing advertising clients. Our in-house sales staff includes experienced
Internet sales personnel as well as those from traditional media. The staff
develops and implements its advertising strategies by creating value-added
packages for advertisers from the wide range of news columns, editorial opinions
and other tools and information on the CBS.MarketWatch.com Web site, including
identifying strategic accounts and developing presentations and promotional
materials and building relationships with advertising buyers. DoubleClick
provides advertising management and delivery services for the
CBS.MarketWatch.com Web site and provides advertisers with reports describing
the delivery of their advertisements. See "Risk Factors -- Risks Related to Our
Industry -- Risks Associated with Web Advertising."
We currently derive, and expect to continue to derive, a substantial
majority of our revenue from advertising sales. We offer a variety of
advertising options that may be purchased individually or in packages such as
"run of site," targeted advertising and sponsorships. Currently we offer the
following advertising options on the CBS.MarketWatch.com Web site:
Run of Site. Run of site rotations are banner advertisements that rotate
on a random basis throughout the CBS.MarketWatch.com Web site, appealing to
advertisers seeking to establish general brand recognition across
MarketWatch.com's audience. Run of site rotations are typically sold in
blocks of 1,000 impressions and generally are sold with a minimum of
100,000 guaranteed impressions over the life of the advertising contract.
MarketWatch.com's current rate card CPM ranges from $25 to $35 depending on
length of contract and number of impressions purchased.
Targeted Advertising. Targeted advertisements are banner advertisements
that are displayed when a user browses through specific news and quote
pages, allowing advertisers to target users based on ticker symbols
requested or by specific areas of interest by advertising on particular
columns. Advertisers can also deliver their advertisements by region or
country, time of day, frequency of use, Internet Service Provider, type of
operating system or browser. Like run of site rotations, targeted
advertisements are sold in blocks of 1,000 impressions. Due to the greater
selectivity of the audience and because users typically spend more time on
news pages
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than on quote pages, MarketWatch.com's current rate card CPM for targeted
advertisements is generally higher than for run of site rotations,
generally ranging from $25 to $50. In order to enhance the effectiveness of
ad targeting, we are building a database of our registered users through an
email newsletter and securities portfolio tracking service.
Sponsorships. Sponsorships allow advertisers to gain maximum exposure on
the MarketWatch.com site by featuring "buttons" on certain pages. For
example, seven online brokerage services (Datek, DLJ Direct, First Trade,
Mr. Stock, ScoTTrade, Trading Direct and Web Street Securities) have
purchased premium sponsorship placements to gain fixed positions within the
CBS.MarketWatch.com Web site and thereby present a user with the
opportunity to move directly to the advertisers site to establish an
account or place an order. We offer other sponsorship opportunities
throughout our entire site. Sponsorships are typically sold for a fixed
monthly fee over the life of the contract and may include other advertising
components such as general rotation or targeted banner advertisements.
Content Sidebars. MarketWatch.com also offers fixed location bars, or
content sidebars, on selected high traffic pages to provide advertisers
with greater visibility in order to feature an advertiser's content,
information or tools. MarketWatch.com typically charges premium rates for
the placement of these content sidebars. Content sidebars can also be sold
as part of a sponsorship arrangement.
Historically, MarketWatch.com's advertisers have been from the technology
and financial services industry, but we have recently attracted advertisers from
brands outside of these industries, such as American Airlines, DeBeers, Ford,
Sprint, Toyota and Volvo. MarketWatch.com believes that attracting additional
advertisers from businesses outside of the financial and technology, and
industries will be important to our future success and revenue growth. See "Risk
Factors -- Risks Related to Our Business -- Dependence on Financial Industry
Advertisers." From November 1, 1997, through September 30, 1998, more than 75
organizations, including the following, have advertised on our Web site:
<TABLE>
<S> <C>
American Century Investments INVESTools, Inc.
American Express Co. Microsoft Corp.
AT&T Corp. Mr. Stock
Charles Schwab & Co., Inc. Northern Telecom Limited
Datek Online, Inc. Quick & Reilly, Inc. - SureTrade
Discover Brokerage Direct Scottsdale Securities, Inc.
Donaldson, Lufkin & Scudder Investor Services, Inc.
Jenrette - PC Financial Salomon Smith Barney Inc.
E*Trade Group, Inc. Stock Genie
Fidelity Investments Stocknetwork
First USA The Future Super Stock
Ford Motor Company TheStreet.com
Hewlett Packard Trading Direct
International Business Machines Corp. Trans World Airlines, Inc.
I-Cap Wall Street Access
Invesco Funds Group WYSE Securities - Pyramid Financial
InvestIn.Com Securities Corp.
</TABLE>
As of December 31, 1997, four customers comprised 53% of our gross accounts
receivable. As of September 30, 1998, one customer comprised 10% of our gross
accounts receivable balance.
STRATEGIC RELATIONSHIPS
We believe that our strategic relationships with our principal investors,
CBS and DBC, allow us to differentiate the CBS MarketWatch.com Web site as the
preeminent brand for real-time business news and financial programming on the
Web.
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CBS
License. In connection with the formation of the LLC, the LLC entered into
a five-year license agreement under which the Web site was renamed
"CBS.MarketWatch.com" and the LLC was granted the right to use the CBS name and
logo as well as CBS Television Network news content in connection with the
CBS.MarketWatch.com Web site during this period. This agreement, as it will be
amended and restated immediately prior to the effectiveness of this offering,
which we call the Amended and Restated License Agreement, will expire on October
29, 2005. Under the terms of the Amended and Restated License Agreement,
MarketWatch.com will pay CBS a percentage of Gross Revenues generated by the
CBS.MarketWatch.com Web site. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations." The Amended and Restated License
Agreement will be subject to termination in the event that competitors of CBS
acquire specified amounts of our Common Stock and in other events. See "Certain
Transactions" for descriptions of events which could cause a termination of this
agreement. Subject to certain limitations, CBS will provide the Company with an
aggregate rate card amount of $30 million of network television, radio and
Internet advertising and promotion through October 2002. Internet advertising
will be limited to five percent of the total promotion delivered. CBS could
terminate this advertising obligation if the Amended and Restated License
Agreement is terminated. See "Risk Factors -- Risks Related to Our Relationship
with CBS and DBC -- Dependence on CBS Relationship" and "Certain Transactions"
for a description of certain material risks associated with the Amended and
Restated License Agreement.
Reporting. We believe we can increase our brand awareness by providing
financial news reports for CBS News and CBS Radio. Our New York City-based
bureau is located in CBS facilities and frequently works with CBS News staff to
generate stories for distribution over the CBS broadcast networks. We have two
television correspondents who file daily reports on CBS Up-to-the-Minute
overnight programming and CBS Newspath, which supplies CBS News video to CBS
affiliated television stations for use in their news programs. There can be no
assurances that these services will continue in the future. Both correspondents
also file customized daily reports to major CBS affiliates via satellite links,
and contribute to the CBS Morning News. Our Editor-in-Chief, Thom Calandra,
files live weekday morning reports on KPIX-TV, the CBS owned television station
in San Francisco, and files reports with CBS in New York for CBS News. Our
correspondents often file reports on CBS Radio news programming, covering
breaking financial stories for the top-of-the-hour CBS Radio news report that is
broadcast over several hundred radio stations nationwide. In addition, Frank
Barnako, one of our reporters, does a twice-daily version of his Internet Daily
column for use by CBS Radio affiliates. All reports delivered by our
correspondents are identified as our reports. Our correspondents file these
reports or provide services to CBS through an understanding we have with CBS.
Non-Competition Provisions. The Amended and Restated License Agreement will
contain certain non-competition provisions. However, these provisions will have
certain exceptions and will not otherwise provide for an exclusive relationship.
As a result, there can be no assurance that CBS will not promote, establish or
otherwise provide content for a Web site or Internet service which competes with
the Company. See "Risk Factors -- Risks Related to Our Relationship with CBS and
DBC -- Potential Competition from CBS and DBC."
We are critically dependent on our relationship with CBS. See "Risk
Factors -- Risks Related to Our Relationship with CBS and DBC -- Dependence on
CBS Relationship," "-- Control by CBS and DBC," "Management" and "Certain
Transactions."
DBC
Initial Contribution. At our formation, DBC contributed certain assets
related to its DBC Online/News Business which had been operating as departments
within DBC since October 1995. In addition, DBC assigned agreements for
advertising and content, portions of its award-winning Web site, dbc.com, and
its related trademarks, including "MarketWatch" and the MarketWatch.com Internet
domain name.
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Data and hosting. DBC currently provides delayed financial data to
MarketWatch.com at no charge. It also provides real-time financial data to
MarketWatch.com for dissemination to subscribers of certain of MarketWatch.com
subscription services in exchange for a percentage of the subscription fee. In
addition, DBC hosts and manages the CBS.MarketWatch.com Web site infrastructure
and provides 24x7 network support.
General Services. DBC will also provide MarketWatch.com with certain
general services, including cash management, accounting services and human
resources services. MarketWatch.com will reimburse DBC for its actual costs of
providing these services.
Payments for News. Under the Amended and Restated Services Agreement, DBC
will also pay us a monthly per-subscriber fee for delivery of our news to all
DBC subscribers with a minimum payment of $100,000 per month.
Non-Competition Provisions. Through October 29, 2005, DBC will not be able
to
- sell advertising on a Web site that primarily delivers financial news and
stock quotes or
- use the Internet to sell, or authorize another to sell, real-time snap
quotes to individual subscribers.
Although the Stockholders' Agreement will contain certain non-competition
provisions, these provisions will have certain exceptions and do not provide for
an exclusive relationship. See "Risk Factors -- Risks Related to Our
Relationship with CBS and DBC -- Potential Competition from CBS and DBC,"
"-- Dependence on DBC Relationship" and "Certain Transactions."
MARKETING AND DISTRIBUTION
We are seeking to establish the MarketWatch.com brand as the Web's leading
provider of business and financial information. CBS will agree to provide the
CBS.MarketWatch.com Web site with promotion and advertising with an aggregate
rate card amount of $30 million through October 2002. This promotion and
advertising will be carried or disposed on CBS Television Network programming,
programming on CBS owned and operated television and radio stations and/or
banner advertising on CBS Web sites over the period from October 29, 1997,
through October 29, 2002. These advertising placements may take the form of 30,
15 or 10 second units, scrolls of the CBS.MarketWatch.com URL, on-air mentioning
of our Web site, banner advertising and/or in credit rolls or sign-offs, with
CBS having broad discretion as to the type and manner of placement. As of
September 30, 1998, CBS had delivered $4.9 million rate card amount of promotion
and advertising under this commitment. See "Risk Factors -- Risks Related to Our
Relationship with CBS and DBC -- Dependence on CBS Relationship."
CBS has displayed our MarketWatch.com logo and domain name on the CBS
Evening News with Dan Rather, CBS This Morning and on the news programming of
the CBS Television Network and many affiliated television stations. The logo is
usually displayed when business or financial news is covered during the
broadcast. When they occur, these promotional activities give the
CBS.MarketWatch.com Web site national promotion to the over 10.2 million people
who, according to recent national Nielsen Ratings for the television season
through August 1998, watch the CBS Evening News as well as the millions of
additional viewers of other CBS News broadcasts. CBS is not obligated to
continue to display our logo or domain name in this particular manner.
We use journalists' appearances on CBS Television and Radio news broadcasts
and on certain affiliate station broadcasts to highlight the CBS.MarketWatch.com
Web site and increase the association of the Web site with CBS. When making
appearances, our journalist is identified with the MarketWatch brand. The
CBS.MarketWatch.com Web site is also linked directly to the Web sites of CBS and
many of its affiliate television stations. Each time a user at these Web sites
clicks on the "Money" section he or she receives a graphic or story from the
CBS.MarketWatch.com Web site or one of its correspondents and a direct link to
the CBS.MarketWatch.com Web site.
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In addition to its CBS-related promotional activities, we advertise on a
number of heavily trafficked Web sites, such as Yahoo!, Lycos, Excite and Alta
Vista, and conduct a variety of other marketing and public relations programs.
These programs include paid advertisements in print publications and radio
broadcasts and participation in personal finance, online journalism and
Internet-related conferences. We intend to increase advertising and marketing
expenditures over their historical levels to continue to build awareness with
its audience. To this end, we launched a national brand building campaign and
intend to make substantial expenditures to advertise our brand and the
CBS.MarketWatch.com Web site in traditional and online media.
We have entered into a number of, and are aggressively pursuing additional,
distribution relationships to enhance our brand name recognition and audience
reach. Key distribution relationships include:
Yahoo! Inc. Yahoo! has agreed to index certain of the
CBS.MarketWatch.com news headlines in the Finance section of Yahoo! with
links to the CBS.MarketWatch.com Web site for the full story. In addition,
we will advertise on Yahoo! over the 12 month period following the closing
of this offering. We also have a content distribution relationship with
Yahoo! under which we will provide at no charge a version of its Market
Snapshot Report on a daily basis to registered users of the Investment
Challenge fantasy investment game on Yahoo!'s Finance section.
Quicken.com. Intuit has agreed to display certain of our news columns
and features in portions of its Quicken.com Web site. We will receive a
share of any revenues from the sale of advertising on the Quicken.com pages
which display this content.
Universal Feature Syndicate. In June 1998, we entered into an agreement
with Universal Feature Syndicate under which Universal Feature Syndicate
will market certain of the CBS.MarketWatch.com editorial features to
newspapers exclusively in North America and non-exclusively throughout the
world for syndication in print and electronic editions.
News Alert. In March 1998, we entered into an agreement with News Alert,
Inc. under which News Alert will provide certain third-party news feed
collection, databasing and display services for the CBS.MarketWatch.com Web
site. In addition, News Alert may also make certain of the
CBS.MarketWatch.com editorial content available as a news feed to certain
of News Alert's other customers.
Brand Label Quotes Pages. We also seek to increase our revenues and name
recognition by hosting co-branded financial information pages, or Brand
Label Quotes Pages, accessible to visitors of other companies' Web sites
who wish to retrieve market quotations and financial news. The presence of
links on the Brand Label Quotes Pages to relevant MarketWatch.com news
stories also helps drive traffic to the CBS.MarketWatch.com Web site. Web
sites with these Brand Label Quotes Pages include Web sites operated by
American Express Financial Direct, Callaway Golf, Cigar Aficionado, Conde
Naste's cnCurrency.com, Hoover's Inc., IPO Monitor, National Discount
Broker, Proctor & Gamble, Rocky Mountain News, Muriel Siebert & Co.,
SportsLine USA, and Wine Spectator, among others. Generally, the Company
may sell advertising on portions of, and receives hosting fees for these
pages. To date, revenues from these Brand Label Quotes Pages have
constituted less than 10% of our aggregate revenues.
We believe that distribution relationships of this type are important to
our continued growth and to increase our exposure to our target audience. We
intend to continue to aggressively pursue additional distribution relationships.
See "Risk Factors -- Risks Related to Our Business -- Need to Establish and
Maintain Strategic Relationships with Other Web sites."
SUBSCRIPTION SERVICES
While substantially all of the programming available on the
CBS.MarketWatch.com Web site is currently free of charge, the
CBS.MarketWatch.com Web site offers subscription-based financial data
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services which are targeted for sophisticated investors. These services are
currently created and provided by DBC on a non-exclusive basis under a revenue
sharing arrangement. See "-- Strategic Relationships." The Company is developing
and, in the future, intends to introduce additional subscription services, such
as exclusive news, commentary and analytic tools.
We act or will act as DBC's sales agent with respect to the following DBC
services in exchange for a fee for new subscribers obtained through the
CBS.MarketWatch.com Web site:
MarketWatch RT. MarketWatch RT is a browser-based, real-time financial data
service providing on demand real-time quotes from the American and New York
Stock Exchanges and NASDAQ. The service is available for a $34.95 monthly fee
which includes non-professional exchange fees of $12.50 for those three
exchanges. Premium research from Baseline is also available through this
service. DBC pays MarketWatch.com a monthly royalty for each subscriber. DBC
provides all customer and MIS support for this service. In August 1998, we began
marketing MarketWatch RT Wireless, a product for use with hand-held computing
devices such as Windows CE devices and Palm Pilots. In the future, we do not
expect to derive a material amount of revenue from this service.
MarketWatch LIVE. MarketWatch LIVE is a Windows-based, real-time financial
data service providing "streaming" real-time quotes over the Internet from all
major US equity and futures exchanges. The base fee for this product is $79 per
month. Premium research from Baseline is also available through this service.
DBC pays MarketWatch.com a monthly royalty on revenues derived from this
service. DBC provides all customer and MIS support for this service. In the
future, we do not expect to derive a material amount of revenue from this
service.
Our Web site also offers, for a fee, third party financial data and other
services through the Web site, such as Hoover's, Inc., which provides company
profiles, Zacks Inc., which provides company earnings estimates, and Baseline,
which provides company research reports. We receive a portion of the revenue
from the sale of these products or services through the CBS.MarketWatch.com Web
site. We do not currently and, in the future do not intend to, derive a material
amount of revenue from these services.
INFRASTRUCTURE, OPERATIONS AND TECHNOLOGY
The CBS.MarketWatch.com Web site is hosted at, and all of its network
operations are controlled from, DBC's facilities in Hayward, California. DBC
provides multiple Web servers which run Microsoft Windows and Microsoft NT
operating systems and use Microsoft Internet Information Server. Internet access
is maintained through multiple DS3 connections with three different tier one
ISPs, UUNET, Digex and MCI. The computer equipment used to operate the
CBS.MarketWatch.com Web site at DBC's facilities is powered by multiple
uninterruptible power supplies. Our operations are dependent upon our ability to
protect systems against damage from fire, earthquakes, power loss,
telecommunications failure, break-ins, computer viruses, hacker attacks and
other events beyond our control. Our insurance policies have low coverage limits
and therefore our insurance may not adequately compensate us for any losses that
may occur due to any failures or interruptions in our systems. DBC is also
developing a redundant network operations center in Salt Lake City, Utah.
However, we do not presently have a formal disaster recovery plan.
We are expanding our internal development group to create new, and enhance
existing, services, tools and features. For example, this group recently
developed a database portfolio application that, among other features, allows
users to track up to 200 ticker symbols each in multiple portfolios and view the
portfolio information through a secure connection. We are also developing an
advanced charting application which is designed to provide intraday ticker and
interval charts. We also utilize third-party technology for certain of its
services and tools. For example, we licensed news database technology to allow
users to search for news stories from multiple third-party sources by ticker
symbol, keyword and news source. We have also entered into an agreement with a
software development firm that will provide a new community application system,
with functionality such as message boards, chat and instant messaging. As of
September 30,
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1998, we had nine personnel dedicated to product and content development, and
for the nine months ended September 30, 1998, our product development
expenditures were $996,000.
Our market is characterized by rapidly changing technology, evolving
industry standards and frequent new product announcements. These are exacerbated
by the recent growth of the Web and the intense competition in our industry. To
be successful, we must adapt to our rapidly changing market by continually
improving the performance, features and reliability of our services. We could
also incur substantial costs if we need to modify our services or infrastructure
in order to adapt to these changes. Our business could be adversely affected if
we incurred significant costs without adequate results or cannot adapt to these
changes.
COMPETITION
The market for Internet services and products is relatively new, intensely
competitive and rapidly changing. The number of Web sites on the Internet
competing for consumers' attention and spending has proliferated and we expect
that competition will continue to intensify. We compete, directly and
indirectly, for advertisers, viewers, members and content providers with the
following categories of companies:
- publishers and distributors of traditional off-line media, such as
television, radio and print, including those targeted to business,
finance and investing needs, many of which have established or may
establish Web sites, such as The Wall Street Journal, CNN and CNBC;
- general purpose consumer online services such as America Online and
Microsoft Network, each of which provides access to financial and
business-related content and services;
- online services or Web sites targeted to business, finance and investing
needs, such as TheStreet.com and Motley Fool; and
- Web search and retrieval and other online services, such as Excite, Inc.,
InfoSeek Corporation, Lycos, Inc., Yahoo! Inc., and other high-traffic
Web sites, such as those operated by Netscape Communications Corporation,
which offer quotes, financial news and other programming and links to
other business and finance related Web sites.
We anticipate that the number of direct and indirect competitors will
increase in the future. This could result in price reductions for its
advertising, reduced margins, greater operating losses or loss of market share,
any of which would materially adversely affect our business, results of
operations and financial condition.
Although the Amended and Restated License Agreement and Stockholders'
Agreement will contain non-competition provisions, these provisions will have
certain exceptions. As a result, there can be no assurance that CBS or DBC will
not promote, establish or otherwise provide content for a competitive Web site
or Internet service. See "Risk Factors -- Risks Related to Our Relationship with
CBS and DBC -- Potential Competition from CBS and DBC" and "Certain
Transactions."
We believe our programming and content compete favorably with our
competitors, as many of them do not primarily provide real-time coverage by
experienced journalists. However, many of our existing competitors, as well as a
number of potential new competitors, have longer operating histories in the Web
market, greater name recognition, larger customer bases and higher amounts of
user traffic and significantly greater financial, technical and marketing
resources. Such competitors may be able to undertake more extensive marketing
campaigns, adopt more aggressive pricing policies, make more attractive offers
to potential employees, distribution partners, advertisers and content providers
and may be able to respond more quickly to new or emerging technologies and
changes in Web user requirements. Further, there can be no assurance that they
will not develop services that are equal or superior to ours or that achieve
greater market acceptance than our offerings. Increased competition could also
result in price reductions, reduced margins or loss of
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market share, any of which could materially adversely affect our business,
results of operations and financial condition.
The Web, and MarketWatch.com specifically, also must compete with
traditional advertising media, such as print, radio and television, for a share
of advertisers' total advertising budgets. Web companies and MarketWatch.com
would lose revenue if the Web is not perceived as an effective advertising
medium. As a result, there can be no assurance that we will be able to compete
successfully against its current or future competitors or that competition will
not have a material adverse effect on our business, results of operations and
financial condition. See "Risk Factors -- Risks Related to Our
Business -- Intense Competition for Web-Based Business and Financial Content."
INTELLECTUAL PROPERTY
We rely primarily on a combination of copyrights, trademarks, trade secret
laws, our user policy and restrictions on disclosure to protect our intellectual
property, such as our content, trademarks, trade names and trade secrets. We
also enter into confidentiality agreements with our employees and consultants,
and seek to control access to and distribution of our other proprietary
information. Despite these precautions, it may be possible for a third party to
copy or otherwise obtain and use the content on our Web site or our other
intellectual property without authorization. There can be no assurance that
these precautions will prevent misappropriation or infringement of our
intellectual property . A failure to protect our intellectual property in a
meaningful manner could have a material adverse effect on our business,
operating results and financial condition. In addition, we may need to engage in
litigation in order to enforce our intellectual property rights in the future or
to determine the validity and scope of the proprietary rights of others. Such
litigation could result in substantial costs and diversion of management and
other resources, either of which could have a material adverse effect on our
business, operating results and financial condition.
We license the CBS logo, name and certain news content from CBS pursuant to
the Amended and Restated License Agreement. This agreement could terminate in
certain circumstances and also involves a number of other risks. See "Risk
Factors -- Risks Relating to Our Relationships with CBS and DBC -- Dependence on
CBS Relationship."
We also use certain licensed third-party technology, such as software from
DoubleClick, and data and content from third parties. In these license
agreements, the licensors have generally agreed to defend, indemnify and hold us
harmless with respect to any claim by a third party that the licensed software
or content infringes any person's proprietary rights. There can be no assurance
that the outcome of any litigation between such licensors and a third party or
between us and a third party will not lead to royalty obligations for which we
are not indemnified or for which such indemnification is insufficient, or that
we will be able to obtain any additional license on commercially reasonable
terms if at all. In the future, we may seek to license additional technology or
content in order to enhance our current features or to introduce new services,
such as certain of the community features we may introduce. There can be no
assurance that any such licenses will be available on commercially reasonable
terms, if at all. The loss of or inability to obtain or maintain any of these
technology licenses could result in delays in introduction of new services until
equivalent technology, if available, is identified, licensed and integrated,
which could have a material adverse effect on our business, results of
operations and financial condition.
Because we license some data and content from third parties, our exposure
to copyright infringement actions may increase because we must rely upon such
third parties for information as to the origin and ownership of such licensed
content. We generally obtain representations as to the origins and ownership of
such licensed content and generally obtain indemnification to cover any breach
of any such representations. However, there can be no assurance that such
representations will be accurate or that such indemnification will be sufficient
to provide adequate compensation for any breach of such representations.
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There can be no assurance that infringement or other claims will not be
asserted or prosecuted against us in the future whether resulting from our
internally developed intellectual property or licenses or content from third
parties. Any future assertions or prosecutions could materially adversely affect
our business, results of operations and financial condition. Any such claims,
with or without merit, could be time-consuming, result in costly litigation and
diversion of technical and management personnel or require us to introduce new
content or trademarks, develop non-infringing technology or enter into royalty
or licensing agreements. Such royalty or licensing agreements, if required, may
not be available on acceptable terms, if at all. In the event of a successful
claim of infringement and our failure or inability to introduce new content or
trademarks, develop non-infringing technology or license the infringed or
similar technology on a timely basis, our business, results of operations and
financial condition could be materially adversely affected.
EMPLOYEES
As of November 30, 1998, there were 62 personnel dedicated full time to our
business, nine of these personnel worked in product and content development, 16
in sales and marketing, 28 in editorial and nine in administration. Such
personnel are currently on the payroll of DBC and are provided to us pursuant to
the Original Services Agreement with DBC. Effective as of the earlier of the
effective time of this offering or January 1, 1999, such personnel will become
our direct employees. We have never had a work stoppage and no personnel are
represented under collective bargaining agreements. We consider our employee
relations to be good.
We believe that our future success will depend in part on its continued
ability to attract, integrate, retain and motivate highly qualified sales,
technical, and managerial personnel, and upon the continued service of our
senior management and key sales and technical personnel. None of our personnel
is bound by an employment agreement that prevents such person from terminating
his or her relationship at any time for any reason. Competition for qualified
personnel is intense, particularly in the San Francisco Bay Area, where our
headquarters is located. At times we have experienced difficulties in attracting
new personnel. There can be no assurance that we will successfully attract,
integrate, retain and motivate a sufficient number of qualified personnel to
conduct our business in the future. See "Risk Factors -- Risks Related to Our
Business -- Need to Expand Our Business and Related Problems."
FACILITIES
Our principal administrative, sales, marketing and research development
facilities are located in approximately 11,000 square feet of office space in
San Francisco, California leased from CBS. See "Certain Transactions." We
believe that our current facilities will be adequate to meet our needs for the
foreseeable future. All of our communications and network infrastructure is
hosted at DBC's facilities in the San Francisco Bay Area, with a redundant site
in Salt Lake City, Utah. Any system failure at these locations could lead to
interruptions, delays or cessations in service to users of the
CBS.MarketWatch.com Web site, which could have a material adverse effect on our
business, results of operations and financial condition. See "Risk
Factors -- Risks Related to Our Relationship with CBS and DBC -- Dependence on
DBC Relationship" and "-- Risks Related to Our Business -- Risk of Increased
Users Straining Our Systems and Other System Malfunctions."
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information regarding the executive
officers and directors of MarketWatch.com:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Larry S. Kramer......................... 48 President, Chief Executive Officer and
Director
J. Peter Bardwick....................... 39 Chief Financial Officer and Secretary
Thom Calandra........................... 42 Editor-in-Chief and Vice President of
News
William Bishop.......................... 30 Vice President of Business Development
Scot McLernon........................... 41 Vice President of Advertising Sales
Michele Chaboudy........................ 51 Vice President of Marketing
James A. DePalma(2)..................... 48 Director
Alan J. Hirschfield(1).................. 63 Director
Allan R. Tessler........................ 62 Director
Mark F. Imperiale(2).................... 48 Director
Andrew Heyward(1)....................... 48 Director
Michael H. Jordan....................... 62 Director
</TABLE>
- ---------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
Mr. Kramer has served as President, Chief Executive Officer and a member of
the Board of Directors of MarketWatch.com since October 1997. From February 1994
until October 1997, Mr. Kramer served as Vice President for News and Sports of
DBC. In January 1991, Mr. Kramer co-founded DataSport Inc. ("DataSport"), a
developer of hand-held sports information monitors, and he served as DataSport's
President from its founding until February 1994, when DataSport was acquired by
DBC. Prior to founding DataSport, Mr. Kramer spent more than twenty years in
journalism, including serving as a financial reporter, Metro Editor and
Assistant Managing Editor of the Washington Post, and most recently serving as
Executive Editor of the San Francisco Examiner. He has been a recipient of
National Press Club, Gerald E. Leob and Associated Press Awards. During Mr.
Kramer's tenures at the Washington Post and the San Francisco Examiner, his
staffs at each paper won a Pulitzer Prize. Mr. Kramer serves as a member of the
Board of Directors of American Information Company, which conducts an auto
buying service under the name "Consumers Car Club" through its carclub.com Web
site. Mr. Kramer holds a B.S. degree in Journalism from Syracuse University and
an M.B.A. degree from the Harvard Business School.
Mr. Bardwick has served as Chief Financial Officer of MarketWatch.com since
June 1998. From June 1996 until June 1998, Mr. Bardwick was Managing Director of
Star Media Capital, a Dallas, Texas-based, boutique investment bank serving the
media and broadcasting industries. From April 1993 until December 1995, Mr.
