<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 19, 1999
REGISTRATION NO. 333-84789
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
PRE-EFFECTIVE
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
MARKETWATCH.COM, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 7375 94-3315360
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(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
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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:
JEFFREY R. VETTER, ESQ.
SAYRE E. STEVICK, ESQ.
CYNTHIA E. GARABEDIAN, ESQ.
FENWICK & WEST LLP
TWO PALO ALTO SQUARE
PALO ALTO, CALIFORNIA 94306
(650) 494-0600
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. [X]
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. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
OFFERING PRICE AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE PER OFFERING REGISTRATION
OF SECURITIES TO BE REGISTERED REGISTERED SHARE(1) PRICE(1) FEE(2)
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Common Stock, $.01 par value per share...... 1,589,138 $28.91 $45,941,980 $12,772
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(1) Estimated pursuant to Rule 457(c) of the Securities Act of 1933 solely for
the purpose of calculating the amount of the registration fee based on the
average of the high and low prices of the Registrant's common stock on the
Nasdaq National Market on August 4, 1999.
(2) Previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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THE INFORMATION CONTAINED IN THIS PROSPECTUS IS SUBJECT TO COMPLETION OR
AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS NOT BEEN
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE
SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION
STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO
SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY JURISDICTION IN WHICH ANY OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
THAT JURISDICTION.
SUBJECT TO COMPLETION, DATED AUGUST 19, 1999
1,589,138 SHARES OF
COMMON STOCK OF
MARKETWATCH.COM, INC.
The shares of common stock of MarketWatch.com, Inc. may be offered from
time to time by the stockholders of MarketWatch.com, who were former
stockholders of BigCharts Inc., listed under "Selling Stockholders." The shares
will become eligible for sale at the times described under "Plan of
Distribution." MarketWatch.com will not receive any proceeds from the sale of
these shares.
The common stock is listed on the Nasdaq National Market under the symbol
"MKTW." On August 4, 1999, the closing price per share of the common stock on
the Nasdaq National Market was $27.3125.
THE COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
BEGINNING ON PAGE 5.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is August , 1999
<PAGE> 3
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
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PAGE
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Prospectus Summary.......................................... 3
Risk Factors................................................ 5
Use of Proceeds............................................. 16
Dividend Policy............................................. 16
Price Range of Common Stock................................. 16
Selected Financial Data..................................... 17
Selected Pro Forma Financial Data........................... 19
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 20
Business.................................................... 33
Management.................................................. 48
Certain Transactions........................................ 58
Principal Stockholders...................................... 67
Selling Stockholders........................................ 69
Description of Capital Stock................................ 72
Shares Eligible for Future Sale............................. 76
Plan of Distribution........................................ 78
Legal Matters............................................... 80
Experts..................................................... 80
Where You Can Find Additional Information................... 81
Index to Consolidated Financial Statements.................. F-1
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PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information and financial statements and related notes 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
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 were formed in October 1997 as a joint venture 50% owned by each of CBS
Broadcasting Inc., or CBS, and Data Broadcasting Corporation, or 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 $50.0
million in rate card promotion and advertising. In January 1999, CBS agreed to
amend the license to extend the term through October 2005, to provide us with
$30.0 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,
which 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 2002. In January 1999, this services
agreement was amended to provide for an eight-year term through October 2005 and
to add other provisions relating to system performance and hardware.
In June 1999, we acquired BigCharts Inc., a provider of licensed financial
charting content to electronic brokers, financial publishers and portals. In
connection with the acquisition of BigCharts, we issued an aggregate of
2,174,962 shares of our common stock for all of the outstanding capital stock,
including stock options, of BigCharts, of which 158,914 shares are subject to an
escrow to secure the indemnification obligations of the principal stockholders
of BigCharts. We also made a cash payment of $6.0 million.
Our address is 825 Battery Street, San Francisco, California, 94111 and our
telephone number is (415) 733-0500.
The information on our web site and on the web site of BigCharts Inc.,
which we acquired in June 1999, is not a part of this prospectus.
MarketWatch.com, the MarketWatch.com 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.
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SUMMARY FINANCIAL DATA
The following tables summarize the financial data for our business and the
predecessor business of DBC. The share information for MarketWatch.com gives
effect to the conversion of our business from a limited liability company into a
corporation as if this conversion occurred before the beginning of each period
indicated. For more information, please see the MarketWatch.com, BigCharts and
pro forma financial statements included elsewhere in this prospectus.
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DBC ONLINE/NEWS
MARKETWATCH.COM PREDECESSOR BUSINESS
------------------------------------------------ -----------------------------------------
INCEPTION INCEPTION
(OCTOBER 29, JANUARY 1, (OCTOBER 1,
SIX MONTHS ENDED 1997) 1997 1995)
JUNE 30, YEAR ENDED THROUGH THROUGH YEAR ENDED THROUGH
------------------ DECEMBER 31, DECEMBER 31, OCTOBER 28, DECEMBER 31, DECEMBER 31,
1999 1998 1998 1997 1997 1996 1995
-------- ------- ------------ ------------ ----------- ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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STATEMENT OF OPERATIONS
DATA:
Net revenues......... $ 7,965 $ 2,695 $ 7,027 $ 630 $ 1,172 $ 607 $ --
Gross profit......... 4,565 1,743 4,190 482 512 156 --
Operating loss....... (19,610) (4,557) (12,254) (81) (1,383) (1,867) (236)
Net loss............. (18,882) (4,578) (12,413) (81) (943) (1,172) (147)
Basic and diluted net
loss per share..... $ (1.56) $ (0.51) $ (1.38) $(0.01)
Shares used to
compute basic and
diluted net loss
per share.......... 12,094 9,000 9,000 9,000
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MARKETWATCH.COM DBC ONLINE/NEWS
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JUNE 30, DECEMBER 31, DECEMBER 31, OCTOBER 28, DECEMBER 31, DECEMBER 31,
1999 1998 1997 1997 1996 1995
------------- ------------ ------------ ----------- ------------ ------------
(IN THOUSANDS)
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BALANCE SHEET DATA:
Cash and cash
equivalents...... $ 18,922 $ 140 $ -- $ -- $ -- $ --
Working capital
(deficit)........ 27,954 (5,889) 139 (2,449) (1,502) (68)
Total assets....... 187,673 4,487 237 546 409 99
Advances from DBC.. -- 3,946 -- 2,708 1,644 178
Total stockholders'
equity
(deficit)........ 182,594 (3,130) 152 (2,263) (1,320) (147)
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RISK FACTORS
Purchasing the common stock involves a high degree of risk. You should
carefully consider the risks described below and the other information in this
prospectus before deciding to purchase shares of our common stock.
RISKS RELATED TO OUR RELATIONSHIP WITH CBS AND DBC
CBS AND DBC HAVE SIGNIFICANT CONTROL OVER OUR BUSINESS
CBS and DBC each owned approximately 32.7% of our outstanding common stock
as of June 30, 1999. CBS and DBC each have the right to have representatives
serve on our board of directors generally based upon the percentage of our
voting securities which they hold. They currently each have three
representatives on our board. Each has the right to appoint one additional
representative to the board and each has informed us that they intend to do so.
If we issue securities in the future, CBS and DBC will each have the right to
purchase securities from us so they can maintain their respective percentage
ownerships. 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 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 these 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."
WE DEPEND ON OUR RELATIONSHIP WITH CBS AND THIS RELATIONSHIP COULD TERMINATE
PREMATURELY, WHICH COULD ADVERSELY AFFECT OUR BUSINESS
We license the CBS logo, name and certain news content from CBS. The CBS
logo and name are critical to our marketing and brand building activities. We
would need to change the name of our web site and devote substantial resources
towards building a new brand name if our agreement with CBS were terminated or
not renewed. This agreement also has a number of risks associated with it. CBS
can require us to remove any content on our web site which it determines
conflicts with, interferes with or is detrimental to its reputation or business
or for certain other reasons. We are also required to conform to CBS's
guidelines for the use of its trademarks. CBS has the right to approve all
materials, such as marketing materials, that include any CBS trademarks. CBS
also has control over the visual and editorial presentation of its television
news content on our web site. Because of these restrictions, we may not be able
to perform our desired marketing activities.
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Our license agreement with CBS will expire on October 29, 2005, and CBS
will have no obligation to renew it. CBS will also have the right to terminate
this agreement if:
- we breach a material term or condition of the agreement;
- we become insolvent or subject to bankruptcy or similar proceedings;
- a competitor of CBS acquires 15% or more of our voting power;
- we issue voting securities to, or actively participate in the acquisition
of our voting power by, a CBS competitor which results in such competitor
directly or indirectly owning 9% or more of our voting power; or
- we discontinue using the MarketWatch.com 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 $30.0 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," "Certain Transactions" and Note 7 of Notes
to MarketWatch.com financial statements.
WE DEPEND ON DBC TO PROVIDE US WITH MANY IMPORTANT SERVICES WHICH WOULD BE
DIFFICULT TO REPLACE
DBC has accounted for a significant portion of our revenues. DBC also
currently provides us with 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 ourselves, 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.
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<PAGE> 8
OUR AGREEMENTS WITH CBS AND DBC DO NOT COMPLETELY PREVENT THEM FROM ENGAGING IN
BUSINESS ACTIVITIES THAT ARE COMPETITIVE WITH OURS
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.
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 sites or
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
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 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.
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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 A HISTORY OF LOSSES AND EXPECT TO INCUR LOSSES IN THE FUTURE
We have incurred operating losses in each fiscal quarter since we were
formed. As of June 30, 1999, we had an accumulated deficit of approximately
$31.4 million. We expect operating losses and negative cash flows to continue
for the foreseeable future as we intend to significantly increase our operating
expenses to grow our business. We expect to incur significant sales and
marketing, product development, and general and administrative expenses, in part
as a result of our recent acquisition of BigCharts. In the future, we expect to
incur substantial non-cash costs relating to the amortization of goodwill and
other intangible assets relating to our acquisition of BigCharts which will
contribute to our net losses. As a result, we expect to incur significant losses
for the foreseeable future. See "Selected Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
WE COULD EXPERIENCE SEASONALITY IN OUR OPERATING RESULTS
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."
WE MUST DEVELOP AND IMPLEMENT OUR OWN INTERNAL SYSTEMS TO MANAGE OUR BUSINESS
AND OUR GROWTH
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.
Furthermore, we acquired BigCharts in June 1999.
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We have been and continue to be substantially dependent on DBC 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.
WE MAY EXPERIENCE DIFFICULTY INTEGRATING ACQUISITIONS
We may seek to continue to expand our current offerings by acquiring
additional businesses, technologies, product lines or service offerings from
third parties. We may be unable to identify future acquisition targets and may
be unable to integrate BigCharts or any other acquisition successfully. Even if
we complete an acquisition, we may have difficulty in integrating it with our
current offerings, and any acquired features, functions or services may not
achieve market acceptance or enhance our brand loyalty. Integrating newly
acquired organizations and products and services could be expensive, time
consuming and a strain on our resources.
Our BigCharts acquisition, and any future acquisitions involve a number of
risks that may result in our not achieving the desired benefits of the
transaction. These risks include:
- the difficulties in assimilating the operations of the acquired
businesses;
- the potential disruption of our existing businesses;
- the assumption of unknown liabilities and litigation;
- our inability to integrate, train, retain and motivate personnel of the
acquired businesses;
- the diversion of our management from our day-to-day operations;
- our inability to incorporate acquired technologies successfully into our
family of web sites;
- the potential impairment of relationships with our employees, customers
and strategic partners; and
- the inability to maintain uniform standards, controls procedures and
policies.
Our inability to successfully address any of these risks could materially
harm our business.
We paid for our acquisition of BigCharts by issuing shares of our capital
stock and making a cash payment. In the future, we may effect other large or
small acquisitions by using stock, and this will dilute our stockholders. We may
also use cash to buy companies or technologies in the future. We may need to
incur debt to pay for these acquisitions. Acquisition financing may not be
available on favorable terms or at all. In addition, we will likely be required
to amortize significant amounts of goodwill and other intangible assets in
connection with future acquisitions, which would materially harm our results of
operations.
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THERE IS INTENSE COMPETITION FOR WEB-BASED BUSINESS AND FINANCIAL CONTENT AND WE
MAY NOT BE ABLE TO COMPETE SUCCESSFULLY
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, Infoseek,
Lycos, Yahoo! and America Online.
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."
WE WILL NEED TO ESTABLISH AND MAINTAIN STRATEGIC RELATIONSHIPS WITH OTHER WEB
SITES TO ATTRACT USERS, ADVERTISERS AND CONTENT
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 June 1999, approximately 11% 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 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.
WE DEPEND ON A THIRD PARTY TO TRACK AND MEASURE THE DELIVERY OF ADVERTISEMENTS
FOR US AND IT COULD BE DIFFICULT TO REPLACE THESE SERVICES
It is important to our advertisers that we accurately measure the delivery
of advertisements on our web site. We depend on third parties to provide this
measurement service. If they were unable to provide this service in the future,
we would be required to perform it ourselves or obtain it from another provider.
This could cause us to incur additional costs or cause interruptions in our
business during the time we are replacing this service. We are implementing
additional systems designed to record behavioral patterns of our users. If we do
not develop these systems successfully, we may not be able to accurately
evaluate the behavioral patterns of our users. Companies may not advertise on
10
<PAGE> 12
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.
WE DEPEND ON OUR DIRECT SALES FORCE TO SELL ADVERTISING ON OUR WEB SITE
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. As of
June 30, 1999, our sales group had 17 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.
WE DEPEND ON ADVERTISERS FROM THE FINANCIAL INDUSTRY AND WE MAY NOT SUCCEED IN
ATTRACTING ADVERTISERS FROM OTHER INDUSTRIES
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.
OUR SYSTEMS MAY NOT BE ABLE TO ACCOMMODATE INCREASES IN THE NUMBER OF USERS OF
OUR SERVICES
In the past, our web site has experienced significant increases in traffic
when there are noteworthy business or financial news stories. In addition, the
number of our users has continued to increase over time and we are seeking to
further increase our user base. Therefore, our web site must accommodate a high
volume of traffic and deliver frequently updated information. Our web site has
in the past and may in the future experience slower response times or other
problems for a variety of reasons.
We also depend on information providers, including DBC, to provide
information and data feeds on a timely basis. Our web site could experience
disruptions or interruptions in service due to the failure or delay in the
transmission or receipt of this information. In addition, our users depend on
Internet service providers, online service providers and other web site
operators for access to our web site. Each of them has experienced significant
outages in the past, and could experience outages, delays and other difficulties
due to system failures unrelated to our systems. These types of occurrences
could cause users to perceive our web site as not functioning properly and
therefore cause them to use other methods to obtain their business and financial
news and other information.
11
<PAGE> 13
WE NEED TO EXPAND OUR BUSINESS AND BE ABLE TO DO SO SUCCESSFULLY
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, with the recent
acquisition of BigCharts, we have added several members to our management team.
As a result, our management team may not work together effectively to
successfully manage our growth.
IF WE DO NOT DEVELOP NEW AND ENHANCED SERVICES AND FEATURES FOR OUR WEB SITE, WE
MAY NOT BE ABLE TO ATTRACT AND RETAIN A SUFFICIENT NUMBER OF USERS
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 users do not accept these new services.
RISKS RELATED TO OUR INDUSTRY
WE DEPEND ON THE CONTINUED GROWTH IN THE USE OF THE WEB, PARTICULARLY FOR
FINANCIAL NEWS AND INFORMATION
Our business depends on consumers continuing to increase their use of the
web for obtaining news and financial information as well as for conducting
commercial transactions. The rapid growth and use of the Internet is a recent
phenomenon. As a result this acceptance and use may not continue to develop at
historical rates. 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.
WE DEPEND ON THE SALE OF ADVERTISEMENTS ON OUR WEB SITE AND IF WEB ADVERTISING
DOES NOT BECOME ACCEPTED, OUR BUSINESS WOULD BE HARMED
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
12
<PAGE> 14
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" 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 COULD HINDER
THE POPULARITY OF THE WORLD WIDE 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.
WE COULD FACE LIABILITY RELATED TO OUR 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
13
<PAGE> 15
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.
WE COULD FACE LIABILITY FOR THE 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
PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW COULD MAKE IT MORE
DIFFICULT FOR A THIRD PARTY TO ACQUIRE US
Certain provisions of our amended and restated certificate of
incorporation, bylaws, other agreements and Delaware law could make it more
difficult for a third party to acquire us, even if a change in control would be
beneficial to our stockholders. 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
MarketWatch.com had 13,753,054 shares outstanding as of June 30, 1999. Of
these shares, 3,163,916 shares, plus 158,867 of the shares sold in this offering
will be freely tradable except for any shares purchased by our "affiliates" as
defined in Rule 144 under the Securities Act. As a result of contractual
restrictions, an additional 202,340 shares will be eligible for sale on January
5, 2000, 202,340 shares will be eligible for sale on April 4, 2000, 480,637
shares will be eligible for sale on June 9, 2000, 278,241 shares will be
eligible for sale on June 9, 2001 and 266,713 shares will be eligible for sale
on June 9, 2002. The remaining 9,000,000 shares held by CBS and DBC will be
"restricted securities" and will become eligible for sale no later than January
2000, subject to the volume limitations and other conditions of Rule 144 under
the Securities Act. In addition, at least 1,787,524 shares will be issuable upon
the exercise of options (based on options outstanding on June 30, 1999). 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 their 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."
14
<PAGE> 16
THE TRADING PRICE OF OUR COMMON STOCK IS VOLATILE AND COULD FLUCTUATE
SIGNIFICANTLY
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 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. Therefore,
you may not be able to resell your shares at a price greater than what you paid
for the shares. See "Price Range of Common Stock."
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 companies. This litigation could result in substantial costs
and a diversion of management's attention and resources.
15
<PAGE> 17
USE OF PROCEEDS
We will not receive any proceeds from sales by the selling stockholders.
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.
PRICE RANGE OF COMMON STOCK
Our common stock has been traded on the Nasdaq National Market under the
symbol "MKTW" since January 15, 1999. Prior to that time, there was no public
market for our common stock. The following table sets forth for the periods
indicated the high and low reported sale prices for our common stock as reported
by the Nasdaq National Market.
<TABLE>
<CAPTION>
1999 HIGH LOW
---- ------- -------
<S> <C> <C>
First Quarter (from January 15, 1999)....................... $130.00 $ 56.00
Second Quarter.............................................. 107.00 45.00
Third Quarter (through August 4, 1999)...................... 59.75 26.63
</TABLE>
On August 4, 1999, the last reported sale price for the common stock on the
Nasdaq National Market was $27.3125 per share.
As of June 30, 1999, there were approximately 138 holders of record of the
common stock although we believe that there were a greater number of beneficial
owners of our common stock.
The trading price of our common stock has been and may continue to be
subject to wide fluctuations in response to a number of events and factors, such
as
- quarterly variations in our operating results;
- announcements of technological innovations or new products and media
properties by us or our competitors;
- additions or departures of key personnel;
- changes in financial estimates and recommendations by securities
analysts;
- the operating and stock price performance of other companies that
investors may deem comparable to us; and
- news reports relating to trends in our markets.
In addition, the stock market in general, and the market prices for
Internet-related companies in particular, have experienced extreme volatility
that often has been unrelated to the operating performance of such companies.
These broad market and industry fluctuations may adversely affect the trading
price of our common stock, regardless of our operating performance.
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,
the notes to these financials and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" appearing elsewhere in this
prospectus.
The statement of operations data for the six month periods ended June 30,
1999 and 1998 and the balance sheet data as of June 30, 1999 are derived from
unaudited consolidated 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 those periods and its financial condition as of such date. The
operating results for the six month period ended June 30, 1999 are not
necessarily indicative of the results to be expected for any other interim
period or the year ending December 31, 1999.
The selected statement of operations data of MarketWatch.com presented
below for the year ended 1998 and for the period from inception (October 29,
1997) through December 31, 1997, and the balance sheet data as of December 31,
1998 and 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, 1995, December 31, 1996 and October 28, 1997 are derived from audited
financial statements not included in this prospectus.
The financial information of DBC Online/News is not indicative of the
results of operations, financial position and cash flows of MarketWatch.com had
it been a stand-alone entity nor is it indicative of the results of operations,
financial position and cash flows of MarketWatch.com in the future.
17
<PAGE> 19
The share information for MarketWatch.com gives effect to the conversion of
our business from a limited liability company into a corporation as if this
conversion occurred before the beginning of the period indicated.
<TABLE>
<CAPTION>
MARKETWATCH.COM DBC ONLINE/NEWS
------------------------------------------------- -------------------------------------------
SIX MONTHS ENDED INCEPTION INCEPTION
JUNE 30, YEAR ENDED (OCT. 29,1997) JAN. 1, 1997 YEAR ENDED (OCT. 1, 1995)
------------------ DEC. 31, THROUGH THROUGH DEC. 31, THROUGH
1999 1998 1998 DEC. 31, 1997 OCT. 28, 1997 1996 DEC. 31, 1995
-------- ------- ---------- --------------- ------------- ---------- --------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues:
Advertising................. $ 5,998 $ 1,728 $ 5,115 $ 320 $ 690 $ 303 $ --
License..................... 306 -- -- -- -- -- --
News........................ 1,347 627 1,285 210 -- -- --
Subscription................ 314 340 627 100 482 304 --
-------- ------- -------- ------ ------- ------- -----
Total net revenues... 7,965 2,695 7,027 630 1,172 607 --
Cost of revenues:
Advertising and news........ 3,086 763 2,398 92 391 280 --
License..................... 24 -- -- -- -- -- --
Subscription................ 290 189 439 56 269 171 --
-------- ------- -------- ------ ------- ------- -----
Total cost of
revenues........... 3,400 952 2,837 148 660 451 --
-------- ------- -------- ------ ------- ------- -----
Gross profit.................. 4,565 1,743 4,190 482 512 156 --
-------- ------- -------- ------ ------- ------- -----
Operating expenses:
Product development......... 1,469 607 1,468 186 885 1,159 210
General and
administrative............ 3,774 1,256 3,429 248 943 732 26
Sales and marketing......... 14,448 4,437 11,547 129 67 132 --
Purchased in-process
research and
development............... 200 -- -- -- -- -- --
Amortization of goodwill and
intangibles............... 4,284 -- -- -- -- -- --
-------- ------- -------- ------ ------- ------- -----
Total operating
expenses........... 24,175 6,300 16,444 563 1,895 2,023 236
-------- ------- -------- ------ ------- ------- -----
Operating loss................ (19,610) (4,557) (12,254) (81) (1,383) (1,867) (236)
Interest income (expense)..... 728 (21) (159) -- (181) (90) (9)
-------- ------- -------- ------ ------- ------- -----
Loss before income tax
benefit..................... (18,882) (4,578) (12,413) (81) (1,564) (1,957) (245)
Income tax benefit............ -- -- -- -- 621 785 98
-------- ------- -------- ------ ------- ------- -----
Net loss...................... $(18,882) $(4,578) $(12,413) $ (81) $ (943) $(1,172) $(147)
======== ======= ======== ====== ======= ======= =====
Basic and diluted net loss per
share....................... $ (1.56) $ (0.51) $ (1.38) $(0.01)
======== ======= ======== ======
Shares used to compute basic
and diluted net loss per
share....................... 12,094 9,000 9,000 9,000
======== ======= ======== ======
</TABLE>
<TABLE>
<CAPTION>
MARKETWATCH.COM DBC ONLINE/NEWS
------------------------------------------------------ ------------------------------------
JUNE 30, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997 OCTOBER 28, 1997 DECEMBER 31, 1996
-------------- ----------------- ----------------- ---------------- -----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents.......... $ 18,922 $ 140 $ -- $ -- $ --
Working capital
(deficit)............ 27,954 (5,889) 139 (2,449) (1,502)
Total assets........... 187,673 4,487 237 546 409
Advances from DBC(1)... -- 3,946 -- 2,708 1,644
Total stockholders'
equity (deficit)..... 182,594 (3,130) 152 (2,263) (1,320)
<CAPTION>
DBC ONLINE/NEWS
-----------------
DECEMBER 31, 1995
-----------------
(IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents.......... $ --
Working capital
(deficit)............ (68)
Total assets........... 99
Advances from DBC(1)... 178
Total stockholders'
equity (deficit)..... (147)
</TABLE>
- -------------------------
(1) Advances from DBC Online/News at October 28, 1997 were neither paid by DBC
Online/News nor assumed by MarketWatch.com.
18
<PAGE> 20
SELECTED PRO FORMA FINANCIAL DATA
Effective June 9, 1999, MarketWatch.com, Inc., a Delaware corporation,
completed its acquisition of substantially all of the assets of BigCharts.com,
Inc., a Minnesota corporation for $6.0 million in cash, $110.9 million worth of
MarketWatch Common Stock, and $38.6 million worth of MarketWatch stock options.
