<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 16, 1998
REGISTRATION NO. 333-65569
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
PRE-EFFECTIVE
AMENDMENT NO. 2
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 94-3315360
(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
DECEMBER 16, 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 approximately 40 million page views in March
1998. Our visitor information was based on information provided to us by
Doubleclick, Inc., the company which delivers ads on our Web site and measures
and tracks our users.
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.
3
<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 100 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. CBS initially licensed us the right to use its name, logo and news
content for a period of five years in exchange for a royalty of approximately
30% of our banner advertising revenue. It also separately agreed to provide us
with $50 million in rate card promotion and advertising. Immediately prior to
the closing of this offering, CBS has agreed to amend the license to extend the
term through October 2005, to provide us with $30 million in rate card promotion
and advertising from October 1997 through October 2002 and to amend the royalty
rate to be paid by us from 30% of banner advertising revenues to 6 to 8% of
gross revenues, subject to certain limitations. DBC contributed certain assets
related to our predecessor business, that it formed in October 1995, and agreed
to provide our initial funding. Under a services agreement, DBC agreed to
provide ongoing services, including hosting our Web site through October 2005.
Immediately prior to the closing of this offering, this services agreement will
be amended to provide for an eight-year term and to add other provisions
relating to system performance and hardware. Our address is 825 Battery Street,
San Francisco, California, 94111 and our telephone number is (415) 733-0500.
4
<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 Business 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 $ -- 156 512 482 896 847 926
Operating loss (236) (1,867) (1,383) (81) (1,749) (2,808) (3,537)
Net loss (147) (1,172) (943) (81) (1,756) (2,822) (3,591)
Basic and diluted
net loss per
share $ (0.01) $ (0.20) $ (0.31) $ (0.40)
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.
5
<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.
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.
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;
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<PAGE> 8
- 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 limited
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 delivering
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;
- 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;
- CBS or DBC could license its content to other Web sites or Internet
services; or
- CBS or DBC could make certain investments in other Web sites or Internet
services.
7
<PAGE> 9
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 that over time our revenues will 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 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.
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<PAGE> 10
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
medium, 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 November 1998, approximately 10% 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
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
9
<PAGE> 11
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
November 30, 1998, our sales group had 14 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.
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.
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<PAGE> 12
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.
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
11
<PAGE> 13
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 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.
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 the user's 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.
12
<PAGE> 14
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."
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.
13
<PAGE> 15
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 $31.0 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. We may incur indebtedness in the future which may prohibit
or effectively restrict the payment of dividends, although we have no current
plans to do so.
14
<PAGE> 16
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................................ 53,365 80,069
Deferred compensation..................................... (1,259) (1,259)
Contribution receivable................................... (46,000) (46,000)
Accumulated deficit....................................... (8,250) (8,250)
-------- --------
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 Marketwatch.Com, LLC, or the "LLC," in October 1997.
15
<PAGE> 17
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.
16
<PAGE> 18
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 operations 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. 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:
Advertising and news to DBC....... -- 280 391 335
Subscription...................... -- 171 269 257
Total cost of revenues...... -- 451 660 592
------- ------- ------- -------
Gross profit....................... -- 156 512 444
------- ------- ------- -------
Operating expenses:
Product 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) (1,249)
Interest expense................... (9) (90) (181) (160)
------- ------- ------- -------
Loss before income tax benefit..... (245) (1,957) (1,564) (1,409)
Income tax benefit................. 98 785 621 466
------- ------- ------- -------
Net loss........................... $ (147) $(1,172) $ (943) $ (943)
======= ======= ======= =======
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:
Advertising and news to DBC....... 92 1,521
Subscription...................... 56 304
Total cost of revenues...... 148 1,825
------- -------
Gross profit....................... 482 2,669
------- -------
Operating expenses:
Product development............... 186 1,036
General and administrative........ 248 2,101
Sales and marketing............... 129 7,626
------- -------
Total operating expenses.... 563 10,763
------- -------
Operating loss..................... (81) (8,094)
Interest expense................... -- (75)
------- -------
Loss before income tax benefit..... (81) (8,169)
Income tax benefit................. -- --
------- -------
Net loss........................... $ (81) $(8,169)
======= =======
Basic and diluted net loss per
share(2).......................... $ (0.01) $ (0.91)
======= =======
Shares used to compute basic and
diluted net loss per
share(2)(3)....................... 9,000 9,000
======= =======
</TABLE>
<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.
17
<PAGE> 19
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. Although MarketWatch.com sells MarketWatch RT and MarketWatch
Live on a non-exclusive basis, 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 and principal theme and format the
delivery of comprehensive stock quotes and 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
18
<PAGE> 20
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 29, 2005, 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 and DBC's service obligation will
be extended three years to October 29, 2005. 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
ended 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 apply
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 from the sale of subscriptions to DBC's
MarketWatch RT and MarketWatch Live products and not from the sale of any
proprietary services of MarketWatch.
19
<PAGE> 21
- Cost of revenues includes compensation and benefits for news reporters
and editors, royalties payable to CBS and content providers, Web site
infrastructure costs allocated from 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
20
<PAGE> 22
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 managements' opinions, 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:
Advertising and news
to DBC............... 335 1,521 32% 34%
Subscription........... 257 304 25% 7%
Total cost of
revenues...... 592 1,825 57% 41%
------- ------- ----- -----
Gross profit............. 444 2,669 43% 59%
------- ------- ----- -----
Operating expenses:
Product development.... 772 1,036 75% 23%
General and
administrative....... 857 2,101 83% 47%
Sales and marketing.... 64 7,626 6% 170%
------- ------- ----- -----
Total operating
expenses...... 1,693 10,763 163% 239%
------- ------- ----- -----
Operating loss........... (1,249) (8,094) (121%) (180%)
Interest expense......... (160) (75) (15%) (2%)
------- ------- ----- -----
Loss before income tax
benefit................ (1,409) (8,169) (136%) (182%)
Income tax benefit....... 466 -- 45% --
------- ------- ----- -----
Net loss................. $ (943) $(8,169) (91%) (182%)
======= ======= ===== =====
</TABLE>
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.
21
<PAGE> 23
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.
We include in produce development expenses the amortization of deferred
compensation related to options granted below fair market value. Amortization of
deferred compensation was $38,000 for the nine months ended September 30, 1998.
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 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.
22
<PAGE> 24
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 $93,000 for the nine months ended
September 30, 1998.
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, and 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.
CBS has agreed to provide advertising and promotions over a five-year
period ending October 29, 2002. The services will be recorded as capital
contributions at the time the services are provided based on the rate card value
of such services. The Company has recorded advertising expense of $3.4 million
at the rate card value for the six months ended June 30, 1998 and $5.0 million
at the rate card value for the nine months ended September 30, 1998 (unaudited)
related to services provided by CBS. Such amounts have been recorded as capital
contributions. As of September 30, 1998, CBS has agreed to provide the remaining
$25.0 million rate card amount of advertising and promotions, assuming execution
of the Stockholders' Agreement prior to closing this offering. See Note 8 to the
MarketWatch.com Financial Statements.
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.
23
<PAGE> 25
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 managements' opinions, 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:
Advertising and news to DBC........... 109 113 113 148 186 577 758
Subscription.......................... 84 85 88 68 94 95 115
Total cost of revenues(a)...... 193 198 201 216 280 672 873
----- ------ ------ ----- -------- -------- --------
Gross profit............................ 93 158 193 550 896 847 926
----- ------ ------ ----- -------- -------- --------
Operating expenses:
Product development................. 230 248 294 299 236 371 429
General and administrative(b)....... 284 281 292 334 532 724 845
Sales and marketing(c).............. 23 22 19 132 1,877 2,560 3,189
----- ------ ------ ----- -------- -------- --------
Total operating expenses....... 537 551 605 765 2,645 3,655 4,463
----- ------ ------ ----- -------- -------- --------
Operating loss.......................... (444) (393) (412) (215) (1,749) (2,808) (3,537)
Interest expense........................ 46 53 61 21 7 14 54
----- ------ ------ ----- -------- -------- --------
Loss before income tax benefit.......... (490) (446) (473) (236) (1,756) (2,822) (3,591)
Income tax benefit...................... 87 174 205 -- -- -- --
----- ------ ------ ----- -------- -------- --------
Net loss....................... $(403) $ (272) $ (268) $(236) $ (1,756) $ (2,822) $ (3,591)
===== ====== ====== ===== ======== ======== ========
- ------------------------
(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..................... $ -- $ -- $ -- $ -- $ 1,534 $ 1,889 $ 1,577
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 revenues:
Advertising and news to DBC........... 38 32 29 19 16 38 42
Subscription costs.................... 29 24 22 9 8 6 6
----- ------ ------ ----- -------- -------- --------
Total cost of net revenues.............. 67 56 51 28 24 44 49
----- ------ ------ ----- -------- -------- --------
Gross profit............................ 33 44 49 72 76 56 51
----- ------ ------ ----- -------- -------- --------
Operating expenses:
Product development................. 80 70 75 39 20 24 24
General and administrative.......... 99 79 74 44 45 48 47
Sales and marketing................. 8 6 5 17 160 169 177
----- ------ ------ ----- -------- -------- --------
Total operating expenses....... 188 155 154 100 225 241 248
----- ------ ------ ----- -------- -------- --------
Operating loss.......................... (155) (110) (105) (28) (149) (185) (197)
Interest expense........................ (16) (15) (15) (3) (1) (1) (3)
----- ------ ------ ----- -------- -------- --------
Loss before income taxes................ (171) (125) (120) (31) (149) (186) (200)
Income tax benefit...................... 30 49 52 -- -- -- --
----- ------ ------ ----- -------- -------- --------
Net loss....................... (141)% (76)% (68)% (31)% (149)% (186)% (200)%
===== ====== ====== ===== ======== ======== ========
</TABLE>
- ------------------------
(1) DBC OnLine/News
(2) One month DBC OnLine/News and two months MarketWatch.com
(3) MarketWatch.com
24
<PAGE> 26
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 also
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.
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, particularly 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.
25
<PAGE> 27
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
from the year ended December 31, 1996 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, 1996 and the
26
<PAGE> 28
period from inception (October 1, 1995) through December 31, 1995, respectively.
The amounts due to DBC totaled $2.7 million 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 $2.9 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 for the nine months ended September 30, 1998 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 $889,000 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. The company does not have any commitments for capital
expenditures at September 30, 1998. However, as of September 30, 1998, we had
commitments under noncancellable operating leases of $1.5 million 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.
27
<PAGE> 29
We believe the implementation of an independent accounting system, financial,
operational and 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 working capital 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.
At October 28, 1997 the DBC Online/News Business owed DBC $2.7 million for
working capital advances which we have not assumed. Subsequent to October 28,
1997, the amounts due to DBC by the DBC Online/News Business have been reduced
by the collection of accounts receivable existing prior to our formation. Any
remaining obligation has remained unpaid. See Note 3 to the predecessor
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. 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 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
28
<PAGE> 30
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.
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.
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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 acquire or hold 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. The
distribution of such content, and the usage of our logo and URL, occur through
an understanding we have with CBS. However, CBS is under no obligation to
continue this arrangement, and there can be no assurance that this arrangement
will continue in the future.
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.
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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 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 Irwin Kellner
Earnings Surprises Press Briefing I.P.Onder Legal Options
Futures Movers StockWatch London Calling Marder on Markets
Headlines Weekly Calendar Screamers SportsBiz
Internet Daily SoapBox
Market Snapshot Telecom Report
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 first quarter of 1999, 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 fourteen 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, Bell South,
DeBeers, Sprint, Toyota and Volvo. MarketWatch.com believes that attracting
additional advertisers from businesses outside of the financial and technology
industries is 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 November 30, 1998, more than 100
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. Montgomery Asset Management
Charles Schwab & Co., Inc. Mr. Stock
Datek Online, Inc. Office Depot, Inc.
Discover Brokerage Direct Quick & Reilly, Inc. - SureTrade
Donaldson, Lufkin & Recreational Equipment Incorporated
Jenrette - PC Financial ("REI")
E*Trade Group, Inc. Scottsdale Securities, Inc.
Fidelity Investments Scudder Investor Services, Inc.
First USA Salomon Smith Barney Inc.
Ford Motor Company The Future Super Stock
General Motors Corporation TheStreet.com
Hewlett Packard Trading Direct
International Business Machines Corp. Trans World Airlines, Inc.
InvestIn.Com Securities Corp. WYSE Securities - Pyramid Financial
</TABLE>
As of December 31, 1997, four customers comprised 53% of our gross accounts
receivable. As of September 30, 1998, one customer comprised 11% 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 us with an aggregate
rate card amount of $30 million of network television, radio and Internet
advertising and promotion commencing from 1997 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. 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. We do not receive any
payments from CBS for this reporting. However, 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
which we believe helps to strengthen our brand awareness. We have no formal
agreement with CBS with respect to any of our correspondents who provide reports
to CBS or any of its affiliates. Therefore, there can be no assurance that these
services will continue in the future.
Non-Competition Provisions. The Amended and Restated License Agreement will
contain certain limited 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 MarketWatch.com. 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.
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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.
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
comprehensive 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 $5.0 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
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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.
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, we sell
advertising on portions of, and receive 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."
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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 third-party financial
data 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." MarketWatch.com 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
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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, 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
$1,036,000.
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
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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 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
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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.
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 61 personnel dedicated full time to our
business, ten of these personnel worked in product and content development, 17
in sales and marketing, 25 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, we expect that 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)..................... 47 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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<PAGE> 50
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, our 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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<PAGE> 51
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 MarketWatch.com 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 number in this column gives 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.
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<PAGE> 52
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. 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 MarketWatch.com 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 our 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 the Common Stock on each grant
date, the management committee considered, among other things, the value of
assets contributed to MarketWatch.com from DBC, MarketWatch.com's absolute
and relative levels of revenues and other operating results, the state of
MarketWatch.com's Web site development, increases in operating expenses, the
absence of a public trading market for MarketWatch.com's securities, the
intensely competitive nature of MarketWatch.com'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.
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<PAGE> 53
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. 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 1,450,000 less the
number of shares of Common Stock subject to non-plan options outstanding on the
date of this Prospectus. If all non-plan options to purchase LLC membership
interests outstanding on November 30, 1998 remain outstanding they will be
converted into options to purchase 863,500 shares of Common Stock. In that case,
586,500 shares of Common Stock will be reserved for issuance under the plan. 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 (including shares subject to non-plan options
outstanding on the date of this Prospectus) or under the plan that cease
to be subject to such option for any reason other than exercise of such
option;
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<PAGE> 54
- 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.
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.
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<PAGE> 55
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 indemnification 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> 56
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. This additional contribution
was made on October 28, 1998.
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 MarketWatch
LIVE (the "Real-Time Fees"). DBC paid us $16,000 and $117,000 in 1997 and the
55
<PAGE> 57
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 in order to have a business
organization form that is more typical of other publicly-traded entities in our
market. 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 its terms would be appropriate only if the LLC remained as a
private limited liability company owned equally by CBS and DBC, with no outside
investors. As part of the conversion of the LLC to a corporation, the terms of
the Original License Agreement will be amended to help make the business
attractive to outside investors. For example, MarketWatch.com believed that the
royalty equal to 30% of advertising revenues could adversely affect 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 of the license, 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 29, 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
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<PAGE> 58
- 6% of Gross Revenues in excess of $50.5 million.
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's results of operations for the 12
months prior to the acquisition. 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 MarketWatch.com; 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 activity conducted by CBS and/or its affiliates prior to CBS's
signing the Amended and Restated License Agreement;
- 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.
Currently, DBC does not provide similar services to any other third party.
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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 $5.0 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 comprehensive real-time or delayed
stock quotations and financial news in the English language to consumers;
or
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- 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
voting securities.
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. This option vests as to
one-third of the shares of subject to the option on each anniversary of its date
of grant. 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. This option vests as to
one-third of the shares subject to the option on each anniversary of Mr.
Bardwick's employment start date. 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
- his stock options will vest as to an additional one-third of the shares
subject to the option.
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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 $315,000 based on Mr. Kramer's base salary and
$300,000 based on Mr. Bardwick's current 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 the aggregate public offering price
is 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 in certain circumstances, 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
receipt of written notice of 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 after a DBC
Change of Control 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.
67
<PAGE> 69
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 non-plan
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.
68
<PAGE> 70
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 and Donaldson, Lufkin & Jenrette Securities
Corporation, who are acting as Joint Book-Running Managers, and 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.
69
<PAGE> 71
MarketWatch.com has entered into a similar agreement, except that we may issue,
and grant options 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.
70
<PAGE> 72
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, 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.
71
<PAGE> 73
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> 74
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> 75
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..................... 51,925,000 52,278,000 53,365,000
Deferred compensation.......................... -- (285,000) (1,259,000)
Contribution receivable........................ (51,782,000) (47,577,000) (46,000,000)
Accumulated deficit............................ (81,000) (4,659,000) (8,250,000)
------------ ------------ ------------
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> 76
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:
Advertising and news to DBC................... 92,000 763,000 1,521,000
Subscription.................................. 56,000 189,000 304,000
---------- ----------- -------------
Total cost of revenues................ 148,000 952,000 1,825,000
---------- ----------- -------------
Gross profit.................................... 482,000 1,743,000 2,669,000
---------- ----------- -------------
Operating expenses:
Product development........................... 186,000 607,000 1,036,000
General and administrative.................... 248,000 1,256,000 2,101,000
Sales and marketing........................... 129,000 4,437,000 7,626,000
---------- ----------- -------------
Total operating expenses.............. 563,000 6,300,000 10,763,000
---------- ----------- -------------
Operating loss.................................. (81,000) (4,557,000) (8,094,000)
Interest expense................................ -- (21,000) (75,000)
---------- ----------- -------------
Net loss........................................ $ (81,000) $(4,578,000) $ (8,169,000)
========== =========== =============
Basic and diluted net loss per share............ $ (0.01) $ (0.51) $ (0.91)
========== =========== =============
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> 77
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) $ -- $ --
Capital contribution
receivable from CBS
upon formation (Note
1).................... 50,000,000 (50,000,000) --
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 51,925,000 -- (51,782,000) (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
Advertising received
from CBS.............. -- -- -- -- 3,423,000 -- 3,423,000
Net loss................ -- -- -- -- -- (4,578,000) (4,578,000)
--------- ------- ----------- ----------- ------------ ----------- -----------
Balance at
June 30, 1998......... 9,000,000 90,000 52,278,000 (285,000) (47,577,000) (4,659,000) (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
Advertising received
from CBS.............. -- -- -- -- 1,577,000 -- 1,577,000
Net loss (unaudited).... -- -- -- -- -- (3,591,000) (3,591,000)
--------- ------- ----------- ----------- ------------ ----------- -----------
Balance at September 30,
1998 (unaudited)...... 9,000,000 $90,000 $53,365,000 $(1,259,000) $(46,000,000) $(8,250,000) $(2,054,000)
========= ======= =========== =========== ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 78
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) $(4,578,000) $(8,169,000)
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 3,473,000 5,050,000
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) (2,866,000)
---------- ----------- -----------
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> 79
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. Under the terms of the Stockholders
Agreement, the $50 million rate card amount will be revised to $30 million upon
completion of the IPO (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 a
Stockholders' Agreement, 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
F-7
<PAGE> 80
MARKETWATCH.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
amount since the fair value of the business is not objectively determinable by a
corresponding contribution of monetary assets by CBS.
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
$8,250,000. 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, 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.
F-8
<PAGE> 81
MARKETWATCH.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 recorded at the fair
value of the goods or services received. 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 rate card 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,
F-9
<PAGE> 82
MARKETWATCH.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1998 and the nine months ended September 30, 1998, $3,423,000 and $5,000,000 was
expensed for promotion and advertising services provided by CBS, respectively.
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>
F-10
<PAGE> 83
MARKETWATCH.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 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 $ 6.25 $ 7.86
=======
</TABLE>
At September 30, 1998, 134,000 options were available for future grant and
no options were vested.
F-11
<PAGE> 84
MARKETWATCH.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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>
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) $(4,578,000) $(8,169,000)
========= =========== ===========
Pro forma............................ $(118,000) $(4,746,000) $(8,429,000)
========= =========== ===========
Net loss per share:
As reported.......................... $ (0.01) $ (0.51) $ (0.91)
========= =========== ===========
Pro forma............................ $ (0.01) $ (0.53) $ (0.94)
========= =========== ===========
</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)
F-12
<PAGE> 85
MARKETWATCH.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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.
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 10.25% at September 30, 1998) and are repayable at such time
as the Company has sufficient cash, as determined by the Members. Prior to the
formation of the Company and contribution of the intellectual property (See Note
1), the Online/News business owed DBC $2.7 million. The amounts due under this
intercompany obligation were not assumed by the Company.
F-13
<PAGE> 86
MARKETWATCH.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
An analysis of the advances from DBC to the Company 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> 87
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 rate
card value of such services. The Company has recorded advertising expense of
$3,423,000 at rate card value for the six months ended June 30, 1998 and
$5,000,000 at rate card value for the nine months ended September 30, 1998
(unaudited) related to services provided by CBS. Such amounts have been recorded
as capital contributions. As of September 30, 1998, CBS is committed to provide
$25,000,000 rate card amount of advertising and promotions, assuming execution
of the Stockholders' Agreement prior to closing the IPO (See Note 8).
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 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.
F-15
<PAGE> 88
MARKETWATCH.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 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.