Bardwick served first as Chief Financial Officer and Executive Vice President,
and then as a consultant to The Beasley Broadcasting Group, a national radio
broadcasting company. Mr. Bardwick previously was also Vice President, Finance,
for Westwood One, Inc., a producer of nationally syndicated radio news and
entertainment programming. (Westwood One is currently affiliated with CBS, but
was not during Mr. Bardwick's employment). He was a Vice President in Corporate
Finance with Salomon Brothers Inc and was with Citicorp Investment Bank prior to
that time. Mr. Bardwick holds a B.A. degree in Political Science from the
University of Michigan and an M.B.A. degree from the University of Michigan,
Graduate School of Business.
Mr. Calandra has served as Editor-in-Chief and Vice President of News of
MarketWatch.com since October 1997. He was Director of News with DBC from April
1996 until October 1997 and was
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a consultant to DBC from February 1996 until April 1996. From October 1995 until
January 1996, he served as Financial Editor with USA Today Online, the USA Today
newspaper's Web site. Mr. Calandra was employed by Bloomberg LP, a financial
news service, from January 1994 until September 1995, serving in its London
office and holding positions as the lead markets editor and European financial
columnist. From August 1988 until December 1993, he served as financial
columnist and business reporter with the San Francisco Examiner. Mr. Calandra
holds a B.A. degree in Arts from City University of New York and an M.A. degree
in English from the University of Arizona.
Mr. Bishop has served as Vice President of Business Development of
MarketWatch.com since the Company's formation in October 1997. From August 1995
until October 1997, Mr. Bishop was employed by DBC, most recently as Director of
DBC Online. From August 1993 until May 1995, Mr. Bishop attended the Johns
Hopkins University School of Advanced International Studies. Mr. Bishop holds a
B.A. degree in East Asian Studies from Middlebury College and an M.A. degree in
International Economics from John Hopkins University.
Mr. McLernon has served as Vice President of Advertising Sales of
MarketWatch.com since January 1998. From March 1997 until December 1997, he
served as National Director of Advertising Sales with Quote.com, Inc., a
financial news Web site operator. Mr. McLernon was also the National Director of
Internet Strategy with Softbank Interactive Marketing, a subsidiary of Softbank
Corp., a distributor and wholesaler of software and peripheral equipment for
PCs, from March 1996 until March 1997. From June 1994 until March 1996, he
served as Account Manager with Interactive Marketing. From May 1993 until June
1994 he was a sales consultant with Pacific Bell Interactive Services.
Ms. Chaboudy has served as Vice President of Marketing of MarketWatch.com
since May 1998. From January to May 1998, she was a consultant to
MarketWatch.com. From November 1997 until January 1998, she was an independent
marketing consultant. From March 1997 until November 1997, Ms. Chaboudy served
as a Director, responsible for marketing and business development, at the Wired
News division of Wired Digital Inc., a magazine publisher. From September 1996
until March 1997, she was a marketing consultant. From January 1996 until
September 1996, she served as the Senior Vice President for Marketing and Sales
for World Pages Inc., an Internet directory provider. From April 1995 until
December 1995, she was a Director of Urban & Associates, a consulting firm
serving the newspaper industry. Ms. Chaboudy served as Vice President of
Marketing for the Houston Post from May 1993 until April 1995. Ms. Chaboudy
holds a B.A. degree in History from DePauw University, an M.B.A. degree from
Pepperdine University and a Master's degree in Library & Information Sciences
from Indiana University.
Mr. DePalma has served as a member of the Board of Directors of
MarketWatch.com since November 1998. Mr. DePalma has served as Vice President,
Finance CBS Television Network since February 1998. From January 1995 until
February 1998, he was Vice President, Finance of CBS Corporation. Mr. DePalma
spent the prior 10 years as a partner with Coopers & Lybrand specializing in the
communications and broadcasting industries. Mr. DePalma holds a B.A. degree in
Accounting from Bentley College.
Mr. Hirschfield has served as a member of the Board of Directors of
MarketWatch.com since March 1998 and as Co-Chief Executive Officer and
Co-Chairman of the Board of Directors of DBC since June 1992. Prior to joining
DBC, Mr. Hirschfield served as Managing Director of Schroder Wertheim & Co., an
investment banking firm, and as a consultant to the entertainment and media
industry. He formerly served as Chief Executive Officer of Twentieth Century Fox
Film Corp. and Columbia Pictures Inc. from 1980 to 1985 and 1973 to 1978,
respectively. Mr. Hirschfield currently serves on the Boards of Directors of
Cantel Industries, Inc. and Chyron Corporation. Mr. Hirschfield holds a B.A.
degree in Finance from the University of Oklahoma and an M.B.A. degree from the
Harvard Business School.
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Mr. Tessler has served as a member of the Board of Directors of
MarketWatch.com since August 1998 and as Co-Chief Executive Officer and
Co-Chairman of the Board of DBC since June 1992. Mr. Tessler also serves as the
Chief Executive Officer and Chairman of International Financial Group, Inc., a
private merchant bank, Chairman of Enhance Financial Services Group, Inc., a
reinsurance and credit enhancement insurance firm and Jackpot Enterprises, Inc.,
a company that operates gaming machines in major chain stores in Nevada, and as
a member of the Boards of Directors of The Limited, Inc., Allis-Chalmers
Corporation, and Rhone Capital, LLC, and he is a Trustee of Cornell University.
Mr. Tessler holds a B.A. degree and a J.D. degree from Cornell University.
Mr. Imperiale has served as a member of the Board of Directors of
MarketWatch.com since October 1997. Mr. Imperiale was named President, Chief
Operating Officer and Chief Financial Officer of DBC in September 1996, having
served with that company as Executive Vice President and Chief Financial Officer
since July 1994. Mr. Imperiale was formerly Executive Vice President and Chief
Financial Officer of Ameriscribe Corporation ("Ameriscribe"), a facilities
management company from May 1992 through October 1993, when Ameriscribe was
acquired by Pitney Bowes Inc., and where he continued as a consultant through
December 1993. Mr. Imperiale spent the prior 10 years in the securities
industry, with Prudential Securities, Merrill Lynch, and First Boston
Corporation. Mr. Imperiale, a certified public accountant, worked with Arthur
Young & Company from 1973 to 1983 in the public accounting field. Mr. Imperiale
holds a B.A. degree and an M.B.A. degree from Rutgers University.
Mr. Heyward has served as a member of the Board of Directors of
MarketWatch.com since March 1998. Mr. Heyward has served as President of CBS
News since January 1996. From October 1994 until January 1996, he was Executive
Producer of "CBS Evening News with Dan Rather" and Vice President of CBS News.
From February 1993 until October 1994, Mr. Heyward served as Executive Producer
of the CBS News magazine "Eye to Eye With Connie Chung." Prior to that time, he
was responsible for developing CBS's "48 Hours" series. Mr. Heyward holds a B.A.
in History and Literature from Harvard University.
Mr. Jordan has served as a member of the Board of Directors of
MarketWatch.com since June 1998. Mr. Jordan has served as the Chairman and Chief
Executive Officer of CBS Corporation since June 1993. Mr. Jordan currently
serves on the Boards of Directors of Aetna Inc. and Dell Computer Corporation.
Mr. Jordan holds a B.S. degree from Yale University and an M.S. degree from
Princeton University. Mr. Jordan will retire from CBS Corporation effective
January 1, 1999.
Several members of our senior management joined us in 1998, including our
Vice President of Advertising Sales in January, Vice President of Marketing in
May and Chief Financial Officer in June. These individuals have not previously
worked together and are becoming integrated as a management team, and there can
be no assurance that they will be able to work together effectively or
successfully manage our growth. The Board of Directors of MarketWatch.com (the
"Board") will initially be comprised of seven directors. Directors are elected
by the stockholders of each annual meeting of stockholders or until their
successors are duly elected and qualified. Six of the initial directors will be
appointed pursuant to the provisions of the Stockholders' Agreement described in
"Certain Transactions." Each of CBS and DBC will have the right to designate for
election to the Board:
- three candidates, so long as it holds at least 30% of our outstanding
voting securities;
- two candidates, so long as it holds at least 20% but less than 30% of our
outstanding voting securities; or
- one candidate, so long as it holds at least 1% of our outstanding voting
securities.
So long as the Amended and Restated License Agreement remains in effect,
CBS will also have the right to nominate at least one candidate to our Board of
Directors, regardless of the number of our voting securities held by it. If the
size of the Board is increased, CBS and DBC will each have the right to nominate
a number of candidates to the Board based upon the percentage of our
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outstanding voting securities then held by them. In addition, each of CBS and
DBC will be obligated to vote the voting securities held by it for the other
party's designated candidates. See "Risk Factors -- Risks Related to Our
Relationship with CBS and DBC -- Control by CBS and DBC." All executive officers
are elected by, and serve at the discretion of, the Board.
BOARD COMMITTEES
The Audit Committee has the responsibility to review audited financial
statements and accounting practices of MarketWatch.com, and to consider and
recommend the employment of, and approve the fee arrangements with, independent
accountants for both audit functions and for advisory and other consulting
services. The Audit Committee is currently comprised of Messrs. Imperiale and
DePalma. The Compensation Committee reviews and approves the compensation and
benefits for our key executive officers, administers our employee benefit plans
and makes recommendations to the Board regarding such matters. The Compensation
Committee is currently comprised of Messrs. Heyward and Hirschfield.
DIRECTOR COMPENSATION
Directors are entitled to reimbursement of all reasonable out-of-pocket
expenses incurred in connection with their attendance at Board and Board
committee meetings. In October 1997, MarketWatch.com granted to Mr. Kramer a
non-plan option to purchase a membership interest in the LLC, which will
represent an option to purchase 200,000 shares of Common Stock, with an exercise
price per share of $4.00 after the Reorganization.
In September 1998, the Board adopted, subject to stockholder approval, the
1998 Directors Stock Option Plan (the "Directors Plan") and reserved a total of
50,000 shares of Common Stock for issuance thereunder. Members of the Board who
are not our employees or of any affiliated company are eligible to participate
in the Directors Plan. Option grants under the Directors Plan are automatic and
nondiscretionary. The exercise price of such options is the fair market value of
the Common Stock on the date of grant.
Each eligible director who first becomes a member of the Board on or after
the effective date of the Registration Statement of which this Prospectus forms
a part will be granted an option to purchase 10,000 shares. At each annual
meeting of stockholders, each eligible director will automatically be granted an
additional option to purchase 2,000 shares if he has served continuously as a
member of the Board since the date of such director's initial grant. The options
have 10 year terms. They will terminate seven months following the date the
director ceases to be a director or a consultant of MarketWatch.com, 12 months
if the termination is due to death or disability. All options granted under the
Directors Plan will vest as to 33 1/3% of the shares on each anniversary of the
option grant date. Additionally, immediately prior to the dissolution,
liquidation of MarketWatch.com or a "change in control" transaction, the vesting
of the options will accelerate and the options will be exercisable for a period
of up to seven months following the transaction. After that time any unexercised
options will expire.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to this offering, the Company's Board did not have a compensation
committee and all compensation decisions were made by the full Board. Mr. Kramer
did not participate in Board deliberations with respect to his compensation.
Upon completion of this offering, the Compensation Committee will make all
compensation decisions. No interlocking relationship exists between the Board or
Compensation Committee and the board of directors or compensation committee of
any other company, nor has any such interlocking relationship existed in the
past.
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EMPLOYMENT CONTRACTS AND CHANGE OF CONTROL ARRANGEMENTS
Pursuant to Messrs. Kramer and Bardwick's employee agreements, the vesting
of their stock options will be accelerated upon certain changes of control of
MarketWatch.com. See "Certain Transactions."
EXECUTIVE COMPENSATION
The following table sets forth certain summary information concerning the
compensation awarded to, earned by, or paid for services rendered to the
Predecessor Business and the Company in all capacities during the year ended
December 31, 1997, by our Chief Executive Officer. No other executive officer
who held office at December 31, 1997 received total annual compensation for
services rendered to the Predecessor Business and MarketWatch.com in excess of
$100,000 in 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
-------------------------------------- --------------
OTHER SECURITIES
ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION SALARY(1) BONUS COMPENSATION(2) OPTIONS (#)(3)
--------------------------- ---------- ------- --------------- --------------
<S> <C> <C> <C> <C>
Larry S. Kramer........................ $ 167,000 $50,000 $ 4,879 200,000
President and Chief Executive Officer
</TABLE>
- ---------------
(1) Scot McLernon, who joined MarketWatch.com in January 1998 as Vice President
of Advertising Sales, is compensated at an annual base salary of $95,000 and
is entitled to bonus compensation based on a percentage of our advertising
and sponsorship sales. Michele Chaboudy, who joined MarketWatch.com in May
1998 as Vice President of Marketing, is compensated at an annual salary of
$100,000. Mr. Bardwick, who joined MarketWatch.com in July 1998 as Chief
Financial Officer, is currently compensated at an annual rate of $200,000.
See "Certain Transactions."
(2) Represents health insurance premiums and contributions to the Data
Broadcasting Corporation 401(k) Profit Sharing Plan.
(3) All option grants were initially grants of options to purchase membership
interests in the LLC. The numbers in this column give effect to the
conversion of the LLC into a corporation, which will occur immediately prior
to the closing of this offering, as if such transaction had occurred prior
to January 1, 1997.
OPTION GRANTS IN FISCAL YEAR
The following table sets forth certain information regarding stock options
granted to our Chief Executive Officer during the year ended December 31, 1997.
All option grants were initially grants of options to purchase membership
interests in the LLC. The numbers in this table give effect to the
Reorganization which will occur immediately prior to the closing of this
offering as if such transaction had occurred prior to January 1, 1997.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1) POTENTIAL REALIZABLE
----------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF STOCK
SECURITIES PERCENT OF TOTAL PRICE APPRECIATION FOR
UNDERLYING OPTIONS GRANTED TO EXERCISE OPTION TERMS(2)
OPTIONS EMPLOYEES IN PRICE EXPIRATION -----------------------
NAME GRANTED(#) FISCAL YEAR(%)(3) PER SHARE(4) DATE 5% 10%
---- ---------- ------------------ ------------ ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Larry S. Kramer...... 200,000 44.8% $4.00 10/30/2007 $503,116 $1,274,994
</TABLE>
- ---------------
(1) Options granted in 1997 were granted outside of any plan. These options
become exercisable with respect to 33 1/3% of the shares subject to such
option on each anniversary of the grant date.
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These options have a term of ten years. See "-- Employee Benefit Plans" for
a description of the material terms of these options. In addition to the
option grants set forth in the above table:
- in January 1998, MarketWatch.com granted to Mr. McLernon an option to
purchase 75,000 shares of Common Stock at an exercise price of $8.00 per
share;
- in May 1998, MarketWatch.com granted to Ms. Chaboudy an option to
purchase 50,000 shares of Common Stock at an exercise price of $11.00 per
share; and
- in July 1998, MarketWatch.com granted to Mr. Bardwick an option to
purchase 100,000 shares of Common Stock at an exercise price of $4.00 per
share.
(2) Potential realizable value is based on the assumption that the Common Stock
of the Company appreciates at the annual rate shown, compounded annually,
from the date of grant until the expiration of the ten-year term. These
numbers are calculated based on Securities and Exchange Commission
requirements and do not reflect the Company's projection or estimate of
future stock price growth. Potential realizable values are computed by
- multiplying the number of shares of Common Stock subject to a given
option by the exercise price;
- assuming that the aggregate stock value derived from that calculation
compounds at the annual 5% or 10% rate shown in the table for the entire
ten-year term of the option; and
- subtracting from that result the aggregate option exercise price.
(3) MarketWatch.com granted options to purchase an aggregate of 446,250 shares
of Common Stock to all employees during 1997.
(4) Options were generally granted at an exercise price equal to the fair market
value of our Common Stock, as determined by the management committee of the
LLC. In determining the fair market value of our Common Stock on each grant
date, the Board considered, among other things, the value of assets
contributed to the Company from DBC, the Company's absolute and relative
levels of revenues and other operating results, the state of the Company's
Web site development, increases in operating expenses, the absence of a
public trading market for the Company's securities, the intensely
competitive nature of the Company's market and the appreciation of stock
values of a number of generally comparable Internet companies. See
"-- Director Compensation," "-- Employment Contracts and Change of Control
Arrangements" and "-- Employee Benefit Plans" for a description of the
material terms of these options.
FISCAL YEAR-END OPTION VALUES
The following table sets forth for our Chief Executive Officer the number
and year-end value of exercisable and unexercisable options for the year ended
December 31, 1997. All option grants were initially grants of options to
purchase membership interests in the LLC. The numbers in this table give effect
to the Reorganization which will occur immediately prior to the closing of this
offering as if such transaction had occurred during 1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS IN-THE-MONEY OPTIONS
AT DECEMBER 31, 1997(1) AT DECEMBER 31, 1997
----------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Larry S. Kramer.................. -- 200,000 $-- $800,000
</TABLE>
- ---------------
(1) Options shown are subject to vesting as described in footnote (1) to the
option grant table above. See "-- Employee Benefit Plans" for a description
of the material terms of these options.
No options were exercised during 1997 by the Chief Executive Officer or any
other executive officer of MarketWatch.com. No compensation intended to serve as
incentive for performance to occur over a period longer than one year was paid
pursuant to a long-term incentive plan during 1997 to the Chief Executive
Officer or any other executive officer of MarketWatch.com.
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MarketWatch.com does not have any defined benefit or actuarial plan under which
benefits are determined primarily by final compensation and years of service
with the Chief Executive Officer or any other executive officer of
MarketWatch.com.
EMPLOYEE BENEFIT PLANS
Since October 1997, MarketWatch.com has issued options to purchase
membership interests in the LLC. In connection with the Reorganization,
outstanding options will be assumed by MarketWatch.com and will represent the
right to purchase shares of Common Stock rather than membership interests of the
LLC. Each such option will be converted into an option to purchase Common Stock
based upon a ratio of 1,000 shares of Common Stock for each 0.01% membership
interest. The options to purchase LLC membership interests outstanding on
November 30, 1998 will be converted into options to purchase 863,500 shares of
Common Stock and they would have a weighted average exercise price of $6.25 per
share (assuming the Reorganization occurred as of such date). These options will
be subject to terms substantially similar to those described below with respect
to options to be granted under the 1998 Equity Incentive Plan described below.
Shares covered by any outstanding option that expires unexercised become
available again for grant under the 1998 Equity Incentive Plan described below.
1998 Equity Incentive Plan. In September 1998, the Board adopted, subject
to stockholder approval, the 1998 Equity Incentive Plan. The total number of
shares of Common Stock reserved for issuance thereunder is 636,500. The plan
will become effective on the date of this Prospectus. Shares will again be
available for issuance under the plan that:
- are subject to issuance upon exercise of an option granted prior to
adoption of the plan or under the plan that cease to be subject to such
option for any reason other than exercise of such option;
- have been issued pursuant to the exercise of an option granted under the
plan with respect to which our right of repurchase has not lapsed and are
subsequently repurchased by us;
- are subject to an award granted under the plan that are forfeited or are
repurchased by us; or
- are subject to stock bonuses granted under the plan that otherwise
terminate without shares being issued.
This plan will terminate in September, 2008, unless sooner terminated in
accordance with the terms of the plan.
The plan authorizes the award of options, restricted stock awards and stock
bonuses. No person can receive more than 400,000 shares in any calendar year
pursuant to awards under the plan. However, new employees can receive up to
500,000 shares in the calendar year in which such employee commences employment.
The plan will be administered by the Compensation Committee of the Board of
Directors. The committee has the authority to interpret the plan and any
agreement made thereunder, grant awards and make all other determinations to
administer the plan.
The plan provides for the grant of both incentive stock options, or ISOs,
that qualify under Section 422 of the Internal Revenue Code, and nonqualified
stock options or NQSOs. ISOs may be granted only to our employees or employees
of a parent or subsidiary. NQSOs and all other awards other than ISOs may be
granted to our employees, directors and other third parties who render services
to us or any parent or subsidiary that are not in connection with the offer and
sale of securities in a capital-raising transaction. The exercise price of ISOs
must be at least equal to the fair market value of the Common Stock on the date
of grant. The exercise price of NQSOs must be at least equal to 85% of the fair
market value of the Common Stock on the date of grant. Options granted under the
plan have a maximum term of 10 years. Awards granted under the plan may not be
transferred other than by will or by the laws of descent and distribution. They
generally must also be exercised during the lifetime of the optionee only by the
optionee.
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<PAGE> 55
Options granted under the plan generally expire three months after the
termination of the optionee's service, except in the case of death or
disability, in which case the options generally may be exercised up to 12 months
following the date of death or termination of service. Options will generally
terminate immediately upon termination for cause. If MarketWatch.com is
dissolved or liquidated or has a "change in control" transaction, outstanding
awards may be assumed or substituted by the successor corporation, if any. If a
successor corporation does not assume or substitute the awards, the Compensation
Committee may accelerate the vesting of the awards prior to the effectiveness of
the transaction.
401(k) Plan. Employees of MarketWatch.com participate in the Data
Broadcasting Corporation 401(k) Profit Sharing Plan, a defined contribution plan
intended to qualify under Section 401 of the Internal Revenue Code. All
personnel who have completed six consecutive months of service with
MarketWatch.com are eligible to participate and may enter the plan as of the
first day of January, April, July or October. Participants may make pre-tax
contributions to the plan of up to 15% of their eligible earnings, subject to a
statutorily prescribed annual limit. MarketWatch.com may make matching
contributions on a discretionary basis to the plan. Each Participant is fully
vested in his or her contributions, any matching contributions, and the
investment earnings thereon. Contributions by the participants or
MarketWatch.com, and the income earned on such contributions, are generally not
taxable to the participants until withdrawn. Contributions by MarketWatch.com,
if any, are generally deductible by MarketWatch.com when made. Contributions are
held in trust as required by law. Individual participants may direct the trustee
to invest their accounts in authorized investment alternatives. MarketWatch.com
made no matching contributions to the plan as of September 30, 1998.
MarketWatch.com intends to implement its own 401(k) Plan after this offering.
INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION OF LIABILITY
Our Amended and Restated Certificate of Incorporation includes a provision
that eliminates the personal liability of its directors for monetary damages for
breach of fiduciary duty as a director, except for liability
- for any breach of the director's duty of loyalty to MarketWatch.com or
its stockholders;
- for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- under the section 174 of the Delaware General Corporation Law regarding
unlawful dividends and stock purchases; or
- for any transaction from which the director derived an improper personal
benefit.
These provisions are permitted under Delaware law.
Our Bylaws provide that:
- we must indemnify our directors and officers to the fullest extent
permitted by Delaware law, subject to certain very limited exceptions;
- we may indemnify our other employees and agents to the same extent that
we indemnified our officers and directors, unless otherwise required by
law, our Amended and Restated Certificate of Incorporation, our Bylaws or
agreements; and
- we must advance expenses, as incurred, to our directors and executive
officers in connection with a legal proceeding to the fullest extent
permitted by Delaware Law, subject to certain very limited exceptions.
Prior to the completion of this offering, we intend to enter into
Indemnification Agreements with each of our directors and executive officers to
give them additional contractual assurances regarding the scope of the
indemnification described above and to provide additional procedural
protections. In addition, we intend to obtain directors' and officers' insurance
providing indemnifi
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<PAGE> 56
cation for our directors, officers and certain employees for certain
liabilities. We believe that these indemnification provisions and agreements are
necessary to attract and retain qualified directors and officers.
The limitation of liability and indemnification provisions in our Amended
and Restated Certificate of Incorporation and Bylaws may discourage stockholders
from bringing a lawsuit against directors for breach of their fiduciary duty.
They may also have the effect of reducing the likelihood or derivative
litigation against directors and officers, even though such an action, if
successful, might otherwise benefit us and our stockholders. Furthermore, a
stockholder's investment may be adversely affected to the extent we pay the
costs of settlement and damage awards against directors and officers pursuant to
these indemnification provisions.
At present, there is no pending litigation or proceeding involving any of
our directors, officers or employees regarding which indemnification is sought,
nor are we aware of any threatened litigation that may result in claims for
indemnification.
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<PAGE> 57
CERTAIN TRANSACTIONS
Since the inception of the Predecessor Business, there has not been, nor is
there currently proposed, any transaction or series of similar transactions to
which we were or will be a party in which the amount involved exceeded or will
exceed $60,000 and in which any director, executive officer, holder of more than
5% of our Common Stock or any member of the immediate family of any of the
foregoing persons had or will have a direct or indirect material interest other
the compensation agreements and other arrangements, which are described where
required in "Management," and the transactions described below. The agreements
described below are included as exhibits to the Registration Statement of which
this Prospectus forms a part.
FORMATION TRANSACTIONS
On October 29, 1997, CBS and DBC entered into a limited liability company
agreement and certain related agreements relating to the formation of the LLC.
LIMITED LIABILITY COMPANY AGREEMENT
CBS and DBC entered into a limited liability company agreement (the
"Limited Liability Company Agreement"). Each of CBS and DBC received a 50%
membership interest in the LLC in exchange for entering into the Limited
Liability Company Agreement and for their capital contributions under the
Contribution Agreement described below. DBC also agreed to loan the LLC until
October 2000, up to $5.0 million at an annual interest rate equal to The Chase
Manhattan National Bank's prime rate plus two percent. As of September 30, 1998,
the Company had borrowed approximately $3.0 million from DBC. Interest payments
to DBC during the nine months ended September 30, 1998 were $75,000. The Limited
Liability Company Agreement also contained provisions relating to, among other
things, the management of the LLC, allocations of profits and losses, transfer
restrictions and dispute resolution and covenants not to compete.
CONTRIBUTION AGREEMENT
Contemporaneously with the Limited Liability Company Agreement, CBS, DBC
and the LLC also entered into a Contribution Agreement (the "Contribution
Agreement"). Pursuant to the Contribution Agreement, CBS agreed to provide the
LLC with $50 million aggregate rate card amount advertising and promotion (the
"Advertising Commitment") over a period of five years over the CBS Television
Network, CBS owned and operated television and radio stations or on CBS Internet
sites, provided that no more than 5% of the total advertising could be on CBS
Internet sites. This commitment will be reduced to $30 million pursuant to the
Stockholders' Agreement. CBS exercised, and still holds, substantial control
over the allocation of the Advertising Commitment. DBC contributed to the LLC
all of its right, title and interest in certain assets relating to Online/ News
business as well as $1.0 million in cash. DBC also agreed to contribute an
additional $1.0 million to the LLC in October 1998, which obligation will
survive the conversion of our business form from a limited liability company
into a corporation.
ORIGINAL SERVICES AGREEMENT
Contemporaneously with the Limited Liability Company Agreement, DBC and the
LLC also entered into a Services Agreement, which we refer to as the "Original
Services Agreement," under which DBC provided us with a variety of support and
hosting services. Payments by the Company to DBC for these Services were $70,000
and $517,000 in 1997 and the nine months ended September 30, 1998, respectively.
DBC also agreed to pay MarketWatch.com a per subscriber fee for users of DBC's
PC-based and Quotrek subscribers of real-time quotes (the "Subscriber Payment").
Subscriber Payments to us by DBC under the Original Services Agreement were
$210,000 and $949,000 in 1997 and the nine months ended September 30, 1998,
respectively. From October 1997 through May 1998, DBC also provided us with
office space for our executive offices for no charge. DBC also pays us a fee
based upon net revenues from subscriptions to MarketWatch RT and
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MarketWatch LIVE (the "Real-Time Fees"). DBC paid us $16,000 and $117,000 in
1997 and the nine months ended September 30, 1998, respectively, as Real-Time
Fees. This agreement will be superseded and replaced by the Amended and Restated
Services Agreement described below.
ORIGINAL LICENSE AGREEMENT
Contemporaneously with the Limited Liability Company Agreement, CBS and the
LLC also entered into a License Agreement (the "Original License Agreement").
Under this agreement CBS granted the LLC a non-exclusive license to utilize the
CBS marks "CBS(R)" and the CBS "eye" design for use in connection with the
operation of the MarketWatch.com site. CBS also granted the LLC a license to use
current CBS Television News content related to business and financial news on
the MarketWatch.com site, excluding sponsorships. The LLC paid CBS a royalty
based on amounts received for advertising on the CBS.MarketWatch.com site. There
were no payments to CBS under the Original License Agreement in 1997. We accrued
$148,000 under the Original License Agreement for the nine months ended
September 30, 1998, respectively. This agreement will be superseded and replaced
by the Amended and Restated License Agreement described below.
REORGANIZATION TRANSACTIONS
CONVERSION OF LLC
Immediately prior to the closing of this offering, MarketWatch.com will
convert its business form to a corporation. The Reorganization will be effected
by merging the LLC into MarketWatch.com. In connection with the Reorganization,
the Limited Liability Company Agreement will terminate, except for certain
covenants that, by their terms, require performance after the termination of
such agreement, and each of DBC and CBS will receive 4,500,000 shares of Common
Stock in exchange for their membership interests in the LLC. Additionally, all
outstanding options to purchase membership interests in the LLC will be
converted into options to purchase Common Stock.