The transaction was accounted for using the purchase method; accordingly, the
purchase price was allocated to the assets acquired and liabilities assumed
based on their fair market values at the date of acquisition.
The unaudited pro forma statement of operations data are not necessarily
indicative of the operating results that would have been achieved if the
transaction had occurred on the date indicated and should not be construed as
representative of future operations.
MARKETWATCH.COM, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 1999 DECEMBER 31, 1998
-------------- -----------------
<S> <C> <C>
Net revenues................................................ $ 9,797 $ 9,086
Cost of revenues............................................ 3,901 3,945
-------- --------
Gross profit................................................ 5,896 5,141
-------- --------
Operating expenses:
Sales and marketing....................................... 14,771 11,999
Product development....................................... 2,384 2,536
General and administrative................................ 4,115 3,968
Amortization of goodwill/intangibles...................... 25,704 52,242
-------- --------
Total operating expenses.......................... 46,974 70,745
-------- --------
Loss from operations........................................ (41,078) (65,604)
Interest and other income (expense), net.................... 721 (197)
-------- --------
Loss before income tax benefit.............................. (40,357) (65,801)
Income tax benefit.......................................... 314 629
-------- --------
Net loss.................................................... $(40,043) $(65,172)
======== ========
Basic and diluted loss per share............................ $ (2.66) $ (6.16)
======== ========
Shares used to compute basic and diluted loss per share..... 15,080 10,589
======== ========
</TABLE>
19
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements and the related notes 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 our initial public offering, we were 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 content 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.
In June 1999, MarketWatch.com acquired BigCharts Inc., a provider of
licensed financial charting content to electronic brokers, financial publishers
and portals. The transaction was accounted for using the purchase method,
accordingly, the purchase price was allocated to the assets acquired and
liabilities assumed based on their fair market value at the date of acquisition.
In connection with the acquisition of BigCharts, we will issue up to an
aggregate of 2,174,962 shares of our common stock for all of the outstanding
capital stock, including stock options, of BigCharts, of which 158,914 shares
are subject to an escrow to secure the indemnification obligations of the
principal stockholders
20
<PAGE> 22
of BigCharts. We also made a cash payment of $6.0 million. The BigCharts web
site, www.BigCharts.com, provides objective, data-driven online financial
content to self-directed investors. BigCharts provides charting technology to
seven of the top 10 online brokers, and through those partnerships and others,
its charting is available to approximately 80% of all online investors. We
believe that the web site offers ease of use, depth of functionality, speed and
reliability.
BigCharts has two primary revenue sources: advertising and licensing.
Advertising revenue is derived from banner advertising and sponsorship on its
web site and is recognized in the same manner as we recognize our advertising
revenue. BigCharts also receives revenue by licensing its technology and service
to large electronic trading and financial sites and is generally priced on a fee
per user or per subscriber basis. Revenues from these agreements are recognized
ratably over the terms of the licensing agreements or recognized based on the
number of subscribers that use the service each month. Because BigCharts was
acquired on June 9, 1999, its results of operations were not reflected until
after that date.
Our ability to generate significant revenue in the future 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
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. For example, in
connection with the acquisition of BigCharts, we recorded $152.5 million of
goodwill and $3.8 million in intangible assets, $200,000 of which was expensed
immediately for in-process research and development and $3.6 million which will
be amortized over a period of 1.5 to 3.5 years. These changes will adversely
affect our operating results. These costs could have an adverse effect on our
future financial condition or operating results.
See Note 2 to the MarketWatch.com financial statements for a description of
our revenue recognition policy.
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. We refer to these payments as the Subscriber Payments. CBS
agreed to contribute $50.0 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 our initial public offering, the
agreements were amended so that:
- CBS will contribute $30.0 million in rate card advertising through
October 2002 instead of $50.0 million,
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<PAGE> 23
- the CBS license was extended for three years to October 29, 2005,
- the royalties were 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 was extended three years to October 29, 2005.
However, the Subscriber Payments obligation will expire in October 2002.
In addition, we will not receive any Subscriber Payments with respect to
certain commercial subscribers.
RESULTS OF OPERATIONS
We have compared the results of operations of MarketWatch.com for the six
months ended June 30, 1999 and June 30, 1998. Due to the creation of the
MarketWatch.com business on October 29, 1997, our December 31, 1997 statement of
operations data includes information reflecting the ten month period of the
predecessor business ending October 28, 1997, which we refer to as the Ten Month
Period, and the two month period of the MarketWatch.com business ended December
31, 1997, which we refer to as the Two Month Period. In order to provide a
meaningful basis for comparing the years ended December 31, 1998 and December
31, 1997, the Ten Month Period has been combined with the Two Month Period for
purposes of the following discussion and analysis. We have also compared the
results of operations for MarketWatch.com/DBC Online/News for the years ended
December 31, 1997 and 1996:
<TABLE>
<CAPTION>
MARKETWATCH.COM
MARKETWATCH.COM MARKETWATCH.COM MARKETWATCH.COM DBC ONLINE/NEWS DBC ONLINE/NEWS
SIX MONTHS SIX MONTHS YEAR ENDED YEAR ENDED YEAR ENDED
ENDED JUNE 30, ENDED JUNE 30, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1998 1997 1996
--------------- --------------- --------------- --------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net revenues:
Advertising.............. $ 5,998 $ 1,728 $ 5,115 $ 1,010 $ 303
License.................. 306 -- -- -- --
News..................... 1,347 627 1,285 210 --
Subscription............. 314 340 627 582 304
-------- ------- -------- ------- --------
Total net 7,965 2,695 7,027 1,802 607
revenues.........
Cost of revenues:
Advertising and news..... 3,086 763 2,398 483 280
License.................. 24 -- -- -- --
Subscription............. 290 189 439 325 171
-------- ------- -------- ------- --------
Total cost of 3,400 952 2,837 808 451
revenues.........
-------- ------- -------- ------- --------
Gross profit............... 4,565 1,743 4,190 994 156
-------- ------- -------- ------- --------
Operating expenses:
Product development...... 1,469 607 1,468 1,071 1,159
General and 3,774 1,256 3,429 1,191 732
administrative.........
Sales and marketing...... 14,448 4,437 11,547 196 132
Purchased in-process 200 -- -- -- --
research and
development............
Amortization of goodwill 4,284 -- -- -- --
and intangibles........
-------- ------- -------- ------- --------
Total operating 24,175 6,300 16,444 2,458 2,023
expenses.........
-------- ------- -------- ------- --------
Operating loss............. (19,610) (4,557) (12,254) (1,464) (1,867)
Interest income 728 (21) (159) (181) (90)
(expense)................
-------- ------- -------- ------- --------
Loss before income tax (18,882) (4,578) (12,413) (1,645) (1,957)
benefit..................
Income tax benefit......... -- -- -- 621 785
-------- ------- -------- ------- --------
Net loss................... $(18,882) $(4,578) $(12,413) $(1,024) $ (1,172)
======== ======= ======== ======= ========
</TABLE>
22
<PAGE> 24
<TABLE>
<CAPTION>
MARKETWATCH.COM
MARKETWATCH.COM MARKETWATCH.COM MARKETWATCH.COM DBC ONLINE/NEWS DBC ONLINE/NEWS
SIX MONTHS SIX MONTHS YEAR ENDED YEAR ENDED YEAR ENDED
ENDED JUNE 30, ENDED JUNE 30, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1998 1997 1996
--------------- --------------- --------------- --------------- ---------------
(AS A PERCENTAGE OF NET REVENUES)
<S> <C> <C> <C> <C> <C>
Net revenues:
Advertising............ 75% 64% 73% 56% 50%
License................ 4 -- -- -- --
News................... 17 23 18 12 --
Subscription........... 4 13 9 32 50
---- ---- ---- --- ----
Total net 100 100 100 100 100
revenues.......
Cost of revenues:
Advertising and news... 39 28 34 27 46
License................ -- -- -- -- --
Subscription........... 4 7 6 18 28
---- ---- ---- --- ----
Total cost of 43 35 40 45 74
revenues.......
---- ---- ---- --- ----
Gross profit............. 57 65 60 55 26
---- ---- ---- --- ----
Operating expenses:
Product development.... 18 23 21 59 191
General and 47 47 49 66 120
administrative.......
Sales and marketing.... 181 165 164 11 22
Purchased in-process 3 -- -- -- --
research and
development..........
Amortization of 54 -- -- -- --
goodwill and
intangibles..........
---- ---- ---- --- ----
Total operating 303 235 234 136 333
expenses.......
---- ---- ---- --- ----
Operating loss........... (246) (170) (174) (81) (307)
Interest income 9 (1) (2) (10) (15)
(expense)..............
---- ---- ---- --- ----
Loss before income tax (237) (171) (177) (91) (322)
benefit................
Income tax benefit....... -- -- -- 34 129
---- ---- ---- --- ----
Net loss................. (237)% (171)% (177)% (57)% (193)%
==== ==== ==== === ====
</TABLE>
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 are descriptions of the components of revenue and expenses:
- Advertising revenues consist primarily of sales of advertising banners
and sponsorships.
- News revenues are sales of news content to third parties and the
subscriber payments which represent fees from 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. We currently only receive
subscriber payments from DBC subscribers other than certain commercial
subscribers.
- License revenue consists of fixed monthly amounts related to the license
of charting technology that are recognized ratably over the terms of the
licensing agreement or amounts based on the number of subscribers that
use the service each month.
23
<PAGE> 25
- 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.com.
- Cost of revenues for advertising and news 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. All of
these costs incurred are necessary to support both news and advertising
revenue streams. Allocation of costs between each revenue stream has not
been made since all costs would continue to be incurred if we did not
have either DBC news or advertising revenue.
- Cost of revenues for license revenues consists of communication line
fees.
- Cost of revenues for subscriptions includes exchange fees, communication
lines and royalties paid to DBC.
- 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
our revenue recognition policy.
RESULTS OF OPERATIONS -- SIX MONTHS ENDED JUNE 30, 1999 AND 1998
Net Revenues
Net revenues are primarily derived from the sale of advertising on our web
site, license of BigCharts charting content, subscription sales from MarketWatch
RT and MarketWatch Live, and the sale of news to DBC and other clients. Net
revenues increased by 196% to $8.0 million for the six months ended June 30,
1999 from $2.7 million for the six months ended June 30, 1998. The increase is
due primarily to the increase in the number of banner and sponsorship ads placed
on our web sites and the license revenue associated with the purchase of
BigCharts. The increase in advertising revenues was caused by several
interrelated factors, including the following:
- increased number of advertisers;
- increased users on our Web site and resultant page views with
advertisements contained on those pages;
- increased size and productivity of our direct sales force; and
- increased flexibility and sophistication of advertising packages offered
to advertisers.
24
<PAGE> 26
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
renew advertising contracts with existing customers or obtain new customers. We
expect to continue to derive a majority of net revenues from selling
advertisements. The market for Web advertising is intensely competitive, and
advertising rates could be subject to pricing pressure in the future. If we 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 primarily consists of costs related to advertising and
news including compensation, royalties payable to CBS and content providers, web
site infrastructure costs allocated from DBC, exchange fees, costs of serving
ads by DoubleClick, costs related to license revenue including communication
lines, and costs related to subscriptions including exchange fees, communication
lines and royalties payable to DBC. Cost of revenues increased by 257% to $3.4
million for the six months ended June 30, 1999 from $952,000 for the six months
ended June 30, 1998. Cost of revenues increased due to the addition of news
reporters and editors, additional network communications lines to accommodate
increased traffic on our web sites, DoubleClick costs to serve advertisements on
the site, and royalties paid to CBS. Royalties to CBS were $440,000 and $0 for
the six months ended June 30, 1999 and 1998, respectively. As a percentage of
net revenues, cost of revenues were 43% and 35% for the six months ended June
30, 1999 and 1998, respectively. The increase as a percentage of net revenue is
due to the increase in compensation for additional editorial staff over the past
year. We expect cost of revenues to increase in the future as a result of
royalties payable to CBS as we have exceeded the royalty exempt revenue level of
$500,000 in our license agreement with CBS. In addition, we intend to increase
the number of editorial staff in the future, which will lead to an increase in
cost of revenues.
Product Development
Product development expenses primarily consist of license fees for content,
compensation for software developers and expenses for contract programmers and
developers. Product development expenses increased by 142% to $1.5 million for
the six months ended June 30, 1999 from $607,000 for the six months ended June
30, 1998. Product development expenses increased due to increased headcount from
the hiring of additional employees and the purchase of BigCharts and associated
expenses as well as costs associated with the amortization of deferred
compensation in the first six months of 1999. Product development expenses were
18% and 23% for the six months ended June 30, 1999 and 1998 respectively. The
decrease as a percentage of net revenue occurred as revenue grew more quickly
than personnel costs.
General and Administrative
General and administrative expenses primarily consist of compensation for
finance, business development and administrative personnel, allocations from DBC
for administrative services, occupancy costs, professional fees, depreciation
charges and charges for bad debt. General and administrative expenses increased
by 200% to $3.8 million for the six months ended June 30, 1999 from $1.3 million
for the six months ended June 30, 1998. As a percentage of net revenues, general
and administrative costs were 47% for the six months ended June 30, 1999 and
1998. General and administrative expenses increased due to increased headcount,
occupancy, legal and consulting expenses as well as costs associated with the
amortization of deferred compensation in the first six months of 1999. We also
hired additional personnel and incurred additional costs related to being a
25
<PAGE> 27
public company as well as the purchase of BigCharts, including, among others,
travel expenses, directors and officers liability insurance expense, and
professional service fees. We believe that the absolute dollar level of general
and administrative expense will increase in future periods as a result of an
increase in personnel to support the Company's higher level of anticipated
revenues and increased fees for professional services.
Sales and Marketing
Sales and marketing expenses primarily consist of promotion and advertising
provided by CBS, online and offline advertisements in print and radio,
advertising commissions, promotional materials, compensation and sales
commissions to our direct sales force. Sales and marketing expenses increased by
226% to $14.5 million for the six months ended June 30, 1999 from $4.4 million
for the six months ended June 30, 1998. As a percentage of net revenues, sales
and marketing expenses were 181% and 165% for the six months ended June 30, 1999
and 1998, respectively; an increase of 16%. Sales and marketing expenses
increased in absolute dollars and as a percentage of revenues due to a number of
factors including:
- an increase in amortization of promotions and advertising contributed by
CBS in the first six months of 1999;
- growth of our direct sales force in the first six months of 1999 and
increased sales commissions from higher advertising sales;
- increased purchases of Web banner ads to promote our products and
services;
- increased purchases of traditional print and broadcast advertising in
1999 to promote our products and services; and
- increased payments to distribution partners in 1999.
We record an expense at the time the advertising and promotion is provided
by CBS under the Amended and Restated License Agreement based on the rate card
value of the advertising. We recorded advertising expense of $6.9 million and
$3.4 million for the six months ended June 30, 1999 and 1998, related to
services provided by CBS. We have recorded aggregate non cash advertising
expense of $13.9 million of the $30.0 million CBS has agreed to provide.
We anticipate that sales and marketing expenses in absolute dollars will
increase in future periods as we continue to pursue an aggressive brand-building
strategy through advertising and distribution and continue to build our direct
sales organization.
Purchased In-process Research and Development
In connection with the purchase of BigCharts, MarketWatch paid $157.5
million. Of the purchase price, $200,000 was for in-process research and
development, which was expensed in full upon completion of the acquisition in
June 1999.
Amortization of Goodwill and Intangibles
In connection with the acquisition of BigCharts, MarketWatch paid $157.5
million. $152.5 million of the purchase price was allocated to goodwill which
will be amortized over 3 years, and $3.6 million was allocated to intangible
assets which will be amortized over periods ranging from 1.5 to 3.5 years.
Amortization of goodwill and intangibles for the six months ended June 30, 1999
was $4.3 million.
26
<PAGE> 28
Interest Income (Expense)
Interest income of $728,000 for the six months ended June 30, 1999 resulted
from interest income on the proceeds from our IPO. Interest expense of $21,000
for the six months ended June 30, 1998 resulted from borrowings from DBC.
RESULTS OF OPERATIONS -- YEARS ENDED DECEMBER 31, 1998 AND 1997
Net Revenues
Net revenues for the year ended December 31, 1998 increased compared to the
year ended December 31, 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.
Cost of Revenues
Cost of revenues for the year ended December 31, 1998 increased compared to
the year ended December 31, 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 $441,000 for the year ended December 31, 1998 and $221,000
for the year ended December 31, 1997. Royalties to CBS were $307,000 for the
year ended December 31, 1998 and $0 for the year ended December 31, 1997. As a
percentage of net revenues, cost of revenues decreased by 5% because certain
news content and web infrastructure expenses are relatively fixed.
Operating Expenses
Product Development. Product development expenses for the year ended
December 31, 1998 increased compared to the year ended December 31, 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 include in product development expenses the amortization of deferred
compensation related to options granted below fair market value. Amortization of
deferred compensation was $58,000 for the year ended December 31, 1998 and $0
for the year ended December 31, 1997.
General and Administrative. General and administrative expenses for the
year ended December 31, 1998 increased compared to the year ended December 31,
1997 due to increased headcount, occupancy and bad debts. Costs charged by DBC
were $261,000 for the year ended December 31, 1998 and $161,000 for the year
ended December 31, 1997.
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 $189,000 for the year ended December
31, 1998 and $0 for the year ended December 31, 1997.
27
<PAGE> 29
Sales and Marketing. Sales and marketing expenses for the year ended
December 31, 1998 increased compared to the year ended December 31, 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.
CBS has agreed to provide advertising and promotions over a five-year
period ending October 29, 2002. We will record an expense at the time the
advertising and promotion is provided based on the rate card value. We have
recorded advertising expense of $7.1 million at the rate card value for the year
ended December 31, 1998 related to services provided by CBS.
Interest Expense
Interest expense for the year ended December 31, 1998 compared to December
31, 1997 decreased to a comparatively lower advance balance due to DBC over the
year ended December 31, 1998.
RESULTS OF OPERATIONS -- YEARS ENDED DECEMBER 31, 1997 AND 1996
Net Revenues
Net revenues were $1.8 million for the year ended December 31, 1997 and
$607,000 for the year ended December 31, 1996. 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 for the year ended
December 31, 1997 is primarily attributable to an increase in the number of
customers advertising on the web site.
Cost of Revenues
Cost of revenues were $808,000 for the year ended December 31, 1997 and
$451,000 for the year ended December 31, 1996. Cost of revenues, as a percentage
of net revenues, were 45% for the year ended December 31, 1997 and 74% for the
year ended December 31, 1996. The decrease in cost of revenues, as a percentage
of net revenues for the year ended December 31, 1997 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 $221,000 for the
year ended December 31, 1997 and $160,000 for the year ended December 31, 1996.
Operating Expenses
Product Development. Product development expenses were $1.1 million for the
year ended December 31, 1997 and $1.2 million for the year ended December 31,
1996. Product development, as a percentage of net revenues, were 59% for the
year ended December 31, 1997 and 191% for the year ended December 31, 1996. The
decrease in product development expenses in absolute dollars in the year ended
December 31, 1997 is primarily due to high product development costs incurred
during the period from January 1996 through April 1996 in the development of the
web site and the MarketWatch RT online service.
General and Administrative. General and administrative expenses were $1.2
million for the year ended December 31, 1997 and $732,000 for the year ended
December 31, 1996. General and administrative expenses, as a percentage of net
revenues, were 66% for the year ended December 31,
28
<PAGE> 30
1997 and 120% for the year ended December 31, 1996. General and administrative
expenses, as a percentage of net revenues, decreased from the year ended
December 31, 1996 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
$161,000 for the year ended December 31, 1997 and $135,000 for the year ended
December 31, 1996.
Sales and Marketing. Sales and marketing expenses were $196,000 for the
year ended December 31, 1997 and $132,000 for the years ended December 31, 1996.
Sales and marketing, as a percentage of net revenues, were 11% for the year
ended December 31, 1997 and 22% for the year ended December 31, 1996. Sales and
marketing expenses, as a percentage of revenues, decreased due to an increase in
net revenue in 1997 and a reduction in advertising costs associated with the
initial promotion of the web site in 1996. 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 for the year ended December 31, 1997 and $90,000 for the year ended
December 31, 1996. Interest on amounts due to DBC is charged at The Chase
Manhattan National Bank's prime rate plus 2%, which was 10.50% at December 31,
1997.
INCOME TAX
For the six months ended June 30, 1999, we recorded a net operating loss
and therefore have not recorded a tax provision. Prior to our reorganization
into a corporation, no benefit for federal and state income taxes had been
reported in the financial statements as MarketWatch.com had elected to be taxed
as a partnership. Therefore, for the period from inception (October 29, 1997)
through January 15, 1999, the federal and state tax effects of 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, revenues from advertising
sales and the proceeds of our initial public offering. DBC contributed capital
of $218,000 to us during the period from inception (October 29, 1997) through
December 31, 1997 and $1.8 million during the year ended December 31, 1998. As
of June 30, 1999, we had working capital of $28.0 million. We have invested our
cash in excess of current operating requirements in investment grade securities.
The investments have variable and fixed interest rates and primarily short-term
maturities. In accordance with Statements of Financial Accounting Standards 115,
"Accounting for Certain Investments in Debt and
29
<PAGE> 31
Equity Securities" these investments are classified as "available for sale". At
June 30, 1999, we had cash, cash equivalents and short-term investments totaling
$28.8 million compared to $140,000 at December 31, 1998.
Cash used in operating activities was $6.6 million for the six months ended
June 30, 1999 compared to $1.0 million for the six months ended June 30, 1998.
The cash used in 1999 was primarily due to a net loss of $18.9 million, offset
by non-cash charges of $6.9 million for advertising provided by CBS, $4.4
million in amortization of goodwill and intangibles, and a write-off of in-
process research and development related to the acquisition of BigCharts of
$200,000. Significant uses of cash in operations for the six months ended June
30, 1999 include costs associated with increased sales and marketing activities
to establish and promote our products and services and costs of directors and
officers' insurance premiums incurred as a result of becoming a public company.
Cash used in operating activities was $4.5 million for the year ended December
31, 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 year
ended December 31, 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 $18.5 million for the six months
ended June 30, 1999 compared to $645,000 for the six months ended June 30, 1998
and consisted primarily of the purchase of short-term investments, the purchase
of Big Charts, and capital expenditures. The Big Charts purchase included a cash
payment of $6.0 million to stockholders and financial advisors of Big Charts,
and $1.5 million in acquisition costs. Cash used in investing activities was
$1.1 million for the year ended December 31, 1998 compared to $13,000 for the
period from inception (October 29, 1997) through December 31, 1997 and primarily
reflects capital expenditures. Cash used in investing activities consisted of
capital expenditures for computer hardware and leasehold improvements related to
leased facilities and are expected to increase in future periods. We have
experienced a substantial increase in capital expenditures and operating lease
arrangements since inception, which is consistent with increased staffing, and
we anticipate that this will continue in the future.
Cash provided by financing activities was $43.9 million for the six months
ended June 30, 1999 compared to $2.3 million for the six months ended June 30,
1998, and primarily reflects the proceeds from the initial public offering in
January 1999 of 3,162,500 shares of common stock at $17 per share with proceeds
of $43,886,000 net of underwriting and offering expenses and the repayment of
amounts owed to DBC. Cash provided by financing activities was $5.7 million for
the year ended December 31, 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.
We did not have any commitments for capital expenditures at June 30, 1999.
As of June 30, 1999, we had commitments under noncancellable operating leases of
$1.3 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 our initial public
offering, the minimum commitment increased from $870,000 over a twelve month
period to $1.6 million over a twelve month period. In addition, we are obligated
to pay Yahoo! a fee based on the amount of traffic directed to our web site. In
August 1999, the terms of the Yahoo! agreement were amended. Under the terms of
the amended agreement, we have extended the terms to include additional
advertising and slotting fees of $1.6 million over a twelve month period
beginning on January 1, 2000.
To date, we continue to be substantially dependent on DBC for almost all of
our financial, administrative and operational services and related support
functions. We believe the implementation of an independent accounting system,
financial, operational and management controls, and reporting
30
<PAGE> 32
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, 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 December 31, 1998, advances from DBC
under this credit agreement were $3.9 million. We used a portion of the net
proceeds from our initial public offering to repay all outstanding advances from
DBC. See Note 7 to our MarketWatch.com 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.
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 our current cash and cash equivalents will be
sufficient to meet our anticipated cash needs for working capital and capital
expenditures for at least the next 12 months. We may need to raise funds sooner
if we acquire any business, products or 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 its percentage interest by exercising 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. Further, these
equity securities might have rights, preferences, or privileges senior to those
of the common stock.