F-16
<PAGE> 89
MARKETWATCH.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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> 90
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> 91
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> 92
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:
Advertising...................... -- 280,000 391,000 335,000
Subscription..................... -- 171,000 269,000 257,000
--------- ----------- ----------- -----------
Total cost of revenues... -- 451,000 660,000 592,000
--------- ----------- ----------- -----------
Gross profit............. -- 156,000 512,000 444,000
--------- ----------- ----------- -----------
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) (1,249,000)
Interest expense................... (9,000) (90,000) (181,000) (160,000)
--------- ----------- ----------- -----------
Loss before income tax benefit..... (245,000) (1,957,000) (1,564,000) (1,409,000)
Income tax benefit................. 98,000 785,000 621,000 466,000
--------- ----------- ----------- -----------
Net loss........................... (147,000) (1,172,000) (943,000) (943,000)
Owner's net deficit, beginning of
period........................... -- (147,000) (1,319,000) (1,319,000)
--------- ----------- ----------- -----------
Owner's net deficit, end of
period........................... $(147,000) $(1,319,000) $(2,262,000) $(2,262,000)
========= =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE> 93
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) $(1,172,000) $(943,000) $(943,000)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation.................. -- 63,000 86,000 80,000
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) (1,315,000) (974,000) (823,000)
--------- ----------- --------- ---------
Cash used in investing activities:
Purchase of equipment.............. (88,000) (158,000) (90,000) (80,000)
--------- ----------- --------- ---------
Cash provided by financing
activities:
Advances from DBC.................. 171,000 1,473,000 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> 94
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> 95
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> 96
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 estimated percentage of the time spent by DBC employees on the
Business to total department time. 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> 97
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>
Amounts due under the obligation to DBC were not assumed by MarketWatch
(See Note 1) upon formation. Subsequent to October 28, 1997, the amounts due to
DBC would be reduced by cash collected by DBC on existing accounts receivable.
Any remaining obligation has remained outstanding.
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> 98
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> 99
DESCRIPTION OF ARTWORK
OUTSIDE PORTION OF GATEFOLD
I. Screenprint - Snapshot of the CBS.MarketWatch.com Web site Front Page -
main headline is "Dow back to 9000" (left-hand side of page)
II. Screenprint - Snapshot of the CBS.MarketWatch.com Web site Front Page -
main headline is "Exxon to buy Mobil" (overlayed by I above) (left-hand side of
page)
III. Screenprint - Snapshot of the CBS.MarktetWatch.com Web site Market Data
feature (upper right-hand quadrant of page)
IV. Screenprint - Snapshot of the CBS.MarketWatch.com Web site "Investor's
Primer" feature (overlayed by III above) (upper right-hand quadrant of page)
V. Screenprint - Snapshot of the CBS.MarketWatch.com Web site "Portfolio"
feature (overlayed by III and IV above) (upper right-hand quadrant of page)
VI. Captioned text regarding MarketWatch.com reading: "MarketWatch.com - a
leading Web-based provider of comprehensive, real-time business news, financial
programming, and analytic tools." (center of right-hand side of page)
VII. Screenprint - MarketWatch.com promotional material entitled "Your
financial future is starting to click" (lower right-hand quadrant of page)
GATEFOLD FOLD-OUT
Title text reading "CBS.MARKETWATCH.COM" (centered at top of page)
LEFT-HAND PAGE OF GATEFOLD
I. Screenprint - Snapshot of the CBS.MarketWatch.com Web site "StockWatch"
feature written by Thom Calandra (left-hand side of page)
II. Screenprint - Snapshot of the CBS.MarketWatch.com Web site "Getting
Personal" feature (upper right-hand quadrant of page)
III. Screenprint - Snapshot of the CBS.MarketWatch.com Web site "IPO Daily
Report" feature written by Darren Chervitz (overlayed by II above) (upper
right-hand quadrant of page)
IV. Screenprint - Snapshot of the CBS.MarketWatch.com Web site "Internet
Daily" feature written by Frank Barnako (overlayed by II above) (upper
right-hand quadrant of page)
<PAGE> 100
V. Captioned text regarding MarketWatch.com reading: "From the volatile
world of technology stocks to bonds, MarketWatch.com is the one-stop shop for
financial news, analysis and data." (center of right-hand side of page)
VI. Screenprint - Snapshot of the CBS.MarketWatch.com Web site "Media Report"
feature written Steve Gelsi (lower right-hand quadrant of page)
VII. Screenprint - Snapshot of the CBS.MarketWatch.com Web site "London
Calling" feature written by Suzanne Miller (overlayed by VI above) (lower
right-hand quadrant of page)
VIII. Screenprint - Snapshot of the CBS.MarketWatch.com Web site "Report"
feature written by Rex Nutting (overlayed by VI above) (lower right-hand
quadrant of page)
IX. Captioned text regarding MarketWatch.com reading: "Innovative advertising
programs provide advertisers with choices such as animated headers, sponsorships
and content side-bars." (bottom of lower right-hand quadrant of page)
RIGHT-HAND PAGE OF GATEFOLD
I. Screenprint - Snapshot of CBS.MarketWatch.com Web site of "CBS Video Now"
feature (upper left-hand quadrant of page)
II. Screenprint - Snapshot of CBS.MarketWatch.com Web site "Coming on CBS"
feature written by Thom Calandra (overlayed by I above) (upper left-hand
quadrant of page)
III. Screenprint - Snapshot of CBS.MarketWatch.com Web site "News Index"
feature (lower left-hand quadrant of page)
IV. Screenprint - Snapshot of video clip of MarketWatch.com journalist Emily
Church's report available by clicking on link on III above (lower left-hand
quadrant of page)
V. Screenshots of MarketWatch.com journalists Stacey Tisdale, Thom Calandra,
Betsy Karetnick, Darren Chevitz, Emily Church, and Frank Barnako appearing on
television broadcasts (right-hand side of page)
VI. Captioned text regarding MarketWatch.com entitled "Web/Broadcast
Convergence..." and reading: "MarketWatch.com uses several media channels to
distribute its up-to-the-minute reports. Editor-in-Chief Thom Calandra and
broadcast correspondents Betsy Karetnick, Stacey Tisdale and Frank Barnako are
seen and heard over CBS Television and Radio channels throughout the day,
reporting on breaking financial stories which are tracked in-depth on the Web
site." (lower right-hand quadrant of page)
BACK COVER
I. MarketWatch.com logo
<PAGE> 101
- ------------------------------------------------------
- ------------------------------------------------------
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.......................... 14
Dividend Policy.......................... 14
Capitalization........................... 15
Dilution................................. 16
Selected Financial Data.................. 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................. 18
Business................................. 30
Management............................... 46
Certain Transactions..................... 55
Principal Stockholders................... 62
Description of Capital Stock............. 63
Shares Eligible for Future Sale.......... 67
Underwriting............................. 69
Legal Matters............................ 70
Experts.................................. 70
Additional Information................... 71
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> 102
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> 103
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> 104
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> 105
<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>
- ---------------
+ 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> 106
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 16th
day of December, 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 December 16, 1998
- ------------------------------------------------ Officer and Director
Lawrence Kramer
PRINCIPAL FINANCIAL AND
PRINCIPAL ACCOUNTING OFFICER:
/s/ J. PETER BARDWICK Chief Financial Officer December 16, 1998
- ------------------------------------------------
J. Peter Bardwick
DIRECTORS:
* Director December 16, 1998
- ------------------------------------------------
Michael Jordan
* Director December 16, 1998
- ------------------------------------------------
James A. DePalma
* Director December 16, 1998
- ------------------------------------------------
Andrew Heyward
* Director December 16, 1998
- ------------------------------------------------
Mark Imperiale
* Director December 16, 1998
- ------------------------------------------------
Alan Hirschfield
* Director December 16, 1998
- ------------------------------------------------
Allan R. Tessler
*By: /s/ J. PETER BARDWICK Attorney-in-fact December 16, 1998
- ------------------------------------------------
J. Peter Bardwick
</TABLE>
II-5
<PAGE> 107
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> 108
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> 109
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------
<S> <C>
3.02 Form of Registrant's Amended and Restated Certificate of
Incorporation to be effective upon the completion of this
offering.
4.03 Form of Stockholders' Agreement to be entered into among the
Registrant, Marketwatch.Com, LLC, CBS and DBC.
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.
10.12 Registrant's 1998 Equity Incentive Plan.
23.02 Consent of PricewaterhouseCoopers LLP.
23.03 Consent of PricewaterhouseCoopers LLP.
27.01 Financial Data Schedule (EDGAR Version Only).
</TABLE>
- ------------------------
+ Previously filed.
<PAGE> 1
EXHIBIT 3.02
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
MARKETWATCH.COM, INC.
ARTICLE I
The name of the corporation is MarketWatch.com, Inc.
ARTICLE II
The address of the registered office of the corporation in the State of
Delaware is 1209 Orange Street, City of Wilmington, County of New Castle. The
name of its registered agent at that address is The Corporation Trust Company.
ARTICLE III
The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
ARTICLE IV
The total number of shares of all classes of stock which the
corporation has authority to issue is Thirty-five Million (35,000,000) shares,
consisting of two classes: Thirty Million (30,000,000) shares of Common Stock,
$0.01 par value per share, and Five Million (5,000,000) shares of Preferred
Stock, $0.01 par value per share.
The Board of Directors is authorized, subject to any limitations
prescribed by the law of the State of Delaware, to provide for the issuance of
the shares of Preferred Stock in one or more series, and, by filing a
certificate of designation pursuant to the applicable law of the State of
Delaware, to establish from time to time the number of shares to be included in
each such series, to fix the designation, powers, preferences and rights of the
shares of each such series and any qualifications, limitations or restrictions
thereof, and to increase or decrease the number of shares of any such series
(but not below the number of shares of such series then outstanding). The number
of authorized shares of Preferred Stock may also be increased or decreased (but
not below the number of shares thereof then outstanding) by the affirmative vote
of the holders of a majority of the stock of the corporation entitled to vote,
unless a vote of any other holders is required pursuant to a certificate or
certificates establishing a series of Preferred Stock.
Except as otherwise expressly provided in any certificate of
designation designating any series of Preferred Stock pursuant to the foregoing
provisions of this Article IV, any new series of Preferred Stock may be
designated, fixed and determined as provided herein by the Board of Directors
without approval of the holders of Common Stock or the holders of Preferred
Stock, or any series thereof, and any such new series may have powers,
preferences and rights, including, without limitation, voting rights, dividend
rights, liquidation rights, redemption rights and conversion rights, senior to,
junior to or pari passu with the rights of the Common Stock, the Preferred
Stock, or any future class or series of Preferred Stock or Common Stock.
<PAGE> 2
ARTICLE V
The Board of Directors of the corporation shall have the power to
adopt, amend or repeal Bylaws of the corporation.
ARTICLE VI
A. Election of directors need not be by written ballot unless the
Bylaws of the corporation shall so provide.
B. Special meetings of stockholders of the corporation may be called
only by the Board of Directors pursuant to a resolution adopted by a majority of
the total number of authorized directors (whether or not there exist any
vacancies in previously authorized directorships at the time any such resolution
is presented to the Board for adoption), the Chairman of the Board, the Chief
Executive Officer or any holder of twenty five percent (25%) of the outstanding
Common Stock of the corporation.
ARTICLE VII
Subject to the rights of the holders of any series of Preferred Stock
then outstanding, newly created directorships resulting from any increase in the
authorized number of directors or any vacancies in the Board of Directors
resulting from death, resignation or other cause may be filled (a) by the
stockholders at any meeting, (b) by a majority of the directors, although less
than a quorum, or (c) by a sole remaining director, and directors so chosen
shall hold office for a term expiring at the next annual meeting of stockholders
at which the term of office of the class to which they have been elected
expires, and until their respective successors are elected, except in the case
of the death, resignation, or removal of any director. No decrease in the number
of directors constituting the Board of Directors shall shorten the term of any
incumbent director.
ARTICLE VIII
A. To the fullest extent permitted by law, no director of the
corporation shall be personally liable for monetary damages for breach of
fiduciary duty as a director. Without limiting the effect of the preceding
sentence, if the Delaware General Corporation Law is hereafter amended to
authorize the further elimination or limitation of the liability of a director,
then the liability of a director of the corporation shall be eliminated or
limited to the fullest extent permitted by the Delaware General Corporation Law,
as so amended.
B. To the extent permitted by applicable law, this corporation is also
authorized to provide indemnification of (and advancement of expenses to) agents
(and any other persons to which Delaware law permits this corporation to provide
indemnification) through bylaw provisions, agreements with such agents or other
persons, vote of stockholders or disinterested directors or otherwise, in excess
of the indemnification and advancement otherwise permitted by Section 145 of the
Delaware General Corporation Law, subject only to limits created by applicable
Delaware law (statutory or non-statutory), with respect to actions for breach of
duty to the corporation, its stockholders, and others.
2
<PAGE> 3
C. Neither any amendment nor repeal of any of the foregoing provisions
of this Article VIII, nor the adoption of any provision of this Certificate of
Incorporation inconsistent with this Article VIII, shall eliminate, reduce or
otherwise adversely affect any limitation on the personal liability of a
director of the corporation existing at the time of such amendment, repeal or
adoption of such an inconsistent provision.
3
<PAGE> 1
EXHIBIT 4.03
STOCKHOLDERS' AGREEMENT
This Stockholders' Agreement (the "AGREEMENT") is made and entered into
as of December __, 1998, by and among CBS Broadcasting Inc., a New York
corporation ("CBS"), and Data Broadcasting Corporation, a Delaware corporation
("DBC") (hereinafter referred to collectively as the "STOCKHOLDERS" and each
singly as "STOCKHOLDER"), MarketWatch.com, Inc., a Delaware corporation (the
"COMPANY"), and Marketwatch.Com LLC, a Delaware limited liability company (the
"LLC").
RECITALS
WHEREAS, the parties hereto are parties to a Merger Agreement, dated as
of the date hereof, pursuant to which the LLC will be merged with and into the
Company for the purpose of operating the business of the LLC in a corporate form
(the "MERGER");
WHEREAS, as a result of the Merger, the LLC will cease to exist,
however, the parties hereto desire to enter into this Stockholders' Agreement;
WHEREAS, the parties hereto also desire to amend certain provisions of
the Contribution Agreement (the "CONTRIBUTION AGREEMENT") dated as of October
29, 1997, between the Stockholders and the LLC;
NOW THEREFORE, in consideration of the mutual promises, representations,
warranties, covenants and conditions set forth in this Agreement and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereby, intending to be legally bound by the terms
hereof, agree as follows:
1. CERTAIN DEFINITIONS.
1.1 BUSINESS. The term "BUSINESS" means, collectively the Internet-based
business and financial news and information service offered by the Company,
which includes, without limitation, the businesses conducted with the assets
contributed to the Company by DBC pursuant to the Contribution Agreement as such
businesses may be expanded or otherwise changed from time to time by the
Company.
1.2 BUSINESS DAY. The term "BUSINESS DAY" means a day that is not a
Saturday, Sunday or other day on which banking institutions in the State of New
York are authorized or required by law, regulation or executive order to be
closed.
1.3 COMMON STOCK. The term "COMMON STOCK" means the Common Stock, $0.01
par value per share of the Company.
1.4 CONVERTIBLE SECURITIES. The term "CONVERTIBLE SECURITIES" mean any
securities convertible into or exchangeable for Voting Securities or any
options, warrants or other rights exercisable to acquire Voting Securities.
<PAGE> 2
1.5 INITIAL PERCENTAGE. The term "INITIAL PERCENTAGE" means the
percentage of then Total Voting Power of the Company represented by the Voting
Securities held by a Stockholder at the time of the consummation of the
Company's initial public offering.
1.6 OFFERED SECURITIES. The term "OFFERED SECURITIES" means all
Securities proposed to be Transferred by a Stockholder or, if applicable, an
affiliate of a Stockholder.
1.7 PERSON. The term "PERSON" means any natural person, legal entity, or
other organized group of persons or entities. (All pronouns, whether personal or
impersonal, which refer to Person include natural persons and other Persons).
1.8 SECURITIES. The term "SECURITIES" shall mean Voting Securities and
Convertible Securities.
1.9 TOTAL VOTING POWER. The term "TOTAL VOTING POWER" means, at any
time, the total number of votes that may be cast in the election of directors of
the Company at any meeting of the holders of Voting Securities held at such time
for such purpose.
1.10 TRANSFER and TRANSFERRED. The terms "TRANSFER" and "TRANSFERRED"
mean and include any sale, assignment, encumbrance, hypothecation, pledge,
conveyance in trust, gift, transfer by bequest, devise or descent, or other
transfer or disposition of any kind, including but not limited to, transfers to
receivers, levying creditors, trustees or receivers in bankruptcy proceedings or
general assignments for the benefit of creditors, whether voluntary or by
operation of law, directly or indirectly, except for:
(a) any transfer of Securities by CBS or DBC to any entity
controlling, controlled by or under common control with CBS or DBC, or to any
entity that acquires CBS or DBC by purchase of stock or by merger or otherwise;
(b) any transfer of Securities by a Stockholder made: (i)
pursuant to a statutory merger or statutory consolidation of the Company with or
into another corporation or corporations; or (ii) pursuant to the winding up and
dissolution of the Company; or
(c) any transfer of Securities by a Stockholder pursuant to a
Stockholder's exercise of such Stockholder's right of first refusal hereunder.
1.11 VOTING POWER. The term "VOTING POWER" means, as to any Voting
Security at any time, the number of votes such Voting Security is entitled to
cast for directors of the Company at any meeting of the holders of Voting
Securities held at such time for such purpose.
1.12 VOTING SECURITIES. The term "VOTING SECURITIES" means the Common
Stock and any other securities issued by the Company having the power to vote in
the election of directors of the Company, including without limitation any
securities having such power only upon the occurrence of a default or any other
extraordinary contingency.
2
<PAGE> 3
2. MANDATORY TRANSFERS.
2.1 DBC CHANGE OF CONTROL. Notwithstanding anything herein to the
contrary, and absent agreement of the Stockholders to do otherwise, CBS shall
have the right (but not the obligation) in its sole discretion to purchase DBC's
Securities or require that such Securities be transferred to an independent
trustee, as provided in Section 2.2 within 60 days after a competitor of CBS has
directly or indirectly acquired beneficial ownership of more than 30% of the
outstanding shares of the common stock, or securities representing, in the
aggregate, more than 30% of the voting power, of DBC (or any person controlling
DBC), or all or substantially all of DBC's assets (a "DBC CHANGE OF CONTROL"),
at a time when DBC and its affiliates shall then own in the aggregate a number
of shares of Common Stock equal to at least ten percent (10%) of the outstanding
shares of Common Stock on the IPO Closing Date (defined below) (appropriately
adjusted to reflect any stock splits, reverse stock splits, stock dividends,
recapitalizations and other similar transactions occurring subsequent to the IPO
Closing Date), without the prior written consent of CBS (a "TRIGGERING EVENT").
The parties hereby agree that DBC may give CBS confidential written notice of
its intent to enter into an agreement which would cause a DBC Change of Control,
together with a description of the party with whom DBC intends to effect such a
transaction. CBS shall have twenty (20) days from receipt of such notice to
respond to DBC in writing as to whether it would elect to trigger the provisions
of this Section 2 with respect to such potential DBC Change of Control. If, and
only if, CBS notifies DBC in writing that it would not make such election, CBS
shall be deemed to have waived its right to trigger such mandatory transfer
provisions with respect to such potential DBC Change of Control.
2.2 TRANSFER OF SHARES. Upon the occurrence of a DBC Change of Control,
CBS may elect one of the following within 45 days after written notice from DBC
that a DBC Change of Control has occurred:
(a) (i) CBS may offer to purchase the Securities then held by
DBC and its affiliates, and DBC and its affiliates shall be required to sell to
CBS, such sale to occur no later than 10 days after DBC's receipt of CBS'
written offer to purchase such Securities, at a purchase price for the
Securities held by DBC and its affiliates equal to the Fair Market Value of the
Securities on the date of the Triggering Event.
(ii) Notwithstanding the foregoing provisions of Section
2.2(a)(i), if (y) any legal or regulatory requirements, including, without
limitation, those imposed by the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended must be first satisfied prior to making such sale or (z) the
Fair Market Value must be determined according to the terms of subsection (b) of
the definition of Fair Market Value, then such sale shall be made within two
days of the satisfaction of such legal requirements or of the determination of
the Fair Market Value of the Securities, as applicable.
(iii) Upon the date that payment is made for the
Securities, DBC and its affiliates will have no further rights as a holder of
such Securities and DBC and its affiliates will forthwith cause all
certificate(s) evidencing such Securities to be surrendered to the Company or
3
<PAGE> 4
its transfer agent for cancellation and new certificates evidencing such
Securities will be promptly delivered to CBS.
(b) CBS may require DBC to transfer all Securities then held by
DBC and its affiliates to an independent trustee reasonably satisfactory to CBS,
which trustee shall then dispose of such Securities formerly held by DBC and its
affiliates to purchaser(s) that is/are not competitor(s) of CBS, subject to the
foregoing, in such a manner as such trustee shall determine with a view to
maximizing the sale price of the shares formerly held by DBC and its affiliates,
while disposing of such shares as promptly as reasonably practicable. Upon such
transfer, such trustee shall have sole voting and dispositive control over such
Securities, DBC shall no longer be entitled to appoint any DBC Designees and all
current DBC Designees shall resign from their positions as members of the
Company's Board of Directors. Unless otherwise agreed in writing by CBS, any
trustee appointed pursuant to this Section 2.2(b) shall be a bank or trust
company incorporated or otherwise organized under the laws of the United States
or a state thereof and having a combined capital and surplus of at least
$100,000,000. The provisions of Article 8 of this Agreement shall not be
applicable to such trustee. Any such trustee shall perform its duties upon
customary terms pursuant to documentation reasonably satisfactory to CBS, it
being understood and agreed that, without the prior written consent of CBS, no
such trustee shall vote any Securities held by it at any meeting of the
stockholders of the Company or otherwise.