AMENDED AND RESTATED LICENSE AGREEMENT
Prior to the closing of this offering, we will enter into an Amended and
Restated License Agreement with CBS which will supersede and replace the
Original License Agreement.
Reasons for Amending and Restating the License. MarketWatch.com, CBS and
DBC agreed to amend the terms of the Original License Agreement because the
parties believed the terms of the existing agreement would be more appropriate
if the LLC remained as a private limited liability company owned equally by CBS
and DBC. MarketWatch.com believed that the royalty equal to 30% of advertising
revenues would help lead to higher gross margins, particularly if
MarketWatch.com received a substantial portion of its revenues from
non-sponsorship advertising. As part of the agreement to modify the royalty
rate, other terms of the relationship with CBS were amended, including extending
the term, modifying the amount of the CBS advertising commitment, and the
non-competition provisions.
Term. The term of the Amended Restated License Agreement will expire on
October 25, 2005.
Royalties. Under the Amended and Restated License Agreement, we will pay
CBS:
During 1998:
- 8% of Gross Revenues in excess of $1.0 million and up to and including
$51.0 million; and
- 6% of Gross Revenues in excess of $51.0 million.
During 1999:
- 8% of Gross Revenues in excess of $500,000 and up to and including
$50.5 million; and
- 6% of Gross Revenues in excess of $50.5 million.
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In subsequent years through October 29, 2005:
- 8% of Gross Revenues up to and including 50.0 million; and
- 6% of Gross Revenues in excess of 50.0 million.
Gross Revenues means gross operating revenues that are derived from an
Internet service or Web site that:
- provides information or services of a financial nature; or
- uses the CBS trademarks licensed to MarketWatch.com.
Gross Revenue excludes revenues from DBC, an amount equal to certain
commissions paid to sales representatives and an amount equal to certain
revenues attributable to an acquired company. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Control of Content by CBS. Under the Amended and Restated License
Agreement, CBS will retain significant editorial control over the use and
presentation of CBS television news content and the CBS logo. For example:
- we must conform to CBS's guidelines for the use of its trademarks;
- CBS has the right to approve all materials, such as marketing materials,
which include any CBS trademarks; and
- CBS has control over the visual and editorial presentation of its
television news content on the CBS.MarketWatch.com Web site.
As a result of these provisions, CBS will have the ability to prevent us
from displaying certain types of content on the CBS.MarketWatch.com Web site and
from producing materials, such as marketing materials, which it does not
approve. This control by CBS could prevent us from engaging in desired marketing
activities or from being perceived as an independent news organization, either
of which could adversely affect our brand awareness and brand name.
Termination if CBS Competitors Acquire Our Securities. CBS will be able to
terminate our right to use the CBS name, logo and news content in the event
that:
- a competitor of CBS directly or indirectly beneficially owns 15% or more
of our outstanding Common Stock or voting power of the Company; or
- if we issue to a CBS competitor or actively participate in the
acquisition by a CBS competitor a number of voting securities, such that
after the issuance(s), such CBS competitor beneficially owns 9% or more
of our voting securities.
Notwithstanding the foregoing, the mere acquisition by a CBS competitor of
an interest in DBC that causes a DBC Change of Control shall not be deemed to
constitute the acquisition of an ownership interest in MarketWatch.com in the
absence of other facts demonstrating ownership of an interest in
MarketWatch.com.
Other Grounds for Termination. The Amended and Restated License Agreement
will also be subject to termination if we:
- breach a material term or condition of the Amended and Restated License
Agreement;
- become insolvent or subject to bankruptcy or similar proceedings; or
- discontinue using the MarketWatch mark and does not establish a
substitute mark acceptable to CBS in its sole discretion.
Non-Competition Provisions. Under the terms of the Amended and Restated
License Agreement, CBS will not be permitted to license or authorize another to
license the use of the CBS logo or name to others in connection with promoting
any other Internet Service or Web site in the U.S. that
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has as its primary function and its principal theme and format the delivering of
comprehensive real-time or delayed stock market quotations and financial news in
the English language to consumers, which we refer to as a "Business Site." The
following activities would not be prohibited:
- licensing its logo or name to a Web site or Internet service that
delivers general news, sports or entertainment, with a financial news
segment or portion included;
- licensing its name or logo to a Web site or Internet service outside the
U.S.;
- licensing its name or logo to Web sites that provide stock price ticker
displays on the site;
- any activities of non-CBS owned television and radio station affiliates;
- any Internet services in which CBS has an interest prior to signing the
Amended and Restated License Agreement;
- any activity of Westwood One, Inc. if such activity does not produce a
substantial portion of its revenues from a Business Site; or
- any transmissions of any signal of any type by and if through CBS's cable
television operations.
As a result, if CBS were to license its name and logo to another Web site
or Internet service that delivers general news, sports or entertainment and that
also delivers financial news, such other Web site or service could be
competitive with our Web site.
Also, CBS will not be prohibited from licensing its news content to, or
investing in, another Web site or Internet service, regardless of the theme of
that Web site or Internet service. See "Risk Factors -- Risks Related to Our
Relationship with CBS and DBC -- Potential Competition from CBS and DBC."
AMENDED AND RESTATED SERVICES AGREEMENT
Prior to the closing of this offering, DBC and MarketWatch.com will enter
into an Amended and Restated Services Agreement which will supersede and replace
the Original Services Agreement.
Reasons for Amending the Services Agreement. MarketWatch.com, CBS and DBC
agreed to amend the terms of the Original Services Agreement to extend the term,
provide for agreed upon network performance standards, grant non-exclusive
licenses to use DBC's trademark and data feeds and to document other changes in
our relationship with DBC which were not previously memorialized so that
MarketWatch.com could operate the Web site when it became an independent entity.
There were no material changes to the economic terms of the Original Services
Agreement.
Services Provided. Under the Amended and Restated Services Agreement, DBC
will, upon request:
- provide us with any employees needed to operate our business;
- handle billing and collections for our subscription products;
- provide computer programming and engineering services;
- provide delayed commodities and stock data feeds as well as certain other
data feeds free of charge; and
- provide communications Web site hosting services pursuant to certain
performance standards.
These services will be provided at DBC's out-of-pocket cost. DBC will also
continue to pay MarketWatch.com the Subscriber Payments. The term of the Amended
and Restated Services Agreement will expire on October 29, 2005.
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Currently, DBC does not provide similar services to any other third party.
Non-Competition Provisions. The Amended and Restated Services Agreement
does not contain any exclusivity provisions or non-competition provisions. For
example, DBC could:
- provide Web sites hosting services to other Web sites;
- provide content or data to other Web sites including MarketWatch RT and
MarketWatch Live; or
- sell its services through other Web sites.
CREDIT AGREEMENT
Prior to the closing of this offering, MarketWatch.com and DBC will enter
into a Revolving Credit Agreement (the "Credit Agreement") in order to evidence
DBC's loan obligation under the Limited Liability Company Agreement. Under the
Credit Agreement, DBC will be obligated to loan MarketWatch.com up to $5.0
million through October 2000. Borrowings under the Credit Agreement will be
unsecured and bear interest at a rate equal to The Chase Manhattan National
Bank's prime rate plus two percent per annum and mature on October 29, 2000.
MarketWatch.com's previous borrowings from DBC will be included as indebtedness
outstanding under the Credit Agreement. As of September 30, 1998,
MarketWatch.com had outstanding indebtedness to DBC of $3,028,000.
STOCKHOLDERS' AGREEMENT
Prior to the closing of this offering, DBC, CBS and MarketWatch.com will
enter into a Stockholders' Agreement (the "Stockholders' Agreement").
CBS Advertising Commitment. The parties will agree to reduce the
Advertising Commitment provided for in the Contribution Agreement to an
aggregate rate card amount of $30 million during the period from October 29,
1997 through October 29, 2002 in return for a reduction in the percentage
royalty to be paid to CBS under the License Agreement. As of September 30, 1998,
CBS had delivered $4.9 million rate card amount of advertising and promotion to
us. This Advertising Commitment is subject to termination upon termination of
the Amended and Restated License Agreement, in which event, CBS shall make a
termination payment in the amount of $500,000 per month for each full calendar
month remaining from the termination through October 2002.
Board Members. The Stockholders' Agreement will also provide that each of
CBS and DBC will be entitled to nominate up to three members to our Board of
Directors, so long as it holds at 30%, two, so long as it holds at least 20% but
less than 30%, or one, so long as it holds at least 1%, of our outstanding
voting securities. So long as the Amended and Restated License Agreement is in
effect, CBS shall have the right to appoint at least one member to our Board of
Directors, regardless of its percentage ownership of our Common Stock. If the
size of the Board of Directors is increased, CBS and DBC will each have the
right to nominate a number of candidates to the Board of Directors based upon
the percentage of our outstanding voting securities then held by them.
Right of First Refusal. Pursuant to the Stockholders' Agreement, each of
CBS and DBC will have a right of first refusal in the event that either party
desires to sell any securities of the Company held by it to a third party. In
addition, each of CBS and DBC will have the right to purchase from us additional
shares of our Common Stock, other of our voting securities or securities
convertible into or exchangeable for such securities, which we call New
Securities, if we propose to issue New Securities. In such a case, they would be
able to purchase an amount, subject to certain limitations, necessary to
maintain its then current percentage ownership, not to exceed the party's
percentage ownership interest immediately after the closing of this offering.
See "Description of Capital Stock -- Rights of First Refusal."
Non Competition Provisions for DBC. DBC will agree, inter alia, that until
October 29, 2005 and subject to certain exceptions:
- it will not, nor will it authorize or permit another to, sell advertising
on any other Web site that has as its primary function and its principal
theme and format the delivering of
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comprehensive real-time or delayed stock quotations and financial news in
the English language to consumers; or
- it will not use the Internet to sell real-time stock-quotes in "snapshot"
form.
Therefore, DBC would be permitted to:
- sell advertising on a general news, sports or entertainment Web site with
a financial news segment;
- provide data or content to any other Web site, regardless of its theme so
long as it was not selling data and content that was real-time
snap-quotes;
- host any other Web site; or
- invest in any other Web site so long as it held less than 5% of any stock
or less than 10% of the indebtedness of that company.
If DBC did any of these, our business could be adversely affected. See
"Risk Factors -- Risks Related to Our Relationship with CBS and DBC -- Potential
Competition from CBS and DBC."
Our Non Competition Obligations. In addition, we will agree not, except
through DBC to sell any product or service that offers streaming real-time stock
price quotes. This obligation expires on October 29, 2005 or, at such earlier
time:
- as the Amended and Restated Services Agreement has terminated;
- upon the occurrence of a DBC Change of Control; or
- at such time as DBC shall hold less than 10% of our then-outstanding
Common Stock.
REGISTRATION RIGHTS AGREEMENT
CBS and DBC will have certain registration rights with respect to their
shares of Common Stock. See "Description of Capital Stock -- Registration
Rights."
OTHER RELATIONSHIPS WITH DBC
Pursuant to an August 1998 Insertion Order Form, DBC has agreed to purchase
approximately $225,000 of advertising from the Company in 1998 and approximately
$500,000 of advertising from the Company in each of 1999 and 2000. This
commitment may be terminated by DBC on 30 days' notice.
EMPLOYMENT RELATED AGREEMENTS
In October 1997, we granted Mr. Kramer an option to purchase 200,000 shares
of Common Stock at an exercise price of $4.00 per share. We also entered into an
employment agreement with Mr. Kramer effective July 1, 1998. Mr. Kramer's
employment agreement provides for a base salary of $210,000 from the effective
date through June 30, 1999, $225,000 through June 30, 2000, and $240,000 through
June 30, 2001. Mr. Kramer is also eligible to receive an annual bonus of up to
50% of his annual base salary. The employment agreement has a term of three
years.
In July 1998, Mr. Bardwick was granted an option to purchase 100,000 shares
of Common Stock at an exercise price of $4.00 per share. We also entered into an
employment agreement with Mr. Bardwick effective July 1, 1998. Mr. Bardwick's
employment agreement provides for a base salary of $200,000 from the effective
date through June 30, 1999, $210,000 through June 30, 2000, and $225,000 through
June 30, 2001. Mr. Bardwick is also eligible to receive an annual bonus of up to
50% of his annual base salary. The employment agreement has a term of three
years.
If Mr. Kramer or Mr. Bardwick's employment is terminated or if he resigns
because of a constructive termination, he will be entitled to receive:
- an amount equal to his then current base salary, payable in twelve
monthly installments; and
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- his stock options will vest as to an additional one-third of the shares
subject to the option.
A constructive termination means:
- a material change of position causing it to be of materially less stature
or responsibility;
- a salary reduction of more than 10%; or
- relocating his place of employment outside the San Francisco Bay Area.
If his employment is terminated without cause or if he resigns because of a
constructive termination within six months of a change of control, he will be
entitled to receive:
- a lump sum payment in the amount of his current base salary plus his
target bonus for the current year; and
- his options will vest as to an additional one-third of the shares subject
to the option.
A change of control means:
- the sale of substantially all of our assets to an entity other than
CBS or DBC; or
- any transaction or series of transactions that results in any person
other than CBS, DBC or other affiliated entities with us, owning more
than 50% of our voting power.
This lump sum would equal $300,000 based on Mr. Bardwick's current base
salary and $315,000 based on Mr. Kramer's base salary.
Ms. Chaboudy's employment offer letter of April 23, 1998 provides for an
initial annual base salary of $100,000. Ms. Chaboudy was also granted an option
to purchase 50,000 shares of Common Stock at an exercise price of $11.00 per
share. This option vests as to one-third of the shares subject to the option on
each anniversary of Ms. Chaboudy's employment start date.
Mr. McLernon's employment offer letter dated December 30, 1997 provided for
an initial base salary of $95,000. In addition, Mr. McLernon is entitled to
receive a commission in 1998 and 1999 in the amount of 3% of our advertising and
sponsorship sales and the Company has agreed to reimburse Mr. McLernon's
expenses, up to $15,000 per year, for working in San Francisco, California. We
agreed to renegotiate his compensation terms at the end of 1999 based on market
conditions and our operating projections. Mr. McLernon was also granted an
option to purchase 75,000 shares of Common Stock at a purchase price of $8.00.
This option vests as to one-third of the shares subject to the option on each
anniversary of Mr. McLernon's employment start date.
Mr. Calandra, our Vice President of News, receives an annual base salary of
$100,000 and in October 1997, received a grant of an option to purchase 75,000
shares of Common Stock at a purchase price of $4.00 per share. This option vests
as to one-third of the shares subject to the option on each anniversary of its
date of grant.
OFFICE LEASE
Since April 1, 1998, we occupied space in a CBS facility to house its
headquarters in San Francisco, California. We paid CBS a monthly rent of
approximately $6,000 for this space prior to September 1, 1998 for approximately
4,500 square feet. On August 27, 1998, we entered into a lease with CBS with
respect to an additional 7,000 square feet of space at the same facility and
this lease will expire in March 2003. We are obligated to pay monthly rent of
approximately $26,000 in the aggregate through the expiration date. We are also
obligated to pay its proportionate share of all electricity, heating,
ventilation and air conditioning costs for the leased premises.
We believe that the terms of each of the transactions described above,
taken as a whole, were no less favorable than we could have obtained from
unaffiliated third parties. All future transactions with our officers, directors
and principal stockholders and their affiliates will be approved by a majority
of the Board of Directors, including a majority of the independent and
disinterested outside directors.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of our Common Stock as of November 30, 1998 and as adjusted
to reflect the sale of the shares of Common Stock offered hereby by: (1) each
person who we know owns beneficially more than 5% of our Common Stock, (2) each
of our directors, (3) our Chief Executive Officer and (4) all of our executive
officers and directors as a group.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF COMMON STOCK
SHARES BENEFICIALLY OWNED(1)
BENEFICIALLY -------------------------------------
NAME OF BENEFICIAL OWNER OWNED BEFORE OFFERING AFTER OFFERING(2)
------------------------ ------------ --------------- ------------------
<S> <C> <C> <C>
CBS Broadcasting Inc.(3)..................... 4,500,000 50.0% 38.3%
Data Broadcasting Corporation(4)............. 4,500,000 50.0 38.3
Larry S. Kramer(5)........................... 66,667 * *
James A. DePalma............................. -- * *
Andrew Heyward............................... -- * *
Michael H. Jordan............................ -- * *
Alan J. Hirschfield.......................... -- * *
Allan R. Tessler............................. -- * *
Mark F. Imperiale............................ -- * *
All executive officers and directors as a
group (12 persons)(6)...................... 141,667 1.5 1.2
</TABLE>
- ---------------
* Represents beneficial ownership of less than 1%.
(1) Percentage ownership is based on 9,000,000 shares outstanding as of November
30, 1998 and also assumes that the conversion of MarketWatch.com from a
limited liability company into a corporation (which is to occur immediately
prior to the Closing of this Offering) had occurred as of such date. Shares
of Common Stock subject to options currently exercisable or exercisable
within 60 days of November 30, 1998 are deemed outstanding for the purpose
of computing the percentage ownership of the person holding such options but
are not deemed outstanding for computing the percentage ownership of any
other person. Unless otherwise indicated below, the persons and entities
named in the table have sole voting and sole investment power with respect
to all shares beneficially owned, subject to community property laws where
applicable.
(2) Assumes the Underwriters' over-allotment option is not exercised.
(3) The address for CBS is 51 West 52nd Street, New York, New York 10019.
(4) The address for DBC is 3955 Point Eden Way, Hayward, California 94545.
(5) Represents 66,667 shares issuable upon exercise of options exercisable
within 60 days of November 30, 1998.
(6) Represents 141,667 shares issuable upon exercise of options exercisable
within 60 days of November 30, 1998.
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DESCRIPTION OF CAPITAL STOCK
Immediately following the closing of this offering, our authorized capital
stock will consist of 30,000,000 shares of Common Stock, $0.01 par value per
share, and 5,000,000 shares of Preferred Stock, $0.01 par value per share. As of
November 30, 1998, assuming the conversion of our business form into a
corporation, and the simultaneous conversion of limited liability company
membership interests into shares of Common Stock, there were outstanding
9,000,000 shares of Common Stock, each with a par value of $0.01, held of record
by two stockholders, and outstanding options to purchase 863,500 shares of
Common Stock.
MarketWatch.com's Amended and Restated Certificate of Incorporation,
Bylaws, the Stockholders' Agreement and the Registration Rights Agreement
described below are included as exhibits to the Registration Statement of which
this Prospectus forms a part.
COMMON STOCK
Subject to preferences that may be applicable to any Preferred Stock
outstanding at the time, the holders of outstanding shares of Common Stock are
entitled to receive dividends out of assets legally available therefor at such
times and in such amounts as the Board from time to time may determine. Holders
of Common Stock are entitled to one vote for each share held on all matters
submitted to a vote of shareholders. Cumulative voting for the election of
directors is not authorized by MarketWatch.com's Certificate of Incorporation,
which means that the holders of a majority of the shares voted can elect all of
the directors then standing for election. The Common Stock is not entitled to
preemptive rights and is not subject to conversion or redemption. Upon
liquidation, dissolution or winding-up of, the assets legally available for
distribution to stockholders distributable ratably among the holders of the
Common Stock after payment of liquidation preferences, if any, on any
outstanding Preferred Stock and payment of other claims of creditors. Each
outstanding share of Common Stock is, and all shares of Common Stock to be
outstanding upon completion of this offering will be upon payment therefor, duly
and validly issued, fully paid and nonassessable.
PREFERRED STOCK
The Board is authorized, subject to any limitations prescribed by Delaware
law, to issue Preferred Stock in one or more series. The Board can fix the
rights, preferences and privileges of the shares of each series and any
qualifications, limitations or restrictions thereon.
The Board may authorize the issuance of Preferred Stock with voting or
conversion rights that could adversely affect the voting power or other rights
of the holders of Common Stock. The issuance of Preferred Stock, while providing
flexibility in connection with possible acquisitions and other corporate
purposes could, among other things, under certain circumstances, have the effect
of delaying, deferring or preventing a change in control of MarketWatch.com. We
have no current plan to issue any shares of Preferred Stock.
REGISTRATION RIGHTS
We will enter into a Registration Rights Agreement with CBS and DBC prior
to the closing of this offering. At any time after 180 days following the date
of this Prospectus, either of these companies may demand that we file a
registration statement under the Securities Act covering all or a portion of the
securities of MarketWatch.com held by either of them, their affiliates and their
permitted transferees. However, the securities to be registered must have a
reasonably anticipated aggregate public offering price of at least $3.0 million.
CBS and DBC can each effect two such demand registrations.
When we are eligible to utilize a Registration Statement on Form S-3 to
register an offering of our securities, CBS and DBC may request that we file a
registration statement on Form S-3, covering all or a portion of securities of
MarketWatch.com held by either of CBS, DBC, their affiliates and
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their permitted transferees, provided that there is a reasonably anticipated
aggregate public offering price of at least $1.0 million (a "S-3 Registration").
CBS and DBC each can request one S-3 Registration per year.
These registration rights will be subject to the Company's right to delay
the filing of a registration statement, not more than once in any 12-month
period, for not more than 120 days.
In addition, CBS and DBC will have certain "piggyback" registration rights.
If we propose to register any Common Stock under the Securities Act, other than
pursuant to the registration rights noted above, CBS and DBC may require us to
include all or a portion of their securities in such registration. However, the
managing underwriter, if any, of any such offering has certain rights to limit
the number of Registrable Securities proposed to be included in such
registration.
We would bear all registration expenses incurred in connection with these
registrations. Each of CBS and DBC would pay all underwriting discounts, selling
commissions and stock transfer taxes applicable to the sale of its securities.
The registration rights of CBS or DBC under the Registration Rights
Agreement will terminate when that company may sell all its shares in a
three-month period under Rule 144 promulgated under the Securities Act.
DBC CHANGE OF CONTROL
Under the terms of the Stockholders' Agreement, upon the occurrence of a
DBC Change of Control, CBS may, in its sole discretion within 45 days after the
occurrence of such DBC Change of Control, either:
- purchase all of the MarketWatch.com securities held by DBC at the "fair
market value" of the securities as of the date of the DBC Change of
Control; or
- require DBC, within 60 days, to place its securities in a trust managed
by an independent trustee reasonably satisfactory to CBS, which would
then dispose of the securities to persons who are not competitors of CBS
with a view to maximizing the sale price while disposing of such share as
promptly as reasonably practicable.
In either event, DBC would forfeit its Board representation. No such
trustee shall, vote any of the securities held by it without the prior written
consent of CBS. Any sales by such a trustee could have an adverse effect on the
market price of the Common Stock. There can be no assurance that in such event
CBS would elect either such option, if any.
A "DBC Change of Control" means the direct or indirect acquisition by a
competitor of CBS of:
- more than 30% of the outstanding Common Stock or securities representing
30% of the voting power of DBC; or
- substantially all of DBC's assets
in each case at a time when DBC or its affiliates own a number of shares of
Common Stock equal to or greater than 10% of the Common Stock outstanding
immediately after this offering.
Although DBC has advised us that it has no present plans or intentions to
effect a DBC Change of Control, DBC operates in a rapidly evolving industry and
there can be no assurance that it will not effect a change in control in the
future.
RIGHTS OF FIRST REFUSAL
If either CBS or DBC desires to sell any shares held by it to a
non-affiliated third party, the other party will have a right of first refusal
under the Stockholders' Agreement to purchase those shares from the other, on
the same terms as the party proposes to sell the shares to the third party. In
the event that the other party does not exercise this right of first refusal,
the party who originally
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proposed to transfer the shares will have 120 days or, in the case of a sale
pursuant to Rule 144 promulgated under the Securities Act, six weeks to
consummate the transfer, otherwise the rights of first refusal will be
reinstated.
The Stockholders' Agreement will also provide that in the event that we
propose to issue voting securities or securities convertible into or
exchangeable for Common Stock or other voting securities in the future, CBS and
DBC will have the right to purchase a number of securities from us on the same
terms in an amount necessary to maintain its percentage ownership of voting
securities, not to exceed a percentage equal to the percentage of the
outstanding voting securities held by such company upon the consummation of this
offering (the "Initial Percentage"). If we receive non-cash consideration for an
issuance, the purchase price for CBS and DBC will be a per share price equal to
the "fair market value" of the non-cash consideration.
This purchase right will not apply to issuances by MarketWatch.com of up
to:
- 1,500,000 shares in connection with incentive plans or employee stock
options; or
- 500,000 shares issuable for general corporate purposes.
If in the opinion of the underwriters of our first public offering
following this offering, the public trading market for our Common Stock would be
significantly adversely affected by the exercise of this purchase right, CBS and
DBC have the right to exercise the purchase right in connection with that
offering only to the extent required to maintain ownership of up to 25% of the
outstanding voting securities. The underwriters of that offering could allow a
higher percentage, if in their opinion that higher percentage would not,
significantly adversely affect such offering. Each of CBS and DBC would then
have the right in connection with the next issuance to exercise the purchase
right to purchase a number of additional securities in an amount necessary to
maintain its percentage ownership of the voting securities of it held
immediately prior to that public offering, not to exceed a percentage of the
outstanding voting securities of the Company equal to the Initial Percentage.
In addition, as a result of the purchase right and right of first refusal,
both CBS and DBC will have the ability to maintain collectively, ownership in
excess of 50% of our outstanding Common Stock; however, neither CBS nor DBC are
obligated to vote their shares in any manner, other than to vote for each
other's nominees to the Board of Directors or otherwise act collectively. These
rights could have the effect of delaying, deferring or preventing a change in
control of MarketWatch.com or to discourage bids for our Common Stock at a
premium over its market price.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law regulating corporate takeovers. This section prevents certain
Delaware corporations, from engaging, under certain circumstances, in a
"business combination," which includes a merger or sale of more than 10% of the
corporation's assets, with any "interested stockholder," or a stockholder who
owns 15% or more of the corporation's outstanding voting stock, as well as
affiliates and associates of any such persons, for three years following the
date that such stockholder became an "interested stockholder" unless:
- The transaction in which such stockholder became an "interested
stockholder" is approved by the Board of Directors prior to the date the
"interested stockholder" attained such status;
- upon consummation of the transaction that resulted in the stockholder's
becoming an "interested stockholder," the "interested stockholder" owned
at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced -- excluding those shares owned by persons
who are directors and also officers; or
- on or subsequent to such date the "business combination" is approved by
the Board of Directors and authorized at an annual or special meeting of
stockholders by the affirmative
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vote of at least two-thirds of the outstanding voting stock that is not
owned by the "interested stockholder."
Neither CBS nor DBC are subject to the restrictions imposed by this
statute. This statute could prohibit or delay mergers or other takeover or
change-in-control attempts with respect to MarketWatch.com and, accordingly, may
discourage attempts to acquire us.
Our Bylaws provide that any action required or permitted to be taken by our
stockholders at an annual meeting or special meeting may only be taken if it is
properly brought before such meeting. The Amended and Restated Certificate of
Incorporation and the Bylaws provide that special meetings of the stockholders
may only be called by the Chairman of the Board, the Chief Executive Officer,
the Board or by any stockholder holding at least 25% of the outstanding Common
Stock. Such provisions may have the effect of delaying or preventing a
change-in-control.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
Our Amended and Restated Certificate of Incorporation limits the liability
of directors to the fullest extent permitted by Delaware law. In addition, our
Amended and Restated Certificate of Incorporation and Bylaws provide that we
will indemnify directors and officers of the Company to the fullest extent
permitted by Delaware law. We intend to enter into separate indemnification
agreements with our directors and executive officers that provide such person
indemnification protection in the event the Amended and Restated Certificate of
Incorporation is subsequently amended.
Our Amended and Restated Certificate of Incorporation and Bylaws will
provide that we will indemnify officers and directors against losses that they
may incur in investigations and legal proceedings resulting from their services
to the Company, which may include services in connection with takeover defense
measures. Such provisions may have the effect of preventing changes in the
management.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for our Common Stock is ChaseMellon
Shareholder Services, LLC. Its address is 235 Montgomery Street, 23rd Floor, San
Francisco, California 94109, and its telephone number at this location is (415)
743-1444.
LISTING
We have applied to list our Common Stock on the Nasdaq National Market
under the trading symbol "MKTW."
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SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of our Common Stock in the public market could
adversely affect prevailing market prices of our Common Stock. Furthermore,
since no shares will be available for sale shortly after this offering because
of certain contractual and legal restrictions on resale described below, sales
of substantial amounts of Common Stock in the public market after these
restrictions lapse could adversely affect the prevailing market price and our
ability to raise equity capital in the future.
Upon completion of this offering, we will have outstanding an aggregate of
11,275,000 shares of our Common Stock, assuming no exercise of the Underwriters'
over-allotment option and no exercise of outstanding options. Of these shares,
all of the shares sold in this offering will be freely tradable without
restriction or further registration under the Securities Act, unless such shares
are purchased by "affiliates" as that term is defined in Rule 144 under the
Securities Act (the "Affiliates"). The remaining 9,000,000 shares of Common
Stock held by existing stockholders are "restricted securities" as that term is
defined in Rule 144 under the Securities Act. Restricted securities may be sold
in the public market only if registered or if they qualify for an exemption from
registration under Rule 144 or 701 promulgated under the Securities Act, which
rules are summarized below.