YEAR 2000 READINESS DISCLOSURE
DBC. We rely 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 as represented to us will be fully year 2000
compliant when fully operational.
Third-Party Suppliers. 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 completed and ongoing compliance
testing, DBC has advised us that its critical suppliers are or will be year 2000
compliant in all material respects before the year 2000. Based on
representations from our other software and equipment suppliers, we believe that
our software and other computer hardware is year 2000 compliant. We also rely on
solutions provided by DoubleClick for the delivery of our advertising and user
measurement. We have been informed by them that their solutions are, or will be,
year 2000 compliant in all material respects. 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.
Internal Systems. We have not initiated an assessment of our
non-information technology systems, including our electrical, heating and
telephone systems. We do not expect any year 2000
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issues to arise with respect to these systems, and if such issues arise, we do
not expect that they would have a material adverse effect on our business.
Costs. To date, our costs to address year 2000 compliance have not been
significant. Based on our preliminary evaluations, we believe that the total
cost of our year 2000 compliance efforts will not be material to our business.
However, significant uncertainty exists concerning the potential costs and
effects associated with year 2000 compliance. If we encounter unexpected
problems with respect to the year 2000 issue, we could incur additional costs,
including significant cash outlays, which could be material.
Year 2000 Risks. Despite our investigations of the year 2000 issue, we have
not received certifications from all of our third party suppliers and vendors
and it is possible that those certifications as well as the other
representations we have obtained could be erroneous.
The purchasing patterns of our 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 or operations and financial condition.
Failures of our or our customers' systems to operate properly with regard
to the year 2000 could result in our web site being unavailable and our products
and services not functioning properly. Unavailability of our web site due to a
lack of year 2000 compliance could have a material adverse impact on our
revenues and operating expenses.
In addition, the Internet is a network of computer systems which depends on
the functioning of a number of parts such as communications connections,
Internet service providers and power supplies, all of which are beyond our
control. The failure of these companies to be year 2000 compliant could result
in a variety of systems failures such as electrical outages, Internet outages or
slower response times or telecommunications failures. These events could prevent
users from accessing our products and services or prevent us from updating or
delivering our products and services for a period of time or from selling
advertising on our web site for a period of time.
Any of these events could have a material adverse effect on our business,
operating results and financial condition.
Contingency Plans. We have not yet developed a formal contingency plan for
handling year 2000 problems that are not detected and corrected prior to their
occurrence. Any failure to address any year 2000 issue could adversely affect
our business, financial condition and results of operations.
DBC has advised us that it has developed certain contingency options in the
event of a failure due to year 2000 issues. 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 did in
the past. However, we may not be able to replace DoubleClick with another vendor
on reasonable terms, or if we delivered advertising ourselves, we would not be
able to track or measure the advertising to the same extent as DoubleClick.
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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 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.
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 content. Our staff of approximately 75 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
regularly 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. In June 1999, we
acquired BigCharts Inc., a provider of licensed financial charting content to
electronic brokers, financial publishers and portals. Our goal is to create the
preeminent brand for real-time business news and financial information on the
web. We believe our consistent focus on original and authoritative content and
our access to a national media audience through our CBS relationship will help
us achieve this goal.
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 75 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, charting
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.
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
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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 UPDATED WEEKLY
EACH TRADING DAY UPDATED DAILY TIMES PER WEEK OR BI-WEEKLY
- ------------------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C>
ADR Report Conference Calls All Aboard Bazdarich on Bonds
Agriculture Report Daily Calendar Analyst's Corner Beyond Stocks
Analysts' Changes Analysts' Ratings The Big Cap Cappiello's Take
Bond Report Earnings Calendar Clueless Investor Cedd Moses
Earnings Headlines eGgads! Capitol Reports Consume This
Earnings Surprises IPO Daily Report Erdman's World CyberPitch
Futures Movers Mutual Fund Center Getting Personal Deep Pockets
Hardware Stocks Press Briefing I.P.Onder Economy Preview
Headlines Stock Buybacks Irwin Kellner Elaine Garzarelli
Indications Stock Splits London Calling Home Base
Internet Daily This is London Mortgages Kellner's Forecast
IPO Report Thom Calandra's Moscow Report Legal Options
Market Snapshot Stock Watch Options Watch Marder on Markets
Media Report Short Takes Screamers NouveauGeek
Movers & Shakers Video and Audio SoapBox Roy Blumberg
Mutual Understanding Clips Telecom Report SportsBiz
Net Stocks Weekly Calendar Taxing Times
NewsWatch Wall Street
Pulse Report Eavesdropper
Sector Screamers Wise Women
Silicon Stocks Zapman
Software Report
Stocks to Watch
Tech Report
The Net Economy
Washington Schedule
World Markets
</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 Personal Finance
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.
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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.
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>
<CAPTION>
DATA TOOLS
---- -----
<S> <C>
US Equities Historical Charts
International Equity Indices Technical Charts
US Options Portfolio Management
Mutual Funds Volume Alerts
Futures/Commodities Price Alerts
Foreign Exchange Stock Screener
Fixed Income Intraday Charts
</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. 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 one of the most complete and functional
portfolio tracking systems 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.
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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.
Charting. The www.BigCharts.com web site offers online financial
information and online financial charting. Users can access financial
information that is current and accurate, create a chart of the data and quickly
view the results. BigCharts' financial charting features include access to over
50,000 U.S. and international stocks, indexes and mutual funds. Users can
customize the charts to show time periods ranging from one day to fifteen years,
at data intervals ranging from one minute to yearly. Users can also compare
multiple securities to each other and add various technical indicators to the
charts such as moving averages, financial ratios, stock splits and earnings.
Most BigCharts charting applications are available on the CBS.MarketWatch.com
web site.
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.
In the first quarter of 1999, we launched an array of communication tools
designed to facilitate the creation of a larger, dynamic community. This suite
of tools provides 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 advertising, users must complete a registration form 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. To date, community activities on our site have been limited. Longer
term, as we gather more information about the interests of the community
members, we intend 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, London, England and Tokyo, Japan. Our journalists generate between
600 and 800 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, investment conferences, the fixed
income markets, mutual funds, mortgages, microcap stocks, 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
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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 approximately 75 professional journalists, including freelance
journalists who write for us, are experienced editors, bureau chiefs and
reporters with high standards for reporting and editing. We 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, our 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. Veteran journalist
Marshall Loeb, former editor of the Columbia Journalism Review, Money and
Fortune Magazines, will be a regular contributor as of September 1999.
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% of our net revenues for
the year ended December 31, 1997, 73% of our net revenues for the year ended
December 31, 1998 and 75% of our net revenues for the six months ended June 30,
1999.
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:
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 $15 to $25 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 than on
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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 $60. 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, eleven online brokerage services, including Ameritrade, Datek, DLJ
Direct, Fidelity Investments, First Trade, Mr. Stock, MyTrack, Multex,
ScoTTrade, Trading Direct and Web Street Securities, have purchased premium
sponsorship placements to gain fixed positions within our web sites and
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. From our
inception (October 29, 1997) through June 30, 1999, more than 150 organizations
have advertised on our web site.
As of December 31, 1997, four customers comprised 53% of our gross accounts
receivable. As of December 31, 1998, four customers comprised 21% of our gross
accounts receivable balance. Sales of news to DBC accounted for 33% of revenue
for the period from inception (October 29, 1997) through December 31, 1997, 18%
of revenue for the year ended December 31, 1998 and 10% of revenue for the six
months ended June 30, 1999.
Prior to January 1998, we used a third-party service to sell advertising on
our web site. Our direct sales force consisted of 17 members, as of June 30,
1999. We depend on our sales force to sell advertising on our web site. Our
direct sales force also sells BigCharts' services. This involves a number of
risks:
- our sales personnel have, in many cases, only worked for us for a short
period of time, particularly those members who had been employed by
BigCharts;
- 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 will be adversely affected if we do not develop and maintain
an effective sales force.
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
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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 our web sites, including identifying
strategic accounts and developing presentations and promotional materials and
building relationships with advertising buyers. DoubleClick provides advertising
management and delivery services for our web sites and provides advertisers with
reports describing the delivery of their advertisements.
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.
STRATEGIC RELATIONSHIPS
We believe that our strategic relationships with our principal investors,
CBS and DBC, allow us to differentiate our web sites as the preeminent brand for
real-time business news and financial programming on the web.
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 was
amended and restated in January 1999, 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 limitations, CBS will provide us with an aggregate rate card amount
of $30.0 million of network television, radio and Internet advertising and
promotion commencing from October 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.
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.
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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,
we cannot assure you that these services will continue in the future.
Non-Competition Provisions. The amended and restated license agreement
contains limited non-competition provisions. However, these provisions have
exceptions and do 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.
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;
- 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.com 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 limitations, to provide us an aggregate rate
card amount of $30.0 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.
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DBC
Initial Contribution. At our formation, DBC contributed assets related to
its DBC Online/News Business which had been operating as departments within DBC
since October 1995. In addition, DBC assigned agreements for advertising and
content, portions of its award-winning web site, dbc.com, and its related
trademarks, including "MarketWatch.com" 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 also provides MarketWatch.com with 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 pay us through October 2002 a monthly per-subscriber fee for delivery of
our news to all DBC subscribers, other than certain commercial ones, 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 with CBS and DBC contains
non-competition provisions, these provisions have exceptions and do not provide
for an exclusive relationship.
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 ourselves, we may not be able to perform
them adequately. During any 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.
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 $30.0 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 commercial 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 June 30, 1999, CBS had delivered $13.9 million rate card amount
of promotion and advertising under this commitment.
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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 CBS Evening News and
other CBS News broadcast viewers. 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 CBS.MarketWatch.com 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. We also have an agreement with the Westwood
One radio network under which we will provide financial market updates to
Westwood One's radio stations across the country.
In addition to our CBS-related promotional activities, we advertise on a
number of heavily trafficked web sites, such as Yahoo!, Lycos, Excite and
AltaVista, 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 MarketWatch.com
news headlines in the Finance section of Yahoo! with links to
MarketWatch.com for the full story. In addition, we will advertise on
Yahoo! through December 2000. We also have a content distribution
relationship with Yahoo! under which we will provide at no charge a version
of our 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.
CompuServe. CompuServe selected MarketWatch.com to serve as the
financial news center for its newly-launched service, CompuServe 4.0.
MarketWatch.com created a comprehensive, customized, cobranded version of
the MarketWatch.com site for the service.
Universal Feature Syndicate. Universal Feature Syndicate markets
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. News Alert provides third-party news feed collection,
databasing and display services for the CBS.MarketWatch.com web site. In
addition, News Alert may also make certain
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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, iSleuth.com, Jack Carl Futures, National Discount Broker, Proctor
& Gamble, Rocky Mountain News, Muriel Siebert & Co., SportsLine USA, Wall
Street Access, Wine Spectator, and United Media, among others. Generally,
we sell advertising on portions of, and receive hosting fees for these
pages. For the year ended December 31, 1998 and the quarter ended June 30,
1999, 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,
however, we may not succeed in doing so.
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
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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 DBC's facilities in Hayward,
California. We operate 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. The www.BigCharts.com web site and all
licensed BigCharts content is served out of three redundant datacenters located
in Minneapolis, MN, Herndon, VA, and Santa Clara, CA. The Herndon and Santa
Clara datacenters are operated in Exodus datacenters. The network operations
center is located in Minneapolis and monitors all datacenters and sites. 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. However, we do not presently have a formal disaster recovery
plan. We will be moving the CBS.MarketWatch.com site to the central server
platform used to operate www.BigCharts.com and sharing the data centers
established for the www.BigCharts.com site.
We are expanding our internal development group to create new, and enhance
existing, services, tools and features. For example, this group recently
developed a database portfolio application that, among other features, allows
users to track up to 200 ticker symbols each in multiple portfolios and view the
portfolio information through a secure connection. We are also developing an
advanced charting application which is designed to provide intraday ticker and
interval charts. We also utilize third-party technology for certain of its
services and tools. For example, we licensed news database technology to allow
users to search for news stories from multiple third-party sources by ticker
symbol, keyword and news source. We have also entered into an agreement with a
software development firm that will provide a new community application system,
with functionality such as message boards, chat and instant messaging. As of
June 30, 1999, we had 41 personnel dedicated to product and content development.
For the year ended December 31, 1998, our product development expenditures were
$1.5 million and for the six months ended June 30, 1999 our product development
expenditures were $1.5 million.
In the past, our web site has experienced significant increases in traffic
when there are significant business or financial news stories. In addition, the
number of our users has continued to increase over time and we are seeking to
further increase our user base. Therefore, our web site must accommodate a high
volume of traffic and deliver frequently updated information. Our web site has
in the past and may in the future experience slower response times or other
problems for a variety of reasons.
We also depend on information providers, including DBC, S&P Comstock and
Interactive Data Corporation, 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
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functioning properly and therefore cause them to use other methods to obtain
their business and financial news and other information.
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,
Infoseek, Lycos, Yahoo! America Online, and other high-traffic web sites,
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.
Although the amended and restated license agreement and stockholders'
agreement will contain non-competition provisions, these provisions will have
certain exceptions. As a result, we cannot assure you that CBS or DBC will not
promote, establish or otherwise provide content for a competitive web site or
Internet service.
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. These competitors may be able to undertake more extensive marketing
campaigns, adopt more aggressive pricing policies, make more attractive offers
to potential employees, distribution partners, advertisers and content providers
and may be able to respond more quickly to new or emerging technologies and
changes in web user requirements. Further, they could 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
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reductions, reduced margins or loss of market share, any of which could
materially adversely affect our business.
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, we may not be able to compete successfully against our
current or future competitors. In addition, we could face competition from CBS
or DBC as described more fully under "Risk Factors -- Our agreements with CBS
and DBC do not completely prevent them from engaging in business activities that
are competitive with ours."
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. These precautions may not prevent
misappropriation or infringement of our intellectual property. Our business
could be harmed if we fail to protect our intellectual property in a meaningful
manner. 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. Litigation could result in
substantial costs and diversion of management and other resources, either of
which could harm our business.
We license the CBS logo, name and certain news content from CBS under the
amended and restated license agreement. This agreement could terminate in
certain circumstances and also involves a number of other risks as described in
"Risk Factors -- We depend on our relationship with CBS and this relationship
could terminate prematurely, which could adversely affect our business."
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. Litigation between
licensors and a third party or between us and a third party could lead to
royalty obligations for which we are not indemnified or for which we are not
sufficiently covered. 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. These
licenses may not 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.
Because we license some data and content from third parties, our exposure
to copyright infringement actions may increase because we must rely upon such
third parties for information as to the origin and ownership of such licensed
content. We generally obtain representations as to the origins and ownership of
such licensed content and generally obtain indemnification to cover any breach
of any such representations. However, it is possible that these representations
may not be accurate. It is possible that any indemnification we receive may not
be sufficient to provide adequate compensation for any breach of these
representations.
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We cannot assure you 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. Any 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. These 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
could be materially adversely affected.
EMPLOYEES
As of June 30, 1999, there were 138 personnel dedicated full time to our
business, 41 of these personnel worked in product and content development, 31 in
sales and marketing, 44 in editorial and 22 in administration. 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 our 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. We cannot assure you that we will successfully attract,
integrate, retain and motivate a sufficient number of qualified personnel to
conduct our business in the future.
GOVERNMENT REGULATION
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.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth information regarding our executive officers
and directors as of July 31, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Larry S. Kramer............ 49 President, Chief Executive Officer and Director
Philip D. Hotchkiss........ 30 President and Chief Executive Officer of BigCharts
Inc. and Director
J. Peter Bardwick.......... 40 Chief Financial Officer and Secretary
Thom Calandra.............. 43 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
Jamie J. Thingelstad....... 27 Chief Technology Officer
James A. DePalma........... 48 Director
Alan J. Hirschfield........ 63 Director
Allan R. Tessler........... 62 Director
Mark F. Imperiale.......... 48 Director
Andrew Heyward............. 48 Director
Michael H. Jordan.......... 63 Director
Robert H. Lessin........... 44 Director
Daniel R. Mason............ 48 Director
</TABLE>
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., 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. Hotchkiss has served as a member of the board of directors of
MarketWatch.com since June 1999, when BigCharts was acquired by MarketWatch.com.
He has served as President and Chief Executive Officer of BigCharts since he
founded it in 1994, and prior to the acquisition, he served as Chairman of the
Board of Directors of BigCharts. Before founding BigCharts, Mr. Hotchkiss served
as a registered representative with Dain Bosworth, Inc. Mr. Hotchkiss holds a
B.A. degree in English with honors from Gustavus Adolphus College, St. Peter,
Minnesota, and a certificate in Legal Studies from the University of Durham,
Durham, England.
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
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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 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 our 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. Thingelstad has served as Chief Technology Officer of MarketWatch.com
since June 1999, when BigCharts was acquired by MarketWatch.com. From June 1996
to June 1999, he served as Chief Technology Officer and a Director of BigCharts.
From February 1995 to March 1996,
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Mr. Thingelstad served as a Director of Technology at WebSpan, Inc., an Internet
service provider. From early 1993 to January 1996, he served as the Technical
Coordinator for the Disability Services Department at the University of
Minnesota. Mr. Thingelstad attended the University of Minnesota's Institute of
Technology.
Mr. DePalma has served as a member of the board of directors of
MarketWatch.com since December 1998. Mr. DePalma has served as Vice President
and General Manager of CBS New Media since March 1999 and Vice President,
Finance, of 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.
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, 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.
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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 from June 1993 to December 1998. Mr. Jordan
is chairman of eOriginal Inc. and is to become Chairman of Luminant Worldwide
Corporation upon the closing of the initial public offering recently filed with
the Securities and Exchange Commission. Mr. Jordan currently serves on the
boards of directors of Aetna Inc., Dell Computer Corporation and WireBreak
Networks, Inc. Mr. Jordan holds a B.S. degree from Yale University and an M.S.
degree from Princeton University.
Mr. Lessin has served as a member of the board of directors of
MarketWatch.com since February 1999. Mr. Lessin has served as Chairman and
Co-CEO of Wit Capital Corporation since April 1998. Mr. Lessin served as Vice
Chairman of Salomon Smith Barney from June 1993 to March 1998, where he was head
of its Investment Banking Division from June 1993 to January 1997. Prior to
joining Smith Barney, Mr. Lessin spent 16 years with Morgan Stanley in a number
of positions, including Managing Director, Vice Chairman of Morgan Stanley's
Investment Banking Operating Committee, and Chairman of their Strategic Planning
Committee. Mr. Lessin holds a B.A. degree in Applied Physics and Economics from
Harvard College and an M.B.A. degree from Harvard University.
Mr. Mason has served as a member of the board of directors of
MarketWatch.com since February 1999. Mr. Mason has served as President of CBS
Radio, which has been renamed Infinity Radio Group, since November 1995 and is
responsible for the operation of the group's approximately 160 stations. Before
this, Mr. Mason served as President of Group W Radio, a division of Westinghouse
Broadcasting Company, for three years. In 1985, Mr. Mason became Executive Vice
President of First Media and in 1988, became President of Cook Inlet Radio
Partners, formerly First Media. Mr. Mason holds a B.S. degree in Broadcasting
from Eastern Kentucky University and was named outstanding alumnus in 1995.
BOARD COMPOSITION
The board of directors of MarketWatch.com is comprised of ten directors.
Directors are elected by the stockholders of each annual meeting of stockholders
or until their successors are duly elected and qualified. Our board was
initially comprised of seven directors. CBS and DBC each appointed three of the
initial directors under the terms of the stockholders' agreement described in
"Certain Transactions." Under that agreement, because our board was comprised of
seven directors, each of CBS and DBC had the right to designate for election to
the board:
- three candidates, so long as it held at least 30% of our outstanding
voting securities;
- two candidates, so long as it held at least 20% but less than 30% of our
outstanding voting securities; or
- one candidate, so long as it held at least 1% of our outstanding voting
securities.
Because the size of our board increased, CBS and DBC each have the right to
nominate four candidates to the board, based on the percentage of our
outstanding voting securities held by them. In addition, each of CBS and DBC are
obligated to vote the voting securities held by it for the other party's
designated candidates. Further, 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. See "Risk Factors -- Risks Related to Our Relationship
with CBS and DBC -- CBS and DBC have significant control over our business." All
executive officers are elected by, and serve at the discretion of, the board.
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BOARD COMMITTEES
The audit committee has the responsibility to review our audited financial
statements and accounting practices, 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 now
represents an option to purchase 200,000 shares of common stock, with an
exercise price per share of $4.00, after the conversion of the LLC into a
corporation, which occurred in January 1999.
In September 1998, the board adopted, and in January 1999, our stockholders
approved, the 1998 Directors Stock Option Plan and reserved a total of 50,000
shares of common stock for issuance. 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 becomes a member of the board 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 the 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, or 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
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 interlocking relationship existed in the past.
EMPLOYMENT CONTRACTS AND CHANGE OF CONTROL ARRANGEMENTS
Messrs. Kramer and Bardwick's employment agreements provide that the
vesting of their stock options will be accelerated upon changes of control of
MarketWatch.com.
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Messrs. Hotchkiss and Thingelstad's employment agreements provide that in
the event of changes in control of MarketWatch.com, each shall be entitled to
specified termination benefits.
For a description of these employment agreements, please 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 our
predecessor business and MarketWatch.com in all capacities during 1997 and 1998,
by our Chief Executive Officer and our three most highly compensated executive
officers, other than our Chief Executive Officer, who were serving as executive
officers at the end of 1998. No other executive officer of MarketWatch.com met
the definition of "most highly compensated officer" for 1998. All option grants
were initially grants of options to purchase membership interests in the LLC.
The number in "Securities Underlying Options" column gives effect to the
conversion of the LLC into a corporation, which occurred in January 1999, as if
the transaction had occurred prior to January 1, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
--------------------------------- ------------
OTHER SECURITIES
FISCAL ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS(#)
--------------------------- ------ -------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Larry S. Kramer....................... 1998 $192,500 $25,000 $7,814 --
President and Chief Executive
Officer 1997 167,000 50,000 7,879 200,000
J. Peter Bardwick..................... 1998 100,000 -- 1,042 100,000
Chief Financial Officer 1997 -- -- -- --
Thom Calandra......................... 1998 94,587 7,500 7,295 --
Editor-in-Chief and 1997 82,503 5,000 7,346 75,000
Vice President of News
Scot McLernon......................... 1998 200,806 -- 5,967 75,000
Vice President of Advertising Sales 1997 -- -- -- --
</TABLE>
The items list under "Other Annual Compensation" represent health insurance
premiums and contributions to the Data Broadcasting Corporation 401(k) Profit
Sharing Plan.
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OPTION GRANTS IN FISCAL YEAR
The following table sets forth certain information regarding stock options
granted during 1997 and 1998 to our Chief Executive Officer and our three most
highly compensated executive officers, other than our Chief Executive Officer,
who were serving as executive officers at the end of 1998. All option grants
were initially grants of options to purchase membership interests in the LLC.
The numbers in this table give effect to the conversion of the LLC into a
corporation, which occurred in January 1999, as if the transaction had occurred
prior to January 1, 1997.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1)
------------------------------------------------
PERCENT
OF TOTAL
OPTIONS POTENTIAL REALIZABLE VALUE AT
NUMBER OF GRANTED TO ASSUMED ANNUAL RATES OF STOCK
SECURITIES EMPLOYEES PRICE APPRECIATION FOR
UNDERLYING IN FISCAL EXERCISE OPTION TERMS(2)
FISCAL OPTIONS YEAR PRICE PER EXPIRATION ------------------------------------
NAME YEAR GRANTED(#) (%)(3) SHARE(4) DATE 0% 5% 10%
---- ------ ---------- ---------- --------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Larry S. Kramer...... 1998 -- -- -- -- -- -- --
1997 200,000 44.8% $4.00 10/28/2007 -- $ 503,116 $1,274,994
J. Peter Bardwick.... 1998 100,000 23.3 4.00 7/8/2008 $1,000,000 1,880,452 3,231,239
1997 -- -- -- -- -- -- --
Thom Calandra........ 1998 -- -- -- -- -- -- --
1997 75,000 16.8 4.00 10/28/2007 -- 188,668 478,123
Scot McLernon........ 1998 75,000 17.5 8.00 1/7/2008 -- 377,336 956,245
1997 -- -- -- -- -- -- --
</TABLE>
Options granted in 1997 and 1998 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.
Potential realizable value is based on the assumption that our common stock
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, or in the case of the 0% column for Mr.