"FAIR MARKET VALUE" of the Securities shall mean (a), for any
Security that is listed on a national securities exchange or authorized for
trading on the National Association of Securities Dealers Nasdaq Stock Market or
other automated quotation system, the average of the closing prices for the five
day period ending on the date of the Triggering Event; and (b), for any other
Security, such price as is determined by an appraiser chosen by the members of
the Company's Board of Directors who are neither employees of the Company, CBS
Designees (defined below) or DBC Designees (defined below) or otherwise
affiliated with or employed by either of CBS, DBC or one of their respective
affiliates (other than as serving as an independent member of the Company's
Board of Directors) (the "INDEPENDENT DIRECTORS"). If there are no Independent
Directors, then Fair Market Value for purposes of this Subsection (b) only,
shall be determined by a panel of appraisers, one (1) chosen by CBS, one (1)
chosen by DBC and the third to be chosen by the first two (2) appraisers. If the
appraisers cannot reach agreement within thirty (30) days of the date of the
Triggering Event, then each appraiser shall deliver its appraisal within 40 days
of the Triggering Event and the appraisal which is neither the highest nor the
lowest shall constitute the Fair Market Value. In the event either Stockholder
fails to choose an appraiser within thirty (30) days of the date of the
Triggering Event, then the appraisal of the sole appraiser shall constitute the
Fair Market Value. Each party shall bear the cost of the appraiser selected by
such Stockholder and the cost of the third appraiser shall be borne one-half by
each Stockholder. In the event either party fails to choose an appraiser, the
cost of the sole appraiser shall be borne one-half by each Stockholder.
2.3 TERMINATION PAYMENT. Upon the termination of the Amended and
Restated License dated as of the date hereof between CBS and the Company (the
"AMENDED AND RESTATED LICENSE") in accordance with its terms, CBS may elect to
terminate its advertising obligation under Section 1.04 of the Contribution
Agreement. In the event CBS elects to exercise this
4
<PAGE> 5
termination right, CBS shall pay to the Company a cash payment in the amount of
$500,000 times the number of full calendar months from the date of such
termination remaining until October 2002.
3. AGREEMENT NOT TO COMPETE.
3.1 AGREEMENT OF DBC NOT TO COMPETE. DBC understands that the Company
shall be entitled to protect and preserve the going concern value of the
Business to the extent permitted by law and, therefore, until October 29, 2005,
DBC shall not, and DBC shall not authorize or permit another Person to, without
the prior written consent of the Company:
(a) (i) sell advertising on an Internet Web site that has as its
primary function and as its principal theme and format the delivering of
comprehensive real-time or delayed stock quotations and financial news in the
English language to consumers or (ii) use the Internet to sell real-time
snap-quotes to individual subscribers or customers who pay a fee for such
information ("COMPETITIVE ACTIVITIES");
(b) solicit, recruit or hire any employees of the Business or
person who has worked for the Business;
(c) solicit or encourage any employee of the Business to leave
the employment of the Business; and
(d) disclose or furnish to anyone any confidential information
relating to the Business or otherwise using such confidential information for
its own benefit or the benefit of any other person.
The Company acknowledges that the maintenance and
continued operation of the dbc.com Web site by DBC shall not be considered to be
a violation of this Section 3.1 provided that dbc.com does not engage in any
Competitive Activities. In addition, this Section 3.1 shall not be deemed
breached as a result of the maintenance, operation, sale or transmission over
the Internet of DBC's existing products, including, but not limited to, Bond Vu,
BondEdge, InSite, Signal Online, and StockEdge Online.
3.2 NON-COMPETING ACTIVITIES. The Company acknowledges and agrees that
the following are either not within the express terms of the prohibitions
contained in Section 3.1 or, if so, shall nevertheless be excluded from said
prohibitions:
(a) the ownership by DBC of less than an aggregate of 5% of any
class of stock of a Person engaged, directly or indirectly, in Competitive
Activities;
(b) the ownership by DBC of less than 10% in value of any
instrument of indebtedness of a Person engaged, directly or indirectly, in
Competitive Activities;
5
<PAGE> 6
(c) an Internet service or Web site that delivers general news
or sports or entertainment content with a financial news segment or portion
included, will not be considered to have as its primary function or as 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;
(d) an Internet service or Web site will not be considered to
have as its primary function or as 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 solely on the basis of its providing a
stock price ticker crawl line;
(e) any activity conducted by DBC and/or its Affiliates as of
December __, 1998, the execution date of this Agreement; or
(f) any Internet services in which DBC has an interest as of
December __, 1998, the execution date of this Agreement.
3.3 AGREEMENT OF THE COMPANY NOT TO COMPETE. The Company agrees that
subsequent to the date hereof through October 29, 2005 or, at such earlier time
(i) as the Amended and Restated Services Agreement has terminated, (ii) upon the
occurrence of a DBC Change of Control, or (iii) at such time as DBC shall hold
less than 10% of the then-outstanding Voting Securities, it will not, except
through DBC, sell any product or service that offers streaming real-time stock
price quotes.
3.4 ENFORCEMENT. Notwithstanding any other provision of this Agreement,
it is understood and agreed that the remedies at law would be inadequate in the
case of any breach of the covenant contained in Sections 3.1 or 3.3. Therefore,
the Company or DBC, as the case may be, shall be entitled to equitable relief,
including the remedy of specific performance, with respect to any breach or
attempted breach of such covenant.
3.5 TERMINATION. The Stockholders and the Company acknowledge that the
provisions of this Section 3 shall terminate and cease to apply in the event
that the Company is dissolved or liquidated.
4. DBC CONTRIBUTION. DBC acknowledges that as of each of October 29, 1997
and October 29, 1998, it had contributed $1,000,000 to the LLC.
5. ASSIGNMENT OF CONTRIBUTION AGREEMENT.
5.1 ASSIGNMENT AND ASSUMPTION. Effective immediately upon the date of
this Agreement, the LLC hereby assigns, transfers, and sets over to the Company
all of LLC's right, title, and interest in and to the Contribution Agreement and
its rights and obligations thereunder
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and the Company does hereby agree to assume and does hereby assume all of the
obligations and liabilities of LLC related to the Contribution Agreement.
5.2 CONSENT OF CBS AND DBC. Each of CBS and DBC consent to the
assignment and assumption provided for in Section 5.1 hereof.
6. AMENDMENTS TO CONTRIBUTION ARRANGEMENT.
6.1 AMENDMENTS
(a) Section 1.04 of the Contribution Agreement is hereby amended
to delete the reference to "$50 million" in the fifth line thereof and insert
"$30 million" therefor and by adding the CBS termination rights described in
Section 2.3 hereof.
(b) Exhibit B to the Contribution Agreement is deleted and
replaced in its entirety with the Amended and Restated License Agreement
attached hereto as Exhibit 5.1(b).
(c) Exhibit C to the Contribution Agreement is deleted and
replaced in its entirety with the Amended and Restated Services Agreement
attached hereto as Exhibit 5.1(c).
(d) Exhibit D to the Contribution Agreement is amended by
deleting the last sentence of paragraph 2 thereto.
6.2 FULL FORCE. Except as expressly amended hereby, the Contribution
Agreement shall remain in full force and effect, except to reflect the change of
the LLC's organization from a limited liability company to a corporation as a
result of the Merger.
7. DIRECTOR NOMINATION RIGHTS.
7.1 BOARD SIZE. The Company shall maintain a Board of Directors of at
least seven (7) members and shall use its best efforts to maintain a Board of
Directors of nine (9) members immediately after the IPO Closing Date (defined
below).
7.2 DESIGNEE. For so long as CBS continues to own a number of Voting
Securities equal to at least one percent (1%) of the Company's outstanding
Voting Securities, the Company shall provide CBS, and for so long as DBC
continues to own a number of Voting Securities equal to at least one percent
(1%) of the outstanding Voting Securities, the Company shall provide DBC, thirty
(30) days prior written notice of any Stockholder solicitation or action
relating to the election of directors. After receipt of such notice by DBC, DBC
may, and after receipt of such notice by CBS, CBS may, by written notice sent to
the Company within ten (10) days of receipt of such notice, request that the
Company nominate, and the Company shall nominate, for election to the Company's
Board of Directors (the "BOARD OF DIRECTORS"), in connection with such
Stockholder solicitation or action:
(a) one, if CBS holds a number of Voting Securities greater than
or equal to one percent (1%) but less than twenty percent (20%) of the Company's
outstanding Voting
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Securities, two, if CBS holds a number of Voting Securities greater than or
equal to twenty percent (20%) but less than thirty percent (30%) of the
Company's outstanding Voting Securities, and three, if CBS holds a number of
Voting Securities greater than or equal to thirty percent (30%) of the
outstanding Voting Securities, candidates designated in the CBS notice, who
shall be reasonably acceptable to the Company (collectively, the "CBS
DESIGNEES"); and
(b) one, if DBC holds a number of Voting Securities greater than
or equal to one percent (1%) but less than twenty percent (20%) of the Company's
outstanding Voting Securities, two, if DBC holds a number of Voting Securities
greater than or equal to twenty percent (20%) but less than thirty percent (30%)
of the outstanding Voting Securities, and three, if DBC holds a number of
Company's outstanding Voting Securities greater than or equal to thirty percent
(30%) of the Company's outstanding Voting Securities, candidates designated in
the DBC notice, who shall be reasonably acceptable to the Company (collectively,
the "DBC DESIGNEES").
In the event that CBS or DBC shall desire to appoint CBS Designees or
DBC Designees, as applicable, otherwise than in connection with a Stockholder
solicitation or action relating to the election of directors, then as soon as
practicable upon written notice from CBS or DBC, as applicable, the Company
shall appoint the CBS Designees or DBC Designees, as applicable, to the Board of
Directors.
In the event that the size of the Company's Board of Directors is
increased to a number greater than nine (9), the number of CBS and DBC Designees
shall be a number equal to the product of (A) the percentage of outstanding
Voting Securities held by such Stockholder times (B) the number of authorized
members of the Company's Board of Directors, rounded up to the nearest whole
number.
Notwithstanding the foregoing, for so long as the Amended and Restated
License remains in effect, CBS shall be entitled to select at least one CBS
Designee, regardless of the number of Voting Securities held by it.
7.3 AFFILIATES. For purposes of this Agreement, all shares held by an
affiliate (as defined in Rule 405 promulgated under the Securities Act of 1933,
as amended (the "SECURITIES ACT")) (each, an "AFFILIATE") of CBS or DBC, will be
deemed to be owned by CBS or DBC, as applicable.
7.4 VOTING OF SHARES.
(a) The Company shall use its best efforts (i) to cause to be
voted the shares of Voting Securities for which the Company's management or the
Board of Directors holds proxies or is otherwise entitled to vote in favor of
the election of the CBS Designees and DBC Designees nominated pursuant to
Section 7.2 to this Agreement; and (ii) to cause the Board of Directors to
unanimously recommend to its stockholders to vote in favor of the CBS Designees
and the DBC Designees.
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(b) Each of CBS and DBC shall vote the shares of Voting
Securities held by it for the CBS Designees and the DBC Designees.
7.5 VACANCIES. In the event that any CBS or DBC Designee shall cease to
serve as a director of the Company for any reason, the vacancy resulting
therefrom shall be filled by another CBS Designee or DBC Designee, as
applicable.
7.6 EQUAL TREATMENT. The Company shall offer the same compensation and
shall provide rights and benefits of indemnity to each CBS Designee or DBC
Designee as are provided to other non-employee directors, provided however, that
none of the CBS Designees or DBC Designees shall be entitled to participate in
the Company's proposed 1998 Directors Stock Option Plan or any other equity
based plan.
8. RIGHT OF FIRST REFUSAL.
8.1 NOTICE. Before any Stockholder or affiliate of any Stockholder may
effect any Transfer of any Securities, such Stockholder or affiliate (the
"SELLING STOCKHOLDER") must give at the same time to the Company and the other
Stockholder a written notice signed by the Selling Stockholder (the "SELLING
STOCKHOLDER'S NOTICE") stating (a) the Selling Stockholder's bona fide intention
to transfer such Offered Securities; (b) the number of Offered Securities
proposed to be transferred to each proposed purchaser or other transferee
("PROPOSED TRANSFEREE"); (c) the name, address and relationship, if any, to the
Selling Stockholder of each Proposed Transferee; and (d) the bona fide cash
price or, in reasonable detail, other consideration, per share for which the
Selling Stockholder proposes to transfer such Offered Securities to each
Proposed Transferee (the "OFFERED PRICE") and the proposed time of payment and
other relevant terms of the proposed sale. If such Selling Stockholder desires
to effect sales into the open market pursuant to Rule 144 promulgated under the
Securities Act ("OPEN MARKET SALE"), the Selling Stockholder's Notice shall also
contain the closing price of the Securities on the date prior to the date of
such notice which price shall constitute the Offered Price. Upon the request of
the Company or the other Stockholder, the Selling Stockholder will promptly
furnish to the Company and to the other Stockholder such other information as
may be reasonably requested to establish that the offer and Proposed
Transferee(s) are bona fide. In the event that the notice provisions of this
Section 8 make it impractical or impossible to comply with the notice provisions
of Section 1 of the Registration Rights Agreement, the parties hereto agree that
the notice provisions of the Registration Rights Agreement shall be modified or
waived to the extent necessary so as to permit the operation of this Section 8
in conjunction with the provisions of Section 1 of the Registration Rights
Agreement.
8.2 STOCKHOLDERS' RIGHT OF FIRST REFUSAL. The non-Selling Stockholder
will have a right of first refusal (the "RIGHT OF FIRST REFUSAL") to purchase
any portion of the Offered Securities made available for purchase in the manner
provided in this Section 8.2 unless (a) the Offered Securities are to be sold in
a private sale to one purchaser, in which case the non-Selling Stockholder will
only be permitted to exercise its Right of First Refusal if it purchases all of
the Offered Securities, or (b) the Selling Stockholder is selling the Offered
Securities through a registered offering and the quantity of Offered Securities
that the non-Selling Stockholder
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proposes to purchase would, in the good faith opinion of the managing
underwriter, jeopardize the success of the offering. In such a circumstance, the
non-Selling Stockholder will only be permitted to purchase either all of the
Offered Securities or such Offered Securities, if any, that would not, in the
good faith opinion of the managing underwriter, jeopardize the success of such
offering. If the non-Selling Stockholder desires to purchase any or all, as
applicable, of the Offered Securities made available for purchase such
Stockholder must give written notice within the fifteen (15) day period
commencing on the date of the Selling Stockholder's Notice (the "REFUSAL
PERIOD"), to the Selling Stockholder (the "PURCHASE NOTICE") and to the Company
of such Stockholder's election to purchase the Offered Securities, and the
number of shares and type of Offered Securities that such Stockholder desires to
purchase, provided however, that in the case of a proposed Open Market Sale, the
non-Selling Stockholder must give the Purchase Notice prior to 5:00 pm. Pacific
time on the second Business Day after the non-Selling Stockholder receives the
Purchase Notice.
8.3 PURCHASE PRICE. The purchase price for the Offered Securities to be
purchased by the non-Selling Stockholder exercising its Right of First Refusal
under this Agreement will be the Offered Price, and will be payable as set forth
in Section 8.4 hereof. If the Offered Price includes consideration other than
cash, the cash equivalent value of the non-cash consideration will be the Fair
Market Value of such noncash consideration.
8.4 PAYMENT. Payment of the purchase price for Offered Securities
purchased by a Stockholder exercising its Right of First Refusal will be made in
cash within ten (10) days after the date of the Purchase Notice, or if any legal
or regulatory requirements, including, without limitation, those imposed by the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, must be first satisfied
prior to making such payment, within two (2) days after the satisfaction of such
legal requirements.
8.5 RIGHTS OF STOCKHOLDER. Upon the date that payment is made for the
Offered Securities purchased by the non-Selling Stockholder pursuant to the
Right of First Refusal hereunder, the Selling Stockholder will have no further
rights as a holder of such Offered Securities and the Selling Stockholder will
forthwith cause all certificate(s) evidencing such Offered Securities to be
surrendered to the Company or its transfer agent for cancellation and new
certificates evidencing such Offered Securities will be promptly delivered to
the purchasing Stockholder.
8.6 SELLING STOCKHOLDER'S RIGHT TO TRANSFER. If the non-Selling
Stockholder has not elected pursuant to its Right of First Refusal to purchase
all or a portion, as applicable, of the Offered Securities, the Selling
Stockholder may Transfer the Offered Securities to any person named as a
Proposed Transferee in the Selling Stockholder's Notice, at the Offered Price or
at a higher price, provided that such transfer (a) is consummated within one
hundred twenty (120) days after the date of the Selling Stockholder's Notice and
(b) is in accordance with the terms and conditions of this Agreement; provided
however, that in the case of a proposed Open Market Sale, such transfers must
take place within the six (6) week period following the date of the Selling
Stockholder's Notice. If the Offered Stock is transferred in accordance with the
terms and conditions of this Agreement to a non-affiliate, then the
transferee(s) of the Offered Stock
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will thereafter hold such Offered Securities free of the Right of First Refusal
and all other restrictions imposed by this Agreement. If the Offered Securities
are not so transferred during such one hundred twenty (120) day period or such
six (6) week period, as the case may be, then the Selling Stockholder will not
transfer any of such Offered Stock without complying again in full with the
provisions of this Agreement.
8.7 CERTAIN TRANSFERS.
Notwithstanding the foregoing:
(i) If the Offered Securities will be sold by means of a
registered underwritten offering, then the Selling Stockholder's Notice need not
name any Proposed Transferee if such notice (x) states that the Offered
Securities will be sold by means of a broadly distributed offering and (y)
contains the proposed underwriter's good faith estimate of the public offering
price (the "PROPOSED PUBLIC OFFERING PRICE") based on then-current market
conditions. If the non-Selling Stockholder does not elect, pursuant to its Right
of First Refusal, to purchase all or a portion, as applicable, of the Offered
Securities at the proposed Public Offering Price, the Selling Stockholder may
transfer such Offered Securities as the non-Selling Stockholder has not elected
to so purchase at prices that are based on the prevailing market price for the
Offered Securities at the time of the sale of such Offered Securities even if
such market price is lower than the Proposed Public Offering Price.
(ii) If the Offered Securities will be sold pursuant to block
trades or other brokerage transactions, then the Selling Stockholder's Notice
need not name any Proposed Transferee nor any Offered Price. If the non-Selling
Stockholder does not elect, pursuant to its Right of First Refusal, to purchase
all of the Offered Securities on the date of the Selling Stockholder's Notice at
the closing market price for the Offered Securities on the date of the Selling
Stockholder's Notice, the Selling Stockholder may transfer such Offered
Securities at prices that are based on the prevailing market price in effect for
the Offered Securities at the time of the sale of such Offered Securities
through block trades or other brokerage transaction, even if such market price
is lower than the closing market price for such Offered Securities on the date
of the Selling Stockholder's Notice.
8.8 LEGEND. Each Stockholder understands and agrees that the Company
will cause the legend set forth below, or a legend substantially equivalent
thereto, to be placed upon any certificate(s) or other documents or instruments
evidencing ownership of Securities by the Stockholder:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT
TO CERTAIN RIGHTS OF FIRST REFUSAL AS SET FORTH IN A
STOCKHOLDERS' AGREEMENT DATED AS OF ________, 1998
ENTERED INTO BY THE HOLDER OF THESE SHARES, THE COMPANY
AND CERTAIN STOCKHOLDERS OF THE COMPANY. A COPY OF SUCH
AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICE OF
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THE COMPANY. SUCH RIGHT OF FIRST REFUSAL IS BINDING ON
CERTAIN TRANSFEREES OF THESE SHARES.
The Company will cause such legend to be removed upon the termination of this
Agreement.
8.9 STOCK TRANSFER INSTRUCTIONS. Each Stockholder agrees, to ensure
compliance with the restrictions referred to herein, that the Company may issue
appropriate "stop transfer" certificates or instructions and that, if the
Company transfers its own securities, it may make appropriate notations to the
same effect in its records.
9. PARTICIPATION RIGHTS.
9.1 NEW SECURITIES. If from time to time the percentage of the Total
Voting Power represented by the Voting Power of all Voting Securities then
owned, directly or indirectly, by a Stockholder (the "APPLICABLE PERCENTAGE")
would be reduced as a result of any issuance of Voting Securities by the Company
or could be reduced as a result of any issuance of Convertible Securities by the
Company (in either case, whether for cash, property or otherwise and, such
securities are referred to herein as "NEW SECURITIES"), the Company shall so
notify the Stockholder in writing not less than ten (10) Business Days prior to
the proposed date of any such issuance and shall offer to sell to the
Stockholder, and, if such offer is accepted in writing by (x) if such issuance
is made pursuant to an underwriting or private placement purchase agreement, the
second Business Day prior to the date of execution of any such agreement (it
being understood that the Company will give the Stockholder at least four (4)
Business Day's prior notice of such date of execution) or (y) if such issuance
is not made pursuant to such an agreement, the fifth (5th) Business Day prior to
the proposed date of such issuance, the Company shall sell to the Stockholder
that portion of the Voting Securities or Convertible Securities to be issued
which would result in such Stockholder's Applicable Percentage immediately prior
to such issuance equaling the Stockholder's Applicable Percentage in effect
immediately prior to such issuance (assuming, in the case of Convertible
Securities, the conversion, exchange or exercise at such time of all Convertible
Securities), or any lesser portion of the Voting Securities or Convertible
Securities to be issued in such issuance as may be designated by the
Stockholder, in either case at a price per share or other trading unit of such
Voting Securities or Convertible Securities, as the case may be, equal to the
price per share or other trading unit of such Voting Securities or Convertible
Securities, as the case may be, to be received by the Company in such issuance,
less any underwriting discounts and commissions (the "PURCHASE PRICE"), and
otherwise on the same terms as may be applicable to such issuance; provided,
however, that a Stockholder shall not be entitled to purchase such Voting
Securities or Convertible Securities from the Company pursuant to this Section
9.1 to the extent that such purchase would cause such Stockholder to own,
directly or indirectly, Voting Securities representing an aggregate Voting Power
in excess of a percentage of the Total Voting Power of the Company equal to the
Initial Percentage after giving effect to the proposed issuance; provided,
further, however, that the preceding provisions shall not apply to issuances of:
(a) up to an aggregate of 1,500,000 shares of the Company's
Common Stock (and/or options or warrants therefor) issued to employees,
officers, directors, contractors,
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advisors or consultants of the Company pursuant to incentive agreements or plans
approved by the Board of Directors of the Company, such number of shares being
subject to proportional adjustment to reflect subdivisions, combinations and
stock dividends affecting the number of outstanding shares of such stock; or
(b) securities offered by the Company in its initial public
offering pursuant to a registration statement filed under the Securities Act; or
(c) up to an aggregate of 500,000 shares of the Company's Common
Stock (and/or options or warrants therefor) issued or issuable to parties as
approved by the Board of Directors for any corporate purpose, including, without
limitation, for providing the Company with equipment leases, real property
leases, loans, credit lines, guaranties of indebtedness, cash price reductions
or similar financing, such number of shares being subject to proportional
adjustment to reflect subdivisions, combinations and stock dividends affecting
the number of outstanding shares of such stock.