As a result of the contractual restrictions described below and the
provisions of Rule 144 and 701, the restricted securities will be available for
sale in the public market on the date which is one year from the date of the
effectiveness of the Reorganization, subject to the volume limitations and other
conditions of Rule 144. The shares could be available for resale immediately
upon the expiration of such 180-day period in the event of a favorable
interpretation by the Securities and Exchange Commission of certain provisions
of Rule 144.
Lock-Up Agreements
All of our officers, directors and stockholders have signed Lock-Up
Agreements under which they agreed not to transfer or dispose of, directly or
indirectly, any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for shares of Common Stock, for a period of 180 days
after the date of this Prospectus. Transfers or dispositions can be made sooner:
- with the prior written consent of BT Alex. Brown and Donaldson, Lufkin &
Jenrette Securities Corporation; or
- in the case of certain transfers upon a DBC Change of Control as provided
in the Stockholders' Agreement.
Rule 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, a person who has beneficially owned shares of our
Common Stock for at least one year would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of:
- 1% of the number of shares of Common Stock then outstanding, which will
equal approximately 112,750 shares immediately after this offering; or
- the average weekly trading volume of the Common Stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to such sale.
Sales under Rule 144 are also subject to certain manner of sale provisions
and notice requirements and to the availability of current public information
about us.
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Rule 144(k)
Under Rule 144(k), a person who is not deemed to have been one of our
Affiliates at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner other than an Affiliate, is
entitled to sell such shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144. Therefore,
unless otherwise restricted, "144(k) shares" may be sold immediately upon the
completion of this offering.
Rule 701
In general, under Rule 701 of the Securities Act as currently in effect,
any of our employees, consultants or advisors who purchases shares from us in
connection with a compensatory stock or option plan or other written agreement
is eligible to resell such shares 90 days after the effective date of this
offering in reliance on Rule 144, but without compliance with certain
restrictions, including the holding period, contained in Rule 144.
Registration Rights
Upon completion of this offering, the holders of 9,000,000 shares of our
Common Stock, or their transferees, will be entitled to certain rights with
respect to the registration of such shares under the Securities Act. See
"Description of Capital Stock -- Registration Rights." After such a
registration, these shares becoming freely tradable without restriction under
the Securities Act. Neither CBS nor DBC will have any obligation or other
restrictions on resale with respect to any of our securities, other than
restrictions imposed by Lock-Up Agreements described above, the Right of First
Refusal and applicable securities laws. Any sales of securities by these
stockholders could have a material adverse effect on the trading price of our
Common Stock.
Stock Options
Immediately after this offering, we intend to file a registration statement
under the Securities Act covering 1,500,000 shares of Common Stock reserved for
issuance under our 1998 Equity Incentive Plan and the Directors Stock Option
Plan and the shares reserved for issuance upon exercise of outstanding options.
As of November 30, 1998, options to purchase 863,500 shares of Common Stock were
issued and outstanding. Upon the expiration of the Lock-Up Agreements describe
above, at least 233,237 shares of Common Stock will be subject to vested options
(based on options outstanding as of November 30, 1998). Such registration
statement is expected to be filed and become effective as soon as practicable
after the effective date of this offering. Accordingly, shares registered under
such registration statement will, subject to vesting provisions and Rule 144
volume limitations applicable to our Affiliates, be available for sale in the
open market immediately after the 180-day Lock-Up Agreements expire.
69
<PAGE> 71
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement dated the
date hereof, the Underwriters named below, through their representatives BT
Alex. Brown Incorporated, Donaldson, Lufkin & Jenrette Securities Corporation,
Salomon Smith Barney Inc. and First Albany Corporation, have severally agreed to
purchase from MarketWatch.com the following respective numbers of shares of
Common Stock at the public offering price less the underwriting discounts and
commissions set forth on the cover page of this Prospectus.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
BT Alex. Brown Incorporated.................................
Donaldson, Lufkin & Jenrette Securities Corporation.........
Salomon Smith Barney Inc....................................
First Albany Corporation....................................
---------
Total............................................. 2,750,000
=========
</TABLE>
The underwriting agreement provides that the obligations of the several
Underwriters to purchase the shares of Common Stock offered hereby are subject
to certain conditions. The Underwriters are obligated to purchase all of the
shares of Common Stock offered hereby, other than those covered by the
overallotment option described below, if any of such shares are purchased.
The Underwriters propose to offer the shares of Common Stock to the public
at the public offering price set forth on the cover page of this Prospectus and
to certain dealers at a price that represents a concession not in excess of
$ per share under the public offering price. The Underwriters may
allow, and such dealers may re-allow, a concession not in excess of $
per share to certain other dealers. After the initial public offering, the
offering price and other selling terms may be changed by the representatives of
the Underwriters.
MarketWatch.com has granted to the Underwriters an option, exercisable not
later than 30 days after the date of this Prospectus, to purchase up to 412,500
additional shares of Common Stock at the public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus. The Underwriters may exercise such option only to cover
over-allotments made in connection with the sale of the Common Stock offered
hereby. To the extent that the Underwriters exercise such option, each of the
Underwriters will become obligated, subject to certain conditions, to purchase
approximately the same percentage of additional shares of Common Stock as the
number of shares of Common Stock to be purchased by it in the above table bears
to 2,750,000. MarketWatch.com will be obligated, pursuant to the option, to sell
such shares to the Underwriters to the extent the option is exercised. If any
additional shares of Common Stock are purchased, the Underwriters will offer
additional shares on the same terms as those on which the shares are being
offered.
MarketWatch.com has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act.
Each of MarketWatch.com's officers, directors and stockholders has agreed
not to offer, sell, contract to sell or otherwise dispose of, or enter into any
transaction which is designed to, or could be expected to, result in the
disposition of any portion of, any Common Stock for a period of 180 days after
the effective date of the registration statement of which this Prospectus is a
part without the prior written consent of BT Alex. Brown Incorporated and
Donaldson, Lufkin & Jenrette Securities Corporation. Such consent may be given
at any time without public notice. MarketWatch.com has entered into a similar
agreement, except that we may issue, and grant options
70
<PAGE> 72
or warrants to purchase, shares of Common Stock or any securities convertible
into, exercisable for or exchangeable for shares of Common Stock, pursuant to
the exercise of outstanding options and warrants and our issuance of options and
stock granted under the existing stock option and stock purchase plans. The
restrictions described in this paragraph do not apply to certain transfers of
shares of Common Stock upon a DBC Change of Control as provided in the
Stockholders' Agreement.
The representatives of the Underwriters have advised MarketWatch.com that
the Underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority.
In order to facilitate the offering of the Common Stock, the Underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
market price of the Common Stock. Specifically, the Underwriters may over-allot
shares of the Common Stock in connection with this offering, thereby creating a
short position in the Common Stock for their own account. Additionally, to cover
such over-allotments or to stabilize the market price of the Common Stock, the
Underwriters may bid for, and purchase, shares of the Common Stock in the open
market. Finally, the representatives, on behalf of the Underwriters, also may
reclaim selling concessions allowed to an Underwriter or dealer if the
underwriting syndicate repurchases shares distributed by that Underwriter or
dealer. Any of these activities may maintain the market price of our Common
Stock at a level above that which might otherwise prevail in the open market.
The Underwriters are not required to engage in these activities and, if
commenced, may end any of these activities at any time.
PRICING OF THIS OFFERING
Prior to this offering, there has been no public market for our Common
Stock. Consequently, the initial public offering price for our Common Stock will
be determined by negotiation among the Company and the representatives of the
Underwriters. Among the factors to be considered in determining the public
offering price will be:
- prevailing market conditions;
- MarketWatch.com's results of operations in recent periods;
- the present stage of our development;
- the market capitalizations and stages of development of other companies
which MarketWatch.com the representatives of the Underwriters believe to
be comparable to us; and
- estimates of MarketWatch.com's business potential.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for us by Fenwick & West LLP, Palo Alto, California. Certain legal matters
in connection with this offering will be passed upon for the Underwriters by
Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP, Menlo Park,
California.
EXPERTS
The financial statements of MarketWatch.com, Inc. as of December 31, 1997
and June 30, 1998 and for the period from inception (October 29, 1997) through
December 31, 1997 and for the six months ended June 30, 1998 included in this
Prospectus have been so included in reliance upon the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The financial statements of the DBC Online/News Business as of October 28,
1997 and December 31, 1996 and for the period from inception (October 1, 1995)
through December 31,
71
<PAGE> 73
1995, for the year end December 31, 1996 and for the period from January 1, 1997
through October 28, 1997 included in this Prospectus have been so included in
reliance upon the report of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
We filed with the Securities and Exchange Commission (the "Commission") a
Registration Statement on Form S-1 under the Securities Act with respect to the
shares of Common Stock offered hereby. This Prospectus does not contain all of
the information set forth in the Registration Statement and the exhibits and
schedule filed therewith. For further information with respect to
MarketWatch.com and the Common Stock offered hereby, reference is made to the
Registration Statement and the exhibits and schedule filed therewith. Statements
contained in this Prospectus regarding the contents of any contract or any other
document to which reference is made are not necessarily complete, and, in each
instance, reference is made to the copy of such contract or other document filed
as an exhibit to the Registration Statement, each such statement being qualified
in all respects by such reference. A copy of the Registration Statement and the
exhibits and schedule filed therewith may be inspected without charge at the
public reference facilities maintained by the Commission in Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices
located at the Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New
York 10048, and copies of all or any part of the Registration Statement may be
obtained from such offices upon the payment of the fees prescribed by the
Commission. The Commission maintains a World Wide Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. The address of the
site is http://www.sec.gov.
72
<PAGE> 74
MARKETWATCH.COM, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-2
Balance Sheet............................................... F-3
Statement of Operations..................................... F-4
Statement of Stockholders' Equity (Deficit)................. F-5
Statement of Cash Flows..................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
DBC ONLINE/NEWS BUSINESS
(PREDECESSOR BUSINESS)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-18
Balance Sheet............................................... F-19
Statement of Operations and Changes in Owner's Net
Deficit................................................... F-20
Statement of Cash Flows..................................... F-21
Notes to Financial Statements............................... F-22
</TABLE>
F-1
<PAGE> 75
REPORT OF INDEPENDENT ACCOUNTANTS
The reorganization of the limited liability company into a corporation as
described in Notes 4, 5 and 8 has not been consummated at October 6, 1998. In
addition, the execution of a Stockholders' Agreement, an Amended and Restated
License Agreement, an Amended and Restated Services Agreement, a Registration
Rights Agreement, and a Revolving Credit Agreement described in Notes 1 and 8
have not been consummated at October 6, 1998. The Company, CBS and DBC, as
appropriate, have reached an agreement in principle that all such agreements and
the reorganization will occur immediately prior to the initial public offering
of Common Stock of MarketWatch.com, Inc. When such reorganization and agreements
have been consummated, we will be able to furnish the following report:
"To the Board of Directors and Stockholders
of MarketWatch.com, Inc.
In our opinion, the accompanying balance sheet and the related
statements of operations, of stockholders' equity (deficit) and of cash
flows present fairly, in all material respects, the financial position of
MarketWatch.com, Inc. at December 31, 1997 and June 30, 1998, and the
results of its operations and its cash flows for the period from inception
(October 29, 1997) through December 31, 1997 and the six months ended June
30, 1998 in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above."
PricewaterhouseCoopers LLP
San Jose, California
September 17, 1998
F-2
<PAGE> 76
MARKETWATCH.COM, INC.
BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, SEPTEMBER 30,
1997 1998 1998
------------ ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Current:
Cash.............................................. $ -- $ 628,000 $ 65,000
Accounts receivable, net of allowances for
doubtful accounts of $10,000, $120,000 and
$149,000, respectively......................... 224,000 797,000 1,038,000
Prepaid expenses.................................. -- 20,000 23,000
----------- ----------- -----------
Total current assets...................... 224,000 1,445,000 1,126,000
Property and equipment, net......................... 13,000 623,000 781,000
Deferred offering costs............................. -- 172,000 1,059,000
----------- ----------- -----------
$ 237,000 $ 2,240,000 $ 2,966,000
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current:
Accounts payable.................................. $ -- $ 766,000 $ 1,145,000
Accrued expenses.................................. 75,000 75,000 835,000
Deferred revenue.................................. 10,000 13,000 12,000
Advances from DBC................................. -- 1,539,000 3,028,000
----------- ----------- -----------
Total current liabilities................. 85,000 2,393,000 5,020,000
----------- ----------- -----------
Commitments (Note 6)
Stockholders' equity (deficit):
Preferred stock, $.01 par value; 5,000,000 shares
authorized; no shares issued and outstanding... -- -- --
Common stock, $.01 par value; 30,000,000 shares
authorized; 9,000,000 shares issued and
outstanding.................................... 90,000 90,000 90,000
Additional paid-in capital........................ 1,925,000 3,476,000 5,093,000
Deferred compensation............................. -- (285,000) (1,259,000)
Contribution receivable........................... (1,782,000) (1,000,000) (1,000,000)
Accumulated deficit............................... (81,000) (2,434,000) (4,978,000)
----------- ----------- -----------
Total stockholders' equity (deficit)...... 152,000 (153,000) (2,054,000)
----------- ----------- -----------
$ 237,000 $ 2,240,000 $ 2,966,000
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 77
MARKETWATCH.COM, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
INCEPTION
(OCTOBER 29, 1997) SIX MONTHS NINE MONTHS
THROUGH ENDED ENDED
DECEMBER 31, JUNE 30, SEPTEMBER 30,
1997 1998 1998
------------------ ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Net revenues:
Advertising (including $108,000 from
DBC for the nine months ended September 30,
1998)...................................... $ 320,000 $ 1,728,000 $ 3,054,000
News to DBC................................... 210,000 627,000 949,000
Subscription.................................. 100,000 340,000 491,000
---------- ----------- -------------
Total net revenues.................... 630,000 2,695,000 4,494,000
Cost of revenues................................ 148,000 955,000 1,828,000
---------- ----------- -------------
Gross profit.................................... 482,000 1,740,000 2,666,000
---------- ----------- -------------
Operating expenses:
Product development........................... 186,000 590,000 996,000
General and administrative.................... 248,000 1,263,000 2,131,000
Sales and marketing........................... 129,000 2,219,000 4,361,000
---------- ----------- -------------
Total operating expenses.............. 563,000 4,072,000 7,488,000
---------- ----------- -------------
Operating loss.................................. (81,000) (2,332,000) (4,822,000)
Interest expense................................ -- (21,000) (75,000)
---------- ----------- -------------
Net loss........................................ $ (81,000) $(2,353,000) $ (4,897,000)
========== =========== =============
Basic and diluted net loss per share............ $ (0.01) $ (0.26) $ (0.54)
========== =========== =============
Shares used in the calculation of basic and
diluted net loss per share.................... 9,000,000 9,000,000 9,000,000
========== =========== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 78
MARKETWATCH.COM, INC.
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK
--------------------- ADDITIONAL
PAR VALUE PAID-IN DEFERRED CONTRIBUTION ACCUMULATED
SHARES AMOUNT CAPITAL COMPENSATION RECEIVABLE DEFICIT TOTAL
--------- --------- ---------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Capital contribution
receivable from DBC
upon formation (Note
1)................... -- $ -- $2,000,000 $ -- $(2,000,000) $ -- $ --
Issuance of shares to
DBC and CBS at
formation (Note 1)... 9,000,000 90,000 (90,000) -- -- -- --
Cash contribution
received from DBC.... -- -- -- -- 218,000 -- 218,000
Fair value of services
provided by DBC to
the Company.......... -- -- 15,000 -- -- -- 15,000
Net loss............... -- -- -- -- -- (81,000) (81,000)
--------- ------- ---------- ----------- ----------- ----------- -----------
Balance at December 31,
1997................. 9,000,000 90,000 1,925,000 -- (1,782,000) (81,000) 152,000
Cash contribution
received from DBC.... -- -- -- -- 782,000 -- 782,000
Issuance of
compensatory stock
options to
employees............ -- -- 303,000 (303,000) -- -- --
Amortization of
deferred
compensation......... -- -- -- 18,000 -- -- 18,000
Fair value of services
provided by DBC to
the Company.......... -- -- 50,000 -- -- -- 50,000
Fair value of services
provided by CBS to
the Company.......... -- -- 1,198,000 -- -- -- 1,198,000
Net loss............... -- -- -- -- -- (2,353,000) (2,353,000)
--------- ------- ---------- ----------- ----------- ----------- -----------
Balance at June 30,
1998................. 9,000,000 90,000 3,476,000 (285,000) (1,000,000) (2,434,000) (153,000)
Issuance of
compensatory stock
options to employees
(unaudited).......... -- -- 1,087,000 (1,087,000) -- -- --
Amortization of
deferred compensation
(unaudited).......... -- -- -- 113,000 -- -- 113,000
Fair value of services
provided by CBS to
the Company
(unaudited).......... -- -- 530,000 -- -- -- 530,000
Net loss (unaudited)... -- -- -- -- -- (2,544,000) (2,544,000)
--------- ------- ---------- ----------- ----------- ----------- -----------
Balance at September
30, 1998
(unaudited).......... 9,000,000 $90,000 $5,093,000 $(1,259,000) $(1,000,000) $(4,978,000) $(2,054,000)
========= ======= ========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 79
MARKETWATCH.COM, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
INCEPTION
(OCTOBER 29, NINE
1997) SIX MONTHS MONTHS
THROUGH ENDED ENDED
DECEMBER 31, JUNE 30, SEPTEMBER 30,
1997 1998 1998
-------------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows used in operating activities:
Net loss............................................ $ (81,000) $(2,353,000) $(4,897,000)
Adjustments to reconcile net loss to net cash used
in operating activities:
Provision for bad debt expense.................. 10,000 110,000 139,000
Depreciation and amortization................... -- 53,000 254,000
Noncash charges from stockholders............... 15,000 1,248,000 1,778,000
Changes in operating assets and liabilities:
Accounts receivable.......................... (234,000) (683,000) (953,000)
Prepaid expenses............................. -- (20,000) (23,000)
Deferred offering costs...................... -- (172,000) (1,059,000)
Accounts payable and accrued expenses........ 75,000 766,000 1,903,000
Deferred revenue............................. 10,000 3,000 2,000
---------- ----------- -----------
Net cash used in operating activities...... (205,000) (1,048,000) (2,856,000)
---------- ----------- -----------
Cash flows used in investing activities:
Purchase of property and equipment.................. (13,000) (645,000) (889,000)
---------- ----------- -----------
Cash flows provided by financing activities:
Contributions from DBC.............................. 218,000 782,000 782,000
Advances from DBC (Note 7).......................... -- 1,539,000 3,028,000
---------- ----------- -----------
Net cash provided by financing
activities............................... 218,000 2,321,000 3,810,000
---------- ----------- -----------
Net change in cash.................................... -- 628,000 65,000
Cash at beginning of period........................... -- -- --
---------- ----------- -----------
Cash at end of period................................. $ -- $ 628,000 $ 65,000
========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 80
MARKETWATCH.COM, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION AND NATURE OF BUSINESS:
THE COMPANY
MarketWatch.com, Inc. (the "Company"), a leading Web-based provider of
comprehensive, real-time, business news, financial programming and analytic
tools, was formed on October 29, 1997 in the state of Delaware as a limited
liability company and is jointly owned by Data Broadcasting Corporation ("DBC")
and CBS Broadcasting Inc. ("CBS") (collectively, the "Members"), with each
Member owning 50% of the Company. The operations of the Company are governed by
a limited liability company agreement dated October 29, 1997 (the "LLC
Agreement"). The Company's Web site, CBS.MarketWatch.com, delivers a wide range
of financial news and information, including real-time and delayed market prices
of stocks, bonds, options and mutual funds and original news and commentary from
financial and market analysts, economists and reporters, all of which is
available to viewers. However, certain proprietary information and real-time
market prices are available only through subscriptions to MarketWatch RT and
MarketWatch Live products. In September 1998, the Company's Board of Directors
approved the reorganization of the limited liability company into a corporation.
All share and per share data have been retroactively adjusted to reflect the
reorganization, which will take effect immediately prior to the closing of the
Company's initial public offering of Common Stock ("IPO") (See Note 8).
In connection with the formation of the limited liability company, the
Company, CBS and DBC entered into a contribution agreement on October 29, 1997
(the "Contribution Agreement"), under which DBC is required to contribute to the
Company $1.0 million in cash upon consummation of the Contribution Agreement,
$1.0 million in cash on October 29, 1998 and DBC's existing "Online/News"
business which primarily consists of customer contracts and intellectual
property in return for its ownership position. CBS will provide $$50 million of
rate card amount advertising and promotions over a period of five years in
return for its ownership position (See Note 8).
In addition, CBS and the Company have entered into a license agreement
dated October 29, 1997 (the "License Agreement") where CBS, in exchange for 30%
of net advertising revenue, as defined, has granted to the Company the
non-exclusive right and license to use certain CBS news content and registered
trademarks, including the CBS "Eye" design, for five years ending October 29,
2002, subject to termination on the occurrence of certain events. In addition to
the agreements above, the Company entered into a services agreement with DBC
(the "Services Agreement"). Under the terms of the Services Agreement, DBC
charges the Company for certain general services, the Company receives payment
from DBC for supplying news and the Company receives a fee for licensing
MarketWatch RT and MarketWatch Live, respectively (See Notes 7 and 8).
Immediately prior to the closing of its IPO, the Company will enter into
Amended and Restated Services and License Agreements, a Registration Rights
Agreement and a Revolving Credit Agreement. (See Note 8).
ACCOUNTING FOR THE INITIAL CAPITALIZATION OF THE COMPANY
The Company has recorded DBC's equity contributions under the Contribution
Agreement at the value of the cash contributed. DBC's contribution of the
intellectual property of the Online/ News business has been recorded at its
historical carrying amount, which is zero. DBC contributed none of the tangible
assets or liabilities of the Online/News business; only intellectual property.
The Company has recorded the contribution of the Online/News business at its
historical carrying amount since the fair value of the business is not
objectively determinable by a corresponding contribution of monetary assets by
CBS.
F-7
<PAGE> 81
MARKETWATCH.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
As described above, CBS has committed to provide advertising and promotions
over a five-year period in return for its ownership position. The Company will
record the advertising and promotions as capital contributions and expense based
on fair value at the time the advertising and promotion is provided. The Company
has not recorded a value for the commitment at the formation of the venture
since the fair value of the advertising and promotion commitment is not readily
determinable at the date of formation (See Note 7).
NEED FOR FUTURE CAPITAL AND INITIAL PUBLIC OFFERING
The Company has sustained losses and negative cash flows from operations
since inception and expects these conditions to continue for the foreseeable
future. As of September 30, 1998, the Company has an accumulated deficit of
$4,979,000. The implementation of the Company's business plan is dependent on
obtaining additional financing through public or private financing, strategic
relationships or other arrangements. There can be no assurance that such
additional financing will be available on terms attractive to the Company, or at
all. Should additional financing not be available, management believes that the
Company's current growth plans would be curtailed and sufficient funds would be
available from operations and commitments with DBC and CBS to enable the Company
to continue operations through 1999.
In September 1998, the Board of Directors authorized the Company to proceed
with the IPO.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Revenue recognition
The Company generates its revenues from three primary sources: the sale of
advertising on the Company's Web site, subscriptions to premium services
available through the Web site and the sale of news to DBC.
Advertising revenue, derived from the sale of banner advertisements and
sponsorships on the Company's Web site, is recognized ratably in the period the
advertising is displayed, provided that no significant Company obligations
remain and collection of the resulting receivable is probable. Company
obligations typically include guarantees of a minimum number of "impressions,"
or times that an advertisement is viewed by users of the Company's Web site.
Additionally, certain sponsorship agreements provide links to third-party Web
sites and generate either fixed transaction fees for monthly access or variable
fees which are dependent upon the number of transactions consummated at the
third-party Web site by linked customers. Such amounts are recognized as revenue
in the month earned.
Subscription revenue relates to customer subscriptions to the DBC premium
online services, MarketWatch RT and MarketWatch Live, which provide subscribers
access to real time exchange data and premium analytical products and are sold
through the Company's Web site. Subscriptions are charged to customers' credit
cards and are billed in advance on a monthly basis. Revenue from subscriptions
is recognized ratably over the subscription period. Deferred revenues relate to
subscription fees for which amounts have been collected but for which revenue
has not been recognized.
Revenue related to the sale of news to DBC is recognized in the month the
services are provided.
Revenues from barter transactions are recognized in accordance with the
provisions of Accounting Principles Board Opinion No. 29 ("APB 29") during the
period in which the advertisements are displayed on the Company's Web site.
Under the provisions of APB 29, barter transactions are
F-8
<PAGE> 82
MARKETWATCH.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
recorded at the fair value of the goods or services received or the estimated
fair value of the advertisements given, whichever is more clearly evident. To
date, barter transactions have been insignificant.
Property and equipment
Property and equipment is recorded at cost and depreciated using the
straight-line method over its estimated useful life, ranging from three to five
years. Leasehold improvements are depreciated using the straight-line method
over the shorter of their useful lives or the remaining lease term.
Interim financial data
The accompanying financial statements as of September 30, 1998 and for the
nine months then ended are unaudited. In the opinion of management, these
interim statements have been prepared on the same basis as the audited financial
statements and include all adjustments, consisting only of normal recurring
adjustments, necessary for the fair presentation of the results of the interim
periods. The financial and other data disclosed in these notes to the financial
statements for these periods are also unaudited. The results of the operations
for the interim periods are not necessarily indicative of the results to be
expected for any future periods.
Basic and diluted net loss per share
The Company computes net loss per share in accordance with the provisions
of Statement of Financial Accounting Standards No. 128, "Earnings per Share"
("SFAS 128") and SEC Staff Accounting Bulletin No. 98 ("SAB 98"). Under the
provisions of SFAS 128 and SAB 98, basic and diluted net loss per share is
computed by dividing the net loss available to common stockholders for the
period by the weighted average number of common shares outstanding for the
period. The calculation of diluted net loss per share excludes shares of common
stock issuable upon exercise of employee stock options as the effect of the
exercise would be antidilutive.
Product development costs
Product development costs primarily consist of costs attributable to the
development of new products and are expensed as incurred.
The Company develops software which enables users to access information on
its Web site and subscription services. Development costs incurred prior to
technological feasibility are expensed as incurred. The Company defines
establishment of technological feasibility as the completion of a working model.
Software development costs incurred subsequent to the establishment of
technological feasibility through the period of market availability of products
are capitalized. Costs eligible for capitalization have been immaterial for all
periods presented.
Promotion and advertising
Advertising costs are expensed as incurred. Promotion and advertising
provided by CBS under the Contribution Agreement, will be recognized as an
expense and capital contribution during the period in which the services are
provided based on the fair value of such services (See Note 7). For the period
from inception (October 29, 1997) through December 31, 1997 promotion and
advertising services provided by CBS were not material. For the six months ended
June 30, 1998 and the nine months ended September 30, 1998, $1,198,000 and
$1,728,000 was expensed for promotion and advertising services provided by CBS,
respectively.
F-9
<PAGE> 83
MARKETWATCH.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Use of estimates in the financial statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect amounts reported in the financial statements. Actual
results could differ from those estimates.
Concentrations of credit risk
Financial instruments that potentially subject the Company to a significant
concentration of credit risk consist primarily of cash and accounts receivable.
Management deposits all its cash with a single financial institution. Management
periodically performs credit evaluations of its customers' financial condition
and generally does not require collateral on accounts receivable. Most of the
Company's accounts receivable are from Internet-related businesses. As of
December 31, 1997, four customers comprised 53% of gross accounts receivable. As
of June 30, 1998, one customer comprised 16% of the gross accounts receivable
balance and as of September 30, 1998, another customer comprised 11% of the
gross accounts receivable balance. The fair value of accounts receivable
approximates cost due to their short-term nature.
Stock-based compensation
The Company accounts for its stock-based employee compensation agreements
in accordance with the provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" and complies with the disclosure
provisions of Statement of Financial Accounting Standards No. 123, "Accounting
for Stock Based Compensation."
Recent accounting pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosure about Segments
of an Enterprise and Related Information." SFAS 131 establishes new standards
for the way companies report information about operating segments in annual
financial statements. The disclosures prescribed by SFAS 131 are effective for
the year ending December 31, 1998. The Company does not believe it operates in
more than one segment.
NOTE 3 -- PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, SEPTEMBER 30,
1997 1998 1998
------------ -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Computers and equipment............................. $ 9,000 $290,000 $489,000
Leasehold improvements.............................. 4,000 234,000 250,000
Furniture and fixtures.............................. -- 134,000 163,000
------- -------- --------
13,000 658,000 902,000
Less accumulated depreciation....................... -- 35,000 121,000
------- -------- --------
Total property and equipment, net......... $13,000 $623,000 $781,000
======= ======== ========
</TABLE>
NOTE 4 -- OPTIONS:
The Members and the management committee of the LLC authorized options to
purchase membership interests in the Company may be granted to officers and
employees of the Company. For the nine months ended September 30, 1998, the
Company recorded $1,390,000 of deferred
F-10
<PAGE> 84
MARKETWATCH.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
compensation expense representing the difference between the deemed fair value
by the Company's Board of Directors of the common stock on the date of grant and
the option exercise price on the date of grant. Deferred compensation will be
amortized over the three year vesting period of the options. During the nine
months ended September 30, 1998, $131,000 of deferred compensation was
recognized as expense. The fair market value of the membership interest is
determined by the Board of Directors on the date of grant. In determining the
fair market value of the membership interest on each grant date, the Board of
Directors considered, among other things, the value of assets contributed to the
Company from DBC, the Company's absolute and relative level of revenues and
other operating results, the state of the Company's Website development, the
absence of a public trading market for the Company's securities, the intensely
competitive nature of the Company's market and the appreciation of stock values
of a number of generally comparable Internet companies. Each option will convert
into an option to purchase the equivalent percentage of Common Stock upon the
reorganization of the limited liability company into a corporation, as discussed
in Note 8. The following table reflects the option activity restated to reflect
the reorganization.