Bardwick, by $14.00, the fair market value on the date of his grant, as
determined by the board of directors;
- assuming that the aggregate stock value derived from that calculation
compounds at the annual 0%, 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.
We granted options to purchase aggregates of 446,250 shares in 1997 and
429,500 shares in 1998 to all employees.
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 us from DBC, our absolute and relative levels of revenues
and other operating results, the state of our web site development, increases in
operating expenses, the absence of a public trading market for our securities,
the intensely competitive nature of our market and the
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appreciation of stock values of a number of generally comparable Internet
companies. See "-- Director Compensation," "-- Employment Contracts and Change
of Control Arrangements" and "-- Employee Benefit Plans" for a description of
the material terms of these options.
FISCAL YEAR-END OPTION VALUES
The following table sets forth for our Chief Executive Officer and our
three most highly compensated executive officers, other than our Chief Executive
Officer, who were serving as executive officers at the end of 1998, the number
and year-end value of exercisable and unexercisable options for the year ended
December 31, 1998. All option grants were initially grants of options to
purchase membership interests in the LLC. The numbers in this table give effect
to the conversion of the LLC into a corporation, which occurred in January 1999,
as if the transaction had occurred before January 1, 1997. The value of
unexercised in-the-money options at December 31, 1998 was based on an assumed
fair market value of our common stock as of December 31, 1998 of $17.00 per
share less the exercise price.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT DECEMBER 31, 1998 AT DECEMBER 31, 1998
------------------------------ ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ -------------- ----------- -------------
<S> <C> <C> <C> <C>
Larry S. Kramer............... 66,666 133,334 $866,658 $1,733,342
J. Peter Bardwick............. -- 100,000 -- 1,300,000
Thom Calandra................. 25,000 50,000 325,000 650,000
Scot McLernon................. -- 75,000 -- 675,000
</TABLE>
No options were exercised during 1998 by our Chief Executive Officer or any
of our other executive officers. 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 1998 to our Chief Executive Officer or any of
our other executive officers. We do not have any defined benefit or actuarial
plan under which benefits are determined primarily by final compensation and
years of service with our Chief Executive Officer or any of our other executive
officers.
EMPLOYEE BENEFIT PLANS
From October 1997 to January 1999, we issued options to purchase membership
interests in the LLC. In connection with the conversion of the LLC into a
corporation in January 1999, outstanding options were assumed by MarketWatch.com
and represent the right to purchase shares of common stock rather than
membership interests of the LLC. Each option was 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. As of June 30, 1999, there were outstanding
options to purchase 1,787,524 shares of common stock with a weighted average
exercise price of $14.76 per share, including the options that were converted
from options to purchase membership interests in the LLC. These options are
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, and in
January 1999, our stockholders approved, the 1998 Equity Incentive Plan. The
total number of shares of common stock reserved for issuance is 1,450,000 less
the number of shares of common stock subject to non-plan options outstanding on
the date of the reorganization. Therefore, as of June 30, 1999, 298,300 shares
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<PAGE> 57
of common stock are reserved for future issuance under the plan. 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 the reorganization, or under the plan that
cease to be subject to such option for any reason other than exercise of
the option;
- have been issued upon 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 under
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 that
qualify under Section 422 of the Internal Revenue Code, and nonqualified stock
options. Incentive stock options may be granted only to our employees or
employees of a parent or subsidiary. Nonqualified stock options and all other
awards other than incentive stock options 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 incentive stock options must
be at least equal to the fair market value of the common stock on the date of
grant. The exercise price of nonqualified stock options 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. T hey 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 we are dissolved or
liquidated or have 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. We sponsor a defined contribution plan intended to qualify
under Section 401 of the Internal Revenue Code, or a 401(k) plan. All personnel
who have completed six consecutive months of service with us 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. We
may make matching contributions on a discretionary basis to the plan, but we
have not previously done so. Each participant is fully vested in
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his or her contributions, any matching contributions, and the investment
earnings thereon. Contributions by the participants or us to the plan, and the
income earned on these contributions, are generally not taxable to the
participants until withdrawn. Contributions by us, if any, are generally
deductible by us 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.
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 our 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 us or our
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.
We have entered into indemnity 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 have obtained directors' and officers'
insurance providing indemnification for our directors, officers and certain
employees for specific 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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CERTAIN TRANSACTIONS
Since the inception of our 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 these
persons had or will have a direct or indirect material interest, other than the
compensation agreements and other arrangements, which are described where
required in "Management," and the transactions described below. The agreements
described below are incorporated by reference as exhibits to the registration
statement of which this prospectus forms a part.
TRANSACTIONS RELATING TO THE FORMATION OF THE LLC
On October 29, 1997, CBS and DBC entered into a limited liability company
agreement and certain related agreements relating to the formation of the
MarketWatch.com as a limited liability company.
LIMITED LIABILITY COMPANY AGREEMENT
CBS and DBC entered into 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 December 31, 1998, we borrowed approximately $3.9 million from DBC.
Interest payments to DBC during 1998 were $164,000. 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. Under the contribution
agreement, CBS agreed to provide the LLC with $50.0 million aggregate rate card
amount advertising and promotion 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 advertising commitment was reduced to $30.0
million under the stockholders' agreement. CBS exercised, and still holds,
substantial control over the allocation of this advertising commitment. DBC
contributed to the LLC all of its right, title and interest in 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 us to DBC for these services were $70,000 for the
period from inception, October 29, 1997, through December 31, 1998 and $755,000
for the year ended 1998. 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.
These per subscriber payments to us by DBC under the original services agreement
were $210,000 in 1997 and
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$1.3 million in 1998. 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. DBC paid us $359,000 in 1997 and $427,000 in 1998, as these fees. This
agreement was superseded and replaced by the amended and restated services
agreement described below.
ORIGINAL LICENSE AGREEMENT
CBS and the LLC also entered into a license agreement at the same time as
the limited liability agreement, which we refer to as 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 1998. This agreement was superseded and replaced by the amended
and restated license agreement described below.
TRANSACTIONS RELATING TO THE CONVERSION OF THE LLC
In January 1999, MarketWatch.com converted 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 was effected
by merging the LLC into MarketWatch.com. In connection with this reorganization,
the limited liability company agreement terminated, except for limited covenants
that, by their terms, require performance after the termination of this
agreement, and each of DBC and CBS received 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 were converted
into options to purchase common stock. In connection with this conversion, we
entered into the following agreements:
AMENDED AND RESTATED LICENSE AGREEMENT
We entered into an amended and restated license agreement with CBS that
supersedes and replaces 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 were 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.
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Term. The term of the amended restated license agreement will expire on
October 29, 2005.
Royalties. Under the amended and restated license agreement, we paid or
will pay CBS:
During 1998:
- 8% of gross revenues in excess of $1.0 million and up to and including
$51.0 million; and
- 6% of gross revenues in excess of $51.0 million.
During 1999:
- 8% of gross revenues in excess of $500,000 and up to and including $50.5
million; and
- 6% of gross revenues in excess of $50.5 million.
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.
Under this agreement, gross revenues is defined as 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 specific
commissions paid to sales representatives and an amount equal to specific
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 some 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
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- if we issue to a CBS competitor or actively participate in the
acquisition by a CBS competitor a number of voting securities, so that
after the issuance or acquisition, this CBS competitor beneficially owns
9% or more of our voting securities.
The mere acquisition by a CBS competitor of an interest in DBC that causes
a change of control of DBC, as defined in the stockholders' agreement, described
below, 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
is also 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.com mark and do 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 United States 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, 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 this 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, that other web site or service could be
competitive with our web site.
Also, CBS is not 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 -- Our agreements with CBS and DBC do not
completely prevent them from engaging in business activities that are
competitive with ours."
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<PAGE> 63
AMENDED AND RESTATED SERVICES AGREEMENT
DBC and MarketWatch.com entered into an amended and restated services
agreement that supersedes and replaces 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 described above, except
with respect to some of DBC's commercial subscribers. The term of the amended
and restated services agreement will expire on October 29, 2005. However, DBC's
obligation to pay the subscriber payments will expire in October 2002.
Currently, DBC does not provide similar services to any other third party.
Non-Competition Provisions. The amended and restated services agreement
does not contain any exclusivity provisions or non-competition provisions. For
example, DBC could:
- provide web sites hosting services to other web sites;
- provide content or data to other web sites including MarketWatch RT and
MarketWatch Live; or
- sell its services through other web sites.
CREDIT AGREEMENT
MarketWatch.com and DBC entered into a revolving credit agreement in order
to evidence DBC's loan obligation under the limited liability company agreement.
Under the revolving credit agreement, DBC is obligated to loan MarketWatch.com
up to $5.0 million through October 2000. Borrowings under the revolving 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 were included
as indebtedness outstanding under the revolving credit agreement.
MarketWatch.com repaid all of the outstanding $3.9 million indebtedness to DBC
under this agreement with proceeds from its initial public offering. As of June
30, 1999, MarketWatch.com had no outstanding indebtedness to DBC.
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<PAGE> 64
STOCKHOLDERS' AGREEMENT
DBC, CBS and MarketWatch.com entered into a stockholders' agreement.
CBS Advertising Commitment. The parties agreed to reduce the advertising
commitment of CBS provided for in the Contribution Agreement to an aggregate
rate card amount of $30.0 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 June 30, 1999, CBS had
delivered $13.9 million rate card amount of advertising and promotion to us.
This Advertising Commitment is subject to termination upon termination of the
amended and restated license agreement, in which event, CBS shall make a
termination payment in the amount of $500,000 per month for each full calendar
month remaining from the termination through October 2002.
Board Members. The stockholders' agreement provided that each of CBS and
DBC were entitled to nominate up to three members to our board of directors, so
long as it held at 30%, two, so long as it held at least 20% but less than 30%,
or one, so long as it held at least 1%, of our outstanding voting securities.
Because the size of the board of directors has increased, CBS and DBC 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. 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.
Right of First Refusal. Under the stockholders' agreement, each of CBS and
DBC has a right of first refusal in the event that either party desires to sell
any securities of MarketWatch.com 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 these securities, if we propose to issue additional securities.
In this case, they would be able to purchase an amount, subject to limitations,
necessary to maintain its then current percentage ownership, not to exceed its
percentage ownership interest immediately after the closing of our initial
public offering, which was 38.3%. See "Description of Capital Stock -- Rights of
First Refusal."
Non Competition Provisions for DBC. DBC has agreed 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
- 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.
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<PAGE> 65
If DBC did any of these, our business could be adversely affected. See
"Risk Factors -- Risks Related to Our Relationship with CBS and DBC -- Our
agreements with CBS and DBC do not completely prevent them from engaging in
business activities that are competitive with ours."
Our Non Competition Obligations. In addition, we have agreed 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 change of control of DBC, as defined in the
Stockholders' Agreement; or
- when DBC shall hold less than 10% of our then-outstanding voting
securities.
REGISTRATION RIGHTS AGREEMENT
CBS and DBC have registration rights with respect to their shares of common
stock as described below under "Description of Capital Stock -- Registration
Rights."
OTHER RELATIONSHIPS WITH DBC
Under an August 1998 Insertion Order Form, DBC agreed to purchase
approximately $225,000 of advertising from us in 1998 and approximately $500,000
of advertising from us in each of 1999 and 2000. DBC purchased $233,000 of
advertising in 1998 and $250,000 of advertising for the six months ended June
30, 1999. This commitment may be terminated by DBC on 30 days' notice.
EMPLOYMENT RELATED AGREEMENTS
In October 1997, we granted Larry Kramer, our President and Chief Executive
Officer, 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
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 $225,000 from July
1, 1999 to June 30, 2000 and $240,000 from July 1, 2000 to 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, we granted Peter Bardwick, our Chief Financial Officer, 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 $210,000 from July
1, 1999 to June 30, 2000 and $225,000 from July 1, 2000 to 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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<PAGE> 66
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 $337,500 based on Mr. Kramer's current base
salary and $315,000 based on Mr. Bardwick's current base salary.
Ms. Chaboudy's employment offer letter of April 23, 1998 provided for an
initial annual base salary of $100,000. She currently receives an annual base
salary of $120,000. 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 1999 in the amount of 3% of our advertising and
sponsorship sales and we have agreed to reimburse Mr. McLernon's expenses, up to
$15,000 per year, for working in San Francisco, California. He currently
receives an annual base salary of $95,000. 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
$135,000 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.
Mr. Bishop, our Vice President of Business Development, receives an annual
base salary of $135,000, 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.
In connection with our acquisition of BigCharts, Philip D. Hotchkiss and
James J. Thingelstad have each entered into an employment agreement. Under Mr.
Hotchkiss' employment agreement, he will serve as the President and Chief
Executive Officer of BigCharts and as a director of MarketWatch.com. He will
receive a base salary of $200,000 per year, with an increase of five
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<PAGE> 67
percent in each successive year, and an annual bonus of up to 50% of his base
salary, half of which bonus will be determined at the discretion of the Board of
Directors of MarketWatch.com and half of which will be based on financial
objectives determined by the Board of Directors of MarketWatch.com. Under Mr.
Thingelstad's employment agreement, he will serve as Chief Technology Officer of
MarketWatch.com. He will receive a base salary of $135,000 per year with an
increase of five percent in each successive year, and an annual bonus of up to
40% of his base salary, half of which bonus will be determined at the discretion
of the Board of Directors of MarketWatch.com and half of which will be based on
financial objectives determined by the Board of Directors of MarketWatch.com.
The effective date of each of the employment agreements is June 9, 1999. The
term of each of these agreements is five years, and this period will be extended
automatically as of the third anniversary for a period of one year, unless
either party gives notice of an intent not to renew the agreement.
If Mr. Hotchkiss or Mr. Thingelstad is terminated without cause, as defined
in his employment agreement, or if he voluntarily terminates his employment for
good reason, as defined in his employment agreement, MarketWatch.com will pay
him any accrued salary and bonus plus six months additional salary and
accelerate the vesting of his MarketWatch.com options. If either is terminated
for other cause, as defined in his employment agreement, his MarketWatch.com
options shall fully vest, but he shall not be entitled to other termination
benefits. If either is terminated for cause, MarketWatch.com shall be obligated
only to pay accrued salary and bonus, but no other termination benefits. Within
six months of a change in control, as defined in his employment agreement, if
either terminates his employment for good reason or is terminated other than for
other cause or cause, MarketWatch.com shall pay a lump sum equal to one year's
salary and bonus and accelerate the vesting of his MarketWatch.com options.
OFFICE LEASE
Since April 1, 1998, we have 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 paid an
aggregate of $137,000 in rent for the period from April 1, 1998 to December 31,
1998 and $162,000 in rent for the six months ended June 30, 1999.
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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<PAGE> 68
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of our common stock as of July 20, 1999 by:
- each person who we know owns beneficially more than 5% of our common
stock,
- each of our directors, including our Chief Executive Officer,
- our three most highly compensated executive officers, other than our
Chief Executive Officer, who were serving as executive officers at the
end of 1998, and
- all of our executive officers and directors as a group.
Percentage ownership is based on 13,753,054 shares outstanding as of June
30, 1999. Shares of common stock subject to options currently exercisable or
exercisable within 60 days of June 30, 1999 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.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF COMMON STOCK
SHARES BENEFICIALLY OWNED
BENEFICIALLY ---------------------------------
NAME OF BENEFICIAL OWNER OWNED BEFORE OFFERING AFTER OFFERING
------------------------ ------------ --------------- --------------
<S> <C> <C> <C>
CBS Broadcasting Inc........................... 4,500,000 32.7% 32.7%
51 West 52nd Street
New York, New York 10019
Data Broadcasting Corporation.................. 4,500,000 32.7 32.7
3955 Point Eden Way
Hayward, California 94545
Larry S. Kramer(1)............................. 66,666 * *
Philip D. Hotchkiss(2)......................... 463,949 3.4 *
James A. DePalma............................... -- * *
Andrew Heyward................................. -- * *
Allan R. Tessler............................... -- * *
Mark F. Imperiale.............................. -- * *
Michael H. Jordan.............................. -- * *
Alan J. Hirschfield............................ -- * *
Robert H. Lessin............................... -- * *
Daniel Mason................................... -- * *
J. Peter Bardwick(3)........................... 33,333 * *
Thom Calandra(4)............................... 25,000 * *
Scot McLernon(5)............................... 25,000 * *
All 16 executive officers and directors as a
group(6)..................................... 770,500 5.6 2.2
</TABLE>
- -------------------------
* Represents beneficial ownership of less than 1%.
(1) Represents 66,666 shares issuable upon exercise of options exercisable
within 60 days of June 30, 1999.
(2) Includes 2,848 shares issuance upon exercise of options exercisable within
60 days of June 30, 1999.
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<PAGE> 69
(3) Represents 33,333 shares issuable upon exercise of options exercisable
within 60 days of June 30, 1999.
(4) Represents 25,000 shares issuable upon exercise of options exercisable
within 60 days of June 30, 1999.
(5) Represents 25,000 shares issuable upon exercise of options exercisable
within 60 days of June 30, 1999.
(6) Includes 309,399 shares issuable upon exercise of options exercisable within
60 days of June 30, 1999.
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<PAGE> 70
SELLING STOCKHOLDERS
Each of the stockholders named below was formerly a stockholder of
BigCharts who acquired shares of our common stock in the transaction under which
we acquired all of the issued and outstanding share capital stock of BigCharts.
No BigCharts stockholder has had any position, office or other material
relationship with us, other than in connection with the acquisition of
BigCharts, within the past three years. Philip D. Hotchkiss, the President and
Chief Executive Officer of BigCharts, is currently one of our directors. Jamie
J. Thingelstad, formerly the Chief Technology Officer of BigCharts, is our Chief
Technology Officer.
The following table assumes that each BigCharts stockholder sells all of
the shares held by this stockholder in this offering. However, we are unable to
determine the exact number of shares that will actually be sold or when or if
these sales will occur. In addition, certain of the BigCharts stockholders are
trusts which may, in the future, distribute their shares of their trust
beneficiaries, which distributees may likewise distribute the shares to their
trust beneficiaries. Those shares may later be sold by those trust
beneficiaries, or any of their distributees. The BigCharts stockholders have
advised us that each of them is the beneficial owner of their shares being
offered. Percentage ownership is based on 13,753,054 shares outstanding as of
June 30, 1999.
<TABLE>
<CAPTION>
NUMBER OF SHARES NUMBER OF SHARES
BENEFICIALLY OWNED BENEFICIALLY OWNED
BEFORE OFFERING AFTER OFFERING
---------------------- -------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENTAGE NUMBER PERCENTAGE
------------------------ --------- ---------- ------ ----------
<S> <C> <C> <C> <C>
Alexander III, John J. ........................ 5,696 *% -- *%
Alexander Jr., John J. ........................ 5,696 * -- *
Apfel, Gary.................................... 4,521 * -- *
Apfel, Ronny................................... 73,466 * -- *
Barnes, Robert................................. 3,677 * -- *
Benson, Janet C. and Claude W. JTWROS.......... 9,494 * -- *
Berman, Bradley................................ 5,696 * -- *
Beverly M. Williams Trust U/A dtd. 9/22/92..... 9,494 * -- *
Bluhm, Nick.................................... 18,495 * -- *
Brenna, Mark L., ROTH IRA, Dain Rauscher
Custodian.................................... 2,848 * -- *
Brimmer, Kenneth W. and Jaye M. Snyder,
JTWROS....................................... 5,696 * -- *
Budd, Jeffrey R. .............................. 18,989 * -- *
Carroll, Peter A. ............................. 1,898 * -- *
Chester, Sheldon............................... 1,898 * -- *
Chester, Sheldon Dain Rauscher Custodian SEP
IRA.......................................... 5,696 * -- *
Chicos, Thomas Mark and Rafaella Mae JTWROS.... 2,373 * -- *
Dolan, Michael J., Individual Retirement
Account, Dain Rauscher Custodian............. 5,696 * -- *
Eibensteiner, Ronald........................... 14,242 * -- *
Eizkovitz, Jack................................ 9,042 * -- *
Ford, Virgina L. .............................. 3,797 * -- *
Galle, W. Christopher.......................... 2,848 * -- *
Gary L. Young Living Trust dated July 14, 1995,
Trustees Gary L. Young / Sibyl J. Young...... 18,989 * -- *
</TABLE>
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<PAGE> 71
<TABLE>
<CAPTION>
NUMBER OF SHARES NUMBER OF SHARES
BENEFICIALLY OWNED BENEFICIALLY OWNED
BEFORE OFFERING AFTER OFFERING
---------------------- -------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENTAGE NUMBER PERCENTAGE
------------------------ --------- ---------- ------ ----------
<S> <C> <C> <C> <C>
Gile Corporation............................... 5,696 *% -- *%
Gile, Elizabeth S. ............................ 2,848 * -- *
Gorzkowski, Maciej............................. 379 * -- *
Greenbaum, Sholem.............................. 14,690 * -- *
Halikias, Thomas............................... 36,170 * -- *
Heller, Robert W. ............................. 82,140 * -- *
Hotchkiss, Philip D. and Nancy A. Hotchkiss
JTWROS....................................... 2,848 * -- *
Hotchkiss, Philip D. and Sherry Lau JTWROS..... 5,156 * -- *
Huffer, Michael John and Maureen Delia JTWROS.. 5,696 * -- *
Hutchins, Robert W. ........................... 5,696 * -- *
Johnson, Scott Mitchell........................ 2,848 * -- *
Kappes, Jon.................................... 1,405 * -- *
Karkela, Larry W. ............................. 10,444 * -- *
Koentopf, David D. ............................ 62,201 * -- *
Lanier, Monroe B. III.......................... 2,848 * -- *
Lindquist & Vennum P.L.L.P..................... 3,797 * -- *
Malmberg, David C. ............................ 75,684 * -- *
Maxwell Sr., Charles J. ....................... 18,989 * -- *
Maxwell, John M. and Christine L., JTWROS...... 18,989 * -- *
McGuire, Thomas R. ............................ 7,595 * -- *
McLean, Robert W. ............................. 28,484 * -- *
Melton, Donald R. ............................. 5,696 * -- *
Miller, Geraldine and Linda Kay Collins
JTWROS....................................... 9,494 * -- *
Mills, Wayne W. ............................... 14,242 * -- *
Mosher, Kent D. ............................... 2,848 * -- *
Norwest Bank Minnesota, N.A. as Trustee of the
David C. Malmberg GRAT u/a dtd 4/26/99....... 8,355 * -- *
Orlinsky, Mindy and Henry...................... 18,085 * -- *
Ornstein, Michell R. .......................... 5,696 * -- *
Pedhazur, Hadar................................ 55,382 * -- *
Perlman, Dean B. .............................. 2,848 * -- *
Philip D. Hotchkiss and Nancy A. Hotchkiss, or
his/her successors, as Trustees of the
Amendment and Restatement of Nancy A.
Hotchkiss Revocable Trust U/A dated January
20, 1992..................................... 9,019 * -- *
Philip D. Hotchkiss, TR UA July 2, 1998........ 453,097 3.3 -- *
Ratcliff, David E. ............................ 2,848 * -- *
Rikkers, James................................. 4,747 * -- *
Ryan Helgeson and Angela Speed JTWROS.......... 37 * -- *
Santrizos, Nicholas P. ........................ 18,989 * -- *
Schmidt, Wayne J. ............................. 3,797 * -- *
Schrader, Fredric H. Living Trust dtd 3/11/98,
Fred Schrader Ttee........................... 11,393 * -- *
Schrader, Kevin David.......................... 1,898 * -- *
Segal, Norma C. ............................... 1,424 * -- *
</TABLE>
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<PAGE> 72
<TABLE>
<CAPTION>
NUMBER OF SHARES NUMBER OF SHARES
BENEFICIALLY OWNED BENEFICIALLY OWNED
BEFORE OFFERING AFTER OFFERING
---------------------- -------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENTAGE NUMBER PERCENTAGE
------------------------ --------- ---------- ------ ----------
<S> <C> <C> <C> <C>
Segal, Robert G. .............................. 1,424 *% -- *%
Segal, Spenser................................. 6,076 * -- *
Siemon, Marvin and Irma........................ 37,978 * -- *
Sohili, Hushmand............................... 3,677 * -- *
Stevensen, Gary F. ............................ 5,696 * -- *
Sutherlund, Steve C. and Beth N. .............. 1,898 * -- *
Thalheim, Neil................................. 7,354 * -- *
Thompson, John W.; Thompson Equipment &
Packaging; Pension Trust..................... 18,989 * -- *
U.S. Bank First Natl. Assoc. TTEE Cutler
31177682 Dorsey & Whitney Master Trust....... 5,696 * -- *
Vincent Irwin Barton Trust dated 5/31/94....... 4,747 * -- *
Wagner, Gary N. ............................... 189 * -- *
Wierstad, Roy M. and Jacqueline S. JTWROS...... 2,848 * -- *
William F. Perron Credit Trust................. 18,989 * -- *
Wong, Johnny Joseph............................ 2,848 * -- *
Wong, Teddy and Laura JTWROS................... 8,545 * -- *
Wyncrest Capital Inc........................... 200,338 1.5 -- *
York, Richard J. .............................. 5,696 * -- *
Zucco, William C. ............................. 1,405 * -- *
--------- ---- -- --
Total.......................................... 1,589,138 11.6% -- *
========= ==== == ==
</TABLE>
* Represents beneficial ownership of less than 1%.