Notwithstanding the foregoing provisions, in the event the
Company proposes to issue Voting Securities or Convertible Securities for
consideration other than cash, then, in lieu of purchasing a portion of the
Voting Securities or Convertible Securities to be issued, the Stockholder shall
be entitled to require the Company to issue to such Stockholder at a per share
price equal to the Fair Market Value of the additional Voting Securities or
Convertible Securities such that immediately after such issuance, such
Stockholder's Applicable Percentage equals such Stockholder's Applicable
Percentage in effect immediately prior to such issuance (assuming, in the case
of Convertible Securities, the conversion, exchange or exercise at such time of
all Convertible Securities to be issued in such issuance). For purposes of
calculating the Fair Market Value of such additional Voting Securities or
Convertible Securities, the term "Triggering Event" shall mean the date of the
issuance of such Voting Securities or Convertible Securities for consideration
other than cash.
9.2 ADDITIONAL LIMITATIONS ON PARTICIPATION RIGHTS.
(a) Notwithstanding the provisions of Section 9.1, (i) if the
Company proposes to issue Voting Securities or Convertible Securities pursuant
to the first underwritten public offering of the Company subsequent to its
initial public offering (the "FIRST FOLLOW-ON OFFERING") and a Stockholder would
otherwise be entitled to purchase a portion of such Voting Securities pursuant
to the provisions of Section 9.1, and (ii) if, in the opinion of the
underwriters of such First Follow-On Offering, the public trading market for the
Company's Common Stock would be significantly adversely affected if the
Stockholders exercised their participation rights contained in Section 9.1 with
respect to an amount of Voting Securities or Convertible Securities such that
after exercise of such participation right, the Applicable Percentage of such
Stockholder would be in excess of 25% (assuming, in the case of Convertible
Securities, the conversion, exchange or exercise at such time of all Convertible
Securities), then the Stockholders shall be permitted to exercise their
participation rights specified in Section 9.1 in connection with the First
Follow-On Offering only to the extent that such Stockholder's Applicable
Percentage would not exceed 25% after giving effect to the First Follow-On
Offering, or such higher
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percentage that would not, in the opinion of the underwriters of such First
Follow-On Offering, significantly adversely affect such offering.
(b) In the event that a Stockholder was unable to exercise the
participation rights set forth in Section 9.1 to the extent it would have
otherwise been able to exercise as a result of the provisions of Section 9.2(a),
then in the event the Company proposes to issue Voting Securities or Convertible
Securities subsequent to the First Follow-On Offering, such Stockholder shall be
entitled to purchase up to that portion of the Voting Securities or Convertible
Securities to be issued or to purchase from the Company up to a number of
additional Voting Securities or Convertible Securities pursuant to Section 9.1
such that the Applicable Percentage of such Stockholder immediately after such
purchase equals no more than such Stockholder's Applicable Percentage (not to
exceed such Stockholder's Initial Percentage) immediately prior to the First
Follow-On Offering (assuming, in the case of Convertible Securities, the
conversion, exchange or exercise at such time of all Convertible Securities).
9.3 FAILURE TO EXERCISE. In the event that a Stockholder fails to
exercise the participation right within such ten (10) day period, then the
Company shall have 120 days thereafter to sell the New Securities with respect
to which the Stockholder's participation rights hereunder were not exercised, at
a price and upon general terms not materially more favorable to the purchasers
thereof than specified in the Company's notice to the Stockholders. In the event
that the Company has not issued and sold the New Securities within such 120 day
period, then the Company shall not thereafter issue or sell any New Securities
without again first offering such New Securities to the Stockholders pursuant to
this Section 9.
10. SECTION 5.08 OF THE LLC AGREEMENT. Section 5.08 of the LLC's limited
liability company agreement, dated as of October 29, 1997 (the "LLC AGREEMENT"),
establishes the manner in which the Stockholders, as members of the LLC, will
treat contributions to the LLC for U.S. Federal income tax purposes. In order to
induce the Stockholders to enter into this Agreement and to consummate the
transactions identified herein, the Company agrees that it will not take any
action that contradicts or is inconsistent with such agreed treatment of
contributions to the LLC for U.S. Federal income tax purposes unless a final
determination (which shall include the execution of a Form 870-AD or successor
form) requires a different treatment.
11. TERM. This Agreement shall terminate on October 29, 2005.
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12. GENERAL PROVISIONS.
12.1 NOTICES. Any notice, request or other communication required or
permitted hereunder shall be in writing and shall be deemed to have been duly
given if personally delivered or if deposited in the U.S. mail by registered or
certified mail, return receipt requested, postage prepaid, as follows:
(a) if to the Company, at:
MarketWatch.com, Inc.
825 Battery Street
San Francisco, CA 94111
Attention: J. Peter Bardwick
Facsimile: 415/392-1972
with a copy to:
Fenwick & West LLP
Two Palo Alto Square
Palo Alto, CA 94306
Attention: Mark C. Stevens
Facsimile: 650/494-1417
(b) If to CBS:
51 West 52nd Street
New York, NY 10019
Attention: Fredric G. Reynolds
Louis J. Briskman
Facsimile: 212/975-9191
212/597-4031
(c) If to DBC:
Data Broadcasting Corporation
3955 Point Eden Way
Hayward, CA 94545
Attention: Mark F. Imperiale
Facsimile: 510/266-6018
Any party hereto (and such party's permitted assigns) may by notice so given
provide and change its address for future notices hereunder. Notice shall
conclusively be deemed to have been given when personally delivered or five (5)
days after being deposited in the mail in the manner set forth above.
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12.2 ENTIRE AGREEMENT. This Agreement constitutes and contains the
entire agreement and understanding of the parties with respect to the subject
matter hereof and supersedes any and all prior negotiations, correspondence,
agreements, understandings, duties or obligations between the parties respecting
the subject matter hereof.
12.3 AMENDMENT OF RIGHTS. Any provision of this Agreement may be amended
and the observance thereof may be waived (either generally or in a particular
instance and either retroactively or prospectively), only with the written
consent of the parties hereto (and/or any of their permitted successors or
assigns).
12.4 GOVERNING LAW. This Agreement shall be governed by and construed
exclusively in accordance with the laws of the State of Delaware, excluding that
body of law relating to conflict of laws.
12.5 SEVERABILITY. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, then such provision(s) shall be
excluded form this Agreement and the balance of this Agreement shall be
interpreted as if such provision(s) were so excluded and shall be enforceable in
accordance with its terms.
12.6 THIRD PARTIES. Nothing in this Agreement, express or implied, is
intended to confer upon any person, other than the parties hereto and their
successors and permitted assigns, any rights or remedies under or by reason of
this Agreement.
12.7 SUCCESSOR AND ASSIGNS. The provisions of this Agreement shall inure
to the benefit of, and shall be binding upon, the successors and permitted
assigns of the parties hereto.
12.8 CAPTIONS. The captions to sections of this Agreement have been
inserted for identification and reference purposes only and shall not be used to
construe or interpret this Agreement.
12.9 COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
12.10 NO ASSIGNMENT. No party hereto may assign any of its rights or
obligations hereunder without the prior written consent of the other parties
hereto and any attempt to do so will be void.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
DATA BROADCASTING CORPORATION CBS BROADCASTING INC.
By: By:
---------------------------------- -----------------------------------
Name: Name:
-------------------------------- ----------------------------------
Title: Title:
------------------------------- ---------------------------------
MARKETWATCH.COM, INC. MARKETWATCH.COM, LLC
By: By:
---------------------------------- -----------------------------------
Name: Name:
-------------------------------- ----------------------------------
Title: Title:
------------------------------- ---------------------------------
[SIGNATURE PAGE TO STOCKHOLDERS' AGREEMENT]
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EXHIBIT 10.07
AMENDED AND RESTATED LICENSE AGREEMENT
This AGREEMENT made on December __, 1998, and effective as of the 29th
day of October, 1997, by and between CBS Broadcasting, Inc. (formerly known as
CBS Inc.), 51 West 52nd Street, New York, New York 10019 (herein called "CBS"),
and Marketwatch.Com, LLC, 825 Battery St., San Francisco, CA 94111 (herein
called "MarketWatch") hereby amends and restates the License Agreement entered
into between the parties as of October 29, 1997 (that was attached to and formed
a part of the CONTRIBUTION AGREEMENT, dated as of October 29, 1997, between CBS,
INC., DATA BROADCASTING CORPORATION ("DBC") and MARKETWATCH.COM,LLC).
1. DEFINITIONS
1.1 "Acquired Business" means a corporation, partnership, limited
liability company, other business entity or division of any of the foregoing or
assets of the foregoing constituting a business or line of business acquired by
the Company or any of its subsidiaries.
1.2 "CBS Content Pages" means pages of the MarketWatch Site that include
any CBS News Content.
1.3 "CBS License Guidelines and Restrictions" or "CBS License
Guidelines" means the clearance, form, format and use restrictions and
procedures set forth in Exhibit 2 attached hereto which MarketWatch shall adhere
to in its use of CBS News Content, CBS Marks, MarketWatch Site Content on the
MarketWatch Site.
1.4 "CBS Marks" means the following CBS registered trademarks, as shown
in Exhibit 1 attached hereto: CBS(R) and the CBS "Eye" design.
1.5 "CBS News Content" means any current news Television Content
(excluding, for avoidance of doubt, any archival Content or television/radio
program outtakes and the content to be supplied by MarketWatch to CBS in
connection with the Broadcast Personnel Agreement to be entered into between the
parties herewith) related to business and financial issues and contained in CBS
News' regularly scheduled hard news broadcasts, scheduled special events
coverage and unscheduled live breaking news coverage which CBS has the right to
license for use on the Internet. (Nothing herein shall be construed to grant
MarketWatch any rights to CBS Radio Content or any Content of CBS Cable [i.e.,
Content contained in coverage or broadcasts of the CBS Radio division of CBS
and/or CBS Cable]).
1.6 "Content" means text, graphics, photographs, video, audio and/or
other data or information, including, without limitation, Television Content,
relating to any subject.
1.7 "Core Business" means an Internet service or Web site that (i)
provides information or services of a financial nature, including without
limitation the delivery of financial news or real-time or delayed stock market
quotations to consumers, or (ii) uses the CBS Marks.
1.8 "Date and Time Network Guidelines" means the guidelines issued by
CBS which restrict any advertisement from disclosing the date and time of the
program or event advertised.
<PAGE> 2
1.9 "Intellectual Property Rights" means all inventions, discoveries,
trademarks, patents, trade names, copyrights, moral rights, jingles, know-how,
intellectual property, software, shop rights, licenses, developments, research
data, designs, technology, trade secrets, test procedures, processes, route
lists, computer programs, computer discs, computer tapes, literature, reports
and other confidential information, intellectual and similar intangible property
rights, whether or not patentable or copyrightable (or otherwise subject to
legally enforceable restrictions or protections against unauthorized third party
usage), and any and all applications for, registrations of and extensions,
divisions, renewals and reissuance of, any of the foregoing, and rights therein,
including without limitation (a) rights under any royalty or licensing
agreements, and (b) programming and programming rights, whether on film, tape or
any other medium.
1.10 "Internet" means global network of interconnected computer
networks, each using the Transmission Control Protocol/Internet Protocol and/or
such other standard network interconnection protocols as may be adopted from
time to time, which is used to transmit Content that is directly or indirectly
delivered to a computer or other digital electronic device for display to an
end-user, whether such Content is delivered through on-line browsers, off-line
browsers, or through "push" technology, electronic mail, broadband distribution,
satellite, wireless or otherwise, and any subset of such global network, such as
"intranets."
1.11 "Internet Site" means any site or service delivering Content on or
through the Internet, including, without limitation, any on-line service such as
America Online, Compuserve, Prodigy and the Microsoft Network.
1.12 "MarketWatch Content" means any Content owned or controlled by
MarketWatch other than CBS Property (as defined in subparagraph 7.1(a)).
1.13 "MarketWatch Site" means the Internet Web sites owned or controlled
by MarketWatch as of the effective date of this Agreement that provide stock
quotes, personal finance information and business, stock stories and that are
accessed via (i) the top-level domains Marketwatch.com and Stockchat.com, (ii)
the URLs http://cbs.marketwatch.newsalert.com,
http://www.marketwatch.newsalert.com and http://www.marketwatchrt.newsalert.com
(or any successor URLs), (iii) the URL http://www.dbc.com (so long as
www.dbc.com serves only as an entry point to the foregoing URLs); and (iv) any
Mirror Site.
1.14 "Mirror Site" means an Internet Site which contains the exact form
and content as the MarketWatch Site which (a) is located at a geographic
location distinct from the MarketWatch Site and (b) is created for the purpose
of improving the performance of and accessibility to the MarketWatch Site. For
purposes of clarification, a mirror site may be used only in accordance with the
preceding purposes.
1.15 "Person" means any natural person, legal entity, or other organized
group of persons or entities. (All pronouns whether personal or impersonal,
which refer to Person include natural persons and other Persons.)
1.16 "Television Content" consists of Content broadcast on television.
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2. LICENSE
2.1 CBS grants to MarketWatch, during the term of this Agreement and
subject to the terms and conditions contained herein, the non-exclusive right
and license:
(a) to use, copy, publicly display, edit, revise, perform,
distribute or otherwise make available on or through the MarketWatch Site, the
CBS News Content, to the extent CBS has the right to so license such Content.
CBS agrees that users of the MarketWatch Site may view, access, retrieve, copy
and print only for noncommercial private use any CBS News Content distributed
hereunder on the MarketWatch Site.
(b) to use the CBS Marks, together with the MARKETWATCH mark, in
connection with MarketWatch's advertising, promotion and operation of the
MarketWatch Site.
(c) to use the CBS Marks in connection with identifying,
marketing and promoting MarketWatch Content to third-parties, provided that such
MarketWatch Content is also branded with the MARKETWATCH mark.
Nothing in this Agreement grants MarketWatch ownership or other rights in or to
the CBS News Content or the CBS Marks, except in accordance and to the extent of
this license.
2.2 MarketWatch's exercise of the rights granted herein shall conform to
the restrictions or requirements set forth in the CBS License Guidelines
(attached hereto as Exhibit 2), as such License Guidelines may be amended or
revised from time to time by CBS, in its reasonable discretion, to reflect any
changes in the business, practice, procedures or policies of CBS.
2.3 (a) MarketWatch shall have access to all CBS News Content, and,
subject to the conditions stated in the next sentence, CBS shall deliver, at
times reasonably requested by MarketWatch, all CBS News Content in a mutually
agreed form and format (including, for avoidance of doubt, video and text, to
the extent reasonably possible). CBS shall have the right to refuse to deliver
to MarketWatch any CBS News Content if, in CBS's sole discretion, the CBS News
Content or the use contemplated, conflicts with, interferes with or is
detrimental to CBS's interests, reputation or business or might subject CBS to
unfavorable regulatory action, violate any law, infringe the rights of any
person, or subject CBS to liability for any reason.
(b) MarketWatch shall be responsible for and shall reimburse CBS
for all actual costs and expenses, above and beyond those expenses normally
incurred by CBS in the ordinary course of business, which are incurred by CBS in
preparing and/or delivering the CBS News Content in the desired form and format,
and which are agreed to in advance by MarketWatch. Any amounts to be paid under
this paragraph 2.3(b) shall be due and payable within 30 days of receipt of an
invoice relating to such amounts. Those amounts will also be recoupable from all
monies becoming payable to MarketWatch under this or any other Agreement or
otherwise to the extent to which they have not actually been paid or reimbursed
as provided for in the preceding sentence.
2.4 All Content which MarketWatch intends to use on the MarketWatch Site
shall consist of business or financial-related content and other content deemed
appropriate by CBS. During the term of this Agreement, any Content displayed on
the MarketWatch Site shall be
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subject to any restrictions or requirements set forth in the CBS License
Guidelines. CBS shall have the right to demand the withdrawal from the
MarketWatch Site of any Content which in CBS's sole opinion conflicts with,
interferes with or is detrimental to CBS's interests, reputation or business or
which might subject CBS to unfavorable regulatory action, violate any law,
infringe the rights of any Person, or subject CBS to liability for any reason.
Upon notice from CBS to withdraw the Content concerned, MarketWatch shall cease
using any such Content on the MarketWatch Site as soon as commercially and
technically feasible, but in any event within three (3) days after the date of
CBS's notice. If MarketWatch cannot cease using such Content within twenty-four
(24) hours, MarketWatch will so notify CBS detailing why the cessation cannot be
effected within twenty-four (24) hours and when the cessation will be effected,
subject to the terms of the preceding sentence.
2.5 (a) During the term of this Agreement, MarketWatch shall consult
with CBS regarding the general (visual and editorial) presentation of the CBS
News Content on the MarketWatch Site; provided, however, that in the event the
parties cannot agree in any instance, then CBS's decision will be conclusive. In
no event shall MarketWatch distort or misrepresent any material contained in the
CBS News Content. No CBS News Content shall be used/displayed out of context;
MarketWatch shall have the right (subject to CBS License Guidelines) to edit and
revise the CBS News Content to meet spatial requirements provided that any such
edits or revisions shall not distort or misrepresent any events, opinions or
statements contained in the CBS News Content received by MarketWatch.
(b) MarketWatch shall be solely responsible for the engineering,
production, maintenance and monitoring of all CBS News Content which MarketWatch
makes available on the MarketWatch Site.
(c) Subject to any restrictions or requirements in the CBS
License Guidelines, MarketWatch shall have the right, but not the obligation, to
correct any errors, omissions and/or inaccuracies in the transmission or
transcription of the CBS News Content identified by MarketWatch or reported to
MarketWatch by MarketWatch Site users.
(d) Notwithstanding anything to the contrary contained herein,
upon notice from CBS, MarketWatch shall immediately cease using any CBS News
Content which (i) in CBS's sole opinion, conflicts, interferes with or is
detrimental to CBS's reputation or business or (ii) becomes subject to any third
party restriction or claim which would prohibit, limit or restrict the use
thereof on the Internet.
2.6 In the event that MarketWatch desires to use any music contained in
any CBS News Content on the MarketWatch Site, prior to such use, MarketWatch
shall (i) report to the applicable music rights society on behalf of CBS, all
titles and publishers of all such music and, (ii) secure, at its sole cost and
expense, and pay for all performing, duplication and/or recording rights
licenses, if any, necessary for the use of such music on the Internet. CBS shall
endeavor to deliver to MarketWatch accurate music cue sheets for all such music.
2.7 Upon expiration or termination of this Agreement, MarketWatch shall
cease all use of the CBS Marks as provided in Section 4.4 below, and, except as
otherwise provided in this paragraph, any CBS News Content or Content derived
therefrom in connection with the operation of the MarketWatch Site or otherwise.
In connection with the above, MarketWatch
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shall immediately remove or erase the CBS News Content (and any Content derived
therefrom) and CBS Marks from the MarketWatch Site, and from any advertising and
promotional materials, as soon as commercially and technically practicable,
given customary Internet business practices, but in no event shall any such
material remain on the MarketWatch Site more than five (5) days after expiration
or CBS's notice of termination, as applicable, and at CBS's request, MarketWatch
shall furnish CBS with certified evidence of such removal or erasure
satisfactory to CBS.
3. TERM
3.1 The term of this Agreement shall begin on October 29, 1997 and shall
continue in full force and effect for a period of eight (8) consecutive years,
through and including October 29, 2005, unless it is terminated earlier in
accordance with the terms and conditions contained herein.
4. TRADEMARKS
4.1 (a) CBS shall deliver to MarketWatch a copy of each CBS Mark in the
form in which such Mark may be used by MarketWatch hereunder. Both parties
acknowledge that the CBS Marks are trademarks exclusively owned or controlled by
CBS Broadcasting Inc. and that all uses by MarketWatch of such CBS Marks shall
inure to CBS's benefit. MarketWatch shall maintain CBS quality standards with
respect to its use of the CBS Marks, and otherwise use the CBS Marks subject to
any reasonable restrictions or requirements disclosed by CBS (including any
requirements/restrictions delineated in the CBS License Guidelines).
(b) In the event that during the term of this Agreement
MarketWatch shall create any proprietary right in any CBS Marks, as a result of
the exercise by MarketWatch of any right granted to it hereunder, such
proprietary right shall immediately vest in CBS and MarketWatch shall be
authorized to use such new proprietary right as though same had specifically
been included in this Agreement.
4.2 (a) MarketWatch shall not file any application in any country to
register a trademark which contains "CBS," the CBS "eye" or any other trademark
which is the same as, similar to, or misleading with respect to the CBS Marks or
any other CBS trademark. If any application for registration is filed in any
country by MarketWatch in contravention of this paragraph 4.2, CBS shall have
the right to take appropriate action against MarketWatch, including seeking
injunctive relief, to prohibit or otherwise restrain MarketWatch's use of the
infringement party's use of the infringing mark.
(b) MarketWatch shall furnish CBS proofs of all materials
bearing any CBS Marks (including, without limitation, advertising and publicity
materials). MarketWatch will not authorize full scale production of any such
material until after obtaining CBS's written approval in each instance. Any
changes in such material shall also be subject to CBS's prior written approval.