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED
OPTIONS EXERCISE AVERAGE
OUTSTANDING PRICE FAIR VALUE
----------- -------- ----------
<S> <C> <C> <C>
Options granted at fair value for the periods from
inception (October 29, 1997) through December 31,
1997.................................................. 446,250 $ 4.10 $ 4.10
Options granted at fair value for the six months ended
June 30, 1998......................................... 185,750 $ 9.56 $ 9.56
Options granted below fair value for the six months
ended June 30, 1998................................... 90,000 $ 8.11 $11.47
-------
Options outstanding at June 30, 1998.................... 722,000 $ 6.00 $ 6.42
Options granted at fair value for the three months ended
September 30, 1998 (unaudited)........................ 45,750 $15.01 $15.01
Options granted below fair value for the three months
ended September 30, 1998 (unaudited).................. 108,000 $ 4.00 $14.07
Options cancelled for the three months ended September
30, 1998 (unaudited).................................. (9,750) $ 4.00 $ 4.00
-------
Options outstanding at September 30, 1998 (unaudited)... 866,000 $ 6.30 $ 7.90
=======
</TABLE>
At September 30, 1998, 134,000 options were available for future grant and
no options were vested.
The following table summarizes information about options outstanding at
September 30, 1998 (unaudited):
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED
REMAINING AVERAGE
NUMBER CONTRACTUAL EXERCISE
EXERCISE PRICE OUTSTANDING LIFE PRICE
-------------- ----------- ----------- --------
<S> <C> <C> <C>
$ 4.00--$ 6.00......................................... 571,500 9.24 $ 4.03
$ 7.50--$11.00......................................... 204,250 9.39 $ 9.24
$11.50--$16.00......................................... 90,250 9.73 $13.58
-------
866,000
=======
</TABLE>
F-11
<PAGE> 85
MARKETWATCH.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FAIR VALUE DISCLOSURES
The Company applies APB No. 25 and related Interpretations in accounting
for its stock option plan. Had the Company's stock based compensation cost been
determined based on the minimum value at the grant date for awards under the
method prescribed by SFAS No. 123, the Company's net loss would have been
increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
INCEPTION
(OCTOBER 29, 1997) SIX MONTHS NINE MONTHS
THROUGH ENDED JUNE ENDED SEPTEMBER
DECEMBER 31, 30, 30,
1997 1998 1998
------------------ -------------- -------------------
(UNAUDITED)
<S> <C> <C> <C>
Net loss:
As reported.......................... $ (81,000) $(2,353,000) $(4,897,000)
========= =========== ===========
Pro forma............................ $(118,000) $(2,521,000) $(5,157,000)
========= =========== ===========
Net loss per share:
As reported.......................... $ (0.01) $ (0.26) $ (0.54)
========= =========== ===========
Pro forma............................ $ (0.01) $ (0.28) $ (0.57)
========= =========== ===========
</TABLE>
The Company calculated the value of each option grant using the minimum
value method with the following assumptions: no dividend yield, weighted average
expected option term of 5 years: risk free interest rates of 5.5% to 5.7%, 5.8%
to 6.4% and 5.5% to 6.4% for the period from inception (October 29, 1997)
through December 31, 1997, for the six months ended June 30, 1998 and for the
nine months ended September 30, 1998 (unaudited), respectively.
Because the determination of fair value of all options granted after such
time as the Company becomes a public entity will include an expected volatility
factor in addition to the factors described in the preceding paragraph, the
above results may not be representative of future periods.
NOTE 5 -- INCOME TAXES:
No benefit for federal and state income taxes is reported in the financial
statements as the Company has elected to be taxed as a partnership prior to the
reorganization of the limited liability company into a Corporation, which will
take effect immediately prior to the closing of the IPO (Note 8). Therefore, the
federal and state tax effects of the Company's results of operations are
recorded by the Members in their respective income tax returns.
Subsequently, the Company will account for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS No. 109"). Had the Company applied the provision of SFAS No. 109
for the period from inception (October 1997) through June 30, 1998, the Company
would have recorded a deferred tax asset, primarily from net operating loss
carryforwards, and a full valuation allowance. Net operating loss carryforwards
generated during the period would have been approximately $1,100,000.
F-12
<PAGE> 86
MARKETWATCH.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 -- COMMITMENTS:
Beginning in April 1998, the Company subleases office space for its
corporate headquarters in San Francisco, California from CBS. Rent expense under
the sublease was $19,000 for the six months ended June 30, 1998 and $58,000 for
the nine months ended September 30, 1998 (unaudited). Future annual minimum
lease payments under the leases were as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S> <C>
1998............................................ $ 79,000
1999............................................ 322,000
2000............................................ 335,000
2001............................................ 348,000
2002............................................ 362,000
Thereafter...................................... 90,000
----------
$1,536,000
==========
</TABLE>
The Company has entered into employment agreements with two of its officers
which expire in June 2001. Such agreements provide for minimum annual salary
levels ranging from $200,000 to $240,000, as well as annual bonuses of up to 50%
of the base salary.
The Company maintains agreements with independent content providers for
certain news, stock quotes and other information. The terms of these agreements
are generally one year, with optional extension periods ranging from one to
three years. Minimum payments under these agreements for the year ending
December 31, 1998 are $60,000.
NOTE 7 -- RELATED PARTY TRANSACTIONS:
Under the LLC Agreement, DBC will advance the Company up to an aggregate of
$5,000,000 through October 29, 2000. Borrowings bear interest at a variable rate
per annum equal to The Chase Manhattan Bank's prime rate plus 2% (10.5% as of
June 30, 1998 and September 30, 1998) and are repayable at such time as the
Company has sufficient cash, as determined by the Members.
F-13
<PAGE> 87
MARKETWATCH.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
An analysis of the advances from DBC are as follows:
<TABLE>
<CAPTION>
INCEPTION
(OCTOBER 29, 1997) SIX MONTHS NINE MONTHS
THROUGH ENDED ENDED
DECEMBER 31, 1997 JUNE 30, 1998 SEPTEMBER 30, 1998
------------------ ------------- ------------------
(UNAUDITED)
<S> <C> <C> <C>
Balance as of the beginning of the
period............................... $ -- $ -- $ --
Expenses paid by DBC on behalf of the
Company.............................. 538,000 3,062,000 6,168,000
Expenses allocated by DBC to the
Company.............................. 70,000 340,000 517,000
Royalty fees to DBC.................... 16,000 77,000 117,000
News revenue from DBC.................. (210,000) (627,000) (949,000)
Web advertising revenue from DBC....... -- -- (108,000)
Receivables collected by DBC on behalf
of the Company....................... (196,000) (860,000) (988,000)
Interest payable on advances from
DBC.................................. -- 21,000 75,000
Cash advances (payments)
from DBC, net........................ -- 308,000 (1,022,000)
Cash contributions..................... (218,000) (782,000) (782,000)
---------- ----------- ----------
Balance as of the end of the period.... $ -- $ 1,539,000 $3,028,000
========== =========== ==========
</TABLE>
The majority of expenditures and liabilities of the Company were incurred
by DBC and directly charged to the Company. These direct charges totaled
$538,000 for the period from inception (October 29, 1997) through December 31,
1997, $3,062,000 for the six months ended June 30, 1998 and $6,168,000 for the
nine months ended September 30, 1998 (unaudited). Direct charges primarily
consist of payroll and related costs, consulting, commissions and access fees
for information from various exchange markets. Additionally, under the terms of
a Services Agreement dated October 29, 1997, DBC will provide the Company with
certain general services which include cash management, accounting, network
operations and hosting of the Company's Web pages and data feeds. Charges for
these services and equipment usage are allocated based upon DBC management's
estimate of costs attributable to the operations of MarketWatch.com. Such fees
totaled $70,000 for the period from inception (October 29, 1997) through
December 31, 1997, $340,000 for the six months ended June 30, 1998 and $517,000
for the nine months ended September 30, 1998 (unaudited).
The Company is required by the Services Agreement to share net revenue from
its current subscription services with DBC. The Services Agreement requires DBC
to pay the Company 25% and 75% of the Net Revenues of MarketWatch RT and
MarketWatch Live, respectively. The Services Agreement defines "Net Revenues" as
gross subscription fees collected, less various direct costs. These direct
charges included in cost of revenue and totaled $16,000 for the period from
inception (October 29, 1997) through December 31, 1997, $77,000 for the six
months ended June 30, 1998 and $117,000 for the nine months ended September 30,
1998 (unaudited).
The Services Agreement also provides for the Company to sell its
proprietary news and commentary to DBC in exchange for a fee based on the number
of DBC subscribers. These fees amounted to $210,000 for the period from
inception (October 29, 1997) through December 31, 1997, $627,000 for the six
months ended June 30, 1998, and $949,000 for the nine months ended September 30,
1998 (unaudited). For the five years ending October 29, 2002, these fees are
subject to a monthly minimum of $100,000.
F-14
<PAGE> 88
MARKETWATCH.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DBC provided office space at various facilities to the Company through June
30, 1998. The Company has recorded rent expense of $15,000 for the period from
inception (October 29, 1997) through December 31, 1997 and $50,000 for the six
months ended June 30, 1998 related to the rent provided by DBC based upon an
allocation methodology using its occupancy percentage and the rental amount paid
by DBC. Management believes the allocation methodology to be reasonable. Such
amounts have been recorded as capital contributions.
Under the License Agreement, the Company is required to pay to CBS 30% on
certain net advertising revenues, as defined, in excess of the first $1,000,000
as compensation for licensing CBS' news content and trademarks. No amounts have
been accrued under the agreement for the period from inception (October 29,
1997) through December 31, 1997 and for the six months ended June 30, 1998.
$148,000 has been accrued at September 30, 1998 under the License Agreement
(unaudited).
Under the terms of the Contribution Agreement, CBS will provide advertising
and promotions over a five year period. The services will be recorded as capital
contributions at the time the services are provided based on the fair value of
such services. Such fair value will be determined based on the actual rates CBS
charges outside third party advertisers for the advertising and promotion spots
CBS airs for the Company, discounted for certain placement control features
retained by CBS, as well as certain other industry practices. The Company has
recorded advertising expense of $1,198,000 at fair value ($3,400,000 at rate
card value) for the six months ended June 30, 1998 and $1,728,000 at fair value
($4,937,000 at rate card value) for the nine months ended September 30, 1998
(unaudited) related to services provided by CBS. Such fair value amounts have
been recorded as capital contributions. As of September 30, 1998, CBS is
committed to provide $25,063,000 rate card amount of advertising and promotions,
assuming execution of the Stockholders' Agreement prior to closing the IPO (See
Note 8). The fair value of the remaining committed amounts cannot presently be
determined.
An executive of the Company is also a member of the Board of Directors of a
customer. For the period from inception (October 29, 1997) through December 31,
1997 $40,000 of advertising revenues were attributable to this customer. For the
six months ended June 30, 1998 and nine months ended September 30, 1998 no
revenue was attributable to this customer.
CBS provides office space at its facility in New York and association with
the CBS name to the Company in exchange for access to certain news content and
news personnel. The Company has not recorded any revenue or expense for this
barter transaction for the periods presented because such amounts are
insignificant.
Under the terms of an insertion order, DBC has committed to purchase
approximately $225,000 of advertising from the Company in 1998 and approximately
$500,000 of advertising from the Company in each of 1999 and 2000. At September
30, 1998, DBC had purchased $108,000 of advertising under the insertion order.
This commitment may be terminated by DBC on 30 days' notice.
NOTE 8 -- SUBSEQUENT EVENTS:
Content and Distribution Agreements
During August 1998, the Company entered into a license agreement with
Yahoo! Inc. whereby the Company is required to provide news headlines, make
payments for advertising and slotting of $870,000 through 1999 and remit
referral fees monthly based on the number of click-throughs to the Company's
web-site. Payments under the agreement for advertising are expensed in the
period in which the advertising is provided. Payments for slotting fees are
recognized ratably over the term
F-15
<PAGE> 89
MARKETWATCH.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
of the agreement. Payments for referral fees are expensed in the month incurred.
Upon completion of the Company's IPO, the minimum commitment will increase from
$870,000 over a twelve month period to $1.6 million over a twelve month period
beginning on the first day of the month following the closing of the IPO.
In September 1998, the Company amended its Web Site Linking and Data
Services Agreement with News Alert, Inc. Under the amended agreement, beginning
in September 1998, the Company is required to pay a minimum of $20,000 per month
over a twelve month period to News Alert, Inc. for co-branding and hosting
charges.
Corporate Reorganization
In September 1998, the Company's Board of Directors authorized the
reorganization of the limited liability company into a corporation effective
immediately prior to the IPO. Upon the consummation of the reorganization, the
corporation will be authorized to issue 30,000,000 shares of $.01 par value
Common Stock of which 9,000,000 shares will be issued to the founding Members.
The Company will also be authorized to issue 5,000,000 shares of $.01 par value
Preferred Stock. All share and per share data have been retroactively adjusted
to reflect the reorganization.
Stockholders' Agreement
Immediately prior to the closing of the IPO, DBC, CBS and the Company will
enter into a Stockholders' Agreement ("Stockholders' Agreement"). Under the
terms of the Stockholders' Agreement, CBS will reduce the advertising commitment
from the Contribution Agreement to an aggregate rate card amount $30 million in
return for a change in the percentage royalty under the License Agreement,
extension of the License Agreement to 2005 and modification to certain non
competition provisions. Additionally, both CBS and DBC will have a right of
first refusal in the event either party desires to sell any securities of the
Company to a third party or if the Company issues new securities.
CBS License Agreement Amendment
Immediately prior to the closing of the IPO, the Company and CBS will enter
into an Amended and Restated License Agreement (the "Amended and Restated
License") which will supersede and replace the License Agreement. The Amended
and Restated License will become effective immediately prior to the IPO and will
not be retroactively applied. Under the Amended and Restated License, in return
for the right to use the CBS name and logo as well as the CBS Television Network
news content, the Company will be obligated to pay a royalty to CBS of: (i)
during 1998, (A) 8% of Gross Revenues in excess of $1.0 million and up to and
including $51.0 million and (B) 6% of Gross Revenues in excess of $51.0 million,
(ii) during 1999, (A) 8% of Gross Revenues in excess of $500,000 and up to and
including $50.5 million and (B) 6% of Gross Revenues in excess of $50.5 million,
and (iii) in subsequent years through the termination of the License Agreement
on October 29, 2005, (A) 8% of Gross Revenues up to and including $50.0 million
and (B) 6% of Gross Revenues in excess of $50.0 million. CBS will have the right
to terminate the agreement in certain circumstances, including breach of a
material term or condition of the agreement, insolvency, bankruptcy or other
similar proceeding, discontinuance of use of the MarketWatch logo without
providing an acceptable substitute, or acquisition or issuance of certain
percentages of the Company's Common Stock or voting power by or to a CBS
competitor. In addition, CBS will retain significant editorial control over the
use and presentation of the CBS news content and the CBS logo and has the
ability to prevent the Company from displaying certain types
F-16
<PAGE> 90
MARKETWATCH.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
of content which are unacceptable to CBS. The Amended and Restated License will
expire on October 29, 2005.
The terms of the Amended and Restated License will not prohibit CBS from
licensing its name and logo to certain other Web sites or Internet services. CBS
is also not prohibited from licensing its news content to, or investing in,
another Web site or Internet service.
DBC Services Agreement Amendment
Immediately prior to the closing of the Company's IPO, the Company and DBC
will enter into an Amended and Restated Services Agreement (the "Amended
Services Agreement) which will supersede and replace the Services Agreement.
Under the Amended Services Agreement, DBC will provide the Company with hosting
services, software programming assistance, data feeds, communications lines,
office space and related facilities, network operations and Web site management
services as well as certain administrative and engineering services if requested
by the Company. The Amended Services Agreement will also provide for DBC to
grant the Company certain nonexclusive licenses to its data and information
feeds and provide for certain network Website hosting performance standards. DBC
will also pay the Company a monthly per subscriber fee ranging from $2.50 to
$5.00, subject to a monthly minimum of $100,000, for delivery of the Company's
news to all DBC subscribers. The term of the Amended Services Agreement will
expire on October 29, 2002.
Revolving Credit Agreement
Immediately prior to the closing of the Company's IPO, the Company and DBC
will enter into a Revolving Credit Agreement (the "Credit Agreement") whereby
DBC will be obligated to loan the Company up to $5.0 million through October
2000. Borrowings under the Credit Agreement will be unsecured and bear interest
at a variable rate per annum equal to The Chase Manhattan Bank's prime rate plus
2%. All previous advances under the LLC Agreement from DBC, will be included
against the borrowings under the Credit Agreement. This Credit Agreement will
supercede DBC's loan obligation under the LLC Agreement described in Note 7.
Registration Rights Agreement
Immediately prior to the closing of the Company's IPO, the Company, CBS and
DBC will enter into a Registration Rights Agreement ("Registration Agreement").
CBS and DBC, and their affiliates and permitted transferees will have certain
registration rights for the securities of the Company held by them under the
Registration Agreement.
1998 Equity Incentive and Directors' Stock Option Plan
In September 1998, the Board of Directors adopted, subject to stockholder
approval, the 1998 Equity Incentive Plan (the "1998 Plan") and the 1998
Directors' Stock Option Plan (the "1998 Directors' Plan"). The 1998 Plan and
1998 Directors' Plan will become effective upon the completion of the Company's
IPO. An aggregate of 634,000 shares have been reserved for issuance under both
plans.
F-17
<PAGE> 91
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of Data Broadcasting Corporation
In our opinion, the accompanying balance sheet and the related statements
of operations and changes in owner's net deficit and of cash flows present
fairly, in all material respects, the financial position of the DBC Online/News
Business, a division of Data Broadcasting Corporation, at December 31, 1996 and
October 28, 1997, and the results of its operations and its cash flows for the
period from inception (October 1, 1995) through December 31, 1995, the year
ended December 31, 1996 and for the period from January 1, 1997 through October
28, 1997, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Business' management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
San Jose, California
June 15, 1998
F-18
<PAGE> 92
DBC ONLINE/NEWS BUSINESS
(PREDECESSOR BUSINESS)
BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 28,
1996 1997
------------ -----------
<S> <C> <C>
Current:
Cash...................................................... $ -- $ --
Accounts receivable, net of allowances of $4,000 and
$15,000, respectively.................................. 178,000 174,000
Prepaid expenses and other current assets................. 16,000 80,000
Deferred income taxes..................................... 33,000 106,000
----------- -----------
Total current assets.............................. 227,000 360,000
Equipment, net.............................................. 182,000 186,000
----------- -----------
$ 409,000 $ 546,000
=========== ===========
LIABILITIES AND OWNER'S NET DEFICIT
Current:
Accounts payable.......................................... $ 71,000 $ 85,000
Deferred revenue.......................................... 14,000 16,000
Advances from DBC......................................... 1,644,000 2,708,000
----------- -----------
Total liabilities................................. 1,729,000 2,809,000
Owner's net deficit......................................... (1,320,000) (2,263,000)
----------- -----------
$ 409,000 $ 546,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-19
<PAGE> 93
DBC ONLINE/NEWS BUSINESS
(PREDECESSOR BUSINESS)
STATEMENT OF OPERATIONS AND CHANGES IN OWNER'S NET DEFICIT
<TABLE>
<CAPTION>
INCEPTION JANUARY 1,
(OCTOBER 1, 1995) 1997 NINE MONTHS
THROUGH YEAR ENDED THROUGH ENDED
DECEMBER 31, DECEMBER 31, OCTOBER 28, SEPTEMBER 30,
1995 1996 1997 1997
----------------- ------------ ----------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net revenues:
Advertising...................... $ -- $ 303,000 $ 690,000 $ 578,000
Subscription..................... -- 304,000 482,000 458,000
--------- ----------- ----------- -----------
Total net revenues....... -- 607,000 1,172,000 1,036,000
Cost of revenues................... -- 451,000 660,000 589,000
--------- ----------- ----------- -----------
Gross profit............. -- 156,000 512,000 447,000
--------- ----------- ----------- -----------
Operating expenses:
Product development.............. 210,000 1,159,000 885,000 772,000
General and administrative....... 26,000 732,000 943,000 857,000
Sales and marketing.............. -- 132,000 67,000 64,000
--------- ----------- ----------- -----------
Total operating
expenses............... 236,000 2,023,000 1,895,000 1,693,000
--------- ----------- ----------- -----------
Operating loss..................... (236,000) (1,867,000) (1,383,000) (1,246,000)
Interest expense................... (9,000) (90,000) (181,000) (160,000)
--------- ----------- ----------- -----------
Loss before income tax benefit..... (245,000) (1,957,000) (1,564,000) (1,406,000)
Income tax benefit................. 98,000 785,000 621,000 466,000
--------- ----------- ----------- -----------
Net loss........................... (147,000) (1,172,000) (943,000) (940,000)
Owner's net deficit, beginning of
period........................... -- (147,000) (1,320,000) (1,320,000)
--------- ----------- ----------- -----------
Owner's net deficit, end of
period........................... $(147,000) $(1,320,000) $(2,263,000) $(2,259,000)
========= =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE> 94
DBC ONLINE/NEWS BUSINESS
(PREDECESSOR BUSINESS)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
INCEPTION JANUARY 1,
(OCTOBER 1, 1995) 1997 NINE MONTHS
THROUGH YEAR ENDED THROUGH ENDED
DECEMBER 31, DECEMBER 31, OCTOBER 28, SEPTEMBER 30,
1995 1996 1997 1997
----------------- ------------ ----------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows used in operating
activities:
Net loss........................... $(147,000) $(1,173,000) $(943,000) $(940,000)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation.................. -- 63,000 86,000 77,000
Deferred income taxes......... (4,000) (29,000) (73,000) (47,000)
Changes in operating assets
and liabilities:
Accounts receivable........ -- (178,000) 4,000 90,000
Prepaid expenses and other
current assets........... -- (16,000) (64,000) 16,000
Accounts payable........... 68,000 3,000 14,000 (21,000)
Deferred revenue........... -- 14,000 2,000 2,000
--------- ----------- --------- ---------
Net cash used in operating
activities............... (83,000) (1,316,000) (974,000) (823,000)
--------- ----------- --------- ---------
Cash used in investing activities:
Purchase of equipment.............. (45,000) (150,000) (90,000) (80,000)
--------- ----------- --------- ---------
Cash provided by financing
activities:
Advances from DBC.................. 171,000 1,466,000 1,064,000 903,000
--------- ----------- --------- ---------
Change in cash....................... -- -- -- --
Cash at beginning of period.......... -- -- --
--------- ----------- --------- ---------
Cash at end of period................ $ -- $ -- $ -- $ --
========= =========== ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE> 95
DBC ONLINE/NEWS BUSINESS
(PREDECESSOR BUSINESS)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION AND NATURE OF BUSINESS:
The accompanying financial statements and related notes reflect the
carve-out historical results of operations and financial position of the online
and news business ("DBC Online/News" or "Business") of Data Broadcasting
Corporation ("DBC"). The Statement of Operations includes all revenues and costs
directly attributable to DBC Online/News, including costs for facilities,
functions and services used by the Business at shared sites and allocations of
costs for certain administrative functions and services performed by centralized
departments within DBC. Cost have been allocated to the Business based on DBC
management's estimate of costs attributable to the operation of the online and
new business. Such costs are not necessarily indicative of the costs that would
have been incurred if DBC Online/News had been a separate entity.
On October 29, 1997, DBC and CBS Broadcasting Inc. ("CBS") agreed to form a
limited liability company, Marketwatch.Com, LLC ("MarketWatch") for the purpose
of providing business information over the Internet. In connection with the
formation of MarketWatch, DBC and CBS entered into several agreements, including
a Limited Liability Company Agreement (the "LLC Agreement") and a Contribution
Agreement (the "Contribution Agreement"). Under the terms of the Contribution
Agreement, DBC has contributed the rights to certain assets associated with the
Business, and $2 million in cash in exchange for a 50% ownership interest. CBS
will provide, subject to termination on the occurrence of certain events, over a
period of five years, promotion and advertising time in exchange for a 50%
ownership interest. In addition, CBS has granted to the Company, subject to
certain licensing fees, the non-exclusive right and license to certain CBS news
contents and registered trademarks including the CBS "Eye" design, for five
years. These financial statements are not necessarily indicative of results that
would have occurred if DBC Online/News had been a separate stand-alone entity
during the periods presented or of the future results of MarketWatch.
DBC Online/News provided a Web site (MarketWatch.com) that delivers a broad
range of financial news and information, including delayed market prices of
stocks, bonds, options and mutual funds and original news and commentary from
financial and market analysts, economists and reporters. DBC Online/News also
provided certain proprietary information and real-time market prices available
only through subscriptions to its MarketWatch RT online service.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
REVENUE RECOGNITION
DBC Online/News generates its revenues from two sources: the sale of
advertising on the Business' Web site and subscriptions to premium services
available through the Web site.
Advertising revenue, which is derived from the sale of advertising on the
DBC Online/News Web site, is recognized in the period the advertising is
displayed, provided that no significant DBC Online/News obligations remain and
collection of the resulting receivable is probable. DBC Online/News obligations
typically include guarantees of a minimum number of "impressions", or times that
an advertisement is viewed by users of the Web site. As of December 31, 1996 and
October 28, 1997, DBC Online/News believes that no reserve is necessary for such
obligations.
Subscription revenue relates to customer subscriptions to the Business'
premium online service, MarketWatch RT. MarketWatch RT provides subscribers
access to real time exchange data and premium analytical products through the
Business' Web site. Subscriptions are charged to customers' credit cards and are
billed in advance on a monthly basis. Revenue from subscriptions is
F-22
<PAGE> 96
DBC ONLINE/NEWS BUSINESS
(PREDECESSOR BUSINESS)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
recognized ratably over the subscription period. Deferred revenues relate to
subscription fees collected but for which revenue has not been recognized.
EQUIPMENT
Equipment, which consists primarily of personal computers and general
business software for use by employees, is recorded at cost and depreciated
using the straight-line method over its estimated useful life, ranging from
three to five years. Accumulated depreciation was $63,000 and $149,000 at
December 31, 1996 and October 28, 1997, respectively.
PRODUCT DEVELOPMENT COSTS
DBC Online/News develops software which enables users to access information
on its Web site and subscription service. Development costs incurred prior to
technological feasibility are expensed as incurred. DBC Online/News defines
establishment of technological feasibility as the completion of a working model.
Software development costs incurred subsequent to the establishment of
technological feasibility through the period of market availability of products
are capitalized. Costs eligible for capitalization have been immaterial for all
periods presented.
ADVERTISING
Advertising costs are expensed as incurred. Total advertising expenses were
$0, $74,000 and $9,000 for the period from inception (October 1, 1995) through
December 31, 1995, the year ended December 31, 1996 and the period ended from
January 1, 1997 through October 28, 1997, respectively.
INCOME TAXES
The taxable loss of DBC Online/News for the period from inception (October
1, 1995) through December 31, 1995, the year ended December 31, 1996 and period
ended from January 1, 1997 through October 28, 1997 was included in the DBC
consolidated tax returns. Separate income tax returns were not prepared or filed
for DBC Online/News. For all periods presented, deferred income taxes and
related tax expenses have been recorded by applying the asset and liability
approach to each component of DBC Online/New as if it were a separate taxpayer.
Under this approach, deferred tax assets and liabilities represent the expected
future tax consequences of carryforwards and temporary differences between the
carrying amounts and the tax bases of assets and liabilities.
The current tax benefit has been determined as if DBC Online/News was a
separate taxpayer and is deemed to be receivable from DBC in the period it
arose.
INTERIM FINANCIAL DATA
The accompanying statement operations and changes in owner's net deficit
for the nine months ended September 30, 1997 are unaudited. In the opinion of
management, these interim statements have been prepared on the same basis as the
audited financial statements and include all adjustments necessary for the four
presentation of the interim period.
F-23
<PAGE> 97
DBC ONLINE/NEWS BUSINESS
(PREDECESSOR BUSINESS)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
USE OF ESTIMATES IN THE FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect amounts reported in the financial statements. Actual
results could differ from those estimates.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject DBC Online/News to a
significant concentration of credit risk consist primarily of accounts
receivable. Management periodically performs credit evaluations of its
customers' financial condition and generally does not require collateral on
accounts receivable. Most of DBC Online/News accounts receivable as of December
31, 1997 are from Internet-related business.