71
<PAGE> 73
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists 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 June 30, 1999, there were outstanding 13,753,054 shares
of common stock, each with a par value of $0.01, and outstanding options to
purchase 1,787,524 shares of common stock.
Our amended and restated certificate of incorporation and bylaws, the
stockholders' agreement and the registration rights agreement described below
are incorporated by reference 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 therefore 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 our 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 our
liquidation, dissolution or winding-up, the assets legally available for
distribution to stockholders will be distributed 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 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 entered into a registration rights agreement with CBS and DBC in January
1999, described more fully in "Certain Transactions." At any time after July 13,
1999, 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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<PAGE> 74
their permitted transferees, provided that the aggregate public offering price
is at least $1.0 million. CBS and DBC each can request one Form S-3 registration
per year.
These registration rights will be subject to our 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
in connection with 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, described more fully in
"Certain Transactions," upon the occurrence of a change of control of DBC, CBS
may, in its sole discretion within 45 days after receipt of written notice of
the occurrence of this 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 change of control of
DBC; 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. This trustee
may not vote any of the securities held by it without the prior written consent
of CBS. Any sales by this trustee could have an adverse effect on the market
price of the common stock. We cannot assure you that after a change of control
of DBC, CBS would elect either such option, if any.
Under the stockholders' agreement, change of control of DBC is defined as
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 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.
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<PAGE> 75
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 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 complete the transfer, otherwise the rights of first refusal will
be reinstated.
The stockholders' agreement also provides 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 our initial public offering in
January 1999. 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 the first public offering
following our initial public 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 MarketWatch.com equal to the initial
percentage held by each upon the consummation of our initial public offering in
January 1999.
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
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<PAGE> 76
more of the corporation's outstanding voting stock, as well as affiliates and
associates of any of these persons, for three years following the date that
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 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. Our amended and restated certificate of
Incorporation and our 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. These 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 our directors and officers to the fullest extent permitted by
Delaware law. We have entered into separate indemnification agreements with our
directors and executive officers that provide indemnification protection in the
event the amended and restated certificate of incorporation is subsequently
amended.
Our amended and restated certificate of incorporation and bylaws provide
that we will indemnify officers and directors against losses that they may incur
in investigations and legal proceedings resulting from their services to us,
which may include services in connection with takeover defense measures. These
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, L.L.C. Its address is 235 Montgomery Street, 23rd Floor,
San Francisco, California 94109, and its telephone number at this location is
(415) 743-1444.
LISTING
Our common stock is listed on the Nasdaq National Market under the trading
symbol "MKTW."
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<PAGE> 77
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of substantial amounts of our common stock in the public
market could adversely affect prevailing market prices of our common stock from
time to time.
As of June 30, 1999, we had outstanding an aggregate of 13,753,054 shares
of our common stock, assuming no exercise of outstanding options. Of these
shares, 3,163,916 shares, plus 158,867 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. As a result of the contractual
restrictions described below, additional shares offered by this prospectus will
be eligible for sale as follows:
<TABLE>
<CAPTION>
APPROXIMATE NUMBER OF
DATE SHARES THAT MAY BE SOLD
---- -----------------------
<S> <C>
January 5, 2000................................... 202,340
April 4, 2000..................................... 202,340
June 9, 2000...................................... 480,637
June 9, 2001...................................... 278,241
June 9, 2002...................................... 266,713
</TABLE>
The remaining 9,000,000 shares of common stock held by other 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.
Lock-Up Provisions
In connection with our acquisition of BigCharts in June 1999, the shares of
MarketWatch.com received by the former stockholders of BigCharts are subject to
lock-up provisions under which these stockholders may not sell, dispose, pledge,
assign or otherwise transfer the shares received. As of June 30, 1999, all
BigCharts stockholders are locked up as to 90% of their shares. These lock-up
provisions lapse as follows:
- for certain principal stockholders of BigCharts, as to one-third of their
remaining shares on each of June 9, 2000, 2001 and 2002;
- for other stockholders who are employees of BigCharts, as to one-half of
their remaining shares on each of June 9, 2000 and 2001; and
- for other stockholders who are not employees of BigCharts, as to
one-third of their remaining shares on January 5, 2000, April 4, 2000 and
June 9, 2000.
Rule 144
In general, under Rule 144 as currently in effect, 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 137,530 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.
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<PAGE> 78
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.
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
CBS and DBC, who hold an aggregate 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 the right of first refusal
described more fully in "Description of Capital Stock -- Registration Rights,"
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
We have filed a registration statement on Form S-8 covering 1,498,584
shares of common stock reserved for issuance under our 1998 Equity Incentive
Plan and 1998 Directors Stock Option Plan and the shares reserved for issuance
upon exercise of outstanding non-plan options. We intend to file a registration
statement on Form S-8 with respect to the 585,824 shares of common stock subject
to stock options assumed in connection with the acquisition of BigCharts. As of
June 30, 1999, options to purchase a total of 1,787,524 shares of common stock
were issued and outstanding and 298,300 shares were reserved for future issuance
under our stock plans. Accordingly, shares registered under such registration
statement will, subject to vesting provisions and Rule 144 volume limitations
applicable to our affiliates, be available for immediate sale in the open
market, unless these shares are subject to vesting restrictions.
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<PAGE> 79
PLAN OF DISTRIBUTION
In connection with the acquisition of all of the issued and outstanding
share capital of BigCharts, each of the BigCharts stockholders entered in to a
registration rights agreement with us. The registration statement of which this
prospectus forms a part has been filed under the terms of that agreement. To our
knowledge, no BigCharts stockholder has entered into any agreement, arrangement
or understanding with any particular broker or market maker with respect to the
shares offered, nor do we know the identity of the brokers or market makers that
will participate in the offering.
The shares of common stock covered by this prospectus may be offered and
sold from time to time by the BigCharts stockholders or by pledgees, donees,
transferees and other successors in interest. The BigCharts stockholders will
act independently of us in making decisions with respect to the timing, manner
and size of each sale.
Of the 1,589,138 shares of common stock covered by this prospectus, 158,867
shares will be available for immediate sale in the public market as of the date
of this prospectus. With regard to the remaining 1,430,271 shares, the BigCharts
stockholders have agreed that they will not sell or otherwise transfer the
economic ownership of the shares before specified dates. As a result of these
contractual restrictions, an additional 202,340 shares will be eligible for sale
on January 5, 2000, 202,340 shares will be eligible for sale on April 4, 2000,
480,637 shares will be eligible for sale on June 9, 2000, 278,241 shares will be
eligible for sale on June 9, 2001 and 266,713 shares will be eligible for sale
on June 9, 2002.
These sales may be made over the Nasdaq National Market or otherwise, at
then prevailing market prices, at prices related to prevailing market prices or
at negotiated prices. The shares may be sold by one or more of the following:
- a block trade in which the broker-dealer engaged by the BigCharts
stockholder will attempt to sell the shares as agent but may position and
resell a portion of the block as principal to facilitate the transaction;
- purchases by the broker-dealer as principal and resale by the broker or
dealer for this account pursuant to this prospectus; and
- ordinary brokerage, transactions and transactions in which the broker
solicits purchasers.
We have been advised by the BigCharts stockholders that they have not, as
of the date of this prospectus, entered into any arrangement with a
broker-dealer for the sale of shares through a block trade, special offering, or
secondary distribution of a purchase by a broker-dealer. In effecting sales,
broker-dealers engaged by the BigCharts stockholders may arrange for other
broker-dealers to participate. Broker-dealers will receive commissions or
discounts from the BigCharts stockholders in amounts to be negotiated
immediately prior to the sale. In addition, certain of the BigCharts
stockholders are trusts which may, in the future, distribute their shares to
their trust beneficiaries. Those shares may later be sold by those trust
beneficiaries, or any of their respective distributees.
In connection with distributions of the shares or otherwise, the BigCharts
stockholders may enter into hedging transactions with broker-dealers. In
connection with these transactions, broker-dealers may engage in short sales of
the shares registered under this registration statement in the course of hedging
the positions they assume with selling stockholders. The BigCharts stockholders
may also sell shares short and redeliver the shares to close out their short
positions. The BigCharts stockholders may also enter into option or other
transactions with broker-dealers which require the delivery to the broker-dealer
of the shares registered under this registration statement, which the
broker-dealer may resell or otherwise transfer pursuant to this prospectus. A
BigCharts stockholder may also loan or pledge the shares registered under this
registration statement to a broker-dealer and the broker-dealer
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<PAGE> 80
may sell the shares so loaned or upon a default, the broker-dealer may effect
sales of the pledged shares pursuant to this prospectus.
Broker-dealers or agents may receive compensation in the form of
commissions, discounts or concessions from BigCharts stockholders in amounts to
be negotiated in connection with the sale. These broker-dealers and any other
participating broker-dealers may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with these sales, and any
commission, discount or concession may be deemed to be underwriting discounts or
commissions under the Securities Act. The BigCharts stockholders have agreed in
the registration rights agreement not to sell any of the shares of common stock
pursuant to this prospectus in an underwritten offering without providing us
with prior written notice. In addition, any securities covered by this
prospectus which qualify for sale pursuant to Rule 144 or Rule 145 under the
Securities Act may be sold under Rule 144 or Rule 145 rather than pursuant to
this prospectus.
We will bear all costs, expenses and fees in connection with the
registration of the shares. Commissions and discounts, if any, attributable to
the sales of the shares will be borne by the BigCharts stockholders. The
BigCharts stockholders may agree to indemnify any broker-dealer or agent that
participates in transactions involving sales of the shares against certain
liabilities, including liabilities arising under the Securities Act. Under the
terms registration rights agreement, MarketWatch.com and the BigCharts
stockholders have agreed to indemnify each other and other persons against
specified liabilities in connection with the offering of the shares, including
liabilities arising under the Securities Act.
We have advised the BigCharts stockholders that the anti-manipulation rules
under the Exchange Act may apply to sales of shares in the market and to the
activities of the BigCharts stockholders and their affiliates. The BigCharts
stockholders have advised us that during the time as they may be engaged in the
attempt to sell shares registered under this registration statement, they will:
- not engage in any stabilization activity in connection with any of our
securities;
- not bid for or purchase any of our securities or any rights to acquire
our securities, or attempt to induce any person to purchase any of our
securities or rights to acquire our securities other than as permitted
under the Exchange Act;
- not effect any sale of distribution of the shares until after the
prospectus shall have been appropriately amended or supplemented, if
required, to set forth the terms thereof; and
- effect all sales of shares in broker's transactions through
broker-dealers acting as agents, in transactions directly with market
makers or in privately negotiated transactions where no broker or other
third party, other than the purchaser, is involved.
We have the ability to suspend the use of this prospectus, if, in the good
faith judgment of our board of directors, it would be seriously detrimental to
MarketWatch.com and our stockholders for resales of shares to be made due to:
- the existence of a material development or potential material development
with respect to or involving us which we would be obligated to disclose
in the prospectus, which disclosure would in the good faith judgment of
our board of directors be premature or otherwise inadvisable at that time
and would have a material adverse affect upon us and our stockholders, or
- the occurrence of any event that makes any statement made in the
prospectus or any document incorporated or deemed to be incorporated by
reference to the prospectus untrue in any material respect or which
requires the making of any changes n the prospectus so that it
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<PAGE> 81
will not contain any untrue statement of a material fact required to be
stated in the prospectus or necessary to make the statements in the
prospectus not misleading or omit to state any material fact required to
be stated in the prospectus or necessary to make the statements in the
prospectus, in the light of the circumstances under which they were made,
not misleading.
This offering will terminate as to each BigCharts stockholder on the
earlier of:
- June 9, 2001, or
- the date on which all shares offered have been sold by the BigCharts
stockholders.
The BigCharts stockholders may elect not to sell any or all of the sharer
of common stock offered.
Upon the occurrence of any of the following events, this prospectus will be
amended to include additional disclosure before offers and sales of the
securities in question are made:
- to the extent the securities are sold at a fixed price or at a price
other than the prevailing market price, the price would be set forth in
the prospectus;
- if the securities are sold in block transactions and the purchaser acting
in the capacity of an underwriter wishes to resell, these arrangements
would be described in the prospectus;
- if a BigCharts stockholder sells to a broker-dealer acting in the
capacity as an underwriter, the broker-dealer will be identified in the
prospectus; and
- if the compensation paid to broker-dealers is other than usual and
customary discounts, concessions or commissions, disclosure of the terms
of the transaction would be included in the prospectus.
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.
EXPERTS
The financial statements of MarketWatch.com, Inc. as of December 31, 1997
and 1998 and for the period from inception (October 29, 1997) through December
31, 1997 and for the year ended December 31, 1998 included in this prospectus
have been so included in reliance upon the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of that firm as experts in
auditing and accounting.
The financial statements of the DBC Online/News Business for the period
from January 1, 1997 through October 28, 1997 and for the year ended December
31, 1996 included in this prospectus have been so included in reliance upon the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of that firm as experts in auditing and accounting.
The financial statements of BigCharts Inc. as of December 31, 1997 and 1998
and for the years ended December 31, 1997 and 1998 included in this prospectus
have been so included in reliance upon the report of KPMG LLP, independent
certified public accountants, given on the authority of that firm as experts in
auditing and accounting.
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WHERE YOU CAN FIND ADDITIONAL INFORMATION
We filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the shares of
common stock offered by this prospectus. This prospectus does not contain all of
the information set forth in the registration statement and the related exhibits
and schedule. For further information with respect to MarketWatch.com and the
common stock offered by this prospectus, reference is made to the registration
statement and the related exhibits and schedule. 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 related exhibits
and schedule may be inspected without charge at the public reference facilities
maintained by the Securities and Exchange Commission in Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at 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
Securities and Exchange Commission. The Securities and Exchange Commission
maintains a web site that contains reports, proxy and information statements and
other information regarding companies that file electronically with the
Securities and Exchange Commission. The address of the site is
http://www.sec.gov.
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INDEX TO FINANCIAL STATEMENTS
MARKETWATCH.COM, INC.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Condensed Consolidated Balance Sheets, Six Months Ended June
30, 1999 (unaudited)...................................... F-2
Condensed Consolidated Statements of Operations, Six Months
Ended June 30, 1999 (unaudited)........................... F-3
Condensed Consolidated Statements of Cash Flows, Six Months
Ended June 30, 1999 (unaudited)........................... F-4
Notes to Consolidated Financial Statements, Six Months Ended
June 30, 1999 (unaudited)................................. F-5
Reports of Independent Accountants.......................... F-11
Balance Sheets, Year Ended December 31, 1998................ F-13
Statements of Operations, Year Ended December 31, 1998...... F-14
Statements of Stockholders' Equity (Deficit), Year Ended
December 31, 1998......................................... F-15
Statements of Cash Flows, Year Ended December 31, 1998...... F-16
Notes to Financial Statements, Year Ended December 31,
1998...................................................... F-17
</TABLE>
BIGCHARTS INC.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-30
Balance Sheets.............................................. F-31
Statements of Operations.................................... F-32
Statements of Shareholders' Equity (Deficit)................ F-33
Statements of Cash Flows.................................... F-34
Notes to Financial Statements............................... F-35
</TABLE>
PRO FORMA FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Pro Forma Financial Information............................. F-42
Unaudited Pro Forma Combined Condensed Statement of
Operations, Six Months Ended June 30, 1999................ F-43
Unaudited Pro Forma Combined Condensed Statement of
Operations, Year Ended December 31, 1998.................. F-44
Notes to Unaudited Pro Forma Combined Condensed Statements
of Operations............................................. F-45
</TABLE>
F-1
<PAGE> 84
MARKETWATCH.COM, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 18,922,000 $ 140,000
Investments............................................... 9,862,000 --
Accounts receivable, net.................................. 3,679,000 1,586,000
Prepaid expenses.......................................... 570,000 2,000
------------ ------------
Total current assets................................... 33,033,000 1,728,000
Other assets................................................ 23,000 11,000
Property and equipment, net................................. 2,893,000 932,000
Deferred offering costs..................................... -- 1,816,000
Intangible assets, net...................................... 3,469,000 --
Goodwill, net............................................... 148,255,000 --
------------ ------------
Total assets........................................... $187,673,000 $ 4,487,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 3,049,000 $ 1,969,000
Accrued expenses.......................................... 1,784,000 1,688,000
Deferred revenue.......................................... 246,000 14,000
Advances from DBC......................................... -- 3,946,000
------------ ------------
Total current liabilities.............................. 5,079,000 7,617,000
------------ ------------
Stockholders' equity (deficit):
Preferred stock........................................... -- --
Common stock.............................................. 141,000 90,000
Additional paid-in capital................................ 230,772,000 53,366,000
Deferred compensation..................................... (912,000) (1,144,000)
Contribution receivable................................... (16,090,000) (42,948,000)
Other accumulated comprehensive income.................... 59,000 --
Accumulated deficit....................................... (31,376,000) (12,494,000)
------------ ------------
Total stockholders' equity (deficit)................... 182,594,000 (3,130,000)
------------ ------------
Total liabilities and stockholders' equity (deficit)... $187,673,000 $ 4,487,000
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<PAGE> 85
MARKETWATCH.COM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------------- --------------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1999 1998 1999 1998
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Net revenues:
Advertising (including $125,000 and
$0 from DBC for the three months
ended 1999 and 1998 and $250,000
and $0 for the six months ended
1999 and 1998).................. $ 3,611,000 $ 1,032,000 $ 5,998,000 $ 1,728,000
License............................ 306,000 -- 306,000 --
News (including $398,000 and
$316,000 from DBC for the three
months ended 1999 and 1998 and
$763,000 and $627,000 for the
six months ended 1999 and
1998)........................... 738,000 316,000 1,347,000 627,000
Subscription....................... 163,000 171,000 314,000 340,000
------------ ----------- ------------ -----------
Total net revenues............ 4,818,000 1,519,000 7,965,000 2,695,000
Cost of revenues:
Advertising and news............... 2,025,000 577,000 3,086,000 763,000
License............................ 24,000 -- 24,000 --
Subscription....................... 150,000 95,000 290,000 189,000
------------ ----------- ------------ -----------
Total cost of revenues........ 2,199,000 672,000 3,400,000 952,000
------------ ----------- ------------ -----------
Gross profit......................... 2,619,000 847,000 4,565,000 1,743,000
------------ ----------- ------------ -----------
Operating expenses:
Product development................ 842,000 371,000 1,469,000 607,000
General and administrative......... 2,224,000 724,000 3,774,000 1,256,000
Sales and marketing................ 8,227,000 2,560,000 14,448,000 4,437,000
Purchased in-process research and
development..................... 200,000 -- 200,000 --
Amortization of goodwill and
intangibles..................... 4,284,000 -- 4,284,000 --
------------ ----------- ------------ -----------
Total operating expenses...... 15,777,000 3,655,000 24,175,000 6,300,000
------------ ----------- ------------ -----------
Loss from operations................. (13,158,000) (2,808,000) (19,610,000) (4,557,000)
Interest income (expense)............ 345,000 (14,000) 728,000 (21,000)
------------ ----------- ------------ -----------
Net loss............................. $(12,813,000) $(2,822,000) $(18,882,000) $(4,578,000)
============ =========== ============ ===========
Basic and diluted net loss per
share.............................. $ (1.02) $ (0.31) $ (1.56) $ (0.51)
============ =========== ============ ===========
Shares used in the calculation of
basic and diluted net loss per
share.............................. 12,548,000 9,000,000 12,094,000 9,000,000
============ =========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 86
MARKETWATCH.COM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
---------------------------
JUNE 30, JUNE 30,
1999 1998
------------ -----------
<S> <C> <C>
Cash flows used in operating activities:
Net loss.................................................. $(18,882,000) $(4,578,000)
Adjustments to reconcile net loss to net cash used in
operating activities:
Provision for bad debt expense......................... 7,000 110,000
Depreciation and amortization.......................... 4,972,000 53,000
Non-cash charges from stockholders..................... 6,858,000 3,473,000
Write-off of in-process research and development....... 200,000 --
Changes in operating assets and liabilities:
Accounts receivable.................................. (1,396,000) (683,000)
Prepaid expenses and other current assets............ (489,000) (20,000)
Deferred offering costs.............................. -- (172,000)
Accounts payable and accrued expenses................ 1,993,000 766,000
Deferred revenue..................................... 116,000 3,000
------------ -----------
Net cash used in operating activities............. (6,621,000) (1,048,000)
------------ -----------
Cash flows used in investing activities:
Purchase of short-term investments........................ (9,803,000) --
Purchase of property and equipment........................ (1,205,000) (645,000)
Acquisition of business, net of cash acquired............. (7,475,000) --
------------ -----------
Net cash used in investing activities............. (18,483,000) (645,000)
------------ -----------
Cash flows provided by financing activities:
Proceeds from issuance of common stock, net............... 47,832,000 --
Contributions from DBC.................................... -- 782,000
Advances from DBC (Note 6)................................ (3,946,000) 1,539,000
------------ -----------
Net cash provided by financing activities......... 43,886,000 2,321,000
------------ -----------
Net change in cash.......................................... 18,782,000 628,000
------------ -----------
Cash at beginning of period................................. 140,000 --
------------ -----------
Cash at end of period....................................... $ 18,922,000 $ 628,000
============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 87
MARKETWATCH.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- ORGANIZATION AND NATURE OF BUSINESS
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
reflect all adjustments that, in the opinion of management, are necessary for a
fair presentation of the results for the periods shown. The results of
operations for such periods are not necessarily indicative of the results
expected for a full year or for any future period. These financial statements
should be read in conjunction with the financial statements and related notes
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1998 as amended by Form 10-K/A. Additionally, certain items previously
reported in specific financial statement captions have been reclassified to
conform with the current presentation.
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 was jointly owned by Data Broadcasting Corporation ("DBC")
and CBS Broadcasting Inc. ("CBS") (collectively, the "Members"), with each
member owning a 50% interest in the Company.
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 contributed 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 consisted of customer contracts and intellectual property in return
for its ownership interest. CBS agreed to provide $50 million of rate card
amount advertising and promotions over a period of five years in return for its
ownership interest. Under the terms of the Stockholders' Agreement, the $50.0
million rate card amount was revised to $30.0 million upon completion of our
initial public offering (see Note 2).
In addition, CBS and the Company entered into a license agreement dated
October 29, 1997 (the "License Agreement") where CBS, in exchange for 30% of net
advertising revenue, as defined, 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.
In January 1999, the Company completed an initial public offering ("IPO")
of 3,162,500 shares of common stock at $17 per share. Total proceeds to the
Company were approximately $48 million, net of offering costs. Immediately prior
to the completion of the IPO, the Company was reorganized from a limited
liability corporation to a corporation. All share and per share data have been
retroactively adjusted to reflect the reorganization.
F-5
<PAGE> 88
MARKETWATCH.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Effective June 9, 1999, the Company completed its acquisition of
substantially all of the assets of BigCharts.com, Inc. ("BigCharts"), a
Minnesota corporation, for $6.0 million in cash, $110.9 million worth of
MarketWatch Common Stock, and $38.6 million worth of options to purchase
MarketWatch.com common stock which are issuable upon exercise of options to
purchase BigCharts common stock assumed in the merger. BigCharts, based in
Minneapolis, is a leading provider of licensed online financial charting content
to electronic brokers, financial publishers and portals.
NOTE 2 -- AGREEMENTS WITH CBS AND DBC
In January 1999, the Company entered into a Stockholders' Agreement
("Stockholders' Agreement"). Under the terms of the Stockholders' Agreement, CBS
reduced the advertising commitment from the Contribution Agreement to an
aggregate rate card amount of $30.0 million in return for a change in the
royalty rate payable 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.
In January 1999, the Company and CBS entered into an Amended and Restated
License Agreement (the "Amended and Restated License") which superseded and
replaced the License Agreement. The Amended and Restated License became
effective immediately prior to the IPO. 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 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 (ii) 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.
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 Revenues 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.
The terms of the Amended and Restated License will not prohibit CBS from
licensing its name and logo to another Web site or Internet service that does
not have as its primary function and its
F-6
<PAGE> 89
MARKETWATCH.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
principal theme and format the delivering of comprehensive real-time or delayed
stock market quotations and financial news in the English language to consumers.