Approval by CBS shall not relieve MarketWatch of any of its warranties or
obligations under this Agreement and all materials that bear any CBS Marks shall
strictly conform with the samples and proofs approved by CBS. Samples and
materials to be approved by CBS shall be submitted to the Associate General
Counsel, Contracts, Rights and Development, CBS Law Department and/or such other
person that may be designated in writing by CBS. The materials
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bearing the CBS Marks which are identified in Exhibit 3 attached hereto are
hereby deemed approved by CBS.
4.3 In the event that MarketWatch learns of any infringement, threatened
infringement, or passing off of the CBS's trademarks or logos licensed for use
under this Agreement, or that any Person claims or alleges that the such
trademarks or logos are liable to cause deception or confusion to the public,
then MarketWatch shall notify CBS of the particulars thereof.
4.4 Upon the expiration or termination of this Agreement, MarketWatch
shall cease all use of the CBS Marks, as soon as commercially and technically
practicable, but in any event, no later than five (5) days after expiration or
termination of this Agreement.
5. COMPENSATION
5.1 In consideration of the rights herein granted, MarketWatch shall pay
CBS a royalty computed at the applicable percentage, indicated below, of the
Gross Revenues recognized by MarketWatch during the year concerned, as follows:
(a) (i) During the 1998 calendar year:
(A) With respect to the first Fifty Million
Dollars ($50,000,000) of Gross Revenues recognized over and
above the first One Million Dollars ($1,000,000) of Gross
Revenues recognized during such year: 8%.
(B) With respect to Gross Revenues recognized in
excess of Fifty-One Million Dollars ($51,000,000): 6%.
(ii) During the 1999 calendar year:
(A) With respect to the first Fifty Million
Dollars ($50,000,000) of Gross Revenues over and above the first
Five Hundred Thousand Dollars ($500,000) of Gross Revenues
recognized during such year: 8%.
(B) With respect to Gross Revenues recognized in
excess of Fifty Million Five Hundred Thousand Dollars
($50,500,000): 6%.
(iii) During each calendar year (or portion thereof, if
applicable) subsequent to the 1999 calendar year:
(A) With respect to the first Fifty Million
Dollars ($50,000,000) of Gross Revenues recognized during such
calendar year (or portion thereof, if applicable): 8%.
(B) With respect to Gross Revenues recognized in
excess of Fifty Million Dollars ($50,000,000): 6%.
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(b) (i) For avoidance of doubt, for purposes of this paragraph
5.1, calculation of Gross Revenues shall be made on a calendar yearly
basis, rather than a cumulative basis.
(ii) (A) "Gross Revenues" as used in this paragraph 5.1
shall mean gross operating revenues (excluding the revenues
described in the last sentence of this paragraph 5.1(b)(ii)(A)
and in 5.1(b)(ii)(B)) of MarketWatch, its subsidiaries and, to
the extent of any dividends or other distributions paid to
MarketWatch or its subsidiaries, any Person in which MarketWatch
or any of its subsidiaries has an interest, derived from the
Core Business presented in accordance with generally accepted
accounting principles and, if applicable, based on revenues as
reported in the periodic quarterly and annual statements
required by the Securities and Exchange Commission, provided
that Gross Revenues shall not be reduced for royalties,
commissions (except as otherwise set forth in clause
5.1(b)(ii)(B) below) fees or other expenses incurred in
generating such operating revenue. If an income statement of
MarketWatch presents operating revenue net of any reductions not
allowed under this Section 5, then for purposes of this
paragraph 5.1, operating revenue as presented shall be increased
by the amount of reductions. Sources of operating revenue
include, but are not limited to, advertising, sponsorship,
partnership/commerce, subscriptions, and sales of products and
services and shall include all monetary consideration and the
fair value of all non-monetary considerations. Sources of
operating revenue shall not include: (I) revenue realized by
MarketWatch pursuant to paragraph 1.2 of the DBC Services
Agreement between DBC and MarketWatch dated as of October 27,
1997, as amended and restated on _________________ [DATE] (the
"Services Agreement") (i.e., the stated dollar portion of
subscriber fees from various DBC-owned subscriber devices
(including portable personal computers) and the stated
percentage of Net Revenues (as defined in the Services
Agreement) derived from the real-time market feeds currently
known as MarketWatch Live and MarketWatch RT); (II) revenue
realized from advertisements purchased by DBC from MarketWatch
which advertise/promote DBC on the MarketWatch Site; (III)
revenue realized from advertisements purchased by any third
party advertising on the MarketWatch Site if and to the extent
CBS determines that revenues from such Person should be excluded
from the calculation of "Gross Revenues" under this Section
5.1; and (IV) an amount equal to the total revenues (calculated
in accordance with U.S. generally accepted accounting
principles) for the 12 months prior to the date of consummation
of the acquisition of such Acquired Business.
(B) Notwithstanding anything to the contrary
contained in clause 5.1(b)(ii)(A) above, Gross Revenues may be
reduced by the amount of any sales representative commission(s)
paid by MarketWatch to any third party sales representative(s)
not affiliated with MarketWatch and in which MarketWatch has no
interest, not to exceed fifteen percent (15%) of the actual ad
price in each instance. Additionally, Gross Revenues for any
particular quarterly period shall not include revenues reported
by MarketWatch as a result of revenues recognized prior to the
effective date of the acquisition of an entity acquired by
MarketWatch and accounted for as a pooling of interest
transaction.
5.2 In the event that the rights granted by CBS to MarketWatch pursuant
to this Agreement cause CBS to recognize income for federal income tax
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purposes in an amount which exceeds the amount prescribed for such rights in
paragraph 5.1 above (the "Excess"), then the entire amount of any deductions
available to MarketWatch solely attributable to such Excess shall be allocated
by MarketWatch to CBS.
6. ACCOUNTINGS
6.1 MarketWatch will compute Gross Revenues as of each March 31, June
30, September 30 and December 31 for the prior three (3) months. Within
ninety-five (95) days after the fourth calendar quarterly period and within
forty-five (45) days after each of the first three (3) calendar quarterly
periods concerned, MarketWatch will send CBS a statement covering Gross Revenues
and will pay CBS CBS's share of Gross Revenues due. Acceptance by CBS of any
statement or payment shall not preclude CBS from challenging the accuracy
thereof.
6.2 MarketWatch will maintain accurate books and records which report
the recognition of Gross Revenues. CBS may, at its own expenses, examine and
copy those books and records, as provided in this paragraph. CBS may make such
an examination for a particular statement within three (3) years after the date
when the other party sends the examining party the statement concerned.
(MarketWatch will be deemed conclusively to have sent CBS the statement
concerned on the date prescribed in paragraph 6.1, unless CBS notifies
MarketWatch otherwise with respect to any statement, within ninety (90) days
after that date). CBS may make those examinations only during MarketWatch's
usual business hours, and at the place where it keeps the books and records.
Such books and records shall be kept at the MarketWatch office in San Francisco,
California, unless otherwise notified. CBS will be required to notify
MarketWatch at least ten (10) days before the date of planned examination. If
CBS's examination has not been completed within two months from the time CBS
begins it, MarketWatch may require CBS to terminate it on seven (7) days notice
to CBS at any time, provided that MarketWatch has cooperated with CBS in the
examination of such books and records.
7. RIGHTS
7.1 (a) As between CBS and MarketWatch: CBS is or shall be the exclusive
owner of and shall retain all right, title and interest to the CBS's News
Content or any Content derived therefrom, and the CBS Marks, including all
Intellectual Property Rights therein (the "CBS Property").
(b) MarketWatch is the exclusive owner of and shall retain all
right, title and interest to the MarketWatch Content or any Content derived
therefrom, the MarketWatch Site, MarketWatch marks, and all Intellectual
Property Rights therein, excluding the CBS Property.
(c) MarketWatch shall place a notice of copyright on each CBS
Content Page in accordance with the CBS License Guidelines. No CBS Content Page
shall contain any other copyright notice whatsoever except as provided in the
CBS License Guidelines. MarketWatch shall cooperate fully with CBS in connection
with CBS's obtaining appropriate copyright protection in the name of CBS for any
CBS Content Page.
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7.2 Each party agrees to take all action and cooperate as is reasonably
necessary, at the other party's request and expense, to protect the other's
respective rights, titles, and interests specified in this Article 7, and
further agrees to execute any documents that might be necessary to perfect each
party's ownership of such rights, titles, and interests.
7.3 (a) During the term of this Agreement, CBS shall not license nor
authorize another to license any Person other than MarketWatch the right to use
the CBS Marks in connection with promoting in the United States any Internet
service or Web site that 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.
(b) MarketWatch acknowledges and agrees that the following are
either not within the express terms of the preceding prohibition or, if so,
shall nevertheless be excluded from said prohibition:
(1) any use of the CBS Marks by CBS, its divisions, business
units, affiliates and/or any of the following CBS related entities in connection
with any of the above Person's Internet service(s) or Web site(s) as long as
such Internet service or Web site does not have 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:
(i) the CBS Television Network;
(ii) any CBS owned and operated or affiliated standard
television station;
(iii) CBS Cable;
(iv) any CBS non-standard television network;
(v) any CBS owned or affiliated non-standard television
facilities;
(vi) the CBS Radio Network;
(vii) any CBS owned and affiliated radio station;
(viii) Westwood One, Inc.; and
(ix) any Internet services in which CBS currently has an
interest (such as CBS SportsLine);
(2) an Internet service or Web site that delivers general news,
sports or entertainment, with a financial news segment or portion included, will
not be considered to have as its primary function or as 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;
(3) an Internet service or Web site will not be considered to
have as its primary function or as its principal theme and format the delivering
of comprehensive real-time
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or delayed stock market quotations and financial news in the English language to
consumers solely on the basis of its providing a stock price ticker crawl line;
(4) any activity conducted by CBS and/or its affiliates as of
December __, 1998, the execution date of this Agreement;
(5) any activity conducted by a CBS Television or Radio Network
Affiliate that is not a CBS owned and operated television or radio station;
(6) any activity of Westwood One, Inc. provided that such
activity does not produce a substantial portion of revenues from an Internet
service or Web site that has as its primary function and principal theme and
format the delivering of comprehensive real-time or delayed stock market
quotations and financial news in the English language to consumers;
(7) any Internet services in which CBS has an interest as of
December __, 1998, the execution date of this Agreement;
(8) any transmission, retransmission, uplink or satellite
transponder delivery of any signal, of any nature or type, by and through CBS
Cable; and
(9) any occasional use of the CBS Marks by an Internet service
or Web site, as opposed to repeated and regular use.
8. WARRANTIES; REPRESENTATIONS; INDEMNITIES
8.1 (a) CBS represents and warrants that:
(i) it has full power and authority to enter into this
Agreement.
(ii) it has sufficient right and authority to grant to
MarketWatch all licenses and rights granted by CBS hereunder.
(iii) the CBS Marks and the use thereof as permitted
pursuant to this Agreement shall not violate any law or infringe
upon or violate any rights of any Person.
(iv) the CBS Content and the use thereof as permitted
pursuant to this Agreement shall not violate any United States
law or infringe upon or violate any rights of any Person under
any United States law.
(b) MarketWatch represents and warrants that:
(i) it owns or controls all right, title, and interest
in and to the MarketWatch Site, and all Intellectual Property
Rights therein, necessary to carry out its obligations hereunder
and to grant and assign the rights and licenses granted to CBS
herein.
(ii) it is has the full power and authority to enter
into and fully perform this Agreement.
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(iii) the MarketWatch Site, any MarketWatch Site Content
and any Content developed or furnished by MarketWatch hereunder
and the use thereof shall not violate any law or infringe upon
or violate any rights of any Person.
(iv) the MarketWatch Site will be produced, advertised,
distributed, transmitted and licensed in accordance with all
applicable federal, state, local and foreign laws and in a
manner that will not reflect adversely on CBS.
8.2 (a) Each party shall at all times indemnify, hold harmless and
defend the other party in accordance with the indemnification provisions
(applicable to such party) set forth in Article VI of the Contribution Agreement
among CBS, MarketWatch and DBC dated as of October 29, 1997 (the "Contribution
Agreement"); provided, however, that, MarketWatch agrees that neither CBS nor
any agent, subsidiary, or representative of CBS shall have any liability,
contingent or otherwise, for the truthfulness, accuracy or timeliness of the CBS
News Content, or for any decision made or action taken by MarketWatch or its
customers in reliance upon the CBS News Content except to the extent that such
liability arises from CBS's malfeasance or nonfeasance. THERE IS NO WARRANTY OF
MERCHANTABILITY NOR WARRANTY OF FITNESS FOR A PARTICULAR USE, NOR ANY IMPLIED
WARRANTY OF ANY KIND, REGARDING THE CBS NEWS CONTENT. MARKETWATCH RECOGNIZES
THAT THE ACCURACY OF THE CBS NEWS CONTENT SHOULD BE CHECKED BEFORE ITS CUSTOMERS
RELY ON IT.
(b) IN NO EVENT WILL MARKETWATCH OR CBS BE LIABLE TO
MARKETWATCH'S CUSTOMERS, EACH OTHER, OR ANY OTHER PARTY FOR ANY INCIDENTAL,
CONSEQUENTIAL, SPECIAL OR INDIRECT DAMAGES (INCLUDING BUT NOT LIMITED TO LOST
PROFITS, TRADING LOSSES, OR DAMAGES THAT RESULT FROM INCONVENIENCE, DELAY OR
LOSS OF THE USE OF THE CBS NEWS CONTENT), OR CLAIMS ARISING IN TORT (INCLUDING
NEGLIGENCE), EVEN IF MARKETWATCH OR CBS HAS BEEN ADVISED OF OR IS OTHERWISE
AWARE OF THE POSSIBILITY OF ANY OF THE FOREGOING.
(c) Neither MarketWatch nor CBS shall be liable for any loss
resulting from a cause over which such entities do not have direct control,
including but not limited to the failure of electronic or mechanical equipment
or communication lines, telephone or other interconnect problems, unauthorized
access or theft.
(d) MarketWatch agrees to indemnify and hold CBS harmless from
and against any and all claims, losses, liability, costs and expenses (including
but not limited to attorneys' fees) to the extent arising from or relating to
MarketWatch's modification of the CBS News Content, or the combination of the
CBS News Content with other information or content, and/or MarketWatch's
violation of this Agreement.
9. REMEDIES
9.1 CBS shall have the right to terminate this Agreement upon providing
written notice to MarketWatch if (any of the following occurs):
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(a) MarketWatch breaches any material term or condition of this
Agreement, and has failed to cure such breach within ten (10) days after written
notice of such breach from CBS. The foregoing cure period will not apply where a
specific cure period is provided herein, or to breaches incapable of being
cured.
(b) MarketWatch: (i) becomes insolvent or unable to pay its
debts as they mature or makes an assignment for the benefit of its creditors;
(ii) is the subject of a voluntary petition in bankruptcy or any voluntary
proceeding relating to insolvency, receivership, liquidation, or composition for
the benefit of creditors, if such petition or proceeding is not dismissed within
sixty (60) days of filing: (iii) becomes the subject of any involuntary petition
in bankruptcy or any involuntary proceeding relating to insolvency,
receivership, liquidation, or composition for the benefit of creditors, if such
petition or proceeding is not dismissed within sixty (60) days of filing; (iv)
is liquidated or dissolved; or (v) issues to a CBS competitor or actively
participates in the acquisition by a CBS competitor, in any one transaction or
any series of transactions, of a number of voting securities of MarketWatch such
that after such issuance or acquisition or series of issuances or acquisitions,
such CBS competitor beneficially owns, directly or indirectly, nine percent (9%)
or more of the outstanding common stock of MarketWatch or nine percent (9%) or
more of the total voting power of MarketWatch.
(c) any CBS competitor beneficially owns, directly or
indirectly, fifteen percent (15%) or more of the then-outstanding shares of
common stock of MarketWatch or fifteen percent (15%) or more of the total voting
power of MarketWatch.
(d) If MarketWatch discontinues using the "MARKETWATCH" mark
and, within a reasonable time thereafter, MarketWatch does not establish a
substitute mark acceptable to CBS in its sole discretion.
(e) Notwithstanding the foregoing, for purposes of this Section
9.1, the mere acquisition by a CBS competitor of an interest in DBC which
acquisition constitutes or triggers a "DBC Change of Control" (as defined in the
Stockholders' Agreement dated as of the date hereof among CBS, DBC and
MarketWatch) shall not be deemed to constitute the acquisition, directly or
indirectly, of, "beneficial ownership," common stock or "voting power" of
MarketWatch in the absence of other facts demonstrating "beneficial ownership"
thereof.
For purposes of this Section 9.1: (i) the term beneficial
ownership shall have the meaning set forth in Section 13(d) of the Securities
Act of 1933, as amended, and the rules and regulations promulgated thereunder;
(ii) the term total voting power shall mean, at any time, the total number of
votes that may be cast in the election of directors of MarketWatch at any
meeting of the holders of voting securities held at such time for such purpose;
and (iii) the term voting securities shall mean the common stock of MarketWatch
and any other securities issued by MarketWatch having the power to vote in the
election of directors of MarketWatch, including without limitation any
securities having such power only upon the occurrence of a default or any other
extraordinary contingency.
9.2 MarketWatch shall have the right to terminate this Agreement if CBS
breaches any material term or condition of this Agreement, and has failed to
cure such breach within thirty (30) days after receipt of written notice of such
breach.
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9.3 Either Party may exercise its right to terminate pursuant to this
Section 9 by sending the other party appropriate notice. No exercise by CBS of
its rights under this Section 9 will limit CBS's remedies by reason of
MarketWatch's default, CBS's rights to exercise any other rights under this
Section 9, or any of CBS's other rights. No exercise by MarketWatch of its
rights under this Section 9 will limit MarketWatch's remedies by reason of CBS's
default, MarketWatch's rights to exercise any other rights under this Section 9,
or any of Marketwatch's other rights.
10. GENERAL
10.1 Neither party may assign this Agreement, or their respective rights
and obligations hereunder, in whole or in part without the other party's prior
written consent. Any attempt to assign this Agreement without such consent shall
be void and of no effect ab initio. Notwithstanding the foregoing, (i)
MarketWatch may assign this Agreement to its successor, MarketWatch.com, Inc., a
Delaware corporation, provided that MarketWatch.com, Inc. thereafter succeeds to
all of the rights and is subject to all of the obligations of MarketWatch under
this Agreement, and (ii) CBS may assign this Agreement or any of its rights and
obligations hereunder to any entity controlling, controlled by or under common
control with, CBS, or to any entity that acquires CBS by purchase of stock or by
merger or otherwise, or by obtaining substantially all of CBS assets (a "CBS
Assignee"), provided that any such CBS Assignee, or any division thereof,
thereafter succeeds to all of the rights and is subject to all of the
obligations of CBS under this Agreement.
10.2 Each party hereto irrevocably submits to the exclusive jurisdiction
of (a) the Supreme Court of the State of New York, New York County, or (b) the
United States District Court for the Southern District of New York, for the
purposes of any suit, action or other proceeding arising out of this Agreement
or any transaction contemplated hereby or thereby. Each of CBS and MarketWatch
agrees to commence any such action, suit or proceeding either in the United
States District Court for the Southern District of New York or if such suit,
action or other proceeding may not be brought in such court for jurisdictional
reasons, in the Supreme Court of the State of New York, New York County. Each of
CBS and MarketWatch further agrees that service of any process, summons, notice
or documents by U.S. registered mail to such party's respective address set
forth above shall be effective service of process for any action, suit or
proceeding in New York with respect to any maters to which it has submitted to
jurisdiction in this Section 10.2. Each of CBS and MarketWatch irrevocably and
unconditionally waives any objection to the laying of venue of any action, suit
or proceeding arising out of this Agreement or the transactions contemplated
hereby and thereby in (i) the Supreme Court of the State of New York, New York
County, or (ii) the United States District Court for the Southern District of
New York, and hereby and thereby further irrevocably and unconditionally waives
and agrees not to plead or claim in any such court that any such action, suit or
proceeding brought in any such court has been brought in an inconvenient forum.
10.3 Each party shall comply in all material respects with all laws and
regulations applicable to its activities under this Agreement.
10.4 If any provision of this Agreement (or any portion thereof) or the
application of any such provision (or any portion thereof) to any Person or
circumstance shall be held invalid, illegal or unenforceable in any respect by a
court of competent jurisdiction, such invalidity,
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illegality or unenforcability shall not affect any other provision hereof (or
the remaining portion thereof) or the application of such provision to any other
Persons or circumstances.
10.5 All notices or other communications required or permitted to be
given hereunder shall be in writing and shall be delivered by hand or sent,
postage prepaid, by registered, certified or express mail or reputable overnight
courier service and shall be deemed given when so delivered by hand, or if
mailed, three days after mailing (one business day in the case of express mail
or overnight courier service), as follows:
(i) if to MarketWatch,
MarketWatch.Com Inc.
825 Battery St.,
San Francisco, CA 94111
Attention of Larry Kramer and Peter Bardwick
(ii) if to CBS,
CBS Broadcasting Inc.
51 West 52nd Street
New York, New York 10019
Attention of Fredric G. Reynolds and
Louis J. Briskman
with copies to:
CBS Broadcasting Inc.
51 West 52nd Street
New York, New York 10019
Attention of General Counsel, and
Cravath, Swaine & Moore
825 Eighth Avenue
New York, New York 10019
Attention of Peter S. Wilson, Esq., and
Data Broadcasting Corporation
3955 Point Eden Way
Hayward, CA 94549
Attention of Mark F. Imperiale
10.6 The parties to this Agreement are independent contractors. There is
no relationship of partnership, joint venture, employment, franchise, or agency
between the parties. Neither party shall have the power to bind the other or
incur obligations on the other's behalf without the other's prior written
consent.
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10.7 No failure of either party to exercise or enforce any of its rights
under this Agreement shall act as a waiver of such right.