NOTE 3 -- RELATED PARTY:
The accompanying financial statements include costs for cash management,
accounting, legal and network operations, that were provided to the Business by
DBC, in addition to allocated costs for facility charges at shares sites,
including rent and equipment usage. Costs for cash management accounting, legal
and network operations have been allocated to the Business based on DBC
management's estimate of the costs attributable to the operation of DBC
Online/News. The costs for facility charges are based on the percentage of usage
by DBC Online/News to the overall costs. Such allocations are not necessarily
indicative of the costs that would have been incurred if DBC Online/ News had
been a separate entity. However, management believes the differences between the
allocated costs and cost to obtain such services from an outside third party
would be insignificant.
Charges allocated to DBC Online/News were $9,000, $295,000 and $306,000 for
the period from inception (October 1, 1995) to December 31, 1995, the year ended
December 31, 1996 and for the period from January 1, 1997 through October 28,
1997, respectively. Of the total charges for the period from inception (October
1, 1995) through December 31, 1995, $9,000 were included in general and
administrative expenses. For the year ended December 31, 1996, allocated charges
of $160,000 and $135,000 were included in cost of revenues and general and
administrative expenses, respectively. For the period January 1, 1997 through
October 28, 1997, allocated charges of $191,000 and $115,000 were included in
cost of revenues and general and administrative expenses, respectively.
Other expenses charged by DBC included in the Statement of Operations
represent actual costs incurred by DBC which were directly attributable to the
Business primarily include payroll and related costs, consulting, commissions,
depreciation and access fees for information from various exchange markets.
F-24
<PAGE> 98
DBC ONLINE/NEWS BUSINESS
(PREDECESSOR BUSINESS)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DBC funds the working capital requirements of the Business based upon a
centralized cash management system. Interest on amounts due to DBC is charged at
prime plus 2% (10.5% at October 28, 1997). An analysis of amounts due to DBC is
as follows:
<TABLE>
<CAPTION>
INCEPTION
(OCTOBER 1, 1995) JANUARY 1, 1997
THROUGH YEAR ENDED THROUGH
DECEMBER 31, DECEMBER 31, OCTOBER 28,
1995 1996 1997
----------------- ------------ ---------------
<S> <C> <C> <C>
Balance as of the beginning of the
period................................ $ -- $ 152,000 $ 1,644,000
Assets and expenses paid on behalf of
the Business by DBC................... 236,000 2,294,000 2,293,000
Expenses allocated to the Business by
DBC................................... 9,000 295,000 306,000
Interest payable on amounts owed to
DBC................................... 9,000 90,000 181,000
Cash received on behalf of the Business
by DBC................................ -- (439,000) (1,168,000)
Income tax benefit (Note 4)............. (102,000) (748,000) (548,000)
---------- ---------- -----------
Balance as of the end of the period..... $ 152,000 $1,644,000 $ 2,708,000
========== ========== ===========
</TABLE>
NOTE 4 -- INCOME TAXES:
The operating results of DBC Online/News were included in the consolidated
tax returns of DBC. The methodology for allocating tax expense to DBC
Online/News is set forth in Note 2. For all periods presented, tax losses
generated by DBC Online/News were used to reduce DBC's taxable income, and
therefore, have been reflected as a current tax benefit.
The benefit for income taxes consists of the following:
<TABLE>
<CAPTION>
INCEPTION PERIOD FROM
(OCTOBER 1, 1995) JANUARY 1, 1997
THROUGH YEAR ENDED THROUGH
DECEMBER 31, DECEMBER 31, OCTOBER 28,
1995 1996 1997
----------------- ------------ ---------------
<S> <C> <C> <C>
Current benefit:
Federal....................... $ 89,000 $564,000 $426,000
State......................... 13,000 184,000 122,000
-------- -------- --------
102,000 748,000 548,000
Deferred benefit:
Federal....................... (3,000) 28,000 57,000
State......................... (1,000) 9,000 16,000
-------- -------- --------
(4,000) 37,000 73,000
-------- -------- --------
$ 98,000 $785,000 $621,000
======== ======== ========
</TABLE>
F-25
<PAGE> 99
DBC ONLINE/NEWS BUSINESS
(PREDECESSOR BUSINESS)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The income tax rate varies from amounts computed by applying the U.S.
statutory rate to the loss before income tax benefit. The tax rates are as
follows:
<TABLE>
<CAPTION>
INCEPTION PERIOD FROM
(OCTOBER 1, 1995) JANUARY 1, 1997
THROUGH YEAR ENDED THROUGH
DECEMBER 31, DECEMBER 31, OCTOBER 28,
1995 1996 1997
----------------- ------------ ---------------
<S> <C> <C> <C>
Statutory U.S. tax rate......... 34.0% 34.0% 34.0%
State taxes, net of federal tax
benefit....................... 6.0% 6.1% 5.8%
Other........................... -- -0.1% -0.1%
-------- ---- ----
40.0% 40.0% 39.7%
======== ==== ====
</TABLE>
The net deferred tax asset is comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 28,
1996 1997
------------ -----------
<S> <C> <C>
Interest on amounts due to DBC................... $ 40,000 $112,000
Other............................................ 7,000 12,000
-------- --------
Deferred tax asset............................... 47,000 124,000
Depreciation..................................... (14,000) (18,000)
-------- --------
Net deferred tax assets.......................... $ 33,000 $106,000
======== ========
</TABLE>
F-26
<PAGE> 100
- ------------------------------------------------------
- ------------------------------------------------------
YOU MAY RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE INFORMATION DIFFERENT FROM THAT CONTAINED IN THIS
PROSPECTUS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR SALE OF COMMON STOCK
MEANS THAT INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT AFTER THE DATE OF
THIS PROSPECTUS. THIS PROSPECTUS IS NOT AN OFFER TO SELL OR SOLICITATION OF AN
OFFER TO BUY THESE SHARES OF COMMON STOCK IN ANY CIRCUMSTANCES UNDER WHICH THE
OFFER OR SOLICITATION IS UNLAWFUL.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................... 3
Risk Factors............................. 6
Use of Proceeds.......................... 15
Dividend Policy.......................... 15
Capitalization........................... 16
Dilution................................. 17
Selected Financial Data.................. 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................. 20
Business................................. 31
Management............................... 47
Certain Transactions..................... 56
Principal Stockholders................... 63
Description of the Capital Stock......... 64
Shares Eligible for Future Sale.......... 68
Underwriting............................. 70
Legal Matters............................ 71
Experts.................................. 71
Additional Information................... 72
Index to Consolidated Financial
Statements............................. F-1
</TABLE>
------------------
DEALER PROSPECTUS DELIVERY OBLIGATION:
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
THAT BUY, SELL OR TRADE THESE SHARES OF COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
SHARES
[LOGO]
COMMON STOCK
-------------------
PROSPECTUS
-------------------
BT ALEX. BROWN
DONALDSON, LUFKIN & JENRETTE
SALOMON SMITH BARNEY
FAC/EQUITIES
, 1998
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 101
DESCRIPTION OF ARTWORK
I. Screenprint -- Snapshot of the CBS.MarketWatch.com Web site Front Page
Contains the following elements:
- Links to primary the CBS.MarketWatch.com Web site featured sections
(NewsWatch, News Index, Headlines, Market Data, Portfolios, Mutual
Funds, Primer)
- Box for entry of ticker symbols for current quotes
- Box containing current market index quotes
- Financial headlines with links to related articles
- Box to enter keywords or ticker symbols for search of news
- Links to the CBS.MarketWatch.com Web site featured sections (Company
News, Headlines, NewsWatch, StockWatch, CBS stock lists, Earnings
heads, Trading tools, Investor's Toolbox, Investor's Primer, Internet
Daily, IPO reports, Surprises, Silicon Stocks, Software Report, Movers
& Shakers, Screamers!, Mutual Funds, Newsroom roster, Letters to
editor, Editorial policy, Corrections)
- Links to the CBS.MarketWatch.com Web site "Potent investing tools"
- Links to the CBS.MarketWatch.com Web site Advertisers
II. Screen Print -- Snapshot of "Silicon Stocks" Featured Section
Contains the following elements:
- Links to Front Page, News Index, Headlines, Market Data, Portfolios,
Municipal Funds, Primer
- "Investor's Toolbox" -- Features include Quote, News, Chat, Earnings,
Fundamentals, Fund Profiles, SEC Filings, Research, Market Guide,
Hoover's, Annual Reports, Power Portfolios, Tool Descriptions,
Baseline Reports, Invest Ads, Mortgage Finder, Credit Card Finder,
Signal Onlines CBSMW online
- Article highlighting current market activities
- Links to the CBS.MarketWatch.com Web site Advertisers
III. Screenprint -- Snapshot "Investor's Primer" Featured Section
Contains the following elements:
- Mastering Markets -- Links to descriptions of various investing
concepts
- Your Big Financial Picture -- links to personal financial health
articles
- Tools of the Trade -- Links to suggested reading, interactive
calculators, charting tools and data resources
- Investing Wisely in Mutual Funds -- links to Mutual Fund articles
- Links to the CBS.MarketWatch.com Web site Advertisers
IV. Screenprint -- Snapshot of Market Data Featured Section
Contains the following elements:
- Links to Front Page, Global Markets, Market Monitor, Charting,
Portfolios, Mutual Funds, Primer
- Current market index quotes
<PAGE> 102
- Box for ticket symbol entry to obtain quotes
- Links to market news under the following categories: Market Updates,
Market Reports, Research Tools, Market Leaders, Index Charts, CMS Bond
Quotes
- The CBS.MarketWatch.com Web site Bookstore Cafe
- Links to the CBS.MarketWatch.com Web site Advertisers
V. Screenprint of Beta Z version of the CBS.MarketWatch.com Web site
Portfolio "Home", "Edit", "DJI", "Price" and "Value" pages.
<PAGE> 103
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses to be paid by the Registrant in connection with this offering
are as follows. All amounts other than the SEC registration fee, NASD filing fee
and Nasdaq National Market application fee are estimates.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $10,177.50
NASD filing fee............................................. 3,950
Nasdaq National Market listing fee.......................... 81,625
Printing.................................................... 300,000
Legal fees and expenses..................................... 450,000
Accounting fees and expenses................................ 450,000
Blue Sky fees and expenses.................................. 10,000
Transfer agent and registrar fees........................... 10,000
Miscellaneous............................................... 84,247.50
----------
Total............................................. $1,400,000
==========
</TABLE>
- ---------------
* To be filed by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's board of directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933, as amended (the "Securities
Act").
As permitted by the Delaware General Corporation Law, the Registrant's
Amended and Restated Certificate of Incorporation includes a provision that
eliminates the personal liability of its directors for monetary damages for
breach of fiduciary duty as a director, except for liability (i) for any breach
of the director's duty of loyalty to the Registrant or its stockholders, (ii)
for acts or omissions not in good faith or that involve intentional misconduct
or a knowing violation of law, (iii) under section 174 of the Delaware General
Corporation Law (regarding unlawful dividends and stock purchases) or (iv) for
any transaction from which the director derived an improper personal benefit.
As permitted by the Delaware General Corporation Law, the Bylaws of the
Registrant provide that (i) the Registrant is required to indemnify its
directors and officers to the fullest extent permitted by the Delaware General
Corporation Law, subject to certain very limited exceptions, (ii) the Registrant
may indemnify its other employees and agents as set forth in the Delaware
General Corporation Law, (iii) the Registrant is required to advance expenses,
as incurred, to its directors and executive officers in connection with a legal
proceeding to the fullest extent permitted by the Delaware General Corporation
Law, subject to certain very limited exceptions and (iv) the rights conferred in
the Bylaws are not exclusive.
The Registrant intends to enter into Indemnification Agreements with each
of its directors and executive officers to give such directors and officers
additional contractual assurances regarding the scope of the indemnification set
forth in the Registrant's Amended and Restated Certificate of Incorporation and
to provide additional procedural protections. At present, there is no pending
litigation or proceeding involving a director, officer or employee of the
Registrant regarding which
II-1
<PAGE> 104
indemnification is sought, nor is the Registrant aware of any threatened
litigation that may result in claims for indemnification.
Reference is also made to Section 8 of the Underwriting Agreement, which
provides for the indemnification of officers, directors and controlling persons
of the Registrant against certain liabilities. The indemnification provision in
the Registrant's Certificate of Incorporation, Bylaws and the Indemnification
Agreements entered into between the Registrant and each of its directors and
executive officers may be sufficiently broad to permit indemnification of the
Registrant's directors and executive officers for liabilities arising under the
Securities Act.
The Registrant, with approval by the Registrant's Board of Directors,
expects to obtain directors' and officers' liability insurance.
Reference is made to the following documents filed as exhibits to this
Registration Statement regarding relevant indemnification provisions described
above and elsewhere herein:
<TABLE>
<CAPTION>
DOCUMENT EXHIBIT NUMBER
-------- --------------
<S> <C>
Underwriting Agreement (draft dated November 20, 1998)...... 1.01
Form of Amended and Restated Certificate of Incorporation of
Registrant................................................ 3.02
Bylaws of Registrant........................................ 3.03
Form of Indemnity Agreement................................. 10.01
</TABLE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The following table sets forth information regarding all securities sold by
the Registrant and its predecessor, Marketwatch.Com, LLC since October 29, 1997,
the date of the Company's inception.
<TABLE>
<CAPTION>
AGGREGATE
DATE TITLE OF NUMBER PURCHASE FORM OF
CLASS OF PURCHASER OF SALE SECURITIES OF SHARES(1) PRICE CONSIDERATION
------------------ -------- -------------------- ------------ --------- -----------------------
<S> <C> <C> <C> <C> <C>
CBS Inc.............. 10/29/97 Membership Interests 50% (2) Advertising Commitments
Data Broadcasting
Corporation........ 10/29/97 Membership Interests 50% (3) Cash and Assigned
Assets
</TABLE>
(1) Represents percentage interests in Marketwatch.Com, LLC.
(2) In connection with the formation of Marketwatch.Com, LLC, CBS agreed to
contribute promotion and advertising with an aggregate rate card amount of
$50.0 million over a period of five years, which could not be objectively
valued as of the date of contribution. This aggregate rate card amount will
be reduced to $30.0 million upon the execution of the Amended and Restated
License Agreement.
(3) DBC contributed $1.0 million in cash and certain assets relating to its
existing "Online/News" business and contributed $1.0 million in cash on
October 29, 1998, in exchange for its membership interests.
Upon the closing of this offering, Marketwatch.Com, LLC will be converted
into a corporation and all membership interests will be converted into Common
Stock of the Registrant. The share numbers in this table give effect to the
conversion of Marketwatch.Com, LLC into a corporation immediately prior to the
closing of this offering.
All sales were made in reliance on Section 4(2) of the Securities Act
and/or Regulation D promulgated under the Securities Act. These sales were made
without general solicitation or advertising. Each purchaser was an "accredited
investor" or a sophisticated investor with access to all relevant information
necessary to evaluate the investment who represented to the Registrant that the
shares were being acquired for investment.
II-2
<PAGE> 105
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed herewith:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------
<S> <C>
1.01 Underwriting Agreement (draft dated November 20, 1998).
2.01 Form of Merger Agreement to be entered into by
Marketwatch.Com, LLC (the "LLC") and the Registrant.+
3.01 Registrant's Certificate of Incorporation.+
3.02 Form of Registrant's Amended and Restated Certificate of
Incorporation to be effective upon the completion of this
offering.+
3.03 Registrant's Bylaws.+
4.01 Form of Specimen Stock Certificate for the Registrant's
Common Stock.+
4.02 Form of Registration Rights Agreement to be entered into
among the Registrant, CBS Broadcasting Inc. (formerly known
as CBS Inc.) ("CBS") and Data Broadcasting Corporation
("DBC").+
4.03 Form of Stockholders' Agreement to be entered into among the
Registrant, Marketwatch.Com, LLC, CBS and DBC.+
5.01 Opinion of Fenwick & West LLP regarding legality of the
securities being registered.
10.01 Form of Indemnity Agreement to be entered into between the
Registrant with each of its directors and executive
officers.+
10.02 Limited Liability Company Agreement of Marketwatch.Com, LLC,
dated October 29, 1997, between CBS and DBC.+
10.03 Contribution Agreement dated October 29, 1997 among the LLC,
CBS, and DBC.+
10.04 License Agreement dated October 29, 1997 between the LLC and
CBS.+
10.05 Services Agreement dated October 29, 1997 between the LLC
and DBC.+
10.06 Lease dated as of August 27, 1998 between the Registrant and
CBS Corporation.+
10.07 Form of Amended and Restated License Agreement to be entered
into between the Registrant and CBS.+
10.08 Form of Amended and Restated Services Agreement to be
entered into between the Registrant and DBC.+
10.09 Form of Revolving Credit Agreement to be entered into
between the Registrant and DBC, together with Form of
Revolving Promissory Note.+
10.10 Form of Non-Plan LLC Option.+
10.11 Registrant's 1998 Directors Stock Option Plan.+
10.12 Registrant's 1998 Equity Incentive Plan.+
10.13 Employment Agreement dated as of July 1, 1998 between the
Registrant and Lawrence Kramer.+
10.14 Employment Agreement dated as of July 1, 1998 between the
Registrant and J. Peter Bardwick.+
10.15 Insertion Order dated as of August 25, 1998 between DBC and
Marketwatch.Com, LLC.+
23.01 Consent of Fenwick & West LLP (included in Exhibit 5.01).
</TABLE>
II-3
<PAGE> 106
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------
<S> <C>
23.02 Consent of PricewaterhouseCoopers LLP.
23.03 Consent of PricewaterhouseCoopers LLP.
24.01 Power of Attorney (see Page II-5 of the Registration
Statement).+
27.01 Financial Data Schedule (EDGAR Version Only).
</TABLE>
- ---------------
* To be supplied by amendment.
+ Previously filed.
(b) Financial Statement Schedule
Schedule II -- Valuation and Qualifying Accounts
No financial statement schedules are provided because the information
called for is not required or is shown either in the financial statements or the
notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 14 above, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 107
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of San Francisco, State of California, on the 25th
day of November, 1998.
MARKETWATCH.COM, INC.
By: /s/ LAWRENCE KRAMER
------------------------------------
Lawrence Kramer
President and Chief Executive
Officer
In accordance with the requirements of the Securities Act, this Amendment
was signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
PRINCIPAL EXECUTIVE OFFICER:
/s/ LAWRENCE KRAMER President, Chief Executive November 25, 1998
- ------------------------------------------------ Officer and Director
Lawrence Kramer
PRINCIPAL FINANCIAL AND
PRINCIPAL ACCOUNTING OFFICER:
/s/ J. PETER BARDWICK Chief Financial Officer November 25, 1998
- ------------------------------------------------
J. Peter Bardwick
DIRECTORS:
* Director November 25, 1998
- ------------------------------------------------
Michael Jordan
/s/ JAMES A. DEPALMA Director November 25, 1998
- ------------------------------------------------
James A. DePalma
* Director November 25, 1998
- ------------------------------------------------
Andrew Heyward
* Director November 25, 1998
- ------------------------------------------------
Mark Imperiale
* Director November 25, 1998
- ------------------------------------------------
Alan Hirschfield
* Director November 25, 1998
- ------------------------------------------------
Allan R. Tessler
*By: /s/ J. PETER BARDWICK Attorney-in-fact November 25, 1998
- ------------------------------------------------
J. Peter Bardwick
</TABLE>
II-5
<PAGE> 108
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
ALLOWANCE FOR DOUBTFUL ACCOUNTS
MARKETWATCH.COM
<TABLE>
<CAPTION>
INCEPTION
(OCTOBER 29, 1997) SIX MONTHS NINE MONTHS
THROUGH ENDED ENDED
DECEMBER 31, 1997 JUNE 30, 1998 SEPTEMBER 30, 1998
------------------ ------------- ------------------
<S> <C> <C> <C>
Balance as of the beginning of the
period................................ $ -- $ 10,000 $ 10,000
Additions charged to statement of
operations............................ 15,000 110,000 139,000
Deductions from reserves................ 5,000 -- --
Balance at end of period................ $10,000 $120,000 $149,000
</TABLE>
S-1
<PAGE> 109
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
ALLOWANCE FOR DOUBTFUL ACCOUNTS
DCB ONLINE/NEWS
<TABLE>
<CAPTION>
INCEPTION
(OCTOBER 1, 1995) JANUARY 1, 1997
THROUGH THROUGH
DECEMBER 31, 1996 OCTOBER 29, 1997
----------------- ----------------
<S> <C> <C>
Balance as of the beginning of the period................ $ -- $ 4,000
Additions charged to statement of operations............. 4,000 11,000
Deductions from reserves................................. -- --
Balance at end of period................................. $4,000 $15,000
</TABLE>
S-2
<PAGE> 110
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------
<S> <C>
1.01 Underwriting Agreement (draft dated November 20, 1998).
2.01 Form of Merger Agreement to be entered into by
Marketwatch.Com, LLC (the "LLC") and the Registrant.+
3.01 Registrant's Certificate of Incorporation.+
3.02 Form of Registrant's Amended and Restated Certificate of
Incorporation to be effective upon the completion of this
offering.+
3.03 Registrant's Bylaws.+
4.01 Form of Specimen Stock Certificate for the Registrant's
Common Stock.+
4.02 Form of Registration Rights Agreement to be entered into
among the Registrant, CBS Broadcasting Inc. (formerly known
as CBS Inc.)("CBS") and Data Broadcasting Corporation
("DBC").+
4.03 Form of Stockholders' Agreement to be entered into among the
Registrant, Marketwatch.Com, LLC, CBS and DBC.+
5.01 Opinion of Fenwick & West LLP regarding legality of the
securities being registered.
10.01 Form of Indemnity Agreement to be entered into between the
Registrant with each of its directors and executive
officers.+
10.02 Limited Liability Company Agreement of Marketwatch.Com, LLC,
dated October 29, 1997, between CBS and DBC.+
10.03 Contribution Agreement dated October 29, 1997 among the LLC,
CBS, and DBC.+
10.04 License Agreement dated October 29, 1997 between the LLC and
CBS.+
10.05 Services Agreement dated October 29, 1997 between the LLC
and DBC.+
10.06 Lease dated as of August 27, 1998 between the Registrant and
CBS Corporation.+
10.07 Form of Amended and Restated License Agreement to be entered
into between the Registrant and CBS.+
10.08 Form of Amended and Restated Services Agreement to be
entered into between the Registrant and DBC.+
10.09 Form of Revolving Credit Agreement to be entered into by the
Registrant and DBC, together with the Form of Revolving
Promissory Note.+
10.10 Form of Non-Plan LLC Option.+
10.11 Registrant's 1998 Directors Stock Option Plan.+
10.12 Registrant's 1998 Equity Incentive Plan.+
10.13 Employment Agreement dated as of July 1, 1998 between the
Registrant and Lawrence Kramer.+
10.14 Employment Agreement dated as of July 1, 1998 between the
Registrant and J. Peter Bardwick.+
10.15 Insertion Order dated as of August 25, 1998 between DBC and
Marketwatch.Com, LLC.+
23.01 Consent of Fenwick & West LLP (included in Exhibit 5.01).
23.02 Consent of PricewaterhouseCoopers LLP.
23.03 Consent of PricewaterhouseCoopers LLP.
24.01 Power of Attorney (see Page II-5 of the Registration
Statement).+
27.01 Financial Data Schedule (EDGAR Version Only).
</TABLE>
- ------------------------
* To be supplied by amendment.
+ Previously filed.
<PAGE> 1
EXHIBIT 1.01
DRAFT
NOVEMBER 20, 1998
_______________ Shares
MarketWatch.com, Inc.
Common Stock
($0.01 Par Value)
UNDERWRITING AGREEMENT
December __, 1998
BT Alex. Brown Incorporated
Donaldson Lufkin & Jenrette
Securities Corporation
Salomon Smith Barney Inc.
First Albany Corporation
As Representatives of the
Several Underwriters
c/o BT Alex. Brown Incorporated
One South Street
Baltimore, Maryland 21202
Ladies and Gentlemen:
MarketWatch.com, Inc., a Delaware corporation (the "Company"), proposes to
sell to the several underwriters (the "Underwriters") named in Schedule I hereto
for whom you are acting as representatives (the "Representatives") an aggregate
of _________ shares of the Company's Common Stock, $0.01 par value (the "Firm
Shares"). The respective amounts of the Firm Shares to be so purchased by the
several Underwriters are set forth opposite their names in Schedule I hereto.
The Company also proposes to sell at the Underwriters' option an aggregate of up
to _________ additional shares of the Company's Common Stock (the "Option
Shares") as set forth below. In addition, Data Broadcasting Corporation, a
____________ corporation ("DBC") is a party to this Underwriting Agreement for
purposes of Sections 1, 6, 8 and 10 through 14, inclusive.
As the Representatives, you have advised the Company (a) that you are
authorized to enter into this Agreement on behalf of the several Underwriters,
and (b) that the several Underwriters are willing, acting severally and not
jointly, to purchase the numbers of Firm Shares set forth opposite their
respective names in Schedule I, plus their pro rata portion of the Option Shares
if you elect to exercise the over-allotment option in whole or in part for the
accounts of the several Underwriters. The Firm Shares and the Option Shares (to
the extent the aforementioned option is exercised) are herein collectively
called the "Shares."
In consideration of the mutual agreements contained herein and of the
interests of the parties in the transactions contemplated hereby, the parties
hereto agree as follows:
1
<PAGE> 2
DRAFT
NOVEMBER 20, 1998
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE CONTROLLING
ENTITIES.
(a) The Company represents and warrants to each of the Underwriters
as follows:
(i) A registration statement on Form S-1 (File No. 333-________)
with respect to the Shares has been prepared by the Company in conformity with
the requirements of the Securities Act of 1933, as amended (the "Act"), and the
Rules and Regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") thereunder and has been filed with the
Commission. The Company has complied with the conditions for the use of Form
S-1. Copies of such registration statement, including any amendments thereto,
the preliminary prospectuses (meeting the requirements of the Rules and
Regulations) contained therein and the exhibits, financial statements and
schedules, as finally amended and revised, have heretofore been delivered by the
Company to you. Such registration statement, together with any registration
statement filed by the Company pursuant to Rule 462 (b) of the Act, herein
referred to as the "Registration Statement," which shall be deemed to include
all information omitted therefrom in reliance upon Rule 430A and contained in
the Prospectus referred to below, has become effective under the Act and no
post-effective amendment to the Registration Statement has been filed as of the
date of this Agreement. "Prospectus" means the form of prospectus first filed
with the Commission pursuant to Rule 424(b). Each preliminary prospectus
included in the Registration Statement prior to the time it becomes effective is
herein referred to as a "Preliminary Prospectus."
(ii) The Company has been duly organized and is validly existing
as a corporation in good standing under the laws of the State of Delaware, with
corporate power and authority to own or lease its properties and conduct its
business as described in the Registration Statement. The Company is duly
qualified to transact business in all jurisdictions in which the conduct of
their business requires such qualification.
(iii) The outstanding shares of Common Stock of the Company have
been duly authorized and validly issued and are fully paid and non-assessable;
the Shares to be issued and sold by the Company have been duly authorized and
when issued and paid for as contemplated herein will be validly issued, fully
paid and non-assessable; and no preemptive rights of stockholders exist with
respect to any of the Shares or the issue and sale thereof. Neither the filing
of the Registration Statement nor the offering or sale of the Shares as
contemplated by this Agreement gives rise to any rights, other than those which
have been waived or satisfied, for or relating to the registration of any shares
of Common Stock.
(iv) The information set forth under the caption "Capitalization"
in the Prospectus is true and correct. All of the Shares conform to the
description thereof contained in the Registration Statement. The form of
certificates for the Shares conforms to the corporate law of the jurisdiction of
the Company's incorporation.
(v) The Commission has not issued an order preventing or
suspending the use of any Prospectus relating to the proposed offering of the
Shares nor instituted proceedings for that purpose. The Registration Statement
contains, and the Prospectus and any amendments or supplements thereto will
contain, all statements which are required to be stated therein by, and will
conform, to the requirements of the Act and the Rules and Regulations. The
Registration Statement and any amendment thereto do not contain, and will not
contain, any untrue statement of a material fact and do not omit, and will not
omit, to state any material fact required to be stated therein or
2
<PAGE> 3
DRAFT
NOVEMBER 20, 1998
necessary to make the statements therein not misleading. The Prospectus and any
amendments and supplements thereto do not contain, and will not contain, any
untrue statement of material fact; and do not omit, and will not omit, to state
any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that the Company makes no
representations or warranties as to information contained in or omitted from the
Registration Statement or the Prospectus, or any such amendment or supplement,
in reliance upon, and in conformity with, written information furnished to the
Company by or on behalf of any Underwriter through the Representatives,
specifically for use in the preparation thereof.
(vi) The consolidated financial statements of the Company
together with related notes and schedules as set forth in the Registration
Statement, present fairly the financial position and the results of operations
and cash flows of the Company, at the indicated dates and for the indicated
periods. Such financial statements and related schedules have been prepared in
accordance with generally accepted principles of accounting, consistently
applied throughout the periods involved, except as disclosed therein, and all
adjustments necessary for a fair presentation of results for such periods have
been made. The summary financial and statistical data included in the
Registration Statement presents fairly the information shown therein and such
data has been compiled on a basis consistent with the financial statements
presented therein and the books and records of the company. The DBC Online/News
Business financial statements and other DBC Online/News Business financial
information included in the Registration Statement and the Prospectus present
fairly the information shown therein, have been prepared in accordance with the
Commission's rules and guidelines with respect to pro forma financial
statements, have been properly compiled on the pro forma bases described
therein, and, in the opinion of the Company, the assumptions used in the
preparation thereof are reasonable and the adjustments used therein are
appropriate to give effect to the transactions or circumstances referred to
therein.