CBS is also not prohibited from licensing its news content to, or investing in,
another Web site or Internet service.
In January 1999, the Company and DBC entered into an Amended and Restated
Services Agreement (the "Amended Services Agreement") which supersedes and
replaces 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 provides for DBC to grant the Company certain nonexclusive licenses to
its data and information feeds and provides for certain network Web site 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
through October 2002, for delivery of the Company's news to all DBC subscribers,
as defined. The Company is also required to pay DBC 25% and 75% of subscription
revenues for MarketWatch RT and MarketWatch Live, respectively. The term of the
Amended Services Agreement will expire on October 29, 2005.
In January 1999, the Company and DBC entered 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 from DBC
under the Limited Liability Company Agreement of the LLC between CBS and DBC
(the "LLC Agreement") from DBC, were included against the borrowings under the
Credit Agreement. As of June 30, 1999 the Company had no outstanding borrowings
under the Agreement.
In January 1999, the Company, CBS and DBC entered 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.
Comprehensive net income
NOTE 3 -- COMPREHENSIVE NET INCOME
Comprehensive income is comprised of net loss and other comprehensive
earnings such as unrealized gains or losses on available-for-sale marketable
securities. The Company's total comprehensive losses were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
---------------------------- --------------------------
1999 1998 1999 1998
------------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Net loss............................. $(12,813,000) $(2,822,000) $(18,882,000) $(4,578,000)
Other comprehensive income
Unrealized gains on available for
sale marketable securities......... 59,000 -- 59,000 --
------------ ----------- ------------ -----------
Comprehensive net loss............. $(12,754,000) $(2,822,000) $(18,823,000) $(4,578,000)
------------ ----------- ------------ -----------
</TABLE>
F-7
<PAGE> 90
MARKETWATCH.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 4 -- NET LOSS PER SHARE
Basic net loss per share is computed using the weighted average number of
shares of common stock. Diluted net loss per share is computed using the
weighted average number of shares of common stock and common equivalent shares
outstanding during the period. Common equivalent shares consist of stock options
(using the treasury stock method). Common equivalent shares are excluded from
the computation if their effect is antidilutive.
Options to purchase 1,787,524 and 722,000 shares of common stock were
outstanding at June 30, 1999 and 1998, respectively, but were not included in
the computation of diluted EPS because either the options exercise price was
greater than the average market price of the common shares during the period or
inclusion of such options would have been anti-dilutive.
NOTE 5 -- BUSINESS ACQUISITIONS
Effective June 9, 1999, MarketWatch completed its acquisition of BigCharts,
Inc. ("BigCharts"), a Minnesota corporation, for $6.0 million in cash, $110.9
million worth of MarketWatch Common Stock, and $38.6 million worth of
MarketWatch stock options. The transaction was accounted for using the purchase
method; accordingly, the purchase price was allocated to the assets acquired and
liabilities assumed based on their fair market values at the date of
acquisition. BigCharts, based in Minneapolis, is a leading provider of licensed
online financial charting content to electronic brokers, financial publishers
and portals. It is one of the most heavily trafficked financial sites and an
industry-leading provider of objective, data-driven online financial content for
self-directed investors. The Company recorded acquisition expenses of $2.0
million in connection with the acquisition in the second quarter of 1999. The
$2.0 million primarily consisted of accounting and legal fees and other related
transactions costs. The following are unaudited pro forma condensed consolidated
results of operations for the Company and BigCharts on the basis that the
acquisition had taken place at the beginning of the periods presented. The
Company has not included a $200,000 charge for the write off of acquired
in-process technology in the pro-forma net loss due to its non-recurring nature.
These results are not indicative of the actual results that would have occurred
had the action taken place at the beginning of the period:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1999 DECEMBER 31, 1998
---------------- -----------------
<S> <C> <C>
Pro forma net revenue.................................. $ 9,797,000 $ 9,086,000
Pro forma net loss..................................... $(40,043,000) $(65,172,000)
Pro forma net loss per share........................... $(2.66) $(6.16)
</TABLE>
F-8
<PAGE> 91
MARKETWATCH.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
The total purchase price of $157.5 million was allocated to the fair value
of the assets acquired and liabilities assumed, identified intangible assets and
goodwill as follows:
<TABLE>
<CAPTION>
EXPECTED
ALLOCATION LIFE
------------ ---------
<S> <C> <C>
Tangible assets............................................. $ 1,914,000
Liabilities assumed......................................... (656,000)
Intangible assets:
Existing technology....................................... 2,000,000 2 years
In-process technology..................................... 200,000 --
Trademark................................................. 500,000 3.5 years
Customer contacts......................................... 300,000 1.5 years
Workforce................................................. 800,000 3.5 years
Goodwill.................................................... $152,491,000 3 years
------------
Total Purchase Price.............................. $157,549,000
============
</TABLE>
NOTE 6 -- RELATED PARTY TRANSACTIONS
Analyses of the advances from DBC to the Company are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
----------------------------- -----------------------------
JUNE 30, 1999 JUNE 30, 1998 JUNE 30, 1999 JUNE 30, 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Balance as of the beginning of the
period............................... $ -- $ -- $3,946,000 $ --
Expenses paid by DBC on behalf of the
Company.............................. 1,094,000 1,924,000 1,997,000 3,062,000
Expenses allocated by DBC to the
Company.............................. 356,000 175,000 652,000 340,000
Royalty fees to DBC.................... 68,000 40,000 113,000 77,000
News revenue from DBC.................. (398,000) (316,000) (763,000) (627,000)
Web advertising revenue from DBC....... (140,000) -- (280,000) --
Receivables collected by DBC on behalf
of the Company....................... (49,000) (458,000) (148,000) (860,000)
Interest payable on advances from
DBC.................................. 7,000 14,000 24,000 21,000
Cash advances (payments) from DBC,
net.................................. -- 308,000 (4,603,000) 308,000
Cash contributions..................... (938,000) (148,000) (938,000) (782,000)
---------- ---------- ---------- ----------
Balance as of the end of the period.... $ -- $1,539,000 $ -- $1,539,000
========== ========== ========== ==========
</TABLE>
A majority of the expenditures and liabilities of the Company were incurred
by DBC and directly charged to the Company. These net direct charges totaled
$1,094,000 and $385,000 for the three-month period ended June 30, 1999 and 1998
and $1,997,000 and $3,062,000 for the six-month periods ended June 30, 1999 and
1998, respectively. Direct charges primarily consist of payroll and related
costs, consulting, commissions and access fees for information from various
exchange markets. Allocated charges totaled $356,000 and $175,000 for the
three-month periods ended June 30, 1999 and 1998 and $652,000 and $340,000 for
the six-month periods ended June 30, 1999 and 1998, respectively. Under the
terms of the Amended Service Agreement, DBC will provide the Company with
certain general services that include cash management, accounting, network
operations and
F-9
<PAGE> 92
MARKETWATCH.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
hosting of the Company's web pages and data feeds. Charges for these services
and equipment usage are allocated based upon DBC's estimate of costs
attributable to the operations of MarketWatch.com.
Direct charges for subscription revenues for MarketWatch Live and
MarketWatch RT were $68,000 and $40,000 for the three month periods ended June
30, 1999 and 1998 and $113,000 and $77,000 for the six-month periods ended June
30, 1999 and 1998, respectively. News revenues are based on the number of DBC
subscribers and were $398,000 and $316,000 for the three month periods ended
June 30, 1999 and 1998 and $763,000 and $627,000 for the six-month periods ended
June 30, 1999 and 1998, respectively. Included in accounts receivable at June
30, 1999 is $367,000 owed to MarketWatch by DBC.
The Company has recorded advertising expenses of $6,859,000 and $3,423,000
at rate card value for the six months ended June 30, 1999 and 1998,
respectively, for advertising and promotion provided by CBS.
NOTE 7 -- SUBSEQUENT EVENT
In August 1999, the terms of the Yahoo! agreement were amended. Under the
terms of the amended agreement, we have extended the terms to include additional
advertising and slotting fees of $1.6 million over a twelve month period
beginning on January 1, 2000.
F-10
<PAGE> 93
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of MarketWatch.com, Inc.
In our opinion, the accompanying financial statements present fairly, in
all material respects, the financial position of MarketWatch.com, Inc. at
December 31, 1998 and 1997, and the results of its operations and its cash flows
for the year ended December 31, 1998 and for the period from inception (October
29, 1997) through December 31, 1997 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.
/s/ PricewaterhouseCoopers LLP
San Jose, California
February 12, 1999
F-11
<PAGE> 94
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of Data Broadcasting Corporation
In our opinion, the accompanying statements of operations 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, and the
results of its operations and its cash flows for the period from January 1, 1997
through October 28, 1997 and for the year ended December 31, 1996 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.
/s/ PricewaterhouseCoopers LLP
San Jose, California
June 15, 1998
F-12
<PAGE> 95
MARKETWATCH.COM, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
Current assets:
Cash..................................................... $ 140,000 $ --
Accounts receivable, net of allowances for doubtful
accounts of $226,000, and $10,000, respectively....... 1,586,000 224,000
Prepaid expenses......................................... 2,000 --
------------ ------------
Total current assets............................. 1,728,000 224,000
Other assets............................................... 11,000 --
Property and equipment, net................................ 932,000 13,000
Deferred offering costs.................................... 1,816,000 --
------------ ------------
Total assets..................................... $ 4,487,000 $ 237,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable......................................... $ 1,969,000 $ --
Accrued expenses......................................... 1,688,000 75,000
Deferred revenue......................................... 14,000 10,000
Advances from DBC........................................ 3,946,000 --
------------ ------------
Total current liabilities........................ 7,617,000 85,000
------------ ------------
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
Additional paid-in capital............................... 53,366,000 51,925,000
Deferred compensation.................................... (1,144,000) --
Contribution receivable.................................. (42,948,000) (51,782,000)
Accumulated deficit...................................... (12,494,000) (81,000)
------------ ------------
Total stockholders' equity (deficit)............. (3,130,000) 152,000
------------ ------------
Total liabilities and stockholders' equity....... $ 4,487,000 $ 237,000
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-13
<PAGE> 96
MARKETWATCH.COM, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
MARKETWATCH.COM, INC. (NOTE 1) DBC ONLINE/NEWS (NOTE 1)
--------------------------------- ---------------------------
INCEPTION JANUARY 1,
(OCTOBER 29, 1997) 1997
YEAR ENDED THROUGH THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 31, OCTOBER 28, DECEMBER 31,
1998 1997 1997 1996
------------ ------------------ ----------- ------------
<S> <C> <C> <C> <C>
Net revenues:
Advertising (including
$233,000 from DBC for the
year ended December 31,
1998)...................... $ 5,115,000 $ 320,000 $ 690,000 $ 303,000
News to DBC................... 1,285,000 210,000 -- --
Subscription.................. 627,000 100,000 482,000 304,000
------------ ---------- ----------- -----------
Total net revenues.... 7,027,000 630,000 1,172,000 607,000
Cost of revenues:
Advertising and news.......... 2,398,000 92,000 391,000 280,000
Subscription.................. 439,000 56,000 269,000 171,000
------------ ---------- ----------- -----------
Total cost of
revenues........... 2,837,000 148,000 660,000 451,000
------------ ---------- ----------- -----------
Gross profit.................... 4,190,000 482,000 512,000 156,000
------------ ---------- ----------- -----------
Operating expenses:
Product development........... 1,468,000 186,000 885,000 1,159,000
General and administrative.... 3,429,000 248,000 943,000 732,000
Sales and marketing........... 11,547,000 129,000 67,000 132,000
------------ ---------- ----------- -----------
Total operating
expenses........... 16,444,000 563,000 1,895,000 2,023,000
------------ ---------- ----------- -----------
Operating loss.................. (12,254,000) (81,000) (1,383,000) (1,867,000)
Interest expense................ (159,000) -- (181,000) (90,000)
------------ ---------- ----------- -----------
Loss before income tax
benefit....................... (12,413,000) (81,000) (1,564,000) (1,957,000)
Income tax benefit.............. -- -- 621,000 785,000
------------ ---------- ----------- -----------
Net loss........................ $(12,413,000) $ (81,000) $ (943,000) $(1,172,000)
============ ========== =========== ===========
Basic and diluted net loss per
share......................... $ (1.38) $ (0.01)
============ ==========
Shares used in the calculation
of basic and diluted net loss
per share..................... 9,000,000 9,000,000
============ ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-14
<PAGE> 97
MARKETWATCH.COM, INC.
STATEMENTS 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................... -- -- -- -- 1,782,000 -- 1,782,000
Issuance of compensatory
stock options to
employees.................. -- -- 1,391,000 (1,391,000) -- -- --
Amortization of deferred
compensation............... -- -- -- 247,000 -- -- 247,000
Fair value of services
provided by DBC to the
Company.................... -- -- 50,000 -- -- -- 50,000
Advertising received from
CBS........................ -- -- -- -- 7,052,000 -- 7,052,000
Net loss..................... -- -- -- -- -- (12,413,000) (12,413,000)
--------- ------- ----------- ----------- ------------ ------------ ------------
Balance at December 31,
1998....................... 9,000,000 $90,000 $53,366,000 $(1,144,000) $(42,948,000) $(12,494,000) $ (3,130,000)
========= ======= =========== =========== ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-15
<PAGE> 98
MARKETWATCH.COM, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
MARKETWATCH.COM, INC. (NOTE 1) DBC ONLINE/NEWS (NOTE 1)
------------------------------ --------------------------
INCEPTION
(OCTOBER 29, JANUARY 1,
1997) 1997
YEAR ENDED THROUGH THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 31, OCTOBER 28, DECEMBER 31,
1998 1997 1997 1996
------------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
Cash flows used in operating
activities:
Net loss.......................... $(12,413,000) $ (81,000) $(943,000) $(1,172,000)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Provision for bad debt
expense...................... 216,000 10,000 -- --
Depreciation and
amortization................. 470,000 -- 86,000 63,000
Deferred income taxes.......... -- -- (73,000) (29,000)
Noncash charges from
stockholders................. 7,102,000 15,000 -- --
Changes in operating assets and
liabilities:
Accounts receivable.......... (1,578,000) (234,000) 4,000 (178,000)
Prepaid expenses and other
current assets............ (13,000) -- (64,000) (16,000)
Deferred offering costs...... (1,816,000) -- -- --
Accounts payable and accrued
expenses.................. 3,583,000 75,000 14,000 3,000
Deferred revenue............. 4,000 10,000 2,000 14,000
------------ --------- --------- -----------
Net cash used in operating
activities............. (4,445,000) (205,000) (974,000) (1,315,000)
------------ --------- --------- -----------
Cash flows used in investing
activities:
Purchase of property and
equipment...................... (1,143,000) (13,000) (90,000) (158,000)
------------ --------- --------- -----------
Cash flows provided by financing
activities:
Contributions from DBC............ 1,782,000 218,000 -- --
Advances from DBC (Note 7)........ 3,946,000 -- 1,064,000 1,473,000
------------ --------- --------- -----------
Net cash provided by
financing Activities... 5,728,000 218,000 1,064,000 1,473,000
------------ --------- --------- -----------
Net change in cash.................. 140,000 -- -- --
Cash at beginning of period......... -- -- -- --
------------ --------- --------- -----------
Cash at end of period............... $ 140,000 $ -- $ -- $ --
============ ========= ========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-16
<PAGE> 99
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. The Company operates in one segment. 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 was authorized
to issue 30,000,000 shares of $.01 par value common stock of which 9,000,000
shares were issued to the founding Members. The Company was also 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. (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 was 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 $50.0 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 $50.0 million rate card amount has been revised to $30.0 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 entered into a
Stockholders' Agreement, Amended and Restated Services and License Agreements, a
Registration Rights Agreement and a Revolving Credit Agreement. (See Note 8).
The accompanying financial statements and related notes also reflect the
carve-out historical results of operations and cash flows of the online and news
business ("DBC Online/News" or
F-17
<PAGE> 100
MARKETWATCH.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
"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.
ACCOUNTING FOR THE INITIAL CAPITALIZATION OF THE COMPANY
The Company has recorded DBC's equity contributions under the Contribution
Agreement at the value of the cash contributed. DBC's contribution of the
intellectual property of the Online/News business has been recorded at its
historical carrying amount, which is zero. DBC contributed none of the tangible
assets or liabilities of the Online/News business; only intellectual property.
The Company has recorded the contribution of the Online/News business at its
historical carrying amount since the fair value of the business is not
objectively determinable by a corresponding contribution of monetary assets by
CBS.
As described above, CBS has committed to provide advertising and promotions
over a five-year period in return for its ownership position. The Company has
recorded the $50.0 million commitment by CBS as a contribution receivable and
will reduce the receivable and record an expense based on the rate card amount
of the advertising and promotion during the period provided. (See Note 7). Under
the terms of the Stockholders Agreement, the Company recorded a $20.0 million
reduction to the contribution receivable and additional paid-in capital upon
completion of the IPO (See Note 8).
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
F-18
<PAGE> 101
MARKETWATCH.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
subscription fees for which amounts have been collected but for which revenue
has not been recognized.
Revenue related to the sale of news to DBC is recognized in the month the
services are provided.
Revenues from barter transactions are recognized in accordance with the
provisions of Accounting Principles Board Opinion No. 29 ("APB 29") during the
period in which the advertisements are displayed on the Company's web site.
Under the provisions of APB 29, barter transactions are 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.
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 all 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 year ended
December 31, 1998, $7.1 million was expensed for promotion and advertising
services provided by CBS.
F-19
<PAGE> 102
MARKETWATCH.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Use of estimates in the financial statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect amounts reported in the financial statements. Actual
results could differ from those estimates.
Concentrations of credit risk
Financial instruments that potentially subject the Company to a significant
concentration of credit risk consist primarily of cash and accounts receivable.
Management deposits all its cash with a single financial institution. Management
periodically performs credit evaluations of its customers' financial condition
and generally does not require collateral on accounts receivable. Most of the
Company's accounts receivable are from Internet-related businesses. As of
December 31, 1997, four customers comprised 53% of gross accounts receivable. As
of December 31, 1998, four customers comprised 21% of the gross accounts
receivable balance. The fair value of accounts receivable approximates cost due
to their short-term nature. Sales of news to DBC accounted for 33% and 18% of
revenue for the period from inception (October 29, 1997) through December 31,
1997 and the year ended December 31, 1998, respectively.
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."
NOTE 3 -- BALANCE SHEET COMPONENTS:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1998 1997
---------- -------
<S> <C> <C>
Computers and equipment................................... $ 628,000 $ 9,000
Leasehold improvements.................................... 300,000 4,000
Furniture and fixtures.................................... 228,000 --
---------- -------
1,156,000 13,000
Less accumulated depreciation and amortization............ (224,000) --
---------- -------
Total property and equipment, net............... $ 932,000 $13,000
========== =======
</TABLE>
F-20
<PAGE> 103
MARKETWATCH.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Allowance for doubtful accounts is as follows:
<TABLE>
<CAPTION>
INCEPTION
YEAR ENDED (OCTOBER 29, 1997)
DECEMBER 31, THROUGH
1998 DECEMBER 31, 1997
------------ ------------------
<S> <C> <C>
Balance at beginning of period................... $ 10,000 $ --
Charged to expenses.............................. 216,000 10,000
Write-offs net of recoveries..................... -- --
-------- -------
Balance at end of period......................... $226,000 $10,000
======== =======
</TABLE>
NOTE 4 -- INCOME TAXES:
The taxable loss of DBC Online/News for 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.
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>
PERIOD FROM
JANUARY 1, 1997
THROUGH YEAR ENDED
OCTOBER 28, 1997 DECEMBER 31, 1996
---------------- -----------------
<S> <C> <C>
Current benefit:
Federal...................................... $426,000 $564,000
State........................................ 122,000 184,000
-------- --------
548,000 748,000
Deferred benefit:
Federal...................................... 57,000 28,000
State........................................ 16,000 9,000
-------- --------
73,000 37,000
-------- --------
$621,000 $785,000
======== ========
</TABLE>
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
F-21
<PAGE> 104
MARKETWATCH.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
company into a Corporation, which took effect immediately prior to the closing
of the IPO (Note 8). Therefore, the federal and state tax effects of the
Company's results of operations are recorded by the Members in their respective
income tax returns.
Subsequently, the Company will account for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS No. 109"). Had the Company applied the provision of SFAS No. 109
for the period from inception (October 1997) through December 31, 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 $5.1
million.
NOTE 5 -- 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 year ended December 31, 1998, the Company
recorded $1.4 million 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 year ended December 31, 1998, $247,000 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 web
site 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 converted 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 $ 4.09 $ 4.09
Options granted at fair value for the year ended
December 31, 1998............................... 231,500 $10.64 $10.64
Options granted below fair during the year ended
December 31, 1998............................... 198,000 $ 5.87 $12.89
Options cancelled for the year ended December 31,
1998............................................ (12,250) $ 4.41 $ 4.41
-------
Options outstanding at December 31, 1998.......... 863,500 $ 6.25 $ 7.86
=======
</TABLE>
At December 31, 1998, 636,500 options were available for future grant and
144,690 options were vested. The weighted average exercise price and weighted
average remaining contractual life of the vested options are $4.00 and 8.43
years, respectively.
F-22
<PAGE> 105
MARKETWATCH.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The following table summarizes information about options outstanding at
December 31, 1998:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED
REMAINING AVERAGE
NUMBER CONTRACTUAL EXERCISE
EXERCISE PRICE OUTSTANDING LIFE PRICE
-------------- ----------- ----------- --------
<S> <C> <C> <C>
$ 4.00................................... 563,500 8.93 $ 4.00
$ 6.00 - $ 8.50.......................... 121,750 9.00 $ 7.92
$ 9.50 - $13.00.......................... 132,500 9.32 $11.29
$14.00 - $16.00.......................... 45,750 9.58 $15.01
-------
863,500 9.04 $ 6.25
=======
</TABLE>
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 became effective upon the completion of the Company's IPO.
An aggregate of 636,500 shares have been reserved for issuance under both plans.
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)
YEAR ENDED THROUGH
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------------
<S> <C> <C>
Net loss:
As reported............................. $(12,413,000) $ (81,000)
============ =========
Pro forma............................... $(13,289,000) $(118,000)
============ =========
Net loss per share:
As reported............................. $ (1.38) $ (0.01)
============ =========
Pro forma............................... $ (1.48) $ (0.01)
============ =========
</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 10 years: risk free interest rates of 5.8% to 5.7%, and
5.5% to 4.6% for the period from inception (October 29, 1997) through December
31, 1997 and for the year ended December 31, 1998, respectively and an expected
volatility factor of 72%.
F-23
<PAGE> 106
MARKETWATCH.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 -- COMMITMENTS:
Beginning in April 1998, the Company subleases office space for its
corporate headquarters in San Francisco, California from CBS. Rent expense under
the sublease was $137,000 for the year December 31, 1998. Future annual minimum
lease payments under the leases were as follows:
<TABLE>
<S> <C>
Year Ending December 31,
1999.............................................. 322,000
2000.............................................. 335,000
2001.............................................. 348,000
2002.............................................. 362,000
2003.............................................. 90,000
----------
$1,457,000
==========
</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.
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. Expenses for the year ended December 31,
1998 under this agreement totaled $670,000. Upon completion of the Company's
IPO, the minimum commitment increased from $870,000 over a twelve month period
to $1.6 million over a twelve month period beginning on the first day of the
month following the closing of the IPO.
In September 1998, the Company amended its web Site Linking and Data
Services Agreement with News Alert, Inc. Under the amended agreement, beginning
in September 1998, the Company is required to pay a minimum of $20,000 per month
over a twelve month period to News Alert, Inc. for co-branding and hosting
charges.
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. At December 31, 1998 minimum payments under these agreements are
$615,000.
NOTE 7 -- RELATED PARTY TRANSACTIONS:
The accompanying DBC Online/News 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
F-24
<PAGE> 107
MARKETWATCH.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 $295,000 and $306,000 for the
year ended December 31, 1996 and for the period from January 1, 1997 through
October 28, 1997, respectively. 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 from 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.
DBC funded the working capital requirements of the Business based upon a
centralized cash management system. Interest on amounts due to DBC was charged
at prime plus 2% (10.5% at October 28, 1997). Amounts due under the obligation
to DBC were not assumed by MarketWatch.com 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.
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.