10.8 This Agreement, along with the Exhibits hereto, contains the entire
agreement and understanding between the parties hereto with respect to the
subject matter hereof and supersedes all prior agreements and understandings
relating to such subject matter. Neither party shall be liable or bound to any
other party in any manner by any representations, warranties or covenants
relating to such subject matter except as specifically set forth herein.
10.9 This Agreement may be executed in one or more counterparts, all of
which shall be considered one and the same agreement, and shall become effective
when one or more such counterparts have been signed by each of the parties and
delivered to each of the other parties.
10.10 This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto. By an instrument in
writing, any two parties hereto may waive compliance by the third party with any
term or provision of this Agreement that such third party was or is obligated to
comply with or perform.
10.11 This Agreement shall be governed by and construed in accordance
with the internal laws of the State of New York applicable to agreements made
and to be performed entirely within such State, without regard to the conflicts
of law principles of such State.
10.12 Except as provided in Article VI of the Contribution Agreement,
this Agreement is for the sole benefit of the parties hereto and their permitted
assigns (including MarketWatch.com, Inc., the successor to MarketWatch) and
nothing herein expressed or implied shall give or be construed to give to any
person, other than the parties hereto and such assigns, any legal or equitable
rights hereunder.
10.13 The headings contained in this Agreement or in any Exhibit or
Schedule hereto are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement. All Exhibits and Schedules
annexed hereto or referred to herein are hereby incorporated in and made a part
of this Agreement as if set forth in full herein. Any capitalized terms used in
any Schedule or Exhibit but not otherwise defined therein, shall have the
meaning as defined in this Agreement. When a reference is made in this Agreement
to a Section, Exhibit or Schedule, such reference shall be to a Section of, or
an Exhibit or Schedule to, this Agreement unless otherwise indicated.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized representatives as of the date first above
written.
MARKETWATCH.COM, LLC CBS BROADCASTING INC.
By: By:
------------------------------------ ---------------------------------
Name: Peter Bardwick Name:
---------------------------------- -------------------------------
Title: CFO and Secretary Title:
--------------------------------- -------------------------------
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EXHIBIT 1
(Attached to and forming a part of the Agreement, made December __, 1998, and
effective as of October 29, 1997 between CBS Broadcasting Inc. and
Marketwatch.Com, LLC)
CBS MARKS
CBS
[EYEBALL LOGO]
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EXHIBIT 2
(Attached to and forming a part of the Agreement, made December __, 1998, and
effective as of October 29, 1997 between CBS Broadcasting Inc. and
Marketwatch.Com, LLC)
CBS LICENSE GUIDELINES AND RESTRICTIONS
I. GENERAL
The MarketWatch Site shall not include Content that: (i) is sexually
explicit, (ii) contains profanity or (iii) that denigrates a particular
group based on gender, race, creed, religion, sexual preference or
handicap.
II. CBS NEWS CONTENT
1. Each party shall notify the other of all errors, omissions, and/or
inaccuracies in transmission or transcription of the CBS News Content
within forty-eight (48) hours after it becomes aware thereof.
2. If MarketWatch provides such notice, it shall specify to CBS what
action, if any, it has taken to correct the error, omission and/or
inaccuracy.
3. If CBS provides such a notice, or receives such notice, it may
specify the action to be taken by MarketWatch to correct the error,
omission and/or inaccuracy or resubmit such content.
4. All CBS News Content shall be subject to restrictions and
instructions disclosed by CBS at any time.
5. CBS shall have the right to refuse to deliver to MarketWatch any CBS
News Content if, in CBS's sole discretion, the CBS News Content or
the use contemplated, conflicts with, interferes with or is
detrimental to CBS's interests, reputation or business or which might
subject CBS to unfavorable regulatory action, violate any law,
infringe the rights of any person, or subject CBS to liability for
any reason.
6. MarketWatch shall abide by responsible journalistic standards. No CBS
News Content shall be used/displayed out of context. MarketWatch
shall no distort or misrepresent any events, opinions or statements
contained in the CBS News Content received by MarketWatch.
III. TRADEMARKS
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MarketWatch shall place a trademark notice to be furnished by CBS on all
items or materials utilizing CBS Marks. CBS shall provide MarketWatch
with the manner, style and placement of such notice, which shall be
deemed incorporated into this Section.
IV. CROSS-LINKS
1. MarketWatch shall not establish any links from the MarketWatch Site
to any gambling, pornographic or obscenity Content.
2. MarketWatch shall not conduct any cross promotions between the
MarketWatch Site and any Internet Site which uses or exhibits
gambling, pornographic or obscenity Content.
V. OWNERSHIP
1. MarketWatch shall place an appropriate copyright notice to be
furnished by CBS on all CBS Content Pages of the MarketWatch Site.
2. MarketWatch and CBS shall mutually develop the procedures for placing
any third party copyright notice on any CBS Content Page.
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EXHIBIT 3
APPROVED USAGE OF CBS MARKS
The following materials (bearing the CBS marks) are approved:
Munsingware long sleeve t-shirt
grey & black pens
white cocktail napkin
business card, subject to * below
*CBS has a colored photostat of the business card which reflects the
outer circle of the "Eye" fading into the black background. Assuming
that the fading is due to the photostatic process, then the card is
acceptable .
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EXHIBIT 10.08
AMENDED AND RESTATED
SERVICES AGREEMENT
This AGREEMENT made as of the ___th Day of December, 1998, by and
between MARKETWATCH.COM.LLC, 825 Battery Street, San Francisco, CA 94111,
(herein called "MarketWatch") and DATA BROADCASTING CORPORATION, 3955 Point Eden
Way, Hayward, CA 94545 (herein called "DBC") hereby amends and restates this
Agreement entered into between the parties as of October 29, 1997 (that was
attached to and formed a part of the CONTRIBUTION AGREEMENT, dated as of October
29, 1997 between CBS Broadcasting, Inc. (formerly known as CBS, Inc.), DBC and
MarketWatch.
1. DESCRIPTION
1.1 During the term of this Agreement, subject to the terms and
conditions stated herein
(a) at the request of MarketWatch, DBC will perform the
following services for MarketWatch:
(i) (A) subject to MarketWatch's prior approval in each
instance, DBC shall engage or employ personnel assigned to
service MarketWatch (hereinafter referred to as "MarketWatch
Employees") on a full-time or part-time basis as needed,
including the calculation and administration of employee (or
engaged personnel) compensation, benefits and/or related
payments or deductions/withholdings. MarketWatch shall have the
right to require DBC to terminate any employee (or engaged
personnel, as applicable). In connection with the foregoing
services, MarketWatch shall hold DBC harmless from liability
with respect to any personnel action involving a MarketWatch
Employee (acting solely within the scope of his or her
employment for MarketWatch), provided such personnel action is
directed by MarketWatch. (For avoidance of doubt, the preceding
sentence shall not relieve DBC of liability in its capacity as a
principal of MarketWatch.)
(B) For avoidance of any doubt, all material(s)
produced, developed, created or furnished to MarketWatch by
MarketWatch Employees, excluding the MarketWatchRT Software,
will be deemed "work(s) made for hire" for MarketWatch under the
United States Copyright Act; but in the event it is determined
that such materials in whole or in part are not "work(s) made
for hire", they will be deemed transferred to MarketWatch by
this Agreement. All such materials made or furnished to
MarketWatch by MarketWatch Employees, excluding the
MarketWatchRT Software, shall be the sole property of
MarketWatch, free from any claims by any MarketWatch Employee,
DBC or any other person, firm or entity; and MarketWatch shall
have the exclusive right to
<PAGE> 2
copyright such materials in its name as the author and owner of
them and to secure any and all renewals and extensions of such
copyright throughout the world. DBC will cause engaged personnel
to execute and deliver to MarketWatch documents reflecting that
materials developed, produced, created or furnished by such
personnel, excluding the MarketWatchRT Software, are/shall be
deemed a "work made for hire" for MarketWatch; and if any of
such material is determined not to be a "work made for hire" it
will be deemed transferred to MarketWatch.
(ii) handle customer billing and collection for MarketWatch
subscription products and services and other services including
without limitation, real-time data service.
(iii) provide computer software programming assistance,
including, without limitation, assistance with the operation of
the on-line services (including advertising services) offered by
MarketWatch and the creation of MarketWatch web site pages and
navigation systems.
(b) (i) At the request of MarketWatch in each instance, DBC will
license to MarketWatch, free of charge, the delayed commodities and stock data
feeds (the "Data Feed") delivered from the financial exchanges with whom DBC has
existing contracts (including, without limitation, the New York Stock Exchange;
The American Stock Exchange; The Nasdaq Stock Market. Inc.; New York Mercantile
Exchange; Chicago Board Options Exchange; Chicago Board of Trade; MidAmerica
Commodity Exchange; Commodities Exchange Center; Chicago Mercantile Exchange;
and Coffee, Sugar & Cocoa Exchange) (the "Data Providers"). The Data Feed is
currently made available by DBC to users/subscribers of the Internet web site
currently known as dbc.com.
(ii) DBC will provide MarketWatch with communications lines
(including at least two (2) T-3 connections to the Internet,
hardware and software to effect the required capability to
receive/transmit etc. the data feeds described in Section
1.1(b)(i) above. DBC will use its best efforts to ensure third
party provided lines will be in good working order at all times.
(iii) In connection with the data feed described in Section
1.1(b)(i) above, DBC will provide MarketWatch with network
operations and web site management support (including, without
limitation, hosting connectivity, serving content, serving and
reporting ads and reporting content) twenty-four hours a day
seven days a week.
(c) At MarketWatch's request, DBC will provide (from its rented
or owned office space) office space and related facilities, to the extent
available, for MarketWatch Employees. Such right to use such facilities shall in
no way be construed as a sublease or license by DBC of any real property but
shall only be construed as a reimbursement arrangement.
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1.2 During the term of this Agreement, subject to the terms and
conditions stated herein:
(a) DBC will pay MarketWatch:
(i) Two Dollars and Fifty Cents ($2.50) per month per subscriber
for each portable device subscriber who receives real-time
quotes and news, and Five Dollars ($5) per month per subscriber
for all other subscriber devices (including all portable
personal computers) who receive real-time quotes and news. The
payment will be a minimum of $100,000 per month.
(ii) With respect to subscribers of the real-time market feeds
described below:
(A) twenty-five percent (25%) of the Net Revenues earned
from the real-time market feed currently known as "MarketWatch
Live"; and
(B) seventy-five percent (75%) of the Net Revenues
earned from the real-time market feed currently known as
"MarketWatch RT."
As used in Section 1.2(a)(ii), the term "Net Revenues" shall
mean gross subscription fees collected less exchange fees
actually paid by DBC, credit card fees actually paid by DBC and
any applicable sales taxes billed by DBC and paid by the
subscriber concerned.
2. TERM
2.1 The term of this Agreement shall begin as of the date hereof and
shall continue in full force and effect for a period of eight (8) consecutive
years, from October 29, 1997 through and including October 29, 2005, unless it
is terminated earlier in accordance with the terms and conditions contained
herein.
3. COMPENSATION; OFFSET
3.1 In consideration for all grants herein made or agreed to be made and
all rights, licenses, privileges and property herein conveyed or agreed to be
conveyed, and all warranties, representations and covenants herein made by DBC,
MarketWatch agrees to pay DBC as follows:
(a) DBC's actual costs, subject, however, to the approval of
MarketWatch of the costs to be incurred, other than the costs incurred by DBC in
the ordinary course of business. in connection with:
(i) the services rendered pursuant to Section 1.1 (a) and
Section 1.1(b)(iii); and
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(ii) the provision of communications lines described in Section
1.1(b)(ii) above.
(iii) the provision of office space and related facilities to
MarketWatch personnel, it being understood that such actual cost
shall be DBC's cost per rented square foot of space utilized by
the MarketWatch personnel concerned, subject to the next
sentence. The provision of office space and related facilities
to MarketWatch personnel at DBC's current San Mateo location,
however, shall be free of charge.
3.2 In the event that DBC breaches subparagraph 1.01(b) of the
Contribution Agreement among CBS Inc., DBC and MarketWatch dated as of October
29, 1997 (the "Contribution Agreement"), then, in addition to whatever other
rights and remedies MarketWatch may have under the Contribution Agreement,
MarketWatch may offset any monies due and owing from DBC under the (Section 1.01
(b) of the) Contribution Agreement against monies payable (from MarketWatch) to
DBC hereunder.
3.3 In the event that the services provided by DBC pursuant to this
Agreement cause DBC to recognize income for federal income tax purposes in an
amount which exceeds the amount prescribed for such services in Section 3.1(a)
above (the "Excess"), then the entire amount of any deductions available to
MarketWatch solely attributable to such Excess shall be allocated by MarketWatch
to DBC.
4. CONTENT AND DELIVERABLES
4.1 At no additional charge, DBC will grant MarketWatch a royalty-free,
worldwide, non-exclusive license to use, copy, publicly display, make derivative
works from, perform, distribute or otherwise make available on or through the
MarketWatch Site and in connection with products and services distributed from
the MarketWatch Site the following data feeds:
(a) Those feeds/services set forth in Section 1.1(b)(i) hereof;
and
(b) The following additional data feeds/services, provided that
DBC has in place a license to redistribute such data feeds/services: Fundamental
Data, Historical Data, Intraday Tick Data.
4.2 At no additional charge, DBC hereby irrevocably transfers and
assigns to MarketWatch all right, title and interest in and to all deliverables,
materials, copyrightable works, inventions, improvements, trade secrets,
trademarks, servicemarks, made, conceived or developed by DBC either alone or
with others in connection with this Agreement, and all DBC proprietary software
and technology used in connection with the services and data feeds provided
under this Agreement (collectively, the "DBC Services"), excluding DBC
proprietary software used by DBC in connection with providing MarketWatch the
MarketWatchRT data feed (the "MarketWatchRT Software").
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4.3 At no additional charge, MarketWatch hereby grants to DBC a
non-exclusive, perpetual license to use, copy, modify and make derivative works
from the DBC proprietary software and technology used by DBC in providing the
DBC Services.
4.4 "MarketWatch Site" means the Internet websites owned or controlled
by MarketWatch that provide stock quotes, personal finance information and
business, stock stories and related products and services.
5. PERFORMANCE STANDARDS AND SPECIFICATIONS
5.1 DBC will provide all DBC Services in a professional manner,
consistent with industry standards.
5.2 DBC will use its best efforts to cause all hosting and data services
to meet the Performance Specifications (attached hereto as Schedule A, and
hereby made a part of this Agreement).
5.3 In the event that DBC materially fails to meet the Up-Time
Requirements set forth in the Performance Specifications during any MarketWatch
Business Day, defined below, MarketWatch's payments for the DBC network
operations set forth in Section 1.1(a)(iii) hereof for that month shall be
reduced by a percentage equal to the hours that the DBC Services failed to meet
such Performance Specifications divided by the number of hours in the business
days for that month. A "MarketWatch Business Day" shall be considered to run
from the hours of 4AM to 8PM PST. DBC shall not be responsible for failures
caused by MarketWatch's fault, or by the actions of a non-affiliated third
party, provided that DBC has taken reasonable actions to anticipate and handle
any such failure caused by a third-party, and further provided that DBC shall
credit MarketWatch with any credits or payments received from third parties
related to such failure. DBC shall use its best efforts to ensure that all third
parties conform to the provisions hereof.
5.4 DBC shall provide, at DBC's out-of-pocket cost, a redundant hosting
center capable of providing immediate back up capability and such Internet
connectivity as reasonably requested by MarketWatch.
5.5 DBC will use its reasonable efforts to provide MarketWatch with
additional required hardware, software or communications bandwidth, and will
provide all of the foregoing to MarketWatch at DBC's cost.
6. DBC TRADEMARK
At no additional charge, DBC will grant MarketWatch a worldwide,
non-exclusive license to use the DBC trademark(s) in connection with the
marketing, promotion, and operation of the MarketWatch Site, and the
distribution of content from such Site and related products and
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services. MarketWatch's use of such trademarks shall be in accordance with DBC's
reasonable trademark usage guidelines, as such guidelines are provided to
MarketWatch in writing from time to time.
7. HOSTING SPECIFICATIONS AND TRANSITION SERVICES
7.1 DBC will, upon MarketWatch's request, provide MarketWatch with
reasonably detailed specifications for the DBC technology used in providing the
DBC Services, and for all hardware, software, firmware and system configurations
which MarketWatch will require to properly perform or have performed the
services and procedures performed by DBC. The foregoing shall be subject to any
limitations on disclosure imposed upon DBC by third party suppliers and
licensors.
7.2 Upon any termination or expiration of this Agreement, or of any of
the services provided by DBC hereunder, DBC will provide the following
assistance and deliverables:
(a) assist MarketWatch, or MarketWatch's designee, in the
configuration and installation of any hardware, software, firmware or equipment
procured by MarketWatch in connection with the DBC Services.
(b) DBC will deliver to MarketWatch or its designee, and install
on hardware and equipment designated by MarketWatch, those DBC materials and DBC
proprietary software programs necessary to provide the DBC Services.
(c) DBC will deliver to MarketWatch, and install on
MarketWatch's hardware and equipment, the current version of any MarketWatch
software then being used by DBC in connection with the DBC Services, excluding
the MarketWatch RT Software.
(d) DBC will provide appropriate training for the MarketWatch
employees or its agents or contractors who will be assuming responsibility for
operation of the DBC technology following such transition. MarketWatch will be
charged time and material, at current rates, for any training provided to
MarketWatch due to termination.
(e) DBC will assist MarketWatch, at MarketWatch's expense, in
MarketWatch's acquisition of any necessary rights to access and use any
third-party data feeds, hardware, software, documentation then being used by DBC
in connection with the DBC Services. Upon MarketWatch's request, DBC will
transfer or assign, or use its best efforts to cause to be transferred or
assigned, to MarketWatch or its designee, on mutually acceptable terms and
conditions, any contracts applicable to such data feeds, hardware, software and
documentation.
(f) MarketWatch shall have the option to buy any hardware and/or
software that DBC is utilizing to provide the DBC Services for an amount to be
negotiated in good faith by the parties.
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(g) upon termination of this Agreement, MarketWatch shall
purchase from DBC any hardware and/or software purchased and paid for by DBC
specifically at MarketWatch's request, at the then-current net book value of
such hardware and/or software, computed using generally accepted accounting
principles.
8. WARRANTIES; REPRESENTATIONS; INDEMNITIES
8.1 (a) DBC represents and warrants that:
(i) it has full power and authority to enter into and fully
perform this Agreement.
(ii) it has sufficient right and authority to grant to
MarketWatch all licenses and rights granted or agreed to be
granted by it hereunder.
(iii) all materials and services furnished to MarketWatch or the
use thereof will not violate any applicable lay, or violate or
infringe upon the rights of any third party.
(iv) at all times. DBC will comply with all applicable federal,
state and local laws.
(b) MarketWatch represents and warrants that it is free to enter
into and fully perform this Agreement.
8.2 (a) DBC will assume all obligations for and indemnify and hold
MarketWatch harmless from (i) malfunctions or other usage problems resulting
from or in connection with the "Year 2000 Problem" (i.e., the year 2000 (and
later years) as distinct from the years 1900 through 1999, (and earlier years)),
and (ii) "bugs", "viruses" or defects in the feeds or other software goods
provided herein, which affect the function or capabilities of such feeds or
software.
(b) Each party shall at all times indemnify, hold harmless and
defend the other party in accordance with the indemnification provisions
(applicable to such party) set forth in Article VI of the Contribution
Agreement; provided, however, that, MarketWatch agrees that neither DBC, nor its
Data Providers, nor any agent, subsidiary, or representative thereof shall have
any liability, contingent or otherwise, for the truthfulness, accuracy or
timeliness of the Data Feed or the truthfulness, accuracy, timeliness,
completeness or correct sequencing of the Data Feed by DBC or the Data
Providers, or for any decision made or action taken by MarketWatch or its
customers in reliance upon the Data Feed, or for interruption or delay of the
Data Feed except to the extent that such liability arises from DBC's malfeasance
or nonfeasance. THERE IS NO WARRANTY OF MERCHANTABILITY NOR WARRANTY OF FITNESS
FOR A PARTICULAR USE, NOR ANY IMPLIED WARRANTY OF ANY KIND, REGARDING THE
INFORMATION OR ANY ASPECT OF THE DATA FEED (INCLUDING BUT NOT LIMITED TO
INFORMATION ACCESS). MARKETWATCH RECOGNIZES THAT THE ACCURACY OF THE INFORMATION
SHOULD BE CHECKED BEFORE ITS
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CUSTOMERS RELY ON IT.
(c) IN NO EVENT WILL MARKETWATCH, DBC OR THE DATA PROVIDERS BE
LIABLE TO MARKETWATCH'S CUSTOMERS, EACH OTHER, OR ANY OTHER PARTY FOR ANY
INCIDENTAL, CONSEQUENTIAL, SPECIAL OR INDIRECT DAMAGES (INCLUDING BUT NOT
LIMITED TO LOST PROFITS, TRADING LOSSES, OR DAMAGES THAT RESULT FROM
INCONVENIENCE, DELAY OR LOSS OF THE USE OF THE DATA FEED), OR CLAIMS ARISING IN
TORT (INCLUDING NEGLIGENCE), EVEN IF MARKETWATCH, DBC OR THE DATA PROVIDERS HAVE
BEEN ADVISED OF OR ARE OTHERWISE AWARE OF THE POSSIBILITY OF ANY OF THE
FOREGOING.
(d) Neither MarketWatch, DBC nor the Data Providers shall be
liable for any loss resulting from a cause over which such entities do not have
direct control, including but not limited to the failure of electronic or
mechanical equipment or communication lines, telephone or other interconnect
problems, unauthorized access or theft.
(e) MarketWatch agrees to indemnify and hold DBC and the Data
Providers harmless from and against any and all claims, losses, liability, costs
and expenses (including but not limited to attorneys' fees) to the extent
arising from or relating to MarketWatch's modification of the information
provided by DBC or the Data Providers or of the Data Feed, or the combination of
such information or Data Feed with other information or content, and/or
MarketWatch's violation of this Agreement.