(vii) PricewaterhouseCoopers LLP, who have certified certain of
the financial statements filed with the Commission as part of the Registration
Statement, are independent public accountants as required by the Act and the
Rules and Regulations.
(viii) There is no action, suit, claim or proceeding pending or,
to the knowledge of the Company, threatened against the Company before any court
or administrative agency or otherwise which if determined adversely to the
Company might result in any material adverse change in the earnings, business,
management, properties, assets, rights, operations, condition (financial or
otherwise) or prospects of the Company taken as a whole or to prevent the
consummation of the transactions contemplated hereby, except as set forth in the
Registration Statement.
(ix) The Company has good and marketable title to all of the
properties and assets reflected in the financial statements (or as described in
the Registration Statement) hereinabove described, subject to no lien, mortgage,
pledge, charge or encumbrance of any kind except those reflected in such
financial statements (or as described in the Registration Statement) or which
are not material in amount. The Company occupies leased properties under valid
and binding leases conforming in all material respects to the description
thereof set forth in the Registration Statement.
(x) The Company has filed all Federal, State, local and foreign
tax returns which have been required to be filed and have paid all taxes
indicated by said returns and all assessments received by them or any of them to
the extent that such taxes have become due and are not being contested in good
faith and for which an adequate reserve for accrual has been established in
accordance with generally accepted accounting principles. All tax liabilities
have been adequately
3
<PAGE> 4
DRAFT
NOVEMBER 20, 1998
provided for in the financial statements of the Company, and the Company does
not know of any actual or proposed additional material tax assessments.
(xi) Since the respective dates as of which information is given
in the Registration Statement, as it may be amended or supplemented, there has
not been any material adverse change or any development involving a prospective
material adverse change in or affecting the earnings, business, management,
properties, assets, rights, operations, condition (financial or otherwise), or
prospects of the Company taken as a whole, whether or not occurring in the
ordinary course of business, and there has not been any material transaction
entered into or any material transaction that is probable of being entered into
by the Company, other than transactions in the ordinary course of business and
changes and transactions described in the Registration Statement, as it may be
amended or supplemented. The Company has no material contingent obligations
which are not disclosed in the Company's financial statements which are included
in the Registration Statement.
(xii) The Company is not or with the giving of notice or lapse of
time or both, will not be, in violation of or in default under its Charter or
Bylaws or under any agreement, lease, contract, indenture or other instrument or
obligation to which it is a party or by which it, or any of its properties, is
bound and which default is of material significance in respect of the condition,
financial or otherwise of the Company taken as a whole or the business,
management, properties, assets, rights, operations, condition (financial or
otherwise) or prospects of the Company taken as a whole. The execution and
delivery of this Agreement and the consummation of the transactions herein
contemplated and the fulfillment of the terms hereof will not conflict with or
result in a breach of any of the terms or provisions of, or constitute a default
under, any indenture, mortgage, deed of trust or other agreement, instrument or
obligation to which the Company is a party or by which it, or any of its
properties is bound, or of the Charter or Bylaws of the Company or any order,
rule or regulation applicable to the Company of any court or of any regulatory
body or administrative agency or other governmental body having jurisdiction.
(xiii) Each approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body necessary in connection with the execution and delivery by the
Company of this Agreement and the consummation of the transactions herein
contemplated (except such additional steps as may be required by the Commission,
the National Association of Securities Dealers, Inc. (the "NASD") or such
additional steps as may be necessary to qualify the Shares for public offering
by the Underwriters under state securities or Blue Sky laws) has been obtained
or made and is in full force and effect.
(xiv) The Company holds all material licenses, certificates and
permits from governmental authorities which are necessary to the conduct of
their businesses; and the Company has not infringed any patents, patent rights,
trade names, trademarks or copyrights, which infringement is material to the
business of the Company taken as a whole. The Company knows of no material
infringement by others of patents, patent rights, trade names, trademarks or
copyrights owned by or licensed to the Company.
(xv) Neither the Company, nor to the Company's knowledge, any of
its affiliates, has taken or may take, directly or indirectly, any action
designed to cause or result in, or which has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of the
price of the shares of Common Stock to facilitate the sale or resale of the
Shares. The Company acknowledges that the Underwriters may engage in passive
market making transactions in the
4
<PAGE> 5
DRAFT
NOVEMBER 20, 1998
Shares on The Nasdaq Stock Market in accordance with Regulation M under the
Exchange Act of 1934, as amended (the "Exchange Act").
(xvi) The Company is not an "investment company" within the
meaning of such term under the Investment Company Act of 1940, (as amended, the
"1940 Act") and the rules and regulations of the Commission thereunder.
(xvii) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(xviii) The Company carries, or is covered by, insurance in such
amounts and covering such risks as is adequate for the conduct of their
respective businesses and the value of their respective properties and as is
customary for companies engaged in similar industries.
(xix) The Company is in compliance in all material respects with
all presently applicable provisions of the Employee Retirement Income Security
Act of 1974, as amended, including the regulations and published interpretations
thereunder ("ERISA"); no "reportable event" (as defined in ERISA) has occurred
with respect to any "pension plan" (as defined in ERISA) for which the Company
would have any liability; the Company has not incurred and does not expect to
incur liability under (i) Title IV of ERISA with respect to termination of, or
withdrawal from, any "pension plan" or (ii) Sections 412 or 4971 of the Internal
Revenue Code of 1986, as amended, including the regulations and published
interpretations thereunder (the "Code"); and each "pension plan" for which the
Company would have any liability that is intended to be qualified under Section
401(a) of the Code is so qualified in all material respects and nothing has
occurred, whether by action or by failure to act, which would cause the loss of
such qualification.
(xx) To the Company's knowledge, there are no affiliations or
associations between any member of the NASD and any of the Company's officers,
directors or 5% or greater securityholders, except as set forth in the
Registration Statement.
(xxi) The Agreement and Plan of Merger dated ________, 1998 (the
"Merger Agreement") by and between the Company and Marketwatch.Com, LLC, a
Delaware limited liability company (the "LLC"), has been duly authorized by all
necessary board of directors and stockholder action on the part of the Company
and all necessary board of managers and member action on the part of the LLC and
has been duly executed and delivered by each of the parties thereto. The
execution and delivery of the Merger Agreement and the consummation of the
merger contemplated thereby does not contravene any provision of applicable
Federal, California or Delaware law or the Charter or Bylaws of the Company or
the Certificate of Formation, Limited Liability Company Agreement or Bylaws of
LLC or any agreement or other instrument binding upon LLC or the Company, and
that is set forth as an exhibit to the Registration Statement, or, to the
Company's legal counsel's knowledge, any judgment or decree of any governmental
body, agency or court having jurisdiction over the Company or LLC, and no
consent, approval, authorization or order of or qualification with any
governmental body or agency is required for the performance by the Company and
LLC of its obligations under the Merger Agreement except such as have been
obtained, except such consent, approval, authorization, order or qualification
which if not obtained
5
<PAGE> 6
DRAFT
NOVEMBER 20, 1998
would not have a material adverse effect on the Company. The merger contemplated
by the Merger Agreement is effective under the laws of the State of California
and the State of Delaware. In connection with the Plan of Merger and the
transactions contemplated thereby, the Company and LLC have obtained all
necessary consents, approvals and authorizations required to assign and transfer
all contracts to which LLC is a party to the Company so that the Company shall
be made a party, in place of LLC or, as assignee.
(xxii) The Company (i) is in compliance with any and all
applicable foreign, federal, state and local laws and regulations relating to
the protection of human health and safety, the environment or hazardous or toxic
substances or wastes, pollutants or contaminants ("Environmental Laws"), (ii)
has received all permits, licenses or other approvals required of them under
applicable Environmental Laws to conduct their respective businesses and (iii)
is in compliance with all terms and conditions of any such permit, license or
approval, except where such noncompliance with Environmental Laws, failure to
receive required permits, licenses or other approvals or failure to comply with
the terms and conditions of such permits, licenses or approvals would not,
singly or in the aggregate, have a material adverse effect on the Company.
(xxiii) No material labor dispute with employees of the Company
exists or to the knowledge of the Company is imminent, and, without conducting
any independent investigation, the Company is not aware of any existing,
threatened or imminent labor disturbance by the employees of any of its
principal suppliers, manufacturers or contractors that could result in any
material adverse change in the condition, financial or otherwise, the earnings,
the business or operations of the Company.
(xxiv) The Company owns or possesses adequate licenses or other
rights to use all patents, patent applications, trademarks, service marks, trade
names, licenses, know-how, copyrights, trade secrets and proprietary or other
confidential information necessary to operate the business now operated by them,
and the Company has not received any notice of infringement of or conflict with
asserted rights of any third party with respect to any of the foregoing except
as described in the Prospectus.
(b) DBC hereby represents and warrants to each of the Underwriters
that the statements and information in (i) the officers' certificates dated
_________, 1998 and the date hereof, signed by Messrs. Hirschfield, Tessler and
Imperiale on behalf of DBC and delivered to the Underwriters, and (ii) the
officers' certificates to be signed by such persons on behalf of DBC and
delivered to the Underwriters pursuant to Section 6 (j) hereof (the officers'
certificates referred to in clauses (i) and (ii) of this sentence being
collectively referred to as the "DBC Officers' Certificates") are true and
correct in all material respects.
2. PURCHASE, SALE AND DELIVERY OF THE FIRM SHARES.
(a) On the basis of the representations, warranties and covenants
herein contained, and subject to the conditions herein set forth, the Company
agrees to sell to the Underwriters and each Underwriter agrees, severally and
not jointly, to purchase, at a price of $_______ per share, the number of Firm
Shares set forth opposite the name of each Underwriter in Schedule I hereof,
subject to adjustments in accordance with Section 9 hereof.
(b) Payment for the Firm Shares to be sold hereunder is to be made in
New York Clearing House funds by Federal (same day) against delivery of
certificates therefor to the Representatives for the several accounts of the
Underwriters. Such payment and delivery are to be made through the facilities of
the Depository Trust Company, New York, New York at 10:00 a.m., New York
6
<PAGE> 7
DRAFT
NOVEMBER 20, 1998
time, on the third business day after the date of this Agreement or at such
other time and date not later than five business days thereafter as you and the
Company shall agree upon, such time and date being herein referred to as the
"Closing Date." (As used herein, "business day" means a day on which the New
York Stock Exchange is open for trading and on which banks in New York are open
for business and are not permitted by law or executive order to be closed.) The
certificates for the Firm Shares will be delivered in such denominations and in
such registrations as the Representatives request in writing not later than the
second full business day prior to the Closing Date, and will be made available
for inspection by the Representatives at least one business day prior to the
Closing Date.
(c) In addition, on the basis of the representations and warranties
herein contained and subject to the terms and conditions herein set forth, the
Company hereby grants an option to the several Underwriters to purchase the
Option Shares at the price per share as set forth in the first paragraph of this
Section 2. The option granted hereby may be exercised in whole or in part by
giving written notice (i) at any time before the Closing Date and (ii) only once
thereafter within 30 days after the date of this Agreement, by you, as
Representatives of the several Underwriters, to the Company setting forth the
number of Option Shares as to which the several Underwriters are exercising the
option, the names and denominations in which the Option Shares are to be
registered and the time and date at which such certificates are to be delivered.
The time and date at which certificates for Option Shares are to be delivered
shall be determined by the Representatives but shall not be earlier than three
nor later than 10 full business days after the exercise of such option, nor in
any event prior to the Closing Date (such time and date being herein referred to
as the "Option Closing Date"). If the date of exercise of the option is three or
more days before the Closing Date, the notice of exercise shall set the Closing
Date as the Option Closing Date. The number of Option Shares to be purchased by
each Underwriter shall be in the same proportion to the total number of Option
Shares being purchased as the number of Firm Shares being purchased by such
Underwriter bears to the total number of Firm Shares being purchased, adjusted
by you in such manner as to avoid fractional shares. The option with respect to
the Option Shares granted hereunder may be exercised only to cover
over-allotments in the sale of the Firm Shares by the Underwriters. You, as
Representatives of the several Underwriters, may cancel such option at any time
prior to its expiration by giving written notice of such cancellation to the
Company. To the extent, if any, that the option is exercised, payment for the
Option Shares shall be made on the Option Closing Date in Federal (same day
funds) through the facilities of the Depository Trust Company in New York, New
York drawn to the order of the Company.
3. OFFERING BY THE UNDERWRITERS.
It is understood that the several Underwriters are to make a public
offering of the Firm Shares as soon as the Representatives deem it advisable to
do so. The Firm Shares are to be initially offered to the public at the initial
public offering price set forth in the Prospectus. The Representatives may from
time to time thereafter change the public offering price and other selling
terms. To the extent, if at all, that any Option Shares are purchased pursuant
to Section 2 hereof, the Underwriters will offer them to the public on the
foregoing terms.
It is further understood that you will act as the Representatives for
the Underwriters in the offering and sale of the Shares in accordance with a
Master Agreement Among Underwriters entered into by you and the several other
Underwriters.
4. COVENANTS.
The Company covenants and agrees with the several Underwriters that:
7
<PAGE> 8
DRAFT
NOVEMBER 20, 1998
(a) The Company will (A) use its best efforts to cause the
Registration Statement to become effective or, if the procedure in Rule 430A of
the Rules and Regulations is followed, to prepare and timely file with the
Commission under Rule 424(b) of the Rules and Regulations a Prospectus in a form
approved by the Representatives containing information previously omitted at the
time of effectiveness of the Registration Statement in reliance on Rule 430A of
the Rules and Regulations, (B) not file any amendment to the Registration
Statement or supplement to the Prospectus of which the Representatives shall not
previously have been advised and furnished with a copy or to which the
Representatives shall have reasonably objected in writing or which is not in
compliance with the Rules and Regulations and (C) file on a timely basis all
reports and any definitive proxy or information statements required to be filed
by the Company with the Commission subsequent to the date of the Prospectus and
prior to the termination of the offering of the Shares by the Underwriters.
(b) The Company will advise the Representatives promptly (A) when the
Registration Statement or any post-effective amendment thereto shall have become
effective, (B) of receipt of any comments from the Commission, (C) of any
request of the Commission for amendment of the Registration Statement or for
supplement to the Prospectus or for any additional information, and (D) of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement or the use of the Prospectus or of the institution of any
proceedings for that purpose. The Company will use its best efforts to prevent
the issuance of any such stop order preventing or suspending the use of the
Prospectus and to obtain as soon as possible the lifting thereof, if issued.
(c) The Company will cooperate with the Representatives in
endeavoring to qualify the Shares for sale under the securities laws of such
jurisdictions as the Representatives may reasonably have designated in writing
and will make such applications, file such documents, and furnish such
information as may be reasonably required for that purpose, provided the Company
shall not be required to qualify as a foreign corporation or to file a general
consent to service of process in any jurisdiction where it is not now so
qualified or required to file such a consent. The Company will, from time to
time, prepare and file such statements, reports, and other documents, as are or
may be required to continue such qualifications in effect for so long a period
as the Representatives may reasonably request for distribution of the Shares.
(d) The Company will deliver to, or upon the order of, the
Representatives, from time to time, as many copies of any Preliminary Prospectus
as the Representatives may reasonably request. The Company will deliver to, or
upon the order of, the Representatives during the period when delivery of a
Prospectus is required under the Act, as many copies of the Prospectus in final
form, or as thereafter amended or supplemented, as the Representatives may
reasonably request. The Company will deliver to the Representatives at or before
the Closing Date, four signed copies of the Registration Statement and all
amendments thereto including all exhibits filed therewith, and will deliver to
the Representatives such number of copies of the Registration Statement
(including such number of copies of the exhibits filed therewith that may
reasonably be requested), and of all amendments thereto, as the Representatives
may reasonably request.
(e) The Company will comply with the Act and the Rules and
Regulations, and the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations of the Commission thereunder, so as to
permit the completion of the distribution of the Shares as contemplated in this
Agreement and the Prospectus. If during the period in which a prospectus is
required by law to be delivered by an Underwriter or dealer, any event shall
occur as a result of which, in the judgment of the Company or in the reasonable
opinion of the Underwriters, it becomes necessary to amend or supplement the
Prospectus in order to make the statements therein, in the light of the
circumstances existing at the
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time the Prospectus is delivered to a purchaser, not misleading, or, if it is
necessary at any time to amend or supplement the Prospectus to comply with any
law, the Company promptly will prepare and file with the Commission an
appropriate amendment to the Registration Statement or supplement to the
Prospectus so that the Prospectus as so amended or supplemented will not, in the
light of the circumstances when it is so delivered, be misleading, or so that
the Prospectus will comply with the law.
(f) The Company will make generally available to its security
holders, as soon as it is practicable to do so, but in any event not later than
15 months after the effective date of the Registration Statement, an earnings
statement (which need not be audited) in reasonable detail, covering a period of
at least 12 consecutive months beginning after the effective date of the
Registration Statement, which earnings statement shall satisfy the requirements
of Section 11(a) of the Act and Rule 158 of the Rules and Regulations and will
advise you in writing when such statement has been so made available.
(g) Prior to the Closing Date, the Company will furnish to the
Underwriters, as soon as they have been prepared by or are available to the
Company, a copy of any unaudited interim financial statements of the Company for
any period subsequent to the period covered by the most recent financial
statements appearing in the Registration Statement and the Prospectus. The
Company will, for a period of five years from the Closing Date, deliver to the
Representatives copies of annual reports and copies of all other documents,
reports and information furnished by the Company to its stockholders or filed
with any securities exchange pursuant to the requirements of such exchange or
with the Commission pursuant to the Act or the Securities Exchange Act of 1934,
as amended.
(h) No offering, sale, short sale or other disposition of any shares
of Common Stock of the Company or other securities convertible into or
exchangeable or exercisable for shares of Common Stock or derivative of Common
Stock (or agreement for such) will be made for a period of days after the date
of this Agreement, directly or indirectly, by the Company otherwise than
hereunder or with the prior written consent of BT Alex. Brown Incorporated.
(i) The Company will use its best efforts to list, subject to notice
of issuance, the Shares on The Nasdaq Stock Market.
(j) The Company has caused each officer, director, stockholders and
optionholder of the Company to furnish to you, on or prior to the date of this
agreement, a letter or letters, in form and substance satisfactory to the
Underwriters, pursuant to which each such person shall agree not to offer, sell,
sell short or otherwise dispose of any shares of Common Stock of the Company or
other capital stock of the Company, or any other securities convertible,
exchangeable or exercisable for Common Shares or derivative of Common Shares
owned by such person or request the registration for the offer or sale of any of
the foregoing (or as to which such person has the right to direct the
disposition of) for a period of 180 days after the date of this Agreement,
directly or indirectly, except with the prior written consent of BT Alex. Brown
Incorporated ("Lockup Agreements").
(k) The Company shall apply the net proceeds of its sale of the
Shares as set forth in the Prospectus and shall file such reports with the
Commission with respect to the sale of the Shares and the application of the
proceeds therefrom as may be required in accordance with Rule 463 under the Act.
(l) The Company shall not invest, or otherwise use the proceeds
received by the Company from its sale of the Shares in such a manner as would
require the Company to register as an investment company under the 1940 Act.
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(m) The Company will maintain a transfer agent and, if necessary
under the jurisdiction of incorporation of the Company, a registrar for the
Common Stock.
(n) The Company will not take, directly or indirectly, any action
designed to cause or result in, or that has constituted or might reasonably be
expected to constitute, the stabilization or manipulation of the price of any
securities of the Company.
5. COSTS AND EXPENSES.
The Company will pay all costs, expenses and fees incident to the
performance of the obligations of the Company under this Agreement, including,
without limiting the generality of the foregoing, the following: accounting fees
of the Company; the fees and disbursements of counsel for the Company; the cost
of printing and delivering to, or as requested by, the Underwriters copies of
the Registration Statement, Preliminary Prospectuses, the Prospectus, this
Agreement, the Underwriters' Selling Memorandum, the Underwriters' Invitation
Letter, the Listing Application, the Blue Sky Survey and any supplements or
amendments thereto; the filing fees of the Commission; the filing fees and
expenses (including legal fees and disbursements of counsel for the
Underwriters) incident to securing any required review by the National
Association of Securities Dealers, Inc. (the "NASD") of the terms of the sale of
the Shares; the Listing Fee of The Nasdaq Stock Market; and the expenses,
including the fees and disbursements of counsel for the Underwriters, incurred
in connection with the qualification of the Shares under State securities or
Blue Sky laws. The Company agrees to pay all costs and expenses of the
Underwriters, including the fees and disbursements of counsel for the
Underwriters, incident to the offer and sale of directed shares of the Common
Stock by the Underwriters to employees and persons having business relationships
with the Company. The Company shall not, however, be required to pay for any of
the Underwriters expenses (other than those related to qualification under NASD
regulation and State securities or Blue Sky laws) except that, if this Agreement
shall not be consummated because the conditions in Section 6 hereof are not
satisfied, or because this Agreement is terminated by the Representatives
pursuant to Section 11 hereof, or by reason of any failure, refusal or inability
on the part of the Company to perform any undertaking or satisfy any condition
of this Agreement or to comply with any of the terms hereof on its part to be
performed, unless such failure to satisfy said condition or to comply with said
terms be due to the default or omission of any Underwriter, then the Company
shall reimburse the several Underwriters for reasonable out-of-pocket expenses,
including fees and disbursements of counsel, reasonably incurred in connection
with investigating, marketing and proposing to market the Shares or in
contemplation of performing their obligations hereunder; but the Company shall
not in any event be liable to any of the several Underwriters for damages on
account of loss of anticipated profits from the sale by them of the Shares.
6. CONDITIONS OF OBLIGATIONS OF THE UNDERWRITERS.
The several obligations of the Underwriters to purchase the Firm
Shares on the Closing Date and the Option Shares, if any, on the Option Closing
Date are subject to the accuracy, as of the Closing Date or the Option Closing
Date, as the case may be, of the representations and warranties of the Company
contained herein, and to the performance by the Company of its covenants and
obligations hereunder and to the following additional conditions:
(a) The Registration Statement and all post-effective amendments
thereto shall have become effective and any and all filings required by Rule 424
and Rule 430A of the Rules and Regulations shall have been made, and any request
of the Commission for additional information (to be included in the Registration
Statement or otherwise) shall have been disclosed to the Representatives and
complied with to their reasonable satisfaction. No stop order suspending the
effectiveness of the
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DRAFT
NOVEMBER 20, 1998
Registration Statement, as amended from time to time, shall have been issued and
no proceedings for that purpose shall have been taken or, to the knowledge of
the Company, shall be contemplated by the Commission and no injunction,
restraining order, or order of any nature by a Federal or state court of
competent jurisdiction shall have been issued as of the Closing Date which would
prevent the issuance of the Shares.
(b) The Representatives shall have received on the Closing Date or
the Option Closing Date, as the case may be, the opinion of Fenwick & West LLP
counsel for the Company, dated the Closing Date or the Option Closing Date, as
the case may be, addressed to the Underwriters (and stating that it may be
relied upon by counsel to the Underwriters) to the effect that:
(i) The Company has been duly organized and is validly existing
as a corporation in good standing under the laws of the State of Delaware, with
corporate power and authority to own or lease its properties and conduct its
business as described in the Registration Statement; the Company is duly
qualified to transact business in all jurisdictions in which the conduct of
their business requires such qualification, or in which the failure to qualify
would have a materially adverse effect upon the business of the Company.
(ii) The Company has authorized and outstanding capital stock as
set forth in the Prospectus; the authorized shares of the Company's Common Stock
have been duly authorized; the outstanding shares of the Company's Common Stock
have been duly authorized and validly issued and are fully paid and
non-assessable; all of the Shares conform to the description thereof contained
in the Prospectus; the certificates for the Shares, assuming they are in the
form filed with the Commission, are in due and proper form; the shares of Common
Stock, including the Option Shares, if any, to be sold by the Company pursuant
to this Agreement have been duly authorized and will be validly issued, fully
paid and non-assessable when issued and paid for as contemplated by this
Agreement; and no preemptive rights of stockholders exist with respect to any of
the Shares or the issue or sale thereof
(iii) Except as described in or contemplated by the Prospectus,
to the knowledge of such counsel, there are no outstanding securities of the
Company convertible or exchangeable into or evidencing the right to purchase or
subscribe for any shares of capital stock of the Company and there are no
outstanding or authorized options, warrants or rights of any character
obligating the Company to issue any shares of its capital stock or any
securities convertible or exchangeable into or evidencing the right to purchase
or subscribe for any shares of such stock; and except as described in the
Prospectus, to the knowledge of such counsel, no holder of any securities of the
Company or any other person has the right, contractual or otherwise, which has
not been satisfied or effectively waived, to cause the Company to sell or
otherwise issue to them, or to permit them to underwrite the sale of, any of the
Shares or the right to have any Common Shares or other securities of the Company
included in the Registration Statement or the right, as a result of the filing
of the Registration Statement, to require registration under the Act of any
shares of Common Stock or other securities of the Company.
(iv) The Registration Statement has become effective under the
Act and, to the best of the knowledge of such counsel, no stop order proceedings
with respect thereto have been instituted or are pending or threatened under the
Act.
(v) The Registration Statement, the Prospectus and each
amendment or supplement thereto comply as to form in all material respects with
the requirements of the Act or the Securities Exchange Act of 1934, as
applicable and the applicable rules and regulations thereunder
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<PAGE> 12
DRAFT
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(except that such counsel need express no opinion as to the financial statements
and related schedules therein).
(vi) The statements under the captions "Management," "Certain
Transactions," "Description of Capital Stock" and "Shares Eligible for Future
Sale" in the Prospectus, insofar as such statements constitute a summary of
documents referred to therein or matters of law, fairly summarize in all
material respects the information called for with respect to such documents and
matters.
(vii) Such counsel does not know of any contracts or documents
required to be filed as exhibits to the Registration Statement or described in
the Registration Statement or the Prospectus which are no so filed or described
as required, and such contracts and documents as are summarized in the
Registration Statement or the Prospectus are fairly summarized in all material
respects.
(viii) Such counsel knows of no material legal or governmental
proceedings pending or threatened against the Company except as set forth in the
Prospectus.
(ix) The execution and delivery of this Agreement and the
consummation of the transactions herein contemplated do not and will not
conflict with or result in a breach of any of the terms or provisions of, or
constitute a default under, the Charter or Bylaws of the Company, or any
agreement or instrument known to such counsel to which the Company is a party or
by which the Company or any of its properties may be bound.
(x) This Agreement has been duly authorized, executed and
delivered by the Company.
(xi) No approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body is necessary in connection with the execution and delivery of
this Agreement and the consummation of the transactions herein contemplated
(other than as may be required by the NASD or as required by State securities
and Blue Sky laws as to which such counsel need express no opinion) except such
as have been obtained or made, specifying the same.
(xii) The Company is not, and will not become, as a result of the
consummation of the transactions contemplated by this Agreement, and application
of the net proceeds therefrom as described in the Prospectus, required to
register as an investment company under the 1940 Act.
In rendering such opinion Fenwick & West LLP may rely as to matters
governed by the laws of states other than Delaware or Federal laws on local
counsel in such jurisdictions, provided that in each case Fenwick & West LLP
shall state that they believe that they and the Underwriters are justified in
relying on such other counsel. In addition to the matters set forth above, such
opinion shall also include a statement to the effect that nothing has come to
the attention of such counsel which leads them to believe that (i) the
Registration Statement, at the time it became effective under the Act (but after
giving effect to any modifications incorporated therein pursuant to Rule 430A
under the Act) and as of the Closing Date or the Option Closing Date, as the
case may be, contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, and (ii) the Prospectus, or any supplement
thereto, on the date it was filed pursuant to the Rules and Regulations and as
of the Closing Date or the Option Closing Date, as the case may be, contained an
untrue statement of a material fact or omitted to state a material fact
necessary in order to make the statements, in the light of the circumstances
under which they are made, not misleading (except
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<PAGE> 13
DRAFT
NOVEMBER 20, 1998
that such counsel need express no view as to financial statements, schedules and
statistical information therein). With respect to such statement, Fenwick & West
LLP may state that their belief is based upon the procedures set forth therein,
but is without independent check and verification.