An analysis of DBC's owners net deficit for the Online/News business is as
follows:
<TABLE>
<CAPTION>
JANUARY 1, 1997
THROUGH YEAR ENDED
OCTOBER 28, 1997 DECEMBER 31, 1996
---------------- -----------------
<S> <C> <C>
Owners net deficit beginning balance............. $(1,319,000) $ (147,000)
Net loss......................................... (943,000) (1,172,000)
----------- -----------
Owners net deficit ending balance................ $(2,262,000) $(1,319,000)
=========== ===========
</TABLE>
Under the LLC Agreement, DBC will advance the Company up to an aggregate of
$5.0 million through October 29, 2000. Borrowings bear interest at a variable
rate per annum equal to The Chase Manhattan Bank's prime rate plus 2% (9.75% at
December 31, 1998) and are repayable at such time as the Company has sufficient
cash, as determined by the Members.
F-25
<PAGE> 108
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)
YEAR ENDED THROUGH
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- ------------------
<S> <C> <C>
Balance as of the beginning of the Period...... $ -- $ --
Expenses paid by DBC on behalf of the
Company...................................... 9,483,000 538,000
Expenses allocated by DBC to the Company....... 755,000 70,000
Royalty fees to DBC............................ 158,000 16,000
News revenue from DBC.......................... (1,285,000) (210,000)
web advertising revenue from DBC............... (340,000) --
Receivables collected by DBC on behalf of the
Company...................................... (995,000) (196,000)
Interest payable on advances from DBC.......... 164,000 --
Cash advances (payments) From DBC, net......... (2,212,000) --
Cash contributions............................. (1,782,000) (218,000)
----------- ---------
Balance as of the end of the period............ $ 3,946,000 $ --
=========== =========
</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 and $9.5 million for the year ended December 31, 1998. 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 and $755,000 for the year ended
December 31, 1998.
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 are included in cost of revenues and totaled $16,000 for the period from
inception (October 29, 1997) through December 31, 1997 and $200,000 for the year
ended December 31, 1998.
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 and $1.3 million for the
year ended December 31, 1998. For the five years ending October 29, 2002, these
fees are subject to a monthly minimum of $100,000.
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 year
ended December 31, 1998 related to the rent
F-26
<PAGE> 109
MARKETWATCH.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 Amended License Agreement, the Company is required to pay to CBS
8% on certain net advertising revenues, as defined, in excess of the first $1.0
million 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. $307,000 has been accrued at
December 31, 1998 under the License Agreement.
Under the terms of the Contribution Agreement, CBS will provide advertising
and promotions over a five year period. The Company will record an expense at
the time the advertising and promotion is provided based on the rate card value.
The Company has recorded advertising expense of $7.1 million at rate card value
for the year ended December 31, 1998 related to advertising and promotion
provided by CBS. As of December 31, 1998, CBS is committed to provide $22.9
million rate card amount of advertising and promotions, upon 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 year ended December 31, 1998, $80,000 of advertising revenues were
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 December
31, 1998, DBC had purchased $233,000 of advertising under the insertion order.
This commitment may be terminated by DBC on 30 days' notice.
NOTE 8 -- SUBSEQUENT EVENTS:
Initial Public Offering
In January 1999, the Company completed an initial public offering of
3,162,500 shares of common stock at $17 per share. The following table sets
forth the Company advances from DBC and stockholders equity (deficit) as of
December 31, 1998 (i) on an actual basis, and (ii) as adjusted to
F-27
<PAGE> 110
MARKETWATCH.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
give effect to the sale of the 3,162,500 shares of common stock at $17 per share
less the underwriters discount and deferred offering costs and the reduction of
the advertising commitment from CBS.
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Advances from DBC........................................ $ 3,946 $ --
-------- --------
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; 12,162,500 shares issued and outstanding as
adjusted............................................ 90 122
Additional paid-in capital............................. 53,366 81,518
Deferred compensation.................................. (1,144) (1,144)
Contribution receivable................................ (42,948) (22,948)
Accumulated deficit.................................... (12,494) (12,494)
-------- --------
Total stockholders' equity (deficit)........... $ (3,130) $ 45,054
======== ========
</TABLE>
Stockholders' Agreement
In January 1999, the Company entered into a Stockholders' Agreement
("Stockholders' Agreement"). Under the terms of the Stockholders' Agreement, CBS
reduced the advertising commitment from the Contribution Agreement to an
aggregate rate card amount $30.0 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
In January 1999, the Company and CBS entered into an Amended and Restated
License Agreement (the "Amended and Restated License") which superseded and
replaced the License Agreement. The Amended and Restated License became
effective immediately prior to the IPO and was not 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.com logo without providing an acceptable substitute, or
acquisition or issuance of certain percentages of the Company's common stock or
voting
F-28
<PAGE> 111
MARKETWATCH.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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.
DBC Services Agreement Amendment
In January 1999, the Company and DBC entered into an Amended and Restated
Services Agreement (the "Amended Services Agreement") which supersedes and
replaces 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 provides for DBC to grant the Company certain nonexclusive licenses to
its data and information feeds and provide for certain network web site 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
through October 2002, for delivery of the Company's news to all DBC subscribers,
as defined. The term of the Amended Services Agreement will expire on October
29, 2005.
Revolving Credit Agreement
In January 1999, the Company and DBC entered 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
In January 1999, the Company, CBS and DBC entered 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.
F-29
<PAGE> 112
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
BigCharts Inc.:
We have audited the accompanying balance sheets of BigCharts Inc. (formerly
Concerto Technologies, Inc.) as of December 31, 1998 and 1997, and the related
statements of operations, shareholders' equity (deficit) and cash flows for the
years then ended. 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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of BigCharts Inc. as of
December 31, 1998 and 1997, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
March 5, 1999
Minneapolis, Minnesota
F-30
<PAGE> 113
BIGCHARTS INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, -------------------------
1999 1998 1997
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents........................ $ 212,984 $ 356,010 $ 54,816
Accounts receivable.............................. 490,934 399,835 78,034
Prepaid expenses................................. 48,222 12,275 --
----------- ----------- -----------
Total current assets..................... 752,140 768,120 132,850
Property and equipment:
Computer equipment............................... 1,002,915 726,173 276,227
Furniture and fixtures........................... 124,017 91,424 35,857
Office equipment................................. 43,890 41,261 --
Leasehold improvements........................... 87,467 79,956 --
Less accumulated depreciation and amortization... (305,069) (226,561) (151,010)
----------- ----------- -----------
Net property and equipment............... 953,220 712,253 161,074
Other assets....................................... 3,993 3,993 9,461
----------- ----------- -----------
Total assets............................. $ 1,709,353 $ 1,484,366 $ 303,385
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable.................................... $ -- $ -- $ 137,070
Capital lease obligations -- current............. 7,884 7,884 --
Accounts payable................................. 46,232 88,697 40,986
Accrued expenses................................. 58,553 54,357 26,839
Accrued compensation............................. -- 23,979 --
Unearned revenue................................. 181,495 135,000 117,500
----------- ----------- -----------
Total current liabilities................ 294,164 309,917 322,395
Long-term debt..................................... 96,000 96,000 96,000
Capital lease obligations, less current
installments..................................... 11,169 13,140 --
----------- ----------- -----------
Total liabilities........................ 401,333 419,057 418,395
Commitments and contingencies (notes 5 and 12)
Shareholders' equity (deficit):
Common stock, par value $.01 per share,
authorized 10,000,000 shares; issued and
outstanding 4,146,378 shares at March 31, 1999
(unaudited), and 3,986,596 and 3,093,700
shares at December 31, 1998 and 1997.......... 41,464 39,866 30,937
Additional paid-in capital....................... 2,791,177 2,734,925 1,417,513
Accumulated deficit.............................. (1,524,621) (1,709,482) (1,563,460)
----------- ----------- -----------
Total shareholders' equity (deficit)..... 1,308,020 1,065,309 (115,010)
----------- ----------- -----------
Total liabilities and shareholders'
equity (deficit)...................... $ 1,709,353 $ 1,484,366 $ 303,385
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-31
<PAGE> 114
BIGCHARTS INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
--------------------- ------------------------
1999 1998 1998 1997
---------- -------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Advertising............................. $ 285,120 $168,425 $1,055,364 $ 177,830
License................................. 725,526 103,019 1,003,556 64,500
---------- -------- ---------- ---------
Total revenues....................... 1,010,646 271,444 2,058,920 242,330
Operating expenses:
Web site operating costs................ 282,490 106,973 740,467 413,800
Research and development................ 214,790 50,423 435,523 101,146
Sales and marketing..................... 146,106 59,108 452,397 93,876
General and administrative.............. 178,398 144,649 538,420 356,543
---------- -------- ---------- ---------
Total operating expenses............. 821,784 361,153 2,166,807 965,365
---------- -------- ---------- ---------
Income (loss) from operations........ 188,862 (89,709) (107,887) (723,035)
Other expense (income):
Interest income......................... -- -- (22,914) --
Interest expense........................ 4,001 2,229 59,940 26,201
Loss on disposal of equipment........... -- -- 1,109 151
Total other expense, net............. 4,001 2,229 38,135 26,352
---------- -------- ---------- ---------
Net income (loss).................... $ 184,861 $(91,938) $ (146,022) $(749,387)
========== ======== ========== =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-32
<PAGE> 115
BIGCHARTS INC.
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL STOCK
------------------- PAID-IN SUBSCRIPTIONS ACCUMULATED
SHARES AMOUNT CAPITAL RECEIVABLE DEFICIT TOTAL
--------- ------- ---------- ------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996...... 2,144,950 $21,450 $ 889,978 $(149,995) $ (814,073) $ (52,640)
Payment received on stock
subscriptions............... -- -- -- 50,000 -- 50,000
Cancellation of stock
subscriptions............... (75,000) (750) (99,245) 99,995 -- --
Issuance of common stock --
private placements.......... 900,000 9,000 491,000 -- -- 500,000
Issuance of common stock --
services.................... 10,000 100 4,900 -- -- 5,000
Issuance of
warrants -- services........ -- -- 3,337 -- -- 3,337
Issuance of common stock --
purchase of equipment....... 50,000 500 24,500 -- -- 25,000
Issuance of common stock --
warrant exercise............ 63,750 637 (637) -- -- --
Issuance of warrants -- line
of credit................... -- -- 103,680 -- -- 103,680
Net loss...................... -- -- -- -- (749,387) (749,387)
--------- ------- ---------- --------- ----------- ----------
Balance, December 31, 1997...... 3,093,700 30,937 1,417,513 -- (1,563,460) (115,010)
Cancellation of warrants...... -- -- (3,337) -- -- (3,337)
Issuance of common stock --
private placements, net of
issuance costs.............. 595,238 5,952 1,234,779 -- -- 1,240,731
Issuance of common stock --
option exercise............. 15,100 151 7,399 -- -- 7,550
Issuance of common stock --
warrant exercise............ 282,560 2,826 67,814 -- -- 70,640
Issuance of warrants -- line
of credit................... -- -- 10,757 -- -- 10,757
Net loss...................... -- -- -- -- (146,022) (146,022)
--------- ------- ---------- --------- ----------- ----------
Balance, December 31, 1998...... 3,986,598 39,866 2,734,925 -- (1,709,482) 1,065,309
Issuance of common stock --
option exercise
(unaudited)................. 157,280 1,573 55,027 -- -- 56,600
Issuance of common stock --
warrant exercise
(unaudited)................. 2,500 25 1,225 -- -- 1,250
Net income (unaudited)........ -- -- -- -- 184,861 184,861
--------- ------- ---------- --------- ----------- ----------
Balance, March 31, 1999
(unaudited)................... 4,146,378 $41,464 $2,791,177 $ -- $(1,524,621) $1,308,020
========= ======= ========== ========= =========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-33
<PAGE> 116
BIGCHARTS INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
---------------------- ------------------------
1999 1998 1998 1997
--------- ---------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flow from operating activities:
Net income (loss)...................... $ 184,861 $ (91,938) $ (146,022) $(749,387)
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operating activities:
Depreciation and amortization....... 78,509 20,361 161,077 170,001
Amortization of deferred debt
costs............................. -- -- 46,397 --
Note payable issued for legal
fees.............................. -- -- -- 25,000
Warrants and stock issued for
services.......................... -- -- -- 5,000
Loss on disposal of equipment....... -- 64 1,109 151
Changes in operating assets and
liabilities:
Accounts receivable............... (91,098) (68,646) (321,801) (78,034)
Prepaid expenses.................. (35,947) (7,159) (12,275) --
Other assets...................... -- 26,730 5,468 3,187
Accounts payable.................. (42,465) (11,866) 44,374 44,323
Accrued expenses.................. (19,785) -- 27,518 8,239
Accrued compensation.............. -- -- 23,979 --
Unearned revenue.................. 46,495 29,625 17,500 117,500
--------- ---------- ---------- ---------
Net cash provided by (used in)
operating activities........ 120,570 (102,829) (152,676) (454,020)
Cash flow from investing activities:
Purchase of property and equipment..... (319,475) (77,406) (692,053) (75,803)
Proceeds from sale of equipment........ -- 1,550 2,340 --
--------- ---------- ---------- ---------
Net cash used in investing
activities.................. (319,475) (75,856) (689,713) (75,803)
--------- ---------- ---------- ---------
Cash flow from financing activities:
Proceeds from issuance of common
stock............................... 57,850 1,241,663 1,318,921 550,000
Repayments of notes payable............ -- (66,750) (392,710) (159,250)
Proceeds from issuance of notes
payable............................. -- -- 220,000 179,960
Payments on capital leases............. (1,971) -- (2,628) --
--------- ---------- ---------- ---------
Net cash provided by financing
activities.................. 55,879 1,174,913 1,143,583 570,710
--------- ---------- ---------- ---------
Net change in cash and cash
equivalents................. (143,026) 996,228 301,194 40,887
Cash and cash equivalents at beginning of
the period............................. 356,010 54,816 54,816 13,929
--------- ---------- ---------- ---------
Cash and cash equivalents at end of the
period................................. $ 212,984 $1,051,044 $ 356,010 $ 54,816
========= ========== ========== =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-34
<PAGE> 117
BIGCHARTS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- DESCRIPTION OF BUSINESS:
BigCharts Inc. (the Company) designs, produces, and markets industry
leading Web-based investment content and tools serving the needs of
self-directed institutional and private investors. The Company was incorporated
on July 24, 1994 in the state of Minnesota as Concerto Technologies, Inc. The
Company changed its name to BigCharts Inc. in 1998. The Company's web site,
named BigCharts.com, went on-line in May 1997.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(A) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the period
reported. Actual results could differ from those estimates.
(B) REVENUE RECOGNITION
The Company recognizes revenue from on-line advertising and content
licensing. On-line advertising revenues are generated from banner advertisements
and sponsorships on the Company's web site. Advertising revenue is recognized
based on the number of advertisements delivered each month, and sponsorship
revenue is pro-rated on a monthly basis over the term of the sponsorship. The
Company has a contract with a single agent in which the agent sells and delivers
advertisements, collects the revenue and, after taking an agency commission,
remits the balance to the Company. Content licensing revenues consist of fixed
monthly amounts that are recognized ratably over the terms of the licensing
agreements or amounts based on the number of subscribers that use the service
each month. Payments received in advance of providing the services are deferred
until the period such services are provided.
(C) RESEARCH AND DEVELOPMENT
Expenditures for research and product development costs are expensed as
incurred.
(D) CASH AND CASH EQUIVALENTS
The Company considers investments in highly-liquid debt securities having
an initial maturity of three months or less to be cash equivalents.
(E) PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is provided using
straight-line method over their estimated useful lives: computer equipment, 3
years; furniture, fixtures, and office equipment, 5-10 years. Leasehold
improvements are depreciated on a straight-line basis over the life of the
lease.
F-35
<PAGE> 118
BIGCHARTS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(F) INCOME TAXES
The Company accounts for income taxes under the assets and liability
method. Deferred tax assets and liabilities are recognized for the future tax
consequences attributed to differences between the financial statement carrying
amount of existing assets and liabilities and their respective tax bases.
(G) STOCK COMPENSATION PLANS
The Company accounts for its stock-based compensation awards in accordance
with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees (APB No. 25) and provides the footnote disclosures required by
Statement of Financial Accounting Standards No. 123, Accounting for Stock Based
Compensation (SFAS No. 123).
(H) RECLASSIFICATION
Certain prior year amounts have been reclassified to conform to the current
year presentation.
(I) INTERIM FINANCIAL DATA (UNAUDITED)
The accompanying financial statements as of March 31, 1999 and for the
three months ended March 31, 1999 and 1998 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
operations for the interim periods are not necessarily indicative of the results
to be expected in future periods.
NOTE 3 -- LIQUIDITY:
On March 6, 1998, the Company raised $1,240,731, net of offering costs,
through the issuance of 595,238 shares of common stock ($2.10 per share). On
March 5, 1999, the Company obtained a $500,000 line of credit with a bank (see
note 4).
Management plans to continue to increase sales and improve operating
results through additional on-line advertising, and content licensing contracts.
Management believes that funds remaining from the private placement referred to
above, funds generated from operations, and funds available under the line of
credit will be sufficient to cover cash needs through December 31, 1999. In the
event sales do not materialize at the expected rates, management would seek
additional financing or would conserve cash by reducing administrative,
operating, and sales and marketing expenses.
F-36
<PAGE> 119
BIGCHARTS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 -- DEBT OBLIGATIONS:
Debt outstanding at December 31, 1997:
<TABLE>
<CAPTION>
1997
--------
<S> <C>
0.00% note payable to Company's president, due March 1998... $ 18,000
4.00% note payable to third party, no stated due date....... 20,000
10.00% note payable to third party, due January 1998........ 10,000
18.00% note payable to third party, due June 1998........... 18,750
8.50% line of credit payable to bank, due on demand......... 105,960
--------
172,710
Less deferred debt issuance costs........................... 35,640
--------
$137,070
========
</TABLE>
In April 1997, the Company obtained a revolving line of credit totaling
$125,000. The line of credit was guaranteed by three individuals, one of which
is a board member. As consideration for the guarantees, four warrants to
purchase common stock with an exercise price of $.25 per share were issued to
each guarantor per dollar drawn by the Company on the credit facility up to a
maximum of 167,000 warrants to each of the guarantors (note 7). The $105,960
outstanding on the line of credit as of December 31, 1997 was paid in full in
April 1998. As a result, the value of the warrants which had been capitalized
was expensed.
Long-term debt at December 31, 1998 and 1997 consists of 9.75% debentures,
due August 2003 in the amount of $96,000.
Cash payments for interest expense in 1998 and 1997 totaled $13,147 and
$18,015, respectively.
On March 5, 1999 the Company obtained a line of credit with a bank that
expires on March 5, 2000. The line of credit provides for borrowings up to
$500,000. Borrowings under this agreement are secured by substantially all
Company assets and accrue interest at the prime rate plus 1%. The line of credit
contains certain covenants, including maintaining a minimum tangible net worth.
NOTE 5 -- LEASES:
The Company leases office space and certain equipment under noncancelable
operating leases. Future rental payments due under these leases are
approximately $143,000, $116,000, $116,000, $114,000 and $48,000 in the years
ending December 31, 1999, 2000, 2001, 2002, and 2003, respectively.
Total rental expense was approximately $100,000 and $38,000 for the years
ended December 31, 1998 and 1997.
F-37
<PAGE> 120
BIGCHARTS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Company also has financed the acquisition of certain fixed assets
through capital leases. The following is a schedule of future minimum lease
payments together with a present value of the net minimum lease payments as of
December 31, 1998:
<TABLE>
<S> <C>
1999........................................................ $ 9,024
2000........................................................ 9,024
2001........................................................ 6,016
-------
Total minimum lease payments......................... 24,064
Less amount representing interest (9.5%).................... (3,040)
-------
Present value of net minimum lease payments.......... 21,024
Less current maturities..................................... (7,884)
-------
Obligations under capital lease, excluding current
installments........................................ $13,140
=======
</TABLE>
NOTE 6 -- INCOME TAXES:
The Company has incurred net operating losses since inception. Accordingly,
the Company has not reflected any benefit of such net operating loss
carryforwards in the accompanying consolidated financial statements.
As of December 31, 1998, the Company has U.S. tax net operating loss
carryforwards of approximately $1,624,000, which will be available to offset
earnings during the carryforward period. If not used, these carryforwards begin
to expire in 2012. In addition, changes in ownership could put limitations on
the availability of the net operating loss carryforward.
NOTE 7 -- SHAREHOLDERS' EQUITY:
On March 6, 1998, the Company raised $1,240,731, net of offering costs,
through the issuance of 595,238 shares of common stock ($2.10 per share).
During the year ended December 31, 1997, the Company had two private
offerings of its common stock. The Company received $400,000 in exchange for
800,000 shares of common stock ($0.50 per share) from the first private offering
and $100,000 in exchange for 100,000 shares of common stock ($1.00 per share)
from the second private offering. The above amounts include shares sold to
directors of the Company of 400,000 shares and 100,000 shares, respectively.
F-38
<PAGE> 121
BIGCHARTS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 -- STOCK WARRANTS:
As of December 31, 1998 and 1997, the Company has the following warrants
outstanding:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE EXPIRATION
WARRANTS PRICE DATE
--------- -------- -------------
<S> <C> <C> <C>
Notes payable -- 1996..................... 13,640 $.50 December 2001
Line of credit -- 1997.................... 384,000 .25 April 2007
Payment of services -- 1997............... 3,337 .25 April 2007
--------
December 31, 1997......................... 400,977
Line of credit -- 1998.................... 39,840 .25 April 2008
Canceled.................................. (3,337) .25
Exercised................................. (282,560) .25
--------
December 31, 1998......................... 154,920
========
</TABLE>
The warrant holders may exercise the outstanding warrants at any time up to
the expiration date.
NOTE 9 -- STOCK OPTIONS:
The Company has a stock option plan (the Plan) which permits the granting
of stock options, including incentive stock options as defined under Section 422
of the Internal Revenue Code of 1986, nonqualified stock options and restricted
stock. The exercise price for options granted under the Plan may not be less
than 100% of the fair market value on the date of the grant (110% for a
shareowner holding 10% or more the outstanding common stock).
The Company has reserved 1,500,000 shares of common stock for issuance
under the Plan. Options issued become exercisable over varying periods as
provided in the individual plan agreements.
Presented below is a summary of the status of Company stock options held:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Outstanding at December 31, 1996.................... 355,200 $1.33
Granted........................................... 1,169,500 .72
Exercised......................................... -- --
Canceled.......................................... (602,200) 1.11
--------- -----
Outstanding at December 31, 1997.................... 922,500 .70
Granted........................................... 385,170 2.41
Exercised......................................... (15,100) .50
Canceled.......................................... (127,000) 2.08
--------- -----
Outstanding at December 31, 1998.................... 1,165,570 $1.11
========= =====
Exercisable at December 31, 1998.................... 724,434 $ .93
========= =====
</TABLE>
F-39
<PAGE> 122
BIGCHARTS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The following table summarizes information about stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
WEIGHTED
RANGE OF AVERAGE WEIGHTED WEIGHTED
EXERCISE NUMBER REMAINING AVERAGE NUMBER AVERAGE
PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
-------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$0.50........ 638,400 6.00 $0.50 442,000 $0.50
1.20 - 1.33.. 225,000 2.71 1.30 205,000 1.30
1.50 - 4.00.. 302,170 8.92 2.27 77,434 2.43
--------- -------
1,165,570 724,434
========= =======
</TABLE>
The Company applies APB No. 25 and related interpretations in accounting
for its stock option plans. Accordingly, no compensation cost has been
recognized in the accompanying statement of operations. Had compensation cost
been recognized based on the fair values of options at the grant dates
consistent with the provisions of SFAS No. 123, the Company's net loss for the
years ended December 31, 1998 and 1997 would have been increased to $(223,163)
and $(790,433), respectively.
The full impact of calculating compensation cost for stock options under
SFAS No. 123 is not reflected in the pro forma net loss amounts presented
because compensation cost is reflected over the options' vesting period.
The weighted average fair value of Company stock options granted during the
year ended December 31, 1998 and 1997 is estimated as $.66 and $.14,
respectively, on the date of grant using the Black-Scholes option-pricing model
with the following assumptions: volatility of 0%, risk-free interest rate of
6.5%, and an expected life of 5 years.
NOTE 10 -- PENSION PLAN:
The Company has a defined contribution retirement plan that covers all
eligible employees. No employer contributions have been made for the years ended
December 31, 1998 and 1997.
NOTE 11 -- SIGNIFICANT CUSTOMERS:
The Company has relied on a limited number of customers for a substantial
portion of its total revenues. The Company's advertising revenue is provided by
its advertising agent [see note 2(b)] and 55% and 100% of the accounts
receivable balance at December 31, 1998 and 1997, respectively, relates to this
agent. In addition, 42% of the Company's licensing revenue is provided by one
customer for the year ended December 31, 1998 (13% of the accounts receivable
balance at December 31, 1998).