9. ACCOUNTINGS
9.1 DBC will compute Net Revenues or any other transactions on which
monies are payable to MarketWatch as of each March 31, June 30, September 30 and
December 31, for the prior three (3) months. Within sixty (60) days after the
close of the calendar quarterly period concerned, DBC will send MarketWatch a
statement covering the number of subscribers who pay for the feeds described in
Section 1.2 during such quarterly period and will pay MarketWatch for any Net
Revenues or other monies due (including, without limitation, sums due in
connection with the subscriptions concerned).
9.2 DBC will maintain books and records which report the sales and
maintenance of subscriptions hereunder. Any Member of MarketWatch may make an
examination of a particular statement within three (3) years after the date when
DBC sends the statement concerned. Any Member of MarketWatch may review and copy
the books and records of DBC with respect to such statement, upon reasonable
notice during normal working hours.
10. REMEDIES
10.1 MarketWatch shall have the right to terminate this Agreement if:
(a) DBC breaches any material term or condition of this
Agreement and has failed to cure such breach within ten (10) days after
MarketWatch's notice of default. The
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foregoing cure period will not apply to DBC's obligations regarding the
provision of delayed data feeds or to breaches incapable of being cured;
(b) DBC: (i) becomes insolvent or unable to pay its debts as
they mature or makes an assignment for the benefit of its creditors; (ii) is the
subject of a voluntary petition in bankruptcy or any voluntary proceeding
relating to insolvency, receivership, liquidation, or composition for the
benefit of creditors, if such petition or proceeding is not dismissed within
sixty (60) days of filing; (iii) becomes the subject of any involuntary petition
in bankruptcy or any involuntary proceeding relating to insolvency,
receivership, liquidation, or composition for the benefit of creditors, if such
petition or proceeding is not dismissed within sixty (60) days of filing; or
(iv) is liquidated or dissolved; or
(c) MarketWatch is dissolved.
MarketWatch may exercise its rights pursuant to this Section 10.1 by sending DBC
the appropriate notice. No exercise of MarketWatch's rights under this Section
10.1 will limit MarketWatch's remedies by reason of DBC's default, MarketWatch s
rights to exercise any other right under this Section 10.1, or any of
MarketWatch's other rights. The terms and conditions of Sections 4.3 and 7.2
shall survive any termination or expiration of this Agreement.
11. GENERAL
11.1 Neither party may assign this Agreement, or their respective rights
and obligations hereunder, in whole or in part without the other party's prior
written consent. Any attempt to assign this Agreement without such consent shall
be void and of no effect ab initio. Notwithstanding the foregoing, MarketWatch
may have the right to assign this Agreement or any of its rights and obligations
hereunder to any entity controlling, controlled by or under common control with,
MarketWatch, or to any entity that acquires MarketWatch by purchase of stock or
by merger or otherwise, or by obtaining substantially all of MarketWatch's
assets (a "MarketWatch Assignee"), provided that any such MarketWatch Assignee,
or any division thereof, thereafter succeeds to all of the rights and is subject
to all of the obligations of MarketWatch under this Agreement. In the event that
any entity acquires DBC by purchase of stock or by merger or otherwise, or by
obtaining substantially all of DBC's assets (a "DBC Assignee"), such DBC
Assignee shall succeed to all of the rights and be subject to all of the
obligations of DBC under this Agreement and MarketWatch shall be entitled to
injunctive, and other appropriate equitable relief, without the necessity of
posting a bond, to ensure DBC's and the DBC Assignee's compliance with the terms
and conditions of this Agreement.
11.2 This Agreement shall be governed by and construed in accordance
with the internal laws of the State of New York; applicable to agreements made
and to be performed entirely within such State, without regard to the conflicts
of law principles of such State.
11.3 Each party hereto irrevocably submits to the exclusive jurisdiction
of (a) the Supreme Court of the State of New York, New York County, and (b) the
United States District Court for the Southern District of New York, for the
purposes of any suit, action or other proceeding arising out of this Agreement
or any transaction contemplated hereby or thereby.
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Each of DBC and MarketWatch agrees to commence any such action, suit or
proceeding either in the United States District Court for the Southern District
of New York or if such suit, action or other proceeding may not be brought in
such court for jurisdictional reasons, in the Supreme Court of the State of New
York, New York County. Each of DBC and MarketWatch further agrees that service
of any process, summons, notice or document by U.S. registered mail to such
party's respective address set forth above shall be effective service of process
for any action, suit or proceeding in New York, with respect to any matters to
which it has submitted to jurisdiction in this Section 11. Each of DBC and
MarketWatch irrevocably and unconditionally waives any objection to the laying
of venue of any action, suit or proceeding arising out of this Agreement or the
transactions contemplated hereby and thereby in (i) the Supreme Court of the
State of New York, New York County, or (ii) the United States District Court for
the Southern District of New York, and hereby and thereby further irrevocably
and unconditionally waives and agrees not to plead or claim in any such court
that any such action, suit or proceeding brought in any such court has been
brought in an inconvenient forum.
11.4 Each party shall comply in all material respects with all laws and
regulations applicable to its activities under this Agreement.
11.5 If any provision of this Agreement (or any portion thereof) or the
application of any such provision (or any portion thereof) to any Person or
circumstance shall be held invalid, illegal or unenforceable in any respect by a
court of competent jurisdiction, such invalidity, illegality or unenforceability
shall not affect any other provision hereof (or the remaining portion thereof)
or the application of such provision to any other Persons or circumstances.
11.6 All notices or other communications required or permitted to be
given hereunder shall be in writing and shall be delivered by hand or sent,
postage prepaid, by registered, certified or express mail or reputable overnight
courier service and shall be deemed given when so delivered by hand, or if
mailed, three days after mailing (one business day in the case of express mail
or overnight courier service), as follows:
(i) if to MarketWatch,
825 Battery Street
San Francisco, CA 94111
Attention of Larry Kramer and Peter Bardwick
with copies to:
Fenwick & West LLP
Two Palo Alto Square
Palo Alto, CA 94306
Attention of Mark C. Stevens, Esq.
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(ii) if to DBC,
Data Broadcasting Corporation
3955 Point Eden Way
Hayward, CA 94545-3720
Attention of Mark F. Imperiale, President
with copies to:
Camhy Karlinsky & Stein LLP
1740 Broadway
Sixteenth Floor
New York, NY 10019
Attention of Alan I. Annex, Esq.
CBS Broadcasting Inc.
51 W 52nd Street
New York, NY 10019
Attention of Fredric G. Reynolds
Louis J. Briskman
11.7 The parties to this Agreement are independent contractors. There is
no relationship of partnership, joint venture, employment, franchise, or agency
between the parties. Neither party shall have the power to bind the other or
incur obligations on the other's behalf without the other's prior written
consent.
11.8 No failure of either party to exercise or enforce any of its rights
under this Agreement shall act as a waiver of such right.
11.9 This Agreement, along with the Exhibits thereto, contains the
entire agreement and understanding between the parties hereto with respect to
the subject matter hereof and supersedes all prior agreements and understandings
relating to such subject matter. Neither party shall be liable or bound to any
other part, in any manner by any representations, warranties or covenants
relating to such subject matter except as specifically set forth herein.
11.10 This Agreement may be executed in one or more counterparts, all of
which shall be considered one and the same agreement, and shall become effective
when one or more such counterparts have been signed by each of the parties and
delivered to each of the other parties.
11.11 This Agreement shall not become effective until executed by all
proposed Parties hereto.
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11.12 This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto. By an instrument in
writing, any two parties hereto may waive compliance by the third partly with
any term or provision of this Agreement that such third party was or is
obligated to comply with or perform.
11.13 Except as provided in Article VI of the Contribution Agreement,
this Agreement is for the sole benefit of the parties hereto and their permitted
assigns and nothing herein expressed or implies shall give or be construed to
give to any person, other than the parties hereto and such assigns, any legal or
equitable rights hereunder.
11.14 The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. When a reference is made in this Agreement to a Section such
reference shall be to a Section of this Agreement unless otherwise indicated.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized representatives as of the date first above
written.
DATA BROADCASTING CORPORATION MARKETWATCH.COM, LLC
By: By:
--------------------------------- ---------------------------------
Title: Title:
------------------------------ ------------------------------
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EXHIBIT 10.12
MARKETWATCH.COM, INC.
1998 EQUITY INCENTIVE PLAN
As Adopted September 8, 1998
1. PURPOSE. The purpose of this Plan is to provide incentives to attract,
retain and motivate eligible persons whose present and potential contributions
are important to the success of the Company, its Parent and Subsidiaries, by
offering them an opportunity to participate in the Company's future performance
through awards of Options, Restricted Stock and Stock Bonuses. Capitalized terms
not defined in the text are defined in Section 23.
2. SHARES SUBJECT TO THE PLAN.
2.1 Number of Shares Available. Subject to Sections 2.2 and 18, the
total number of Shares reserved and available for grant and issuance pursuant to
this Plan will be 1,450,000 Shares less a number of shares equal to the number
of shares of the Company's Common Stock that are issuable upon exercise of
non-plan options outstanding on the Effective Date ("Non-Plan Options"), plus
Shares that are subject to: (a) issuance upon exercise of an Option but cease to
be subject to such Option for any reason other than exercise of such Option; (b)
an Award granted hereunder but are forfeited or are repurchased by the Company
at the original issue price; and (c) an Award that otherwise terminates without
Shares being issued. In addition, any shares of the Company's Common Stock that
are issuable upon exercise of Non-Plan Options that expire or become
unexercisable for any reason without having been exercised in full will be
available for grant and issuance under this Plan. At all times the Company shall
reserve and keep available a sufficient number of Shares as shall be required to
satisfy the requirements of all outstanding Options granted under this Plan and
all other outstanding but unvested Awards granted under this Plan.
2.2 Adjustment of Shares. In the event that the number of outstanding
shares is changed by a stock dividend, recapitalization, stock split, reverse
stock split, subdivision, combination, reclassification or similar change in the
capital structure of the Company without consideration, then (a) the number of
Shares reserved for issuance under this Plan, (b) the Exercise Prices of and
number of Shares subject to outstanding Options, and (c) the number of Shares
subject to other outstanding Awards will be proportionately adjusted, subject to
any required action by the Board or the stockholders of the Company and
compliance with applicable securities laws; provided, however, that fractions of
a Share will not be issued but will either be replaced by a cash payment equal
to the Fair Market Value of such fraction of a Share or will be rounded up to
the nearest whole Share, as determined by the Committee.
3. ELIGIBILITY. ISOs (as defined in Section 5 below) may be granted only
to employees (including officers and directors who are also employees) of the
Company or of a Parent or Subsidiary of the Company. All other Awards may be
granted to employees, officers, directors, consultants, independent contractors
and advisors of the Company or any Parent or Subsidiary of the Company; provided
such consultants, contractors and advisors render bona fide services not in
connection with the offer and sale of securities in a capital-raising
transaction. No person will be eligible to receive more than 400,000 Shares in
any calendar year under this Plan pursuant to the grant of Awards hereunder,
other than new employees of the Company or of a Parent or Subsidiary of the
Company (including new employees who are also officers and directors of the
Company or any Parent or Subsidiary of the Company), who are eligible to receive
up to a maximum of 500,000 Shares in the calendar year in which they commence
their employment. A person may be granted more than one Award under this Plan.
4. ADMINISTRATION.
4.1 Committee Authority. This Plan will be administered by the
Committee or by the Board acting as the Committee. Subject to the general
purposes, terms and conditions of this Plan, and to the direction of the Board,
the Committee will have full power to implement and carry out this Plan. Without
limitation, the Committee will have the authority to:
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1998 Equity Incentive Plan
(a) construe and interpret this Plan, any Award Agreement and
any other agreement or document executed pursuant to this
Plan;
(b) prescribe, amend and rescind rules and regulations relating
to this Plan or any Award;
(c) select persons to receive Awards;
(d) determine the form and terms of Awards;
(e) determine the number of Shares or other consideration
subject to Awards;
(f) determine whether Awards will be granted singly, in
combination with, in tandem with, in replacement of, or as
alternatives to, other Awards under this Plan or any other
incentive or compensation plan of the Company or any Parent
or Subsidiary of the Company;
(g) grant waivers of Plan or Award conditions;
(h) determine the vesting, exercisability and payment of Awards;
(i) correct any defect, supply any omission or reconcile any
inconsistency in this Plan, any Award or any Award
Agreement;
(j) determine whether an Award has been earned; and
(k) make all other determinations necessary or advisable for the
administration of this Plan.
4.2 Committee Discretion. Any determination made by the Committee
with respect to any Award will be made in its sole discretion at the time of
grant of the Award or, unless in contravention of any express term of this Plan
or Award, at any later time, and such determination will be final and binding on
the Company and on all persons having an interest in any Award under this Plan.
The Committee may delegate to one or more officers of the Company the authority
to grant an Award under this Plan to Participants who are not Insiders of the
Company.
5. OPTIONS. The Committee may grant Options to eligible persons and will
determine whether such Options will be Incentive Stock Options within the
meaning of the Code ("ISO") or Nonqualified Stock Options ("NQSOS"), the number
of Shares subject to the Option, the Exercise Price of the Option, the period
during which the Option may be exercised, and all other terms and conditions of
the Option, subject to the following:
5.1 Form of Option Grant. Each Option granted under this Plan will be
evidenced by an Award Agreement which will expressly identify the Option as an
ISO or an NQSO ("STOCK OPTION AGREEMENT"), and will be in such form and contain
such provisions (which need not be the same for each Participant) as the
Committee may from time to time approve, and which will comply with and be
subject to the terms and conditions of this Plan.
5.2 Date of Grant. The date of grant of an Option will be the date on
which the Committee makes the determination to grant such Option, unless
otherwise specified by the Committee. The Stock Option Agreement and a copy of
this Plan will be delivered to the Participant within a reasonable time after
the granting of the Option.
5.3 Exercise Period. Options may be exercisable within the times or
upon the events determined by the Committee as set forth in the Stock Option
Agreement governing such Option; provided, however, that no Option will be
exercisable after the expiration of ten (10) years from the date the Option is
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granted; and provided further that no ISO granted to a person who directly or by
attribution owns more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or of any Parent or Subsidiary of the
Company ("TEN PERCENT STOCKHOLDER") will be exercisable after the expiration of
five (5) years from the date the ISO is granted. The Committee also may provide
for Options to become exercisable at one time or from time to time, periodically
or otherwise, in such number of Shares or percentage of Shares as the Committee
determines.
5.4 Exercise Price. The Exercise Price of an Option will be
determined by the Committee when the Option is granted and may be not less than
85% of the Fair Market Value of the Shares on the date of grant; provided that:
(i) the Exercise Price of an ISO will be not less than 100% of the Fair Market
Value of the Shares on the date of grant; and (ii) the Exercise Price of any ISO
granted to a Ten Percent Stockholder will not be less than 110% of the Fair
Market Value of the Shares on the date of grant. Payment for the Shares
purchased may be made in accordance with Section 8 of this Plan.
5.5 Method of Exercise. Options may be exercised only by delivery to
the Company of a written stock option exercise agreement (the "EXERCISE
AGREEMENT") in a form approved by the Committee (which need not be the same for
each Participant), stating the number of Shares being purchased, the
restrictions imposed on the Shares purchased under such Exercise Agreement, if
any, and such representations and agreements regarding Participant's investment
intent and access to information and other matters, if any, as may be required
or desirable by the Company to comply with applicable securities laws, together
with payment in full of the Exercise Price for the number of Shares being
purchased.
5.6 Termination. Notwithstanding the exercise periods set forth in
the Stock Option Agreement, exercise of an Option will always be subject to the
following:
(a) If the Participant is Terminated for any reason except death
or Disability, then the Participant may exercise such
Participant's Options only to the extent that such Options
would have been exercisable upon the Termination Date no
later than three (3) months after the Termination Date (or
such shorter or longer time period not exceeding five (5)
years as may be determined by the Committee, with any
exercise beyond three (3) months after the Termination Date
deemed to be an NQSO), but in any event, no later than the
expiration date of the Options.
(b) If the Participant is Terminated because of Participant's
death or Disability (or the Participant dies within three
(3) months after a Termination other than for Cause or
because of Participant's Disability), then Participant's
Options may be exercised only to the extent that such
Options would have been exercisable by Participant on the
Termination Date and must be exercised by Participant (or
Participant's legal representative or authorized assignee)
no later than twelve (12) months after the Termination Date
(or such shorter or longer time period not exceeding five
(5) years as may be determined by the Committee, with any
such exercise beyond (a) three (3) months after the
Termination Date when the Termination is for any reason
other than the Participant's death or Disability, or (b)
twelve (12) months after the Termination Date when the
Termination is for Participant's death or Disability, deemed
to be an NQSO), but in any event no later than the
expiration date of the Options.
(c) Notwithstanding the provisions in paragraph 5.6(a) above, if
a Participant is terminated for Cause, neither the
Participant, the Participant's estate nor such other person
who may then hold the Option shall be entitled to exercise
any Option with respect to any Shares whatsoever, after
termination of service, whether or not after termination of
service the Participant may receive payment from the Company
or Subsidiary for vacation pay, for services rendered prior
to termination, for services rendered for the day on which
termination occurs, for salary in lieu of notice, or for any
other benefits. In making such determination, the
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1998 Equity Incentive Plan
Board shall give the Participant an opportunity to present
to the Board evidence on his behalf. For the purpose of this
paragraph, termination of service shall be deemed to occur
on the date when the Company dispatches notice or advice to
the Participant that his service is terminated.
5.7 Limitations on Exercise. The Committee may specify a reasonable
minimum number of Shares that may be purchased on any exercise of an Option,
provided that such minimum number will not prevent Participant from exercising
the Option for the full number of Shares for which it is then exercisable.
5.8 Limitations on ISO. The aggregate Fair Market Value (determined
as of the date of grant) of Shares with respect to which ISO are exercisable for
the first time by a Participant during any calendar year (under this Plan or
under any other incentive stock option plan of the Company, Parent or Subsidiary
of the Company) will not exceed $100,000. If the Fair Market Value of Shares on
the date of grant with respect to which ISO are exercisable for the first time
by a Participant during any calendar year exceeds $100,000, then the Options for
the first $100,000 worth of Shares to become exercisable in such calendar year
will be ISO and the Options for the amount in excess of $100,000 that become
exercisable in that calendar year will be NQSOs. In the event that the Code or
the regulations promulgated thereunder are amended after the Effective Date of
this Plan to provide for a different limit on the Fair Market Value of Shares
permitted to be subject to ISO, such different limit will be automatically
incorporated herein and will apply to any Options granted after the effective
date of such amendment.
5.9 Modification, Extension or Renewal. The Committee may modify,
extend or renew outstanding Options and authorize the grant of new Options in
substitution therefor, provided that any such action may not, without the
written consent of a Participant, impair any of such Participant's rights under
any Option previously granted. Any outstanding ISO that is modified, extended,
renewed or otherwise altered will be treated in accordance with Section 424(h)
of the Code. The Committee may reduce the Exercise Price of outstanding Options
without the consent of Participants affected by a written notice to them;
provided, however, that the Exercise Price may not be reduced below the minimum
Exercise Price that would be permitted under Section 5.4 of this Plan for
Options granted on the date the action is taken to reduce the Exercise Price.
5.10 No Disqualification. Notwithstanding any other provision in this
Plan, no term of this Plan relating to ISO will be interpreted, amended or
altered, nor will any discretion or authority granted under this Plan be
exercised, so as to disqualify this Plan under Section 422 of the Code or,
without the consent of the Participant affected, to disqualify any ISO under
Section 422 of the Code.
6. RESTRICTED STOCK. A Restricted Stock Award is an offer by the Company
to sell to an eligible person Shares that are subject to restrictions. The
Committee will determine to whom an offer will be made, the number of Shares the
person may purchase, the price to be paid (the "PURCHASE PRICE"), the
restrictions to which the Shares will be subject, and all other terms and
conditions of the Restricted Stock Award, subject to the following:
6.1 Form of Restricted Stock Award. All purchases under a Restricted
Stock Award made pursuant to this Plan will be evidenced by an Award Agreement
("RESTRICTED STOCK PURCHASE AGREEMENT") that will be in such form (which need
not be the same for each Participant) as the Committee will from time to time
approve, and will comply with and be subject to the terms and conditions of this
Plan. The offer of Restricted Stock will be accepted by the Participant's
execution and delivery of the Restricted Stock Purchase Agreement and full
payment for the Shares to the Company within thirty (30) days from the date the
Restricted Stock Purchase Agreement is delivered to the person. If such person
does not execute and deliver the Restricted Stock Purchase Agreement along with
full payment for the Shares to the Company within thirty (30) days, then the
offer will terminate, unless otherwise determined by the Committee.
6.2 Purchase Price. The Purchase Price of Shares sold pursuant to a
Restricted Stock Award will be determined by the Committee on the date the
Restricted Stock Award is granted, except in the case of
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1998 Equity Incentive Plan
a sale to a Ten Percent Stockholder, in which case the Purchase Price will be
100% of the Fair Market Value. Payment of the Purchase Price may be made in
accordance with Section 8 of this Plan.
6.3 Terms of Restricted Stock Awards. Restricted Stock Awards shall
be subject to such restrictions as the Committee may impose. These restrictions
may be based upon completion of a specified number of years of service with the
Company or upon completion of the performance goals as set out in advance in the
Participant's individual Restricted Stock Purchase Agreement. Restricted Stock
Awards may vary from Participant to Participant and between groups of
Participants. Prior to the grant of a Restricted Stock Award, the Committee
shall: (a) determine the nature, length and starting date of any Performance
Period for the Restricted Stock Award; (b) select from among the Performance
Factors to be used to measure performance goals, if any; and (c) determine the
number of Shares that may be awarded to the Participant. Prior to the payment of
any Restricted Stock Award, the Committee shall determine the extent to which
such Restricted Stock Award has been earned. Performance Periods may overlap and
Participants may participate simultaneously with respect to Restricted Stock
Awards that are subject to different Performance Periods and having different
performance goals and other criteria.