(c) The Representatives shall have received from Gunderson Dettmer
Stough Villeneuve Franklin & Hachigian, LLP, counsel for the Underwriters, an
opinion dated the Closing Date or the Option Closing Date, as the case may be,
substantially to the effect specified in subparagraphs (iii), (iv) and (ix) of
Paragraph (b) of this Section 6, and that the Company is a duly organized and
validly existing corporation under the laws of the State of Delaware. In
rendering such opinion Gunderson Dettmer Stough Villeneuve Franklin & Hachigian,
LLP may rely as to all matters governed other than by the laws of the State of
California, the General Corporation Law of the State of Delaware or federal
securities laws of the United States on the opinion of counsel referred to in
Paragraph (b) of this Section 6. In addition to the matters set forth above,
such opinion shall also include a statement to the effect that nothing has come
to the attention of such counsel which leads them to believe that (i) the
Registration Statement, or any amendment thereto, as of the time it became
effective under the Act (but after giving effect to any modifications
incorporated therein pursuant to Rule 430A under the Act) as of the Closing Date
or the Option Closing Date, as the case may be, contained an untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading (except that
such counsel need express no view as to financial statements, schedules and
other financial, market and statistical information therein), and (ii) the
Prospectus, or any supplement thereto, on the date it was filed pursuant to the
Rules and Regulations and as of the Closing Date or the Option Closing Date, as
the case may be, contained an untrue statement of a material fact or omitted to
state a material fact, necessary in order to make the statements, in the light
of the circumstances under which they are made, not misleading (except that such
counsel need express no view as to financial statements, schedules and other
financial, market and statistical information therein). With respect to such
statement, Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP may
state that their belief is based upon the procedures set forth therein, but is
without independent check and verification.
(d) The Representatives shall have received at or prior to the
Closing Date from Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP
a memorandum or summary, in form and substance satisfactory to the
Representatives, with respect to the qualification for offering and sale by the
Underwriters of the Shares under the State securities or Blue Sky laws of such
jurisdictions as the Representatives may reasonably have designated to the
Company.
(e) You shall have received, on each of the dates hereof, the Closing
Date and the Option Closing Date, as the case may be, a letter dated the date
hereof, the Closing Date or the Option Closing Date, as the case may be, in form
and substance satisfactory to you, of PricewaterhouseCoopers LLP confirming that
they are independent public accountants within the meaning of the Act and the
applicable published Rules and Regulations thereunder and stating that in their
opinion the financial statements and schedules, including those of DBC
Online/News Business, examined by them and included in the Registration
Statement comply in form in all material respects with the applicable accounting
requirements of the Act and the related published Rules and Regulations; and
containing such other statements and information as is ordinarily included in
accountants' "comfort letters" to Underwriters with respect to the financial
statements and certain financial and statistical information contained in the
Registration Statement and Prospectus.
(f) The Representatives shall have received on the Closing Date or
the Option Closing Date, as the case may be, a certificate or certificates of
the Chief Executive Officer and
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the Chief Financial Officer of the Company to the effect that, as of the Closing
Date or the Option Closing Date, as the case may be, each of them severally
represents as follows:
(i) The Registration Statement has become effective under the
Act and no stop order suspending the effectiveness of the Registrations
Statement has been issued, and no proceedings for such purpose have been taken
or are, to his knowledge, contemplated by the Commission;
(ii) The representations and warranties of the Company contained
in Section I hereof are true and correct as of the Closing Date or the Option
Closing Date, as the case may be;
(iii) All filings required to have been made pursuant to Rules
424 or 430A under the Act have been made;
(iv) He has carefully examined the Registration Statement and the
Prospectus and, in his opinion, as of the effective date of the Registration
Statement, the statements contained in the Registration Statement were true and
correct, and such Registration Statement and Prospectus did not omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein not misleading, and since the effective date of the
Registration Statement, no event has occurred which should have been set forth
in a supplement to or an amendment of the Prospectus which has not been so set
forth in such supplement or amendment; and
(v) Since the respective dates as of which information is given
in the Registration Statement and Prospectus, there has not been any material
adverse change or any development involving a prospective material adverse
change in or affecting the condition, financial or otherwise, of the Company or
the earnings, business, management, properties, assets, rights, operations,
condition (financial or otherwise) or prospects of the Company, whether or not
arising in the ordinary course of business.
(g) The Company shall have furnished to the Representatives such
further certificates and documents confirming the representations and
warranties, covenants and conditions contained herein and related matters as the
Representatives may reasonably have requested.
(h) The Firm Shares and Option Shares, if any, have been approved for
designation upon notice of issuance on The Nasdaq Stock Market.
(i) The Lockup Agreements described in Section 4 (j) are in full
force and effect.
(j) The Representatives shall have received on the Closing Date or
the Option Closing Date, as the case may be, a certificate or certificates of
the Co-Chief Executive Officer and the Chief Operating Officer and Chief
Financial Officer of DBC, in a form reasonably satisfactory to the
Representatives, with regard to certain information contained in the
Registration Statement and Prospectus.
The opinions and certificates mentioned in this Agreement shall be
deemed to be in compliance with the provisions hereof only if they are in all
material respects satisfactory to the Representatives and to Gunderson Dettmer
Stough Villeneuve Franklin & Hachigian, LLP, counsel for the Underwriters.
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DRAFT
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If any of the conditions hereinabove provided for in this Section 6
shall not have been fulfilled when and as required by this Agreement to be
fulfilled, the obligations of the Underwriters hereunder may be terminated by
the Representatives by notifying the Company of such termination in writing or
by telegram at or prior to the Closing Date or the Option Closing Date, as the
case may be.
In such event, the Company and the Underwriters shall not be under any
obligation to each other (except to the extent provided in Sections 5 and 8
hereof).
7. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY.
The obligations of the Company to sell and deliver the portion of the
Shares required to be delivered as and when specified in this Agreement are
subject to the conditions that at the Closing Date or the Option Closing Date,
as the case may be, no stop order suspending the effectiveness of the
Registration Statement shall have been issued and in effect or proceedings
therefor initiated or threatened.
8. INDEMNIFICATION.
(a) The Company agrees:
1. to indemnify and hold harmless each Underwriter and each
person, if any, who controls any Underwriter within the meaning of the Act,
against any losses, claims, damages or liabilities to which such Underwriter or
any such controlling person may become subject under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) arise out of or are based upon (i) any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus, Prospectus or any amendment
or supplement thereto, (ii) the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or (iii) any alleged act or failure to act by any
Underwriter in connection with, or relating in any manner to, the Shares or the
offering contemplated hereby, and which is included as part of or referred to in
any loss, claim, damage, liability or action arising out of or based upon
matters covered by clause (i) or (ii) above (provided, that the Company shall
not be liable under this clause (iii) to the extent that it is determined in a
final judgment by a court of competent jurisdiction that such loss, claim,
damage, liability or action resulted directly from any such acts or failures to
act undertaken or omitted to be taken by such Underwriter through its gross
negligence or willful misconduct); provided, however, that the Company will not
be liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement, or omission or alleged omission made in the Registration Statement,
any Preliminary Prospectus, the Prospectus, or such amendment or supplement, in
reliance upon and in conformity with written information furnished to the
Company by or through the Representatives specifically for use in the
preparation thereof.
2. to reimburse each Underwriter and each such controlling
person upon demand for any legal or other out-of-pocket expenses reasonably
incurred by such Underwriter or such controlling person in connection with
investigating or defending any such loss, claim, damage or liability, action or
proceeding or in responding to a subpoena or governmental inquiry related to the
offering of the Shares, whether or not such Underwriter or controlling person is
a party to any action or proceeding. In the event that it is finally judicially
determined that the Underwriters were not entitled to receive payments for legal
and other expenses pursuant to this subparagraph, the Underwriters will promptly
return all sums that had been advanced pursuant hereto.
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<PAGE> 16
(b) DBC agrees to indemnify and hold harmless each Underwriter and
each person, if any, who controls any Underwriter within the meaning of the Act,
against any losses, claims, damages or liabilities to which such Underwriter or
any such controlling person may become subject under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) arise out of or are based upon (i) any untrue
statement or alleged untrue statement of any material fact or data included or
referred to in the DBC Officer's Certificate or (ii) the omission or alleged
omission to state, with respect to any statement or data included or referred to
in the DBC Officer's Certificate, a material fact or data required to be stated
therein or necessary to make the statement included in the DBC Officer's
Certificate, in light of the circumstances in which they were made, not
misleading; provided, however, that DBC will not be liable in any such case to
the extent that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement, or omission or
alleged omission made in the Registration Statement, any Preliminary Prospectus,
the Prospectus, or such amendment or supplement, in reliance upon and in
conformity with written information furnished to the Company by or through DBC
specifically for use in the preparation thereof. In no event, however, shall the
liability of DBC for indemnification under this Section 8(b) exceed the gross
proceeds from the offer and sale of the Shares to the public (the "DBC Amount").
This indemnity obligation will be in addition to any liability which DBC may
otherwise have.
(c) Each Underwriter severally and not jointly will indemnify and
hold harmless the Company, each of its directors, each of its officers who have
signed the Registration Statement and each person, if any, who controls the
Company within the meaning of the Act, against any losses, claims, damages or
liabilities to which the Company or any such director, officer, or controlling
person may become subject under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
arise out of or are based upon (i) any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement, any
Preliminary Prospectus, the Prospectus or any amendment or supplement thereto,
or (ii) the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances under which they were made; and
will reimburse any legal or other expenses reasonably incurred by the Company or
any such director, officer or controlling person in connection with
investigating or defending any such loss, claim, damage, liability, action or
proceeding; provided, however, that each Underwriter will be liable in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission has been made in the
Registration Statement, any Preliminary Prospectus, the Prospectus or such
amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by or through the Representatives
specifically for use in the preparation thereof. This indemnity agreement will
be in addition to any liability which such Underwriter may otherwise have.
(d) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to this Section 8, such person (the "indemnified party") shall
promptly notify the person against whom such indemnity may be sought (the
"indemnifying party") in writing. No indemnification provided for in Section
8(a), (b) or (c) shall be available to any party who shall fail to give notice
as provided in this Section 8(d) if the party to whom notice was not given was
unaware of the proceeding to which such notice would have related and was
materially prejudiced by the failure to give such notice, but the failure to
give such notice shall not relieve the indemnifying party or parties from any
liability which it or they may have to the indemnified party for contribution or
otherwise than on account of the provisions of Section 8(a), (b) or (c). In case
any such proceeding shall be brought against any indemnified party and it shall
notify the indemnifying party of the commencement thereof, the indemnifying
party shall be entitled
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to participate therein and, to the extent that it shall wish, jointly with any
other indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party and shall pay as incurred the
fees and disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own counsel
at its own expense. Notwithstanding the foregoing, the indemnifying party shall
pay as incurred (or within 30 days of presentation) the fees and expenses of the
counsel retained by the indemnified party in the event (i) the indemnifying
party and the indemnified party shall have mutually agreed to the retention of
such counsel, (ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the indemnified party
and representation of both parties by the same counsel would be inappropriate
due to actual or potential differing interests between them or (iii) the
indemnifying party shall have failed to assume the defense and employ counsel
acceptable to the indemnified party within a reasonable period of time after
notice of commencement of the action. It is understood that the indemnifying
party shall not, in connection with any proceeding or related proceedings in the
same jurisdiction, be liable for the reasonable fees and expenses of more than
one separate firm for all such indemnified parties. Such firm shall be
designated in writing by you in the case of parties indemnified pursuant to
Section 8(a) or (b) and by the Company in the case of parties indemnified
pursuant to Section 8(c). The indemnifying party shall not be liable for any
settlement of any proceeding effected without its written consent but if settled
with such consent or if there be a final judgment for the plaintiff, the
indemnifying party agrees to indemnify the indemnified party from and against
any loss or liability by reason of such settlement or judgment. In addition, the
indemnifying party will not, without the prior written consent of the
indemnified party, settle or compromise or consent to the entry of any judgment
in any pending or threatened claim, action or proceeding of which
indemnification may be sought hereunder (whether or not any indemnified party is
an actual or potential party to such claim, action or proceeding) unless such
settlement, compromise or consent includes an unconditional release of each
indemnified party from all liability arising out of such claim, action or
proceeding.
(e) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
Section 8(a), (b) or (c) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to therein,
then each indemnifying party shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) in such proportion as
is appropriate to reflect the relative benefits received by the Company and DBC,
on the one hand, and the Underwriters, on the other hand, from the offering of
the Shares. If, however, the allocation provided by the immediately preceding
sentence is not permitted by applicable law then each indemnifying party shall
contribute to such amount paid or payable by such indemnified party in such
proportion as appropriate to reflect not only such relative benefits but also
the relative fault of the Company and DBC, on the one hand, and the Underwriter,
on the other hand, in connection with the statements or omissions which resulted
in such losses, claims, damages or liabilities, (or actions or proceedings in
respect thereof), as well as any other relevant equitable considerations. The
relative benefits received by the Company and DBC, on the one hand, and the
Underwriters, on the other hand, shall be deemed to be in the same proportion as
the total net proceeds from the offering (before deducting expenses) received by
the Company bear to the total underwriting discounts and commissions received by
the Underwriters, in each case as set forth in the table on the cover page of
the Prospectus. The relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Company or DBC, on the one hand, or the
Underwriters, on the other hand, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission.
17
<PAGE> 18
DRAFT
NOVEMBER 20, 1998
The Company, DBC and the Underwriters agree that it would not be just
and equitable if contributions pursuant to this Section 8(e) were determined by
pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to above in this Section 8(e). The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
referred to above in this Section 8(e) shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection (e), (i) no Underwriter shall be required to
contribute any amount in excess of the underwriting discounts and commissions
applicable to the Shares purchased by such Underwriter, and (ii) no person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation, and (iii) DBC shall not be required to
contribute any amount in excess of the DBC Amount. The Underwriters' obligations
in this Section 8(e) to contribute are several in proportion to their respective
underwriting obligations and not joint. In no event, however, shall the
liability of DBC for contributions under this Section 8(e) exceed the DBC Amount
(less any amount for which DBC is liable under Section 8(b) hereof).
(f) In any proceeding relating to the Registration Statement, any
Preliminary Prospectus, the Prospectus or any supplement or amendment thereto,
each party against whom contribution may be sought under this Section 8 hereby
consents to the jurisdiction of any court having jurisdiction over any other
contributing party, agrees that process issuing from such court may be served
upon him or it by any other contributing party and consents to the service of
such process and agrees that any other contributing party may join him or it as
an additional defendant in any such proceeding in which such other contributing
party is a party.
(g) Any losses, claims, damages, liabilities or expenses for which an
indemnified party is entitled to indemnification or contribution under this
Section 8 shall be paid by the indemnifying party to the indemnified party as
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 8 and the
representations and warranties of the Company and DBC set forth in this
Agreement shall remain operative and in full force and effect, regardless of (i)
any investigation made by or on behalf of any Underwriter or any person
controlling any Underwriter, the Company, its directors or officers or any
persons controlling the Company, (ii) acceptance of any Shares and payment
therefor hereunder, and (iii) any termination of this Agreement. A successor to
any Underwriter, or to the Company, its directors or officers, or any person
controlling the Company, shall be entitled to the benefits of the indemnity,
contribution and reimbursement agreements contained in this Section 8.
(h) DBC shall not be liable under the indemnity and contribution
agreements of Sections 8(b) and 8(e) above, respectively, unless and until the
Underwriters have made written demand on the Company for payment under Sections
8(a) and (e), respectively, which shall not have been paid by the Company within
45 days after receipt of such demand.
9. DEFAULT BY UNDERWRITERS.
If on the Closing Date or the Option Closing Date, as the case may be,
any Underwriter shall fail to purchase and pay for the portion of the Shares
which such Underwriter has agreed to purchase and pay for on such date
(otherwise than by reason of any default on the part of the Company), you, as
Representatives of the Underwriters, shall use your reasonable efforts to
procure within 36 hours
18
<PAGE> 19
DRAFT
NOVEMBER 20, 1998
thereafter one or more of the other Underwriters, or any others, to purchase
from the Company such amounts as may be agreed upon and upon the terms set forth
herein, the Firm Shares or Option Shares, as the case may be, which the
defaulting Underwriter or Underwriters failed to purchase. If during such 36
hours you, as such Representatives, shall not have procured such other
Underwriters, or any others, to purchase the Firm Shares or Option Shares, as
the case may be, agreed to be purchased by the defaulting Underwriter or
Underwriters, then (a) if the aggregate number of shares with respect to which
such default shall occur does not exceed 10% of the Firm Shares or Option
Shares, as the case may be, covered hereby, the other Underwriters shall be
obligated, severally, in proportion to the respective numbers of Firm Shares or
Option Shares, as the case may be, which they are obligated to purchase
hereunder, to purchase the Firm Shares or Option Shares, as the case may be,
which such defaulting Underwriter or Underwriters failed to purchase, or (h) if
the aggregate number of shares of Firm Shares or Option Shares, as the case may
be, with respect to which such default shall occur exceeds 10% of the Firm
Shares or Option Shares, as the case may be, covered hereby, the Company or you
as the Representatives of the Underwriters will have the right, by written
notice given within the next 36-hour period to the parties to this Agreement, to
terminate this Agreement without liability on the part of the nondefaulting
Underwriters or of the Company except to the extent provided in Section 8
hereof. In the event of a default by any Underwriter or Underwriters, as set
forth in this Section 9, the Closing Date or Option Closing Date, as the case
may be, may be postponed for such period, not exceeding seven days, as you, as
Representatives, may determine in order that the required changes in the
Registration Statement or in the Prospectus or in any other documents or
arrangements may be effected. The term "Underwriter" includes any person
substituted for a defaulting Underwriter. Any action taken under this Section 9
shall not relieve any defaulting Underwriter from liability in respect of any
default of such Underwriter under this Agreement.
10. NOTICES.
All communications hereunder shall be in writing and, except as
otherwise provided herein, will be mailed, delivered, telecopied or telegraphed
and confirmed as follows: if to the Underwriters, to BT Alex. Brown
Incorporated, One South Street, Baltimore, Maryland 21202, Attention:
_________________________; with a copy to BT Alex. Brown Incorporated, One
Bankers Trust Plaza, 130 Liberty Street, New York, New York 10006, Attention:
General Counsel; if to the Company, to J. Peter Bardwick, Chief Financial
Officer, MarketWatch.com, Inc., 825 Battery Street, San Francisco, California
94111; with a copy to Fenwick & West LLP, Two Palo Alto Square, Palo Alto,
California 94306, Attention: Mark C. Stevens, Esq.
11. TERMINATION.
(a) This Agreement may be terminated by you by notice to the Company
at any time prior to the Closing Date if any of the following has occurred: (i)
since the respective dates as of which information is given in the Registration
Statement and the Prospectus, any material adverse change or any development
involving a prospective material adverse change in or affecting the condition,
financial or otherwise, of the Company or the earnings, business, management,
properties, assets, rights, operations, condition (financial or otherwise) or
prospects of the Company, whether or not arising in the ordinary course of
business, (ii) any outbreak or escalation of hostilities or declaration of war
or national emergency or other national or international calamity or crisis or
change in economic or political conditions if the effect of such outbreak,
escalation, declaration, emergency, calamity, crisis or change on the financial
markets of the United States would, in your reasonable judgment, make it
impracticable or inadvisable to market the Shares or to enforce contracts for
the sale of the Shares, or (iii) suspension of trading in securities generally
on the New York Stock Exchange or the American Stock Exchange or
19
<PAGE> 20
DRAFT
NOVEMBER 20, 1998
limitation on prices (other than limitations on hours or numbers of days of
trading) for securities on either such Exchange, (iv) the enactment,
publication, decree or other promulgation of any statute, regulation, rule or
order of any court or other governmental authority which in your opinion
materially and adversely affects or may materially and adversely affect the
business or operations of the Company, (v) declaration of a banking moratorium
by United States or New York State authorities, (vi) any downgrading, or
placement on any watch list for possible downgrading, in the rating of the
Company's debt securities by any "nationally recognized statistical rating
organization" (as defined for purposes of Rule 436(g) under the Exchange Act);
(vii) the suspension of trading of the Company's common stock by The Nasdaq
Stock Market, the Commission, or any other governmental authority or, (viii) the
taking of any action by any governmental body or agency in respect of its
monetary or fiscal affairs which in your reasonable opinion has a material
adverse effect on the securities markets in the United States; or
(b) as provided in Sections 6 and 9 of this Agreement.
12. SUCCESSORS.
This Agreement has been and is made solely for the benefit of the
Underwriters and the Company and their respective successors, executors,
administrators, heirs and assigns, and the officers, directors and controlling
persons referred to herein, and no other person will have any right or
obligation hereunder. No purchaser of any of the Shares from any Underwriter
shall be deemed a successor or assign merely because of such purchase.
13. INFORMATION PROVIDED BY UNDERWRITERS.
The Company and the Underwriters acknowledge and agree that the only
information furnished or to be furnished by any Underwriter to the Company for
inclusion in any Prospectus or the Registration Statement consists of the
information set forth in the last paragraph on the front cover page (insofar as
such information relates to the Underwriters), legends required by Item 502(d)
of Regulation S-K under the Act and the information under the caption
"Underwriting" in the Prospectus.
14. MISCELLANEOUS.
The reimbursement, indemnification and contribution agreements
contained in this Agreement and the representations, warranties and covenants in
this Agreement shall remain in full force and effect regardless of (a) any
termination of this Agreement, (h) any investigation made by or on behalf of any
Underwriter or controlling person thereof, or by or on behalf of the Company or
its directors or officers and (c) delivery of and payment for the Shares under
this Agreement.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
BT Alex. Brown Incorporated hereby agrees that it will not, without
the prior written consent of Donaldson, Lufkin & Jenrette Securities
Corporation, consent to a modification of the obligations of the officers,
directors or stockholders of the Company under the Lockup Agreements described
in Section 4(j) hereof.
This Agreement shall be governed by, and construed in accordance with,
the laws of the State of Maryland.
20
<PAGE> 21
DRAFT
NOVEMBER 20, 1998
If the foregoing letter is in accordance with your understanding of
our agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Company, DBC as to
Sections 1, 6, 8 and 10 through 14 inclusive, and the several Underwriters in
accordance with its terms.
Very truly yours,
MARKETWATCH.COM, INC.
By:
-------------------------------------
DATA BROADCASTING CORPORATION
By:
-------------------------------------
The foregoing Underwriting Agreement
is hereby confirmed and accepted as
of the date first above written.
BT ALEX. BROWN INCORPORATED
- ---------------------------------------
As Representatives of the several
Underwriters listed on Schedule I
By: BT Alex. Brown Incorporated
By:
------------------------------------
Authorized Officer
21
<PAGE> 22
DRAFT
NOVEMBER 20, 1998
SCHEDULE I
SCHEDULE OF UNDERWRITERS
<TABLE>
<CAPTION>
Number of Firm Shares
Underwriter to be Purchased
- ----------- ---------------------
<S> <C>
BT Alex. Brown Incorporated
Donaldson Lufkin & Jenrette Securities Corporation
Salomon Smith Barney Inc.
First Albany Corporation
---------------------
Total ---------------------
</TABLE>
22
<PAGE> 1
EXHIBIT 5.01
November 25, 1998
MarketWatch.com, Inc.
825 Battery Street
San Francisco, California 94111
Ladies and Gentlemen:
At your request, we have examined the Registration Statement on Form
S-1 (File Number 333-65569) (the "Registration Statement") filed by you with the
Securities and Exchange Commission (the "Commission") on or about October 13,
1998 in connection with the registration under the Securities Act of 1933, as
amended, of an aggregate of up to 3,162,500 shares of your Common Stock (the
"Stock").
In rendering this opinion, we have examined the following:
(1) your Registration Statement on Form 8-A filed with the
Commission on November 25, 1998;
(2) the Registration Statement, together with the Exhibits filed as
a part thereof;
(3) the Prospectus prepared in connection with the Registration
Statement;
(4) the minutes of meetings and actions by written consent of the
stockholders and Board of Directors that are contained in your
minute books, that are in our possession;
(5) the stock records that you have provided to us (consisting of a
list of stockholders and a list of option holders respecting
your capital stock and of any rights to purchase capital stock
that was prepared by you and dated November 25, 1998); and
(6) a Management Certificate addressed to us and dated of even date
herewith executed by the Company containing certain factual and
other representations.
In our examination of documents for purposes of this opinion, we have
assumed, and express no opinion as to, the genuineness of all signatures on
original documents, the authenticity of all documents submitted to us as
originals, the conformity to originals of all documents submitted to us as
copies, the legal capacity of all natural persons executing the same, the lack
of any undisclosed terminations, modifications, waivers or amendments to any
documents reviewed by us and the due execution and delivery of all documents
where due execution and delivery are prerequisites to the effectiveness thereof.
<PAGE> 2
November 25, 1998
Page 2
As to matters of fact relevant to this opinion, we have relied solely
upon our examination of the documents referred to above and have assumed the
current accuracy and completeness of the information obtained from records
referred to above. We have made no independent investigation or other attempt to
verify the accuracy of any of such information or to determine the existence or
non-existence of any other factual matters; however, we are not aware of any
facts that would cause us to believe that the opinion expressed herein is not
accurate.
We are admitted to practice law in the State of California, and we
express no opinion herein with respect to the application or effect of the laws
of any jurisdiction other than the existing laws of the United States of America
and the State of California and the General Corporation Law of the State of
Delaware.
Based upon the foregoing, it is our opinion that the up to 3,162,500
shares of Stock to be issued and sold by you, when issued and sold in accordance
in the manner referred to in the Prospectus associated with the Registration
Statement, will be validly issued, fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to all references to us, if any, in the
Registration Statement, the Prospectus constituting a part thereof, and any
amendments thereto.
This opinion speaks only as of its date and we assume no obligation to
update this opinion should circumstances change after the date hereof. This
opinion is intended solely for your use as an exhibit to the Amendment for the
purpose of the above sale of the Stock and is not to be relied upon for any
other purpose.
Very truly yours,
/s/ FENWICK & WEST LLP
<PAGE> 1
EXHIBIT 23.02
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated September 17, 1998,
relating to the financial statements of MarketWatch.Com, Inc., which appears in
such Prospectus. We also consent to the application of such report to the
Financial Statement Schedules as of December 31, 1997 and June 30, 1998 and the
period from inception (October 29, 1997) through December 31, 1997 and the six
months ended June 30, 1998 listed under Item 16(b) of this Registration
Statement when such schedules are read in conjunction with the financial
statements referred to in our report. The audits referred to in such report also
included these schedules. We also consent to the references to us under the
headings "Experts" and "Selected Financial Data" in such Prospectus. However, it
should be noted that PricewaterhouseCoopers LLP has not prepared or certified
such "Selected Financial Data."
PricewaterhouseCoopers LLP (no signature indicated)
San Jose, California
November 25, 1998
<PAGE> 1
EXHIBIT 23.03
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated June 15, 1998, relating
to the financial statements of DBC Online/News Business, which appears in such
Prospectus. We also consent to the application of such report to the Financial
Statement Schedules as of December 31, 1996 and October 28, 1997 and the period
from inception (October 1, 1995) through December 31, 1995, for the year ended
December 31, 1996 and for the period January 1, 1997 through October 28, 1997,
listed under Item 16(b) of this Registration Statement when such schedules are
read in conjunction with the financial statements referred to in our report. The
audits referred to in such report also included these schedules. We also consent
to the references to us under the headings "Experts" and "Selected Financial
Data" in such Prospectus. However, it should be noted that
PricewaterhouseCoopers LLP has not prepared or certified such "Selected
Financial Data."
PricewaterhouseCoopers LLP
San Jose, California
November 25, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 9-MOS 2-MOS 10-MOS 12-MOS
3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997 DEC-31-1997 DEC-31-1996
DEC-31-1995
<PERIOD-START> JAN-01-1998 OCT-29-1997 JAN-01-1997 JAN-01-1996
OCT-01-1995
<PERIOD-END> SEP-30-1998 DEC-31-1997 OCT-28-1997 DEC-31-1996
DEC-31-1995
<CASH> 65 0 0 0
0
<SECURITIES> 0 0 0 0
0
<RECEIVABLES> 1,187 234 189 182
0
<ALLOWANCES> 149 10 15 4
0
<INVENTORY> 0 0 0 0
0
<CURRENT-ASSETS> 1,126 0 360 227
0
<PP&E> 902 13 335 249
0
<DEPRECIATION> 121 0 149 63
0
<TOTAL-ASSETS> 2,966 237 548 409
0
<CURRENT-LIABILITIES> 5,020 0 2,809 1,729
0
<BONDS> 0 85 0 0
0
0 0 0 0
0
0 0 0 0
0
<COMMON> 90 90 0 0
0
<OTHER-SE> (2,144) 62 (2,263) (1,320)
0
<TOTAL-LIABILITY-AND-EQUITY> (2,054) 237 546 (1,320)
0
<SALES> 4,494 630 1,172 607
0
<TOTAL-REVENUES> 4,494 0 1,172 607
0
<CGS> 1,828 148 0 451
0
<TOTAL-COSTS> 1,828 563 2,026 451
0
<OTHER-EXPENSES> 7,488 0 0 2,023
236
<LOSS-PROVISION> 0 0 181 0
0
<INTEREST-EXPENSE> 75 0 181 90
9
<INCOME-PRETAX> (4,897) (81) (1,564) (1,957)
(245)
<INCOME-TAX> 0 0 621 (785)
(98)
<INCOME-CONTINUING> (4,897) (81) (943) (1,172)
(147)
<DISCONTINUED> 0 0 0 0
0
<EXTRAORDINARY> 0 0 0 0
0
<CHANGES> 0 0 0 0
0
<NET-INCOME> (4,897) (81) (943) (1,172)
(147)
<EPS-PRIMARY> (0.54) (0.01) 0 0
0
<EPS-DILUTED> (0.54) (0.01) 0 0
0
</TABLE>