NOTE 12 -- CONTINGENCIES:
The Company is exposed to a number of asserted and unasserted claims
encountered in the normal course of business. In the opinion of management, the
resolution of these matters will not have a material adverse effect on the
Company's financial position or results of operations.
F-40
<PAGE> 123
BIGCHARTS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 13 -- NONCASH FINANCING AND INVESTING ACTIVITIES:
During 1998, the Company entered into a capital lease for financing
purchases of equipment of $23,652.
During 1997, the Company purchased equipment with a fair market value of
$25,000 through the issuance of 50,000 shares of common stock.
NOTE 14 -- SUBSEQUENT EVENT (UNAUDITED):
On June 9, 1999 the Company was acquired by MarketWatch.com, Inc. for
approximately $110.9 million in MarketWatch.com common stock, $38.6 million in
MarketWatch.com stock options and $6.0 million in cash.
F-41
<PAGE> 124
PRO FORMA FINANCIAL INFORMATION
Effective June 9, 1999, MarketWatch.com, Inc. ("MarketWatch" or the
"Company"), a Delaware corporation, completed its acquisition of substantially
all of the assets of BigCharts, Inc. ("BigCharts"), a Minnesota corporation for
$6.0 million in cash, $110.9 million worth of MarketWatch Common Stock, and
$38.6 million worth of MarketWatch stock options. The transaction was accounted
for using the purchase method; accordingly, the purchase price was allocated to
the assets acquired and liabilities assumed based on their fair market values at
the date of acquisition.
The following unaudited pro forma combined condensed statements of
operations give effect to the acquisition accounted for as a purchase. The
unaudited pro forma combined condensed statements of operations are not
necessarily indicative of the operating results that would have been achieved if
the transaction had occurred on the date indicated and should not be construed
as representative of future operations. The historical financial statements of
BigCharts are included elsewhere in the filing and the unaudited pro forma
financial statements presented herein should be read in conjunction with those
financial statements and related notes.
F-42
<PAGE> 125
MARKETWATCH.COM, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
------------------------
MARKETWATCH BIGCHARTS ADJUSTMENTS COMBINED
----------- --------- ----------- --------
<S> <C> <C> <C> <C>
Revenues.................................. $ 7,558 $2,239 $ -- $ 9,797
Cost of revenues.......................... 3,292 111 498(a) 3,901
-------- ------ -------- --------
Gross profit.............................. 4,266 2,128 (498) 5,896
-------- ------ -------- --------
Operating expenses:
Sales and marketing..................... 14,270 501 -- 14,771
Product development..................... 1,203 1,181 -- 2,384
General and administrative.............. 3,691 424 -- 4,115
Amortization of goodwill/intangibles.... -- -- 25,704(a) 25,704
-------- ------ -------- --------
Total operating expenses........ 19,164 2,106 25,704 46,974
-------- ------ -------- --------
Income (loss) from operations............. (14,898) 22 (26,202) (41,078)
Interest and other income (expense),
net..................................... 731 (10) -- 721
-------- ------ -------- --------
Income (loss) before income tax benefit... (14,167) 12 (26,202) (40,357)
Income tax benefit........................ -- -- 314(c) 314
-------- ------ -------- --------
Net income (loss)......................... $(14,167) $ 12 $(25,888) $(40,043)
======== ====== ======== ========
Basic and diluted loss per share.......... $ (1.05) $ (2.66)
======== ========
Shares used to compute basic and diluted
loss per share.......................... 13,491 1,589(b) 15,080
======== ======== ========
</TABLE>
See accompanying notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
F-43
<PAGE> 126
MARKETWATCH.COM, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
------------------------
MARKETWATCH BIGCHARTS ADJUSTMENTS COMBINED
----------- --------- ----------- --------
<S> <C> <C> <C> <C>
Revenues.................................. $ 7,558 $2,239 $ -- $ 9,797
Cost of revenues.......................... 3,292 111 498(a) 3,901
-------- ------ -------- --------
Gross profit.............................. 4,266 2,128 (498) 5,896
-------- ------ -------- --------
Operating expenses:
Sales and marketing..................... 14,270 501 -- 14,771
Product development..................... 1,203 1,181 -- 2,384
General and administrative.............. 3,691 424 -- 4,115
Amortization of goodwill/intangibles.... -- -- 25,704(a) 25,704
-------- ------ -------- --------
Total operating expenses........ 19,164 2,106 25,704 46,974
-------- ------ -------- --------
Income (loss) from operations............. (14,898) 22 (26,202) (41,078)
Interest and other income (expense),
net..................................... 731 (10) -- 721
-------- ------ -------- --------
Income (loss) before income tax benefit... (14,167) 12 (26,202) (40,357)
Income tax benefit........................ -- -- 314(c) 314
-------- ------ -------- --------
Net income (loss)......................... $(14,167) $ 12 $(25,888) $(40,043)
======== ====== ======== ========
Basic and diluted loss per share.......... $ (1.05) $ (2.66)
======== ========
Shares used to compute basic and diluted
loss per share.......................... 13,491 1,589(b) 15,080
======== ======== ========
</TABLE>
See accompanying notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
F-44
<PAGE> 127
MARKETWATCH.COM, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED STATEMENTS OF OPERATIONS
NOTE 1 -- BASIS OF PRESENTATION:
The unaudited pro forma combined condensed statements of operations are
based on the individual statements of operations of MarketWatch and BigCharts
and combines the results of operations for the year ended December 31, 1998 and
the six months ended June 30, 1999 as if the acquisition occurred on January 1,
1998. The Company has not included a $200,000 charge for the write off of
acquired in-process technology in the pro forma combined condensed statements of
operations due to its non-recurring nature.
There were no material differences in the accounting policies of
MarketWatch and BigCharts for the periods presented.
NOTE 2 -- PURCHASE ACCOUNTING:
In connection with the acquisitions MarketWatch issued a total of 1,589,138
shares of Common Stock, 585,824 stock options and $6.0 million in cash. The fair
market value of a share of Common Stock used to determine the purchase price was
$69.78 based on the Company's stock price immediately prior to and after the
date the terms of the acquisition were agreed to by both parties. The weighted
average fair value of the stock options issued was $65.94 and was determined
using a Black-Scholes option pricing model with the following assumptions;
risk-free interest rate of 5.36%, expected life of 4 years, dividend yield of 0%
and volatility of 85%. In addition, MarketWatch anticipates incurring
acquisition costs of $2.0 million. The total purchase price of $157.5 million
was allocated to the fair value of the assets acquired and liabilities assumed,
identified intangible assets and goodwill as follows:
<TABLE>
<CAPTION>
ALLOCATION EXPECTED LIFE
------------ -------------
<S> <C> <C>
Tangible assets..................................... $ 1,914,000 --
Liabilities assumed................................. (656,000) --
Intangible assets:
Existing technology............................... 2,000,000 2.0 years
In-process technology............................. 200,000 --
Trademark......................................... 500,000 3.5 years
Customer contacts................................. 300,000 1.5 years
Workforce......................................... 800,000 3.5 years
Goodwill............................................ 152,491,000 3.0 years
------------
Total purchase price................................ $157,549,000
============
</TABLE>
The Company assigned a value of $3.8 million to the intangible assets
pursuant to a valuation by an independent appraiser. Identified intangible
assets were as follows:
1. Existing technology consisted of the software design of the
BigCharts.com web site, all software related to the charting and other
financial tools, the database systems and hardware integration necessary to
support both the web site and the servicing of charts to third-party web
sites.
F-45
<PAGE> 128
MARKETWATCH.COM, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED STATEMENTS OF OPERATIONS (CONTINUED)
2. In-process technology consisted of technologies that have not
reached technological feasibility. BigCharts has spent approximately
$260,000 in the development of the in-process technology and estimates that
an additional $100,000 will be required for completion.
3. Trademarks consisted of the BigCharts(R) trademark and URL.
4. Customer contracts consisted of contracts with leading electronic
trading and financial news sites including seven of the top ten electronic
trading companies. Contracts typically range from 12 to 24 months in
duration.
5. In-place workforce consisted of the current employees' knowledge
base and expertise and the resources that would be required to recreate
those assets.
The valuation of the technology was prepared using the income approach. The
valuation contemplated that annual revenue from the licensing of existing
technology would range from $5.4 million to $11.1 million and that annual
revenue from the licensing of in-process technology would range from $732,000 to
$2.2 million for years 1999 through 2002. The Company based revenue increases on
BigCharts' historical rate of growth adjusted to reflect the expected growth of
the Internet. Annual operating cost as a percentage of revenue ranged from 87%
to 82% for the years 1999 through 2002 based on BigCharts' normal operating
margin. Operating cash flows were reduced by an expected effective tax rate of
40% and net cash flows were discounted using a discount rate of 25% for existing
technology and 30% for in-process technology. The discount rate was based on the
weighted average cost of capital taking into consideration the risks associated
with BigCharts' products and business model as well as the risk associated with
the overall business and industry.
The valuation of the trademark and customer contracts was prepared using
the relief from royalty approach. The valuation contemplated that total annual
revenue attributable to trademarks would range from $6.5 million to $80.0
million and that total annual license revenue attributable to customer contracts
would range from $3.2 million to $50.0 million for years 1999 through 2002. Cash
flows assumed a trademark and customer royalty rate of 1.0% and 5.0%,
respectively, and were reduced by an expected effective tax rate of 40%. Net
cash flows were discounted using a discount rate of 25% based on the weighted
average cost of capital taking into consideration the risks associated with
BigCharts' products and business model as well as the risk associated with the
overall business and industry.
The valuation of the in-place workforce was prepared using the cost
approach. The cost approach was based on the cost to recruit and train
BigCharts' in-place work force and assumed a recruiting cost and overhead rate
of 25% and 50%, respectively, of base salary and an average training period of
one month.
NOTE 3 -- PRO FORMA ADJUSTMENTS:
The following adjustments were applied to the historical statements of
operations to arrive at the pro forma combined condensed combined statements of
operations:
(a) Amortization of goodwill and intangible assets on a straight-line
basis over the expected life.
(b) Issuance of Common Stock in Purchase Acquisition.
(c) Recognition of a deferred tax benefit related to the amortization
of the purchased intangible assets.
F-46
<PAGE> 129
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1,589,138 SHARES OF
COMMON STOCK
OF
MARKETWATCH.COM, INC.
------------------------
PROSPECTUS
------------------------
August , 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 130
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE IN 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 and Nasdaq
National Market application fee are estimates.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 12,772
Nasdaq National Market filing fee........................... 17,500
Printing.................................................... 15,000
Legal fees and expenses..................................... 20,000
Accounting fees and expenses................................ 20,000
Blue Sky fees and expenses.................................. 5,000
Transfer agent and registrar fees and expenses.............. 5,000
Miscellaneous............................................... 10,000
--------
Total............................................. $105,272
========
</TABLE>
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 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 has entered into Indemnification Agreements with each of its
current directors and 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 indemnification is sought, nor is the Registrant
aware of any threatened litigation that may result in claims for
indemnification.
II-1
<PAGE> 131
The Registrant, with approval by the Registrant's Board of Directors, has
obtained 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>
EXHIBIT
DOCUMENT NUMBER
-------- -------
<S> <C>
Amended and Restated Certificate of Incorporation of
Registrant................................................ 3.01
Bylaws of Registrant........................................ 3.02
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>
NUMBER
DATE TITLE OF OF AGGREGATE FORM OF
CLASS OF PURCHASER OF SALE SECURITIES SHARES PURCHASE PRICE CONSIDERATION
------------------ -------- ---------- --------- -------------- -------------
<S> <C> <C> <C> <C> <C>
CBS Inc.......................... 10/29/97 Membership Interests 50%(1) (2) Advertising Commitments
Data Broadcasting Corporation.... 10/29/97 Membership Interests 50%(1) (3) Cash and Assigned Assets
Former employee of
MarketWatch.com................ 4/20/99 Common Stock 1,416 (4) (4)
Former stockholders of BigCharts
Inc............................ 6/9/99 Common Stock 1,589,138 (5) (5)
</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.
(4) On April 20, 1999, a former employee of MarketWatch.com exercised an option
to purchase 1,416 shares of common stock at a price of $7.50 per share.
(5) In connection with our acquisition of BigCharts Inc. in June 1999, we issued
an aggregate of 2,174,062 shares of common stock to the former stockholders
of BigCharts Inc. in exchange for their then outstanding capital stock,
including stock options.
In January 1999, MarketWatch.com, LLC was converted into a corporation and
all membership interests were converted into common stock of the Registrant.
These membership interests were converted into 4,500,000 shares held by each of
CBS and DBC.
All sales were made in reliance on Section 4(2) of the Securities Act, Rule
701 promulgated under 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 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> 132
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed herewith:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------- -------------
<C> <S>
2.01+ Merger Agreement dated January 13, 1999, entered into by
MarketWatch.com, LLC (the "LLC") and the Registrant
2.02 Agreement and Plan of Reorganization dated April 28, 1999,
entered into by the Registrant and BigCharts Inc., which is
incorporated herein by reference to the Registrant's Current
Report on Form 8-K (File No. 000-25113) filed with the
Securities and Exchange Commission on May 12, 1999, as
amended on July 12, 1999.
3.01+ Registrant's Amended and Restated Certificate of
Incorporation
3.02 Registrant's Bylaws, which are incorporated herein by
reference to the Registrant's Registration Statement on Form
S-1 (File No. 333-65569) filed with the Securities and
Exchange Commission (the "SEC") on October 13, 1998 (the
"Registration Statement.").
4.01 Form of Specimen Stock Certificate for Registrant's common
stock, which is incorporated herein by reference to the
Registration Statement
4.02+ Registration Rights Agreement dated January 13, 1999,
entered into among the Registrant, CBS Broadcasting Inc.
(formerly known as CBS Inc.) ("CBS") and Data Broadcasting
Corporation ("DBC").
4.03+ Stockholders' Agreement dated January 13, 1999, entered into
among the Registrant, the LLC, CBS and DBC.
5.01(1) Opinion of Fenwick & West LLP regarding the legality of the
securities being registered.
10.01 Form of Indemnity Agreement entered into by Registrant with
each of its directors, which is incorporated herein by
reference to the Registrant's Amendment No. 3 to the
Registration Statement, filed with the SEC on January 13,
1999.
10.02 Limited liability company agreement of the LLC, dated
October 29, 1997, between CBS and DBC, which is incorporated
by reference to the Registration Statement.
10.03 Contribution Agreement dated October 29, 1997 among the LLC,
CBS and DBC, which is incorporated by reference to the
Registration Statement.
10.04 License Agreement dated October 29, 1997 between the LLC and
CBS, which is incorporated by reference to the Registration
Statement.
10.05 Services Agreement dated October 29, 1997 between the LLC
and DBC, which is incorporated by reference to the
Registration Statement.
10.06 Lease dated as of August 27, 1998 between the Registrant and
CBS Corporation, which is incorporated by reference to the
Registration Statement.
10.07+ Amended and Restated License Agreement dated January 13,
1999, entered into by and between the Registrant and CBS.
10.08+ Amended and Restated Services Agreement dated January 13,
1999, entered into by and between the Registrant and DBC.
10.09+ Revolving Credit Agreement dated January 13, 1999, entered
into by and between the Registrant and DBC, together with
Revolving Promissory Note dated January 13, 1999, made by
the Registrant in favor of DBC.
10.10* Form of Non-Plan Option, which is incorporated herein by
reference to the Registration Statement.
10.11* Registrant's 1998 Directors Stock Option Plan, which is
incorporated herein by reference to the Registration
Statement.
10.12* Registrant's 1998 Equity Incentive Plan, which is
incorporated herein by reference to Amendment No. 2 to the
Registration Statement, filed December 16, 1998.
</TABLE>
II-3
<PAGE> 133
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------- -------------
<C> <S>
10.13* Employment Agreement dated as of July 1, 1998 between the
Registrant and Lawrence Kramer, which is incorporated herein
by reference to the Registration Statement.
10.14* Employment Agreement dated as of July 1, 1998 between the
Registrant and J. Peter Bardwick, which is incorporated
herein by reference to the Registration Statement.
10.15 Insertion Order dated as of August 25, 1998 between DBC and
the LLC, which is incorporated herein by reference to the
Registration Statement.
10.16(1) Employment Agreement as of June 9, 1999 between BigCharts
Inc. and Philip D. Hotchkiss.
10.17(1) Employment Agreement as of June 9, 1999 between BigCharts
Inc. and Jamie J. Thingelstad.
21.01(1) Subsidiary of the Registrant.
23.01 Consent of Fenwick & West (included in Exhibit 5.01).
23.02 Consent of PricewaterhouseCoopers LLP.
23.03 Consent of KPMG LLP.
27.01+ Financial Data Schedule (EDGAR Version Only).
</TABLE>
- -------------------------
* Indicates a management contract or compensatory plan or arrangement.
+ Previously filed as an exhibit to the Registrant's Annual Report on Form 10-K
filed with the Securities and Exchange Commission on March 31, 1999.
(1) 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:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement. Notwithstanding the foregoing, any
increase or decrease in the volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement.
II-4
<PAGE> 134
Provided, however, that paragraphs (1)(i) and (1)(ii) above do not
apply if the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed with
or furnished to the Commission by the Registrant pursuant to Section 13 or
Section 15(d) of the Exchange Act that are incorporated by reference in the
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the Registration Statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
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-5
<PAGE> 135
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Francisco, State of
California, on this 19th day of August, 1999.
MARKETWATCH.COM, INC.
By: /s/ LARRY S. KRAMER
--------------------------------------
Larry S. Kramer
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ LARRY S. KRAMER President, Chief Executive Officer and Director August 19, 1999
- --------------------------------------- (Principal Executive Officer)
Larry S. Kramer
/s/ J. PETER BARDWICK Chief Financial Officer and Secretary August 19, 1999
- --------------------------------------- (Principal Financial Officer)
J. Peter Bardwick
/s/ JOE BRICHLER Controller (Principal Accounting Officer) August 19, 1999
- ---------------------------------------
Joe Brichler
* Director August , 1999
- ---------------------------------------
James A. DePalma
* Director August , 1999
- ---------------------------------------
Alan J. Hirschfield
* Director August , 1999
- ---------------------------------------
Allan R. Tessler
* Director August , 1999
- ---------------------------------------
Mark F. Imperiale
* Director August , 1999
- ---------------------------------------
Michael H. Jordan
* Director August , 1999
- ---------------------------------------
Andrew Heyward
* Director August , 1999
- ---------------------------------------
Robert Lessin
* Director August , 1999
- ---------------------------------------
Daniel Mason
* Director August , 1999
- ---------------------------------------
Philip D. Hotchkiss
*By: /s/ J. PETER BARDWICK Attorney-in-fact August 19, 1999
---------------------------------
J. Peter Bardwick
</TABLE>
II-6
<PAGE> 136
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
ALLOWANCE FOR DOUBTFUL ACCOUNTS
DBC 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>
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
ALLOWANCE FOR DOUBTFUL ACCOUNTS
MARKETWATCH.COM
<TABLE>
<CAPTION>
INCEPTION
(OCTOBER 29,
1997) SIX MONTHS
THROUGH YEAR ENDED ENDED
DECEMBER 31, 1997 DECEMBER 31, 1998 JUNE 30, 1999
----------------- ----------------- --------------
<S> <C> <C> <C>
Balance as of the beginning of the
period.............................. $ -- $ 10,000 $226,000
Additions charged to statement of
operations.......................... 15,000 250,000 120,000
Deductions from reserves.............. 5,000 34,000 113,000
Balance at end of period.............. $10,000 $226,000 $233,000
</TABLE>
<PAGE> 137
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------- -------------
<C> <S>
2.01+ Merger Agreement dated January 13, 1999, entered into by
MarketWatch.com, LLC (the "LLC") and the Registrant
2.02 Agreement and Plan of Reorganization dated April 28, 1999,
entered into by the Registrant and BigCharts Inc., which is
incorporated herein by reference to the Registrant's Current
Report on Form 8-K (File No. 000-25113) filed with the
Securities and Exchange Commission on May 12, 1999, as
amended on July 12, 1999.
3.01+ Registrant's Amended and Restated Certificate of
Incorporation
3.02 Registrant's Bylaws, which are incorporated herein by
reference to the Registrant's Registration Statement on Form
S-1 (File No. 333-65569) filed with the Securities and
Exchange Commission (the "SEC") on October 13, 1998 (the
"Registration Statement.").
4.01 Form of Specimen Stock Certificate for Registrant's common
stock, which is incorporated herein by reference to the
Registration Statement
4.02+ Registration Rights Agreement dated January 13, 1999,
entered into among the Registrant, CBS Broadcasting Inc.
(formerly known as CBS Inc.) ("CBS") and Data Broadcasting
Corporation ("DBC").
4.03+ Stockholders' Agreement dated January 13, 1999, entered into
among the Registrant, the LLC, CBS and DBC.
5.01(1) Opinion of Fenwick & West LLP regarding the legality of the
securities being registered.
10.01 Form of Indemnity Agreement entered into by Registrant with
each of its directors, which is incorporated herein by
reference to the Registrant's Amendment No. 3 to the
Registration Statement, filed with the SEC on January 13,
1999.
10.02 Limited liability company agreement of the LLC, dated
October 29, 1997, between CBS and DBC, which is incorporated
by reference to the Registration Statement.
10.03 Contribution Agreement dated October 29, 1997 among the LLC,
CBS and DBC, which is incorporated by reference to the
Registration Statement.
10.04 License Agreement dated October 29, 1997 between the LLC and
CBS, which is incorporated by reference to the Registration
Statement.
10.05 Services Agreement dated October 29, 1997 between the LLC
and DBC, which is incorporated by reference to the
Registration Statement.
10.06 Lease dated as of August 27, 1998 between the Registrant and
CBS Corporation, which is incorporated by reference to the
Registration Statement.
10.07+ Amended and Restated License Agreement dated January 13,
1999, entered into by and between the Registrant and CBS.
10.08+ Amended and Restated Services Agreement dated January 13,
1999, entered into by and between the Registrant and DBC.
10.09+ Revolving Credit Agreement dated January 13, 1999, entered
into by and between the Registrant and DBC, together with
Revolving Promissory Note dated January 13, 1999, made by
the Registrant in favor of DBC.
10.10* Form of Non-Plan Option, which is incorporated herein by
reference to the Registration Statement.
10.11* Registrant's 1998 Directors Stock Option Plan, which is
incorporated herein by reference to the Registration
Statement.
10.12* Registrant's 1998 Equity Incentive Plan, which is
incorporated herein by reference to Amendment No. 2 to the
Registration Statement, filed December 16, 1998.
</TABLE>
<PAGE> 138
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------- -------------
<C> <S>
10.13* Employment Agreement dated as of July 1, 1998 between the
Registrant and Lawrence Kramer, which is incorporated herein
by reference to the Registration Statement.
10.14* Employment Agreement dated as of July 1, 1998 between the
Registrant and J. Peter Bardwick, which is incorporated
herein by reference to the Registration Statement.
10.15 Insertion Order dated as of August 25, 1998 between DBC and
the LLC, which is incorporated herein by reference to the
Registration Statement.
10.16(1) Employment Agreement as of June 9, 1999 between BigCharts
Inc. and Philip D. Hotchkiss.
10.17(1) Employment Agreement as of June 9, 1999 between BigCharts
Inc. and Jamie J. Thingelstad.
21.01(1) Subsidiary of the Registrant.
23.01 Consent of Fenwick & West (included in Exhibit 5.01).
23.02 Consent of PricewaterhouseCoopers LLP.
23.03 Consent of KPMG LLP.
27.01+ Financial Data Schedule (EDGAR Version Only).
</TABLE>
- -------------------------
* Indicates a management contract or compensatory plan or arrangement.
+ Previously filed as an exhibit to the Registrant's Annual Report on Form 10-K
filed with the Securities and Exchange Commission on March 31, 1999.
(1) Previously filed.
<PAGE> 1
EXHIBIT 23.02
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
reports dated February 12, 1999, relating to the financial statements of
MarketWatch.com, Inc., and June 15, 1998, relating to the financial statements
of the DBC Online/News Business, a division of Data Broadcasting Corporation,
which appear in such Registration Statement. We also consent to the references
to us under the headings "Experts" and "Selected Financial Data" in such
Registration Statement.
/s/ PRICEWATERHOUSECOOPERS LLP
San Jose, California
August 18, 1999
<PAGE> 1
EXHIBIT 23.03
Independent Auditors' Consent
The Board of Directors
BigCharts Inc.:
We consent to the use of our report included herein and to the reference to
our firm under the heading "Experts" in the prospectus.
/s/ KPMG LLP
Minneapolis, Minnesota
August 18, 1999