6.4 Termination During Performance Period. If a Participant is
Terminated during a Performance Period for any reason, then such Participant
will be entitled to payment (whether in Shares, cash or otherwise) with respect
to the Restricted Stock Award only to the extent earned as of the date of
Termination in accordance with the Restricted Stock Purchase Agreement, unless
the Committee will determine otherwise.
7. STOCK BONUSES.
7.1 Awards of Stock Bonuses. A Stock Bonus is an award of Shares
(which may consist of Restricted Stock) for services rendered to the Company or
any Parent or Subsidiary of the Company. A Stock Bonus may be awarded for past
services already rendered to the Company, or any Parent or Subsidiary of the
Company pursuant to an Award Agreement (the "STOCK BONUS AGREEMENT") that will
be in such form (which need not be the same for each Participant) as the
Committee will from time to time approve, and will comply with and be subject to
the terms and conditions of this Plan. A Stock Bonus may be awarded upon
satisfaction of such performance goals as are set out in advance in the
Participant's individual Award Agreement (the "PERFORMANCE STOCK BONUS
AGREEMENT") that will be in such form (which need not be the same for each
Participant) as the Committee will from time to time approve, and will comply
with and be subject to the terms and conditions of this Plan. Stock Bonuses may
vary from Participant to Participant and between groups of Participants, and may
be based upon the achievement of the Company, Parent or Subsidiary and/or
individual performance factors or upon such other criteria as the Committee may
determine.
7.2 Terms of Stock Bonuses. The Committee will determine the number
of Shares to be awarded to the Participant. If the Stock Bonus is being earned
upon the satisfaction of performance goals pursuant to a Performance Stock Bonus
Agreement, then the Committee will: (a) determine the nature, length and
starting date of any Performance Period for each Stock Bonus; (b) select from
among the Performance Factors to be used to measure the performance, if any; and
(c) determine the number of Shares that may be awarded to the Participant. Prior
to the payment of any Stock Bonus, the Committee shall determine the extent to
which such Stock Bonuses have been earned. Performance Periods may overlap and
Participants may participate simultaneously with respect to Stock Bonuses that
are subject to different Performance Periods and different performance goals and
other criteria. The number of Shares may be fixed or may vary in accordance with
such performance goals and criteria as may be determined by the Committee. The
Committee may adjust the performance goals applicable to the Stock Bonuses to
take into account changes in law and accounting or tax rules and to make such
adjustments as the Committee deems necessary or appropriate to reflect the
impact of extraordinary or unusual items, events or circumstances to avoid
windfalls or hardships.
7.3 Form of Payment. The earned portion of a Stock Bonus may be paid
currently or on a deferred basis with such interest or dividend equivalent, if
any, as the Committee may determine. Payment may be made in the form of cash or
whole Shares or a combination thereof, either in a lump sum payment or in
installments, all as the Committee will determine.
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8. PAYMENT FOR SHARE PURCHASES.
8.1 Payment. Payment for Shares purchased pursuant to this Plan may
be made in cash (by check) or, where expressly approved for the Participant by
the Committee and where permitted by law:
(a) by cancellation of indebtedness of the Company to the
Participant;
(b) by surrender of shares that either: (1) have been owned by
Participant for more than six (6) months and have been paid
for within the meaning of SEC Rule 144 (and, if such shares
were purchased from the Company by use of a promissory note,
such note has been fully paid with respect to such shares);
or (2) were obtained by Participant in the public market;
(c) by tender of a full recourse promissory note having such
terms as may be approved by the Committee and bearing
interest at a rate sufficient to avoid imputation of income
under Sections 483 and 1274 of the Code; provided, however,
that Participants who are not employees or directors of the
Company will not be entitled to purchase Shares with a
promissory note unless the note is adequately secured by
collateral other than the Shares;
(d) by waiver of compensation due or accrued to the Participant
for services rendered;
(e) with respect only to purchases upon exercise of an Option,
and provided that a public market for the Company's stock
exists:
(1) through a "same day sale" commitment from the
Participant and a broker-dealer that is a member of the
National Association of Securities Dealers (an "NASD
DEALER") whereby the Participant irrevocably elects to
exercise the Option and to sell a portion of the Shares
so purchased to pay for the Exercise Price, and whereby
the NASD Dealer irrevocably commits upon receipt of
such Shares to forward the Exercise Price directly to
the Company; or
(2) through a "margin" commitment from the Participant and
a NASD Dealer whereby the Participant irrevocably
elects to exercise the Option and to pledge the Shares
so purchased to the NASD Dealer in a margin account as
security for a loan from the NASD Dealer in the amount
of the Exercise Price, and whereby the NASD Dealer
irrevocably commits upon receipt of such Shares to
forward the Exercise Price directly to the Company; or
(f) by any combination of the foregoing.
8.2 Loan Guarantees. The Committee may help the Participant pay for
Shares purchased under this Plan by authorizing a guarantee by the Company of a
third-party loan to the Participant.
9. WITHHOLDING TAXES.
9.1 Withholding Generally. Whenever Shares are to be issued in
satisfaction of Awards granted under this Plan, the Company may require the
Participant to remit to the Company an amount sufficient to satisfy federal,
state and local withholding tax requirements prior to the delivery of any
certificate or certificates for such Shares. Whenever, under this Plan, payments
in satisfaction of Awards are to be made in cash, such payment will be net of an
amount sufficient to satisfy federal, state, and local withholding tax
requirements.
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9.2 Stock Withholding. When, under applicable tax laws, a Participant
incurs tax liability in connection with the exercise or vesting of any Award
that is subject to tax withholding and the Participant is obligated to pay the
Company the amount required to be withheld, the Committee may in its sole
discretion allow the Participant to satisfy the minimum withholding tax
obligation by electing to have the Company withhold from the Shares to be issued
that number of Shares having a Fair Market Value equal to the minimum amount
required to be withheld, determined on the date that the amount of tax to be
withheld is to be determined. All elections by a Participant to have Shares
withheld for this purpose will be made in accordance with the requirements
established by the Committee and be in writing in a form acceptable to the
Committee
10. PRIVILEGES OF STOCK OWNERSHIP.
10.1 Voting and Dividends. No Participant will have any of the rights
of a stockholder with respect to any Shares until the Shares are issued to the
Participant. After Shares are issued to the Participant, the Participant will be
a stockholder and have all the rights of a stockholder with respect to such
Shares, including the right to vote and receive all dividends or other
distributions made or paid with respect to such Shares; provided, that if such
Shares are Restricted Stock, then any new, additional or different securities
the Participant may become entitled to receive with respect to such Shares by
virtue of a stock dividend, stock split or any other change in the corporate or
capital structure of the Company will be subject to the same restrictions as the
Restricted Stock; provided, further, that the Participant will have no right to
retain such stock dividends or stock distributions with respect to Shares that
are repurchased at the Participant's Purchase Price or Exercise Price pursuant
to Section 12.
10.2 Financial Statements. The Company will provide financial
statements to each Participant prior to such Participant's purchase of Shares
under this Plan, and to each Participant annually during the period such
Participant has Awards outstanding; provided, however, the Company will not be
required to provide such financial statements to Participants whose services in
connection with the Company assure them access to equivalent information.
11. TRANSFERABILITY. Awards granted under this Plan, and any interest
therein, will not be transferable or assignable by Participant, and may not be
made subject to execution, attachment or similar process, otherwise than by will
or by the laws of descent and distribution or as determined by the Committee and
set forth in the Award Agreement with respect to Awards that are not ISOs.
During the lifetime of the Participant an Award will be exercisable only by the
Participant, and any elections with respect to an Award may be made only by the
Participant unless otherwise determined by the Committee and set forth in the
Award Agreement with respect to Awards that are not ISOs.
12. RESTRICTIONS ON SHARES. At the discretion of the Committee, the
Company may reserve to itself and/or its assignee(s) in the Award Agreement a
right to repurchase a portion of or all Unvested Shares held by a Participant
following such Participant's Termination at any time within ninety (90) days
after the later of Participant's Termination Date and the date Participant
purchases Shares under this Plan, for cash and/or cancellation of purchase money
indebtedness, at the Participant's Exercise Price or Purchase Price, as the case
may be.
13. CERTIFICATES. All certificates for Shares or other securities
delivered under this Plan will be subject to such stock transfer orders, legends
and other restrictions as the Committee may deem necessary or advisable,
including restrictions under any applicable federal, state or foreign securities
law, or any rules, regulations and other requirements of the SEC or any stock
exchange or automated quotation system upon which the Shares may be listed or
quoted.
14. ESCROW; PLEDGE OF SHARES. To enforce any restrictions on a
Participant's Shares, the Committee may require the Participant to deposit all
certificates representing Shares, together with stock powers or other
instruments of transfer approved by the Committee, appropriately endorsed in
blank, with the Company or an agent designated by the Company to hold in escrow
until such restrictions have lapsed or termi-
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1998 Equity Incentive Plan
nated, and the Committee may cause a legend or legends referencing such
restrictions to be placed on the certificates. Any Participant who is permitted
to execute a promissory note as partial or full consideration for the purchase
of Shares under this Plan will be required to pledge and deposit with the
Company all or part of the Shares so purchased as collateral to secure the
payment of Participant's obligation to the Company under the promissory note;
provided, however, that the Committee may require or accept other or additional
forms of collateral to secure the payment of such obligation and, in any event,
the Company will have full recourse against the Participant under the promissory
note notwithstanding any pledge of the Participant's Shares or other collateral.
In connection with any pledge of the Shares, Participant will be required to
execute and deliver a written pledge agreement in such form as the Committee
will from time to time approve. The Shares purchased with the promissory note
may be released from the pledge on a pro rata basis as the promissory note is
paid.
15. EXCHANGE AND BUYOUT OF AWARDS. The Committee may, at any time or from
time to time, authorize the Company, with the consent of the respective
Participants, to issue new Awards in exchange for the surrender and cancellation
of any or all outstanding Awards. The Committee may at any time buy from a
Participant an Award previously granted with payment in cash, Shares (including
Restricted Stock) or other consideration, based on such terms and conditions as
the Committee and the Participant may agree.
16. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. An Award will not be
effective unless such Award is in compliance with all applicable federal and
state securities laws, rules and regulations of any governmental body, and the
requirements of any stock exchange or automated quotation system upon which the
Shares may then be listed or quoted, as they are in effect on the date of grant
of the Award and also on the date of exercise or other issuance. Notwithstanding
any other provision in this Plan, the Company will have no obligation to issue
or deliver certificates for Shares under this Plan prior to: (a) obtaining any
approvals from governmental agencies that the Company determines are necessary
or advisable; and/or (b) completion of any registration or other qualification
of such Shares under any state or federal law or ruling of any governmental body
that the Company determines to be necessary or advisable. The Company will be
under no obligation to register the Shares with the SEC or to effect compliance
with the registration, qualification or listing requirements of any state
securities laws, stock exchange or automated quotation system, and the Company
will have no liability for any inability or failure to do so.
17. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Award granted
under this Plan will confer or be deemed to confer on any Participant any right
to continue in the employ of, or to continue any other relationship with, the
Company or any Parent or Subsidiary of the Company or limit in any way the right
of the Company or any Parent or Subsidiary of the Company to terminate
Participant's employment or other relationship at any time, with or without
cause.
18. CORPORATE TRANSACTIONS.
18.1 Assumption or Replacement of Awards by Successor. In the event of
(a) a dissolution or liquidation of the Company, (b) a merger or consolidation
in which the Company is not the surviving corporation (other than a merger or
consolidation with a wholly-owned subsidiary, a reincorporation of the Company
in a different jurisdiction, or other transaction in which there is no
substantial change in the stockholders of the Company or their relative stock
holdings and the Awards granted under this Plan are assumed, converted or
replaced by the successor corporation, which assumption will be binding on all
Participants), (c) a merger in which the Company is the surviving corporation
but after which the stockholders of the Company immediately prior to such merger
(other than any stockholder that merges, or which owns or controls another
corporation that merges, with the Company in such merger) cease to own their
shares or other equity interest in the Company, (d) the sale of substantially
all of the assets of the Company, or (e) the acquisition, sale, or transfer of
more than 50% of the outstanding shares of the Company by tender offer or
similar transaction, any or all outstanding Awards may be assumed, converted or
replaced by the successor corporation (if any), which assumption, conversion or
replacement will be binding on all Participants. In the alternative, the
successor corporation may substitute equivalent Awards or provide substantially
similar consideration to Participants as was provided to stockholders (after
taking into account the existing provisions of the Awards). The successor
corporation may also issue, in place of outstanding Shares of
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MarketWatch.com, Inc.
1998 Equity Incentive Plan
the Company held by the Participant, substantially similar shares or other
property subject to repurchase restrictions no less favorable to the
Participant. In the event such successor corporation (if any) refuses to assume
or substitute Awards, as provided above, pursuant to a transaction described in
this Subsection 18.1, such Awards will expire on such transaction at such time
and on such conditions as the Committee will determine; provided, however, that
the Committee may, in its sole discretion, provide that the vesting of any or
all Awards granted pursuant to this Plan will accelerate. If the Committee
exercises such discretion with respect to Options, such Options will become
exercisable in full prior to the consummation of such event at such time and on
such conditions as the Committee determines, and if such Options are not
exercised prior to the consummation of the corporate transaction, they shall
terminate at such time as determined by the Committee.
18.2 Other Treatment of Awards. Subject to any greater rights granted
to Participants under the foregoing provisions of this Section 18, in the event
of the occurrence of any transaction described in Section 18.1, any outstanding
Awards will be treated as provided in the applicable agreement or plan of
merger, consolidation, dissolution, liquidation, or sale of assets.
18.3 Assumption of Awards by the Company. The Company, from time to
time, also may substitute or assume outstanding awards granted by another
company, whether in connection with an acquisition of such other company or
otherwise, by either; (a) granting an Award under this Plan in substitution of
such other company's award; or (b) assuming such award as if it had been granted
under this Plan if the terms of such assumed award could be applied to an Award
granted under this Plan. Such substitution or assumption will be permissible if
the holder of the substituted or assumed award would have been eligible to be
granted an Award under this Plan if the other company had applied the rules of
this Plan to such grant. In the event the Company assumes an award granted by
another company, the terms and conditions of such award will remain unchanged
(except that the exercise price and the number and nature of Shares issuable
upon exercise of any such option will be adjusted appropriately pursuant to
Section 424(a) of the Code). In the event the Company elects to grant a new
Option rather than assuming an existing option, such new Option may be granted
with a similarly adjusted Exercise Price.
19. ADOPTION AND STOCKHOLDER APPROVAL. This Plan will become effective on
the date on which the registration statement filed by the Company with the SEC
under the Securities Act registering the initial public offering of the
Company's Common Stock is declared effective by the SEC (the "EFFECTIVE DATE").
This Plan shall be approved by the stockholders of the Company (excluding Shares
issued pursuant to this Plan), consistent with applicable laws, within twelve
(12) months before or after the date this Plan is adopted by the Board. Upon the
Effective Date, the Committee may grant Awards pursuant to this Plan; provided,
however, that: (a) no Option may be exercised prior to initial stockholder
approval of this Plan; (b) no Option granted pursuant to an increase in the
number of Shares subject to this Plan approved by the Board will be exercised
prior to the time such increase has been approved by the stockholders of the
Company; (c) in the event that initial stockholder approval is not obtained
within the time period provided herein, all Awards granted hereunder shall be
cancelled, any Shares issued pursuant to any Awards shall be cancelled and any
purchase of Shares issued hereunder shall be rescinded; and (d) in the event
that stockholder approval of such increase is not obtained within the time
period provided herein, all Awards granted pursuant to such increase will be
cancelled, any Shares issued pursuant to any Award granted pursuant to such
increase will be cancelled, and any purchase of Shares pursuant to such increase
will be rescinded.
20. TERM OF PLAN/GOVERNING LAW. Unless earlier terminated as provided
herein, this Plan will terminate ten (10) years from the date this Plan is
adopted by the Board or, if earlier, the date of stockholder approval. This Plan
and all agreements thereunder shall be governed by and construed in accordance
with the laws of the State of California.
21. AMENDMENT OR TERMINATION OF PLAN. The Board may at any time terminate
or amend this Plan in any respect, including without limitation amendment of any
form of Award Agreement or instrument to be executed pursuant to this Plan;
provided, however, that the Board will not, without the approval of the
stockholders of the Company, amend this Plan in any manner that requires such
stockholder approval.
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1998 Equity Incentive Plan
22. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of this Plan by the
Board, the submission of this Plan to the stockholders of the Company for
approval, nor any provision of this Plan will be construed as creating any
limitations on the power of the Board to adopt such additional compensation
arrangements as it may deem desirable, including, without limitation, the
granting of stock options and bonuses otherwise than under this Plan, and such
arrangements may be either generally applicable or applicable only in specific
cases.
23. DEFINITIONS. As used in this Plan, the following terms will have the
following meanings:
"AWARD" means any award under this Plan, including any Option,
Restricted Stock or Stock Bonus.
"AWARD AGREEMENT" means, with respect to each Award, the signed
written agreement between the Company and the Participant setting forth the
terms and conditions of the Award.
"BOARD" means the Board of Directors of the Company.
"CAUSE" means the commission of an act of theft, embezzlement, fraud,
dishonesty or a breach of fiduciary duty to the Company or a Parent or
Subsidiary of the Company.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMITTEE" means the Compensation Committee of the Board.
"COMPANY" means MarketWatch.com, Inc. or any successor corporation.
"DISABILITY" means a disability, whether temporary or permanent,
partial or total, as determined by the Committee.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXERCISE PRICE" means the price at which a holder of an Option may
purchase the Shares issuable upon exercise of the Option.
"FAIR MARKET VALUE" means, as of any date, the value of a share of the
Company's Common Stock determined as follows:
(a) if such Common Stock is then quoted on the Nasdaq National
Market, its closing price on the Nasdaq National Market on the
date of determination as reported in The Wall Street Journal;
(b) if such Common Stock is publicly traded and is then listed on a
national securities exchange, its closing price on the date of
determination on the principal national securities exchange on
which the Common Stock is listed or admitted to trading as
reported in The Wall Street Journal;
(c) if such Common Stock is publicly traded but is not quoted on the
Nasdaq National Market nor listed or admitted to trading on a
national securities exchange, the average of the closing bid and
asked prices on the date of determination as reported in The Wall
Street Journal;
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MarketWatch.com, Inc.
1998 Equity Incentive Plan
(d) in the case of an Award made on the Effective Date, the price per
share at which shares of the Company's Common Stock are initially
offered for sale to the public by the Company's underwriters in
the initial public offering of the Company's Common Stock
pursuant to a registration statement filed with the SEC under the
Securities Act; or
(e) if none of the foregoing is applicable, by the Committee in good
faith.
"INSIDER" means an officer or director of the Company or any other
person whose transactions in the Company's Common Stock are subject to Section
16 of the Exchange Act.
"OPTION" means an award of an option to purchase Shares pursuant to
Section 5.
"PARENT" means any corporation (other than the Company) in an unbroken
chain of corporations ending with the Company if each of such corporations other
than the Company owns stock possessing 50% or more of the total combined voting
power of all classes of stock in one of the other corporations in such chain.
"PARTICIPANT" means a person who receives an Award under this Plan.
"PERFORMANCE FACTORS" means the factors selected by the Committee from
among the following measures to determine whether the performance goals
established by the Committee and applicable to Awards have been satisfied:
(a) Net revenue and/or net revenue growth;
(b) Earnings before income taxes and amortization and/or earnings
before income taxes and amortization growth;
(c) Operating income and/or operating income growth;
(d) Net income and/or net income growth;
(e) Earnings per share and/or earnings per share growth;
(f) Total stockholder return and/or total stockholder return growth;
(g) Return on equity;
(h) Operating cash flow return on income;
(i) Adjusted operating cash flow return on income;
(j) Economic value added; and
(k) Individual confidential business objectives.
"PERFORMANCE PERIOD" means the period of service determined by the
Committee, not to exceed five years, during which years of service or
performance is to be measured for Restricted Stock Awards or Stock Bonuses.
"PLAN" means this MarketWatch.com, Inc. 1998 Equity Incentive Plan, as
amended from time to time.
"RESTRICTED STOCK AWARD" means an award of Shares pursuant to Section
6.
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MarketWatch.com, Inc.
1998 Equity Incentive Plan
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SHARES" means shares of the Company's Common Stock reserved for
issuance under this Plan, as adjusted pursuant to Sections 2 and 18, and any
successor security.
"STOCK BONUS" means an award of Shares, or cash in lieu of Shares,
pursuant to Section 7.
"SUBSIDIARY" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
"TERMINATION" or "TERMINATED" means, for purposes of this Plan with
respect to a Participant, that the Participant has for any reason ceased to
provide services as an employee, officer, director, consultant, independent
contractor, or advisor to the Company or a Parent or Subsidiary of the Company.
An employee will not be deemed to have ceased to provide services in the case of
(i) sick leave, (ii) military leave, or (iii) any other leave of absence
approved by the Committee, provided, that such leave is for a period of not more
than 90 days, unless reemployment upon the expiration of such leave is
guaranteed by contract or statute or unless provided otherwise pursuant to
formal policy adopted from time to time by the Company and issued and
promulgated to employees in writing. In the case of any employee on an approved
leave of absence, the Committee may make such provisions respecting suspension
of vesting of the Award while on leave from the employ of the Company or a
Subsidiary as it may deem appropriate, except that in no event may an Option be
exercised after the expiration of the term set forth in the Option agreement.
The Committee will have sole discretion to determine whether a Participant has
ceased to provide services and the effective date on which the Participant
ceased to provide services (the "TERMINATION DATE").
"UNVESTED SHARES" means "Unvested Shares" as defined in the Award
Agreement.
"VESTED SHARES" means "Vested Shares" as defined in the Award
Agreement.
12
<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
December 15, 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, 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
December 15, 1998
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